Ask the economists: Globalisation - hope or threat?

Can the benefits of globalisation be shared more equally? What can be done to help workers trapped in jobs which have no future? Should social protection systems be funded by increasing income taxes and/or VAT, instead of relying on wages?

Read below the questions and answers from the online debate that took place on Friday 29 June with Raymond Torres, head of the OECD’s Employment Division. 

Q. Is there evidence suggesting that countries with deregulated labour markets experience a  decline of labour's share in national income to a lesser extend than countries with labour markets charaterised as less flexible due to the existence of stronger EPL and higher minimum wages?
Roland Schneider, Trade Union Advisory Committee to the OECD

A. There is no evident pattern. The wage share fell strongly in Italy, Ireland and Japan. France saw a high-medium fall, as did Austria and Finland. And the fall was about average in the US. In short, no simple mapping to institutional environment. It should also be stressed that the IMF has found some evidence that industries where trade competition was strongest tended to experience larger declines in wage shares.

Q. You wrote "Encouraging more immigrants to fill in the shortages may also help". You mean that this is only one action to take but not the most necessary? Watching Germanys media scene, you can get the impression that only immigration can solve Germanys problems...
Corinne Schindlbeck, Markt&Technik

A. Corinne, I think that domestic policies need to be right. Immigrants too will get older and, if they are pushed into early retirement, they will only provide a temporary respite to the brader problem of low labour market participation. And it is crucial for young people to be equipped with the right skills. Education systems should adjust now and not rely on the fact that more immigrants can fill in skill shortages. That said, there will be a need for greater recourse to immigration.

Q. What proportion of jobs lost in the EU can be attributed to trade with or offshoring in emerging markets?
Philip Whyte, London

A: There is no definite answer to this question. But most analysts find that the proportion of jobs lots to offshoring is very low, may be 5% of total job losses.

Q. Another question regarding the "lack of high tech professionals" and company spending on training and education.  Are these budgets high enough to face the problems of demography and human capital deficit?

Corinne Schindlbeck, editor Markt&Technik

A. Public spending in this area could concentrate, first, on ensuring that the education system provides the skills needed in the labour market. There seems to be a major mismatch in this respect in many countries: students coming out of certain fields of study face either unemployment or low-skilled jobs, while other fields of study like engineering have difficulty getting enough students. For adults, public policy should focus particular attention of the low-educated: these people need training the most and yet they receive little training. In short, it is not necessarily a matter of spending more but of rethinking current spending patterns.

Q. What explains the decline in labour’s share in national income across the OECD - is this due to weakened bargaining power of unions due to business going global and what should be the policy response to  tackle it?

John Evans

Trade Union Advisory Committee to the OECD

A. Offshoring (or the threat of it) makes it technically possible for employers to fragment the production process and outsource part of it, within the country or abroad. This may have made workers cautious about wage claims, in turn contributing to wage moderation and falling wage shares. And indeed OECD Employment Outlook shows that employment is increasingly vulnerable to economic shocks. However the actual extent of offshoring is limited so far and it is not possible to assert that it is the main explanation behind falling wage shares which are observed in practically all OECD countries. This could change in the future, so what can be done? Protectionist solutions would worsen the situation, so policies should instead exploit the fact that offshoring, and globalisation at large, create many opportunities. Workers' mobility should be supported and obstacles to business creation or expansion in sun-rising sectors removed. Workers should also receive adequate welfare support, as discussed above. There is a role for employment-oriented redistribution policies. It is finally crucial in a globalising economy to ensure that people have an opportunity to upgrade their skills.        

Q. The high-tech industry in Germany and other countries is worrying about a lack of highly skilled people. But is this lack not rather the own fault of companies who fired people too fast in the last few years?  A new "green card" for high-tech-professionals is now in discussion. What is your suggestion to the German government?

Corinne Schindlbeck, editor Markt&Technik

A. You have a point. European companies have tended to fire "older workers", who have often moved to early retirement. This is a waste of talent, at a time when skilled labour shortages have emerged. It is crucial to reverse this trend to early retirement and give older workers an opportunity to carry on working. This should be the first best policy. Encouraging more immigrants to fll in the shortages may also help, but it cannot replace good policies for those workers already alvailable in the country (older workers who retire early, jobseekers who could be trained, better educated youth, etc.). 

Q. Are cuts in welfare benefits the best approach to adjust to globalisation?

Tim Brookes, UK 

A. No. See what has been done in Netherlands or Denmark. These countries have generous benefits. And yet they do well in the globalised economy. The reason is that every effort is made to help benefit recipients back to employment.

Q. You talk about helping workers trapped in jobs with no future. How?

Michael Jordan

Ireland

A. First, adequate welfare benefits should be provided to job losers. This should be combined with job-search support and obligations as is done in Denmark for example. Second, dismissal protection should be rethought. It should protect people and not jobs which have no future. This is what has been done in Austria with its individual saving accounts: workers build rights to compensation in case of dismissal, which are portable to the new job. By contrast in traditional systems these rights are lost if you quit and move to a new job.

Q. Studies have indicated that much of the increase in wage disparity in the OECD countries is due to factors other than international trade.  Yet trade seems to be blamed for this and a variety of other social and economic ills, and it's become a political issue.  How can we do a better job of understanding the causes of wage disparity, the appropriate role of government in mitigating it, and to show that in the aggregate trade raises living standards? 
Harvey Bronstein
Senior International Economist
U.S. Small Business Administration

A. This is a key challenge and as your question clearly indicates both more research and better communication are required in order to facilitate a better informed debate about trade, inequality and public policy. Much good research is under way on these issues, but they are very complex and it would be unrealistic for supporters of an open trading and investment policies to expect that a conclusive scientific proof of the size of the benefits of free trade will soon be forthcoming. Thus, governments need to do a better job of making the case for an open trading system without waiting for definitive research results to prove the case. They also need to adopt the right domestic policies to enhance benefits from open trade, reduce adjustment costs and address equity concerns. 

How might the pro-trade message be better communicated? A first important point is that public concerns that many workers encounter difficulties due, at least in part, to deepening trade and investment ties in the world economy deserve to be taken seriously. "Globalisation" is proceeding in the context of rising inequality in the labour market in most advanced economies -- as are perceptions of rising insecurity in some of these countries. Political support for an open trading system will be difficult to sustain unless governments can demonstrate that they are implementing appropriate policies to address concerns about inequality and insecurity and, hence, that working people can expect to receive their fair share of the gains from international economic integration. Luckily, it can be pointed out that a number of OECD countries have achieved very good labour market performance in recent years, despite being ever more integrated into the world economy. These success stories help to illustrate how the right domestic policies can, in fact, limit inequality and insecurity, even as deepening trade raises the overall efficiency of the national economy.

Q. Les effets négatifs de la mondialisation (mutations économiques, chômage, délocalisation etc...)occupent le devant de la scène medias. Or ses effets positifs sont réels, profonds et déterminants pour notre futur (innovation, croissance, développement durable, recherche fondamentale et appliquée etc...) L'école ne pourrait-elle pas être le premier maillon de cette culture économique qu'il est indispensable d'inculquer aux nouvelles générations? Qu'en pensez-vous?
Bernard Bonnamour, France

A. Les pertes d'emploi liées à la mondialisation sont souvent concentrées dans le temps aussi bien que dans l'espace. Tandis que les effets positifs (par exemple en termes de produits meilleur marché pour les consommateurs) sont plus diffus, s'étalent dans le temps et sont moins "médiatisables". Je crois cependant que les gens le savent --qui ne se rend pas compte que l'ouverture du marché aérien a permis de reduire le prix des billets d'avion? Mais vous avez raison que la culture économique y aiderait également. Par ailleurs il est essentiel de ne pas négliger les coûts d'ajustment liés à la mondialisation, même si celle-ci est globalement favorable à la croissance. On a trop tendance à oublier cela.

Background reading

Governments must do more to help workers adapt to new global economy, says OECD
Employment Outlook 2007
Globalisation, jobs and wages (policy brief)

The minimum wage - making it pay

Read the questions and answers from previous debates