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Globalization and labor
Journal of Development Economics Vol. 64 Ž2001. 593–595 www.elsevier.comrlocatereconbase
Book review Globalization and labor ., pp. 1–320, DM 138 Edited by Horst Siebert, 1999, Mohr Siebeck ŽTubingen ¨ The range of questions concerning the labor market effects of the dramatic increase in the world trade over the past 40 years is enormous, and the answers to these questions are subject to a great deal of debate among economists. Basically, however, we can boil these questions down to a single general one: AFor country X, how has increased world economic integration—‘globalization’—affected the level and structure of the earnings and employment of labor market group Y?B This book consists of 11 papers on this general topic from a conference at Kiel in 1998. Several of the papers make important contributions to our understanding of traderlabor market questions. The first paper, by Richard Baldwin and Phillipe Martin, compares the globalization wave since 1960 with the earlier wave during the period from 1870 to the outbreak of World War I. ŽDuring the 1914 to 1945 period, of course, trade fell drastically due to wars and terrible national policies in the inter-war years.. They make comparisons with respect to Ži. trade, investment, migration, and factor prices, Žii. national capital markets, and Žiii. industrialization and the degree of income convergencerdivergence among nations. The authors find that the two waves of globalization were superficially similar Žin terms of the size of trade and capital flows. and fundamentally different. The primary difference between the two waves is the importance of trade in ideas rather than goods in the second versus the first wave, and much of the paper is devoted to the documentation of this thesis in very interesting ways. Baldwin and Martin also emphasize a second major difference between the two waves of globalization. In 1870 the world was fairly homogeneous with respect to national per capita income. At the start of the second wave, however, the world was sharply divided between rich industrial nations and poor primary producers. Readers of this journal probably tend to be interested in a variant of my single general question in the first paragraph above, where X is the set of countries often referred to as the South. In other words, has the current wave of globalization lowered or raised the average NorthrSouth gap in per capita incomes? The answer to this question Žand related ones. is that Ait dependsB. One of the things it depends on is the mobility of capital, and the papers by Tamin Bayoumi and James Markusen look at the two different aspects of this issue. The first of these attempts to reconcile the contradictory findings that real interest rates tend to 0304-3878r01r$ - see front matter q 2001 Published by Elsevier Science B.V. PII: S 0 3 0 4 - 3 8 7 8 Ž 0 0 . 0 0 1 3 5 - 8
594
Book reÕiew
equalize across national financial markets but that there is empirical relation between investment and saving across nations. One gets the impression from Bayoumi’s paper that international capital mobility is likely to increase in the near future. The second paper examines the theoretical implications of globalization on locational decisions by multi-national firms and the labor market effects of the consequent AoutsourcingB. An interesting result in Markusen’s model is that globalization Žrepresented by investment liberalization—allowing multinationals freedom of choice with respect to the location of different functions. tends to favor relatively skilled workers in both the North and the South. The direct effects of globalization on labor markets are discussed in the next four papers. The first of these, a very nice piece by Edward Leamer, takes the view that the large relative wage movements observed in the United States from the 1970s into the 1990s were caused by international integration. This goes against the conventional wisdom of both labor economists and trade economists that the source of relative wage changes in the U.S. was skill-biased technological change ŽSBTC. rather than AtradeB. As a proponent of this conventional view, I must admit that the evidence for our side is primarily in terms of residuals Žwhich are, in turn, a Ameasure of our ignoranceB .. The next paper, by Jonathon Haskel and Matthew Slaughter, makes the valuable contribution of setting out theoretically the labor market effects of SBTC in the context of the Stolper–Samuelson model. Their primary conclusion is that the primary effect of SBTC Žor any other form of technical change. depends on the sector in which it occurs rather than on which factor experiences an exogenous augmentation of its efficiency units. The third paper in this subset, by Michael Burda and Barbara Dluhosch, focuses on the labor market effects of globalization in a European setting. When doing this, of course, one must incorporate various labor market rigidities Žespecially fixed relative wages. that are not especially relevant for Žwhat the French call. AAngloSaxon economiesB. The fourth paper on labor market effects, by Deepak Lal, attempts to compare the effects of globalization between developing and developed countries. I must say that I was somewhat disappointed in this paper. What would have been interesting is a treatment of the effects of globalization on the initially less developed countries along the lines of the paper by Leamer. Lal’s paper, however, was a brief political economy treatment of the Ahopes, dangers, and fearsB associated with globalization for both more and less developed countries. This is interesting per se, but what are the facts and factoids associated with questions dealing with the effect of globalization on developing economies? The final section of the book consists of four papers that deal with policy issues associated with globalization. The first of these, by Jagdish Bhagwati, addresses the question of the identification of AwinnersB and AlosersB in the process of globalization. He argues, forcefully and engagingly, that there need not be any losers due to opening up economies to trade. The second paper, by Oliver Lorz, addresses questions of optimal tax policy in open economies. The third paper, by
Book reÕiew
595
Hans-Werner Sinn, deals with the advocacy of Weitzman-style profit-sharing scheme in order to alleviate the losses of some groups due to globalization. This, Sinn argues, is especially relevant to Western Europe in which AinsidersB have set wages at too high a level to permit full employment. There are, in my view, several reasons to be skeptical Žprimarily on operational grounds. about the potential effectiveness of the share economy scheme, but Sinn’s paper is quite engaging. The final paper in the volume, by Vito Tanzi, is a somewhat free-wheeling examination of the effect of globalization on the nation state. Not surprisingly, Tanzi concludes that increased economic interdependence among nations diminishes the importance of national political institutions, in large part because individual countries have much less control over the course of their economies. Accordingly, this power is shifted to supranational organizations such as the W.T.O. Tanzi does not dwell on the labor market implications of this trend, but there are several. For example, with increased international competition, it becomes increasingly difficult for countries to maintain Western European-style policies Žjob protection, social insurance, labor regulation, etc.. that insulate workers from economic uncertainty. In order to stay competitive, individual countries will increasingly have to adopt U.S.-style Cowboy Economy institutions; there will be no option to do otherwise—unless all relevant countries adopt a roughly similar labor market institutions. George Johnson UniÕersity of Michigan, Ann Arbor, MI 48109, USA
Book review Globalization and labor ., pp. 1–320, DM 138 Edited by Horst Siebert, 1999, Mohr Siebeck ŽTubingen ¨ The range of questions concerning the labor market effects of the dramatic increase in the world trade over the past 40 years is enormous, and the answers to these questions are subject to a great deal of debate among economists. Basically, however, we can boil these questions down to a single general one: AFor country X, how has increased world economic integration—‘globalization’—affected the level and structure of the earnings and employment of labor market group Y?B This book consists of 11 papers on this general topic from a conference at Kiel in 1998. Several of the papers make important contributions to our understanding of traderlabor market questions. The first paper, by Richard Baldwin and Phillipe Martin, compares the globalization wave since 1960 with the earlier wave during the period from 1870 to the outbreak of World War I. ŽDuring the 1914 to 1945 period, of course, trade fell drastically due to wars and terrible national policies in the inter-war years.. They make comparisons with respect to Ži. trade, investment, migration, and factor prices, Žii. national capital markets, and Žiii. industrialization and the degree of income convergencerdivergence among nations. The authors find that the two waves of globalization were superficially similar Žin terms of the size of trade and capital flows. and fundamentally different. The primary difference between the two waves is the importance of trade in ideas rather than goods in the second versus the first wave, and much of the paper is devoted to the documentation of this thesis in very interesting ways. Baldwin and Martin also emphasize a second major difference between the two waves of globalization. In 1870 the world was fairly homogeneous with respect to national per capita income. At the start of the second wave, however, the world was sharply divided between rich industrial nations and poor primary producers. Readers of this journal probably tend to be interested in a variant of my single general question in the first paragraph above, where X is the set of countries often referred to as the South. In other words, has the current wave of globalization lowered or raised the average NorthrSouth gap in per capita incomes? The answer to this question Žand related ones. is that Ait dependsB. One of the things it depends on is the mobility of capital, and the papers by Tamin Bayoumi and James Markusen look at the two different aspects of this issue. The first of these attempts to reconcile the contradictory findings that real interest rates tend to 0304-3878r01r$ - see front matter q 2001 Published by Elsevier Science B.V. PII: S 0 3 0 4 - 3 8 7 8 Ž 0 0 . 0 0 1 3 5 - 8
594
Book reÕiew
equalize across national financial markets but that there is empirical relation between investment and saving across nations. One gets the impression from Bayoumi’s paper that international capital mobility is likely to increase in the near future. The second paper examines the theoretical implications of globalization on locational decisions by multi-national firms and the labor market effects of the consequent AoutsourcingB. An interesting result in Markusen’s model is that globalization Žrepresented by investment liberalization—allowing multinationals freedom of choice with respect to the location of different functions. tends to favor relatively skilled workers in both the North and the South. The direct effects of globalization on labor markets are discussed in the next four papers. The first of these, a very nice piece by Edward Leamer, takes the view that the large relative wage movements observed in the United States from the 1970s into the 1990s were caused by international integration. This goes against the conventional wisdom of both labor economists and trade economists that the source of relative wage changes in the U.S. was skill-biased technological change ŽSBTC. rather than AtradeB. As a proponent of this conventional view, I must admit that the evidence for our side is primarily in terms of residuals Žwhich are, in turn, a Ameasure of our ignoranceB .. The next paper, by Jonathon Haskel and Matthew Slaughter, makes the valuable contribution of setting out theoretically the labor market effects of SBTC in the context of the Stolper–Samuelson model. Their primary conclusion is that the primary effect of SBTC Žor any other form of technical change. depends on the sector in which it occurs rather than on which factor experiences an exogenous augmentation of its efficiency units. The third paper in this subset, by Michael Burda and Barbara Dluhosch, focuses on the labor market effects of globalization in a European setting. When doing this, of course, one must incorporate various labor market rigidities Žespecially fixed relative wages. that are not especially relevant for Žwhat the French call. AAngloSaxon economiesB. The fourth paper on labor market effects, by Deepak Lal, attempts to compare the effects of globalization between developing and developed countries. I must say that I was somewhat disappointed in this paper. What would have been interesting is a treatment of the effects of globalization on the initially less developed countries along the lines of the paper by Leamer. Lal’s paper, however, was a brief political economy treatment of the Ahopes, dangers, and fearsB associated with globalization for both more and less developed countries. This is interesting per se, but what are the facts and factoids associated with questions dealing with the effect of globalization on developing economies? The final section of the book consists of four papers that deal with policy issues associated with globalization. The first of these, by Jagdish Bhagwati, addresses the question of the identification of AwinnersB and AlosersB in the process of globalization. He argues, forcefully and engagingly, that there need not be any losers due to opening up economies to trade. The second paper, by Oliver Lorz, addresses questions of optimal tax policy in open economies. The third paper, by
Book reÕiew
595
Hans-Werner Sinn, deals with the advocacy of Weitzman-style profit-sharing scheme in order to alleviate the losses of some groups due to globalization. This, Sinn argues, is especially relevant to Western Europe in which AinsidersB have set wages at too high a level to permit full employment. There are, in my view, several reasons to be skeptical Žprimarily on operational grounds. about the potential effectiveness of the share economy scheme, but Sinn’s paper is quite engaging. The final paper in the volume, by Vito Tanzi, is a somewhat free-wheeling examination of the effect of globalization on the nation state. Not surprisingly, Tanzi concludes that increased economic interdependence among nations diminishes the importance of national political institutions, in large part because individual countries have much less control over the course of their economies. Accordingly, this power is shifted to supranational organizations such as the W.T.O. Tanzi does not dwell on the labor market implications of this trend, but there are several. For example, with increased international competition, it becomes increasingly difficult for countries to maintain Western European-style policies Žjob protection, social insurance, labor regulation, etc.. that insulate workers from economic uncertainty. In order to stay competitive, individual countries will increasingly have to adopt U.S.-style Cowboy Economy institutions; there will be no option to do otherwise—unless all relevant countries adopt a roughly similar labor market institutions. George Johnson UniÕersity of Michigan, Ann Arbor, MI 48109, USA