Globalisation and Labour Markets
 | Programme Coordinator: Dr. Peter Wright "The labour market impinges directly on the daily lives and on the social welfare of every individual. Understanding how globalisation impacts on labour markets outcomes is therefore of importance and interest to economists, social scientists and the population at large." |
The Globalisation and Labour Markets Programme is the longest established of GEP’s Programmes. Its motivation was twofold: Firstly, the popular perception of the impact of globalisation appears to be far more pessimistic than that of the economics profession, with the labour market consequences of globalisation being a source of particular anxiety. Workers appear to feel increasingly less secure about their labour market position and career prospects; Secondly, the process of adjustment as a response to globalisation had received relatively little attention from trade economists. Apart from being interesting in its own right, it was felt that understanding this adjustment process might help to explain the dichotomy of views held.
The GLM programme therefore examines the extent to which ‘labour market adjustment’ is caused by increased globalisation, and the consequences of this adjustment for labour market structures and outcomes. Labour market adjustment is identified with differential rates of job creation and destruction between firms, sectors, occupations, regions or countries. This causes quantity or price adjustments in the labour market as workers change jobs, suffer unemployment or experience wage-changes.
Work within the Centre seeks both to theoretically model and econometrically quantify these changes. A range of projects have been completed addressing, amongst other things: the effects of trade with low wage economies on wages and employment; the drivers of labour market turnover; the impact of inward investment and up-skilling; the adjustment costs of trade liberalisation.
Some current research activities:
Labour market impact of offshoring
(Alexander Hijzen, Richard Upward, Peter Wright, Carl Davidson and Steve Matusz)
This work models the impact of globalisation on wages earned by low and high-skill workers when openness leads to the outsourcing of high-tech jobs abroad. (For example, radiography scans are increasingly being sent overseas for analysis.) It shows that high skill workers, if they become pessimistic about their employment prospects, may start accepting low-tech jobs. This switch in behaviour may bring about general equilibrium responses whereby firms may begin to adopt less sophisticated technology. This improves the outside options for low-skill workers which can make them considerably better off after globalisation.
Other work is also investigating whether offshoring affects job security in the UK. It uses a new dataset which measures the type and value of services trade at the firm-level, which are typically inputs to commercial activities rather than simply consumables. Contrary to popular expectation, the work finds that firms which start importing intermediate services experience faster employment growth than equivalent firms which do not.
In the future, this firm level data will be linked to information on local production units and measures of job turnover, as offshoring ought to have more effect on plants than on firms, if firms adjust labour demand by, for example, shutting down some plants and opening others. It will also extend to a more detailed assessment of employment changes to explore, for instance, whether a correlation exists between offshoring activity and worker inflows and outflows and whether outflows lead to jobs elsewhere or to unemployment. As a corollary, it will also examine whether the import competition that a firm faces, and the outsourcing activity that it engages in, causes wage losses or gains for its workers.
Worker mobility
(Paulo Bastos, Spiros Bougheas, Joana Silva, Richard Upward and Peter Wright)
Research is now underway which examines the impact of globalisation and technological change on firm-level job creation and job destruction rates and their implications for worker mobility. This will be extended to understand better how firm characteristics (industry, size, etc) and worker characteristics (age, education, training, etc) affect these quantities.
The impact of exchange rate fluctuations on worker mobility using the Portuguese ‘Quadros de Pessoal’ is also being explored. This contains information on workers matched to information on the firms in which they work, will allow us to identify how much observed job reallocation is due to firm (and/or plant) entry/exit or growth/decline. It will also be possible to investigate whether foreign owned firms (which are more likely to repatriate profits) are affected in a different way to domestic firms.
Migration
(Marta Aloi, Tom Ivlevs, Doug Nelson)
The Centre is investing resources in new research capability in migration. Tom Ivlevs has received funding to collect a primary dataset to analyse the migration intentions of individuals from Latvia. This has the lowest GDP per capita of the accession countries and ethnic diversity, which makes it particularly well suited for the analysis of individual emigration decisions and may help us better understand migration flows from Central and Eastern Europe. This is also being extended to examine the determinants of remittance payments from abroad. Who is more likely to receive remittances, how regularly are they sent and do they constitute an important fraction of income?
Other research is examining the macroeconomic impacts of migration, looking at its effect on output, unemployment, inflation and growth. Such effects are not clear cut because immigrants are both consumers and workers and, therefore, affect both aggregate demand and aggregate supply. Although there are empirical studies that attempt to quantify the impact of immigration on supply and demand, there is little modelling of the impact of immigration on the main macroeconomic aggregates.
