Global Economy
Globalization has positive and negative impacts. The proposers of positive affect argue the opportunity exploration that is created by the globalization. On the other hand, the critiques argue that globalization is a threat for the political sovereignty and economic prosperity. At the heart of the argument lies the impact of globalization on the job losses and downward pressure experienced by the people due to international macroeconomic settings.
Macroeconomic situations
We need to analyze the potential job losses and the downward pressure that is being created on the labor market due to macroeconomic situations. By this we can easily analyze the cost of workers when they are outsourced into the global world. When outsourcing people, they usually argue over the number of jobs gained versus the number of jobs lost. The countries that are based on importing will be at a loss, whereas the exporting countries will rise in its industrial sectors, and similarly jobs will be created. Whenever an office premises it outsourced to a different country, especially in a labor abundant country where the cost of labor is very cheap, and then the people will loose jobs in the country from where the offic4e has been relocated. On the other hand, people will in the other country and experience a gain due to the inflow of new foreign direct investment in their economy.
When we look at the impact of labor in global scenario, and the impact of globalization over the labor markets, we may develop perspectives. One is the view of already developed countries, whereas the other view is that of developing labor abundant countries. In developed of nations, the labor impact is subjected primarily to two areas of interest, one is the trade and the other is the FDI whereas, in developing countries, the discussion is broadened by including the effects of financial capital flows and IMF stabilization policies.
Situation in United States of America
In USA the labor has lost his jobs due to the emergence of low-cost labor abundant countries. In between 1973 and 1996, USA saw a decline of 19 percent in the wages of non-supervisory labor. In USA, labor has lost both, its buying power and industrial jobs whereas, these technologies and capital employing labor is becoming the activities of other countries. The people in USA are now engaged in low paying services jobs rather than high paying primary jobs such as wives going out to work for meeting both ends meet, washing each others clothes, cooking meals for each other etc.
The buying power of American labor was declining by 1 percent per annum before the 1996-98 increment in the minimum wage. During 1997-1998 when Asian Tigers and Russia went into a financial meltdown. This gave a chance to USA to increase the buying power of labor. In 1979, a US worker had to work for 23 weeks after which he can afford an average priced car, whereas a decade after to buy a same car he had to work 32 weeks. This reflected a diminishing trend in the buying power of the labor in US over a period of time.
Developing Economies
We can see a rise in the labor market of countries such as Malaysia, China, South Korea, Indonesia, Taiwan, India, and Philippines at the expense of the labor of developed nations in western world. With the expansion of money transfer system, global outsourcing, and telecommunication advancement, we will see a lot of shift of labor intensive production activities from the western world to the developing world as they are ready to do the work at a fraction of a cost in comparison with any normal American or Briton.
We saw the developed countries such as Germany, Sweden and Japan protecting their country against the odds of labor and capital. But now they are also found shifting towards cheap labor markets. They have to do this in order to remain competitive in the world market, or else they will be defeated by some other cheap producer. These countries saw the capital fleeing from their countries in search of cheap production cost and so they also decide to move with the trends and moved towards those countries that offer low labor cost due to their labor abundant nature of the country.
Commercial activities
We see a rise in the commercial activities, increasing profit trends, and jobs due to the economic multiplier that is activated when industries are established in a state. A nation that is rich in commercial activities will have proper infrastructure to provide people with labor protection laws, environmental laws, medical and health facilities, retirement programs, unemployment benefits, and social security. This is all done to protect the labor of that country from the potential harms whereas, in developing nations it is quite opposite. There are no such programs that can facilitate the labor, and most of the structural adjustment policies restrict the provision of such support.
Societal impact
The most important issue to be discussed in this labor concerns is the societal impacts due to the changes in a countrys financial structure. Even of this imbalance continues over the next decade and the economies began to decline due to the loss in their finances, they may go for war rather than trade. But we see a completely new perspective in the corporate imperialism. If the economies around the global are experiencing a downward trend due this the capital invested abroad encounters with the capital invested in the boundaries of home country, both type of capitals will continue to cannibalize each other. They will engage in a process known as capital destroying capital. At that time it will be extremely difficult to manage the resources, be it human resources or capital resources in its more effective manner.
China
In the past few years we have seen the emergence of China in the overseas market as the low-wage manufacturer. Chinese manufactures one third of the products that are foreigner-owned plants, majority of them belongs to Japan. China usually imports machinery and components from Japan in order to sustain its economic well being and persist its cheap and abundant labor advantage. The Asian financial crisis that arose in 1997-1998 can also be attributed to the entrance of China in the low cost manufacturing business and was still able to undercut its competition from the countries belonging to the region of Asian Tigers.
Richard Freeman, a Harvard Labour economist, stated in a paper that was prepared for Federal Reserve Bank during the Boston Conference in 2006. he said that since the entrance of India, Former soviet Bloc, and China has lead to the expansion of their labor force twice as much as from 1.46 billion to 2.93 billion.
World Economic Outlook
In May 2007 World Economic Outlook was published by International Monetary Fund. The purpose of this was to analyze the growth of the global labor force. It weighted the labor force of each country by checking its level of participation on the globalized economic activities. This was measured by using the ration of exports to GDP. Once the analysis was carried out, International Monetary fund concluded that the world has seen a rise of fourfold in the last decades regarding the effectiveness of the global labor force. Now in todays world, the developed nations are accessing the pool of global labor force via numerous channels and Medias. This can include the immigrations, importing final goods and outsourcing the production of intermediaries.
The pooling of global labor has had a major impact on the labor wages in the developed countries. There has also been a change ion the distribution in the national income between wages and profits. Since 1980, international Monetary Fund has stated a declining trend in the labor share of national income of these advanced economies. The shift is estimated to be about 8. The impact can be clearly seen from this graph.
In 1960s and 1970c we saw a steady rise in the labors share in national income, but in recent years it has seem to drop down in the industrial countries. The reasons have been the temporary and cyclical factors that have caused the disturbance. However, the persistent nature of the decline suggests that it has been also due to the structural changes that are goin on in the economies (Guscina, 4).
Another major impact is that of technology that is helping the countries to raise the per capita income by applying such technologies that can increase the productivity of labors. It allows for more efficient allocation of resource, and hence aids in the economic development and the raise in labors share in national income.
Richard Freeman concluded in his report for the Boston Federal Reserve conference that since the entry of ex-Soviet Union, Chin and India, the world has seen a dramatic shift in the global capital-labor ratio massively against workers. These developing countries have currently worked on the provision of expanding higher education which has flooded their local market with highly educated and well skilled employees. This increment in the well qualified labor supply has helped the developing economies to compete with those developed nations that are facing the problem of high labor wage disadvantage.
According to the estimated of Richard Freeman, as the global labor force doubled itself, it also reduced the capital labor ratio in the globalised economy. This reduction was seen by 40 - 50 . For the sake of simplicity we can say that as the supply of labor tends to rise, we experience a decline in the wages of that labor. As the labor increases relatively to its capital, its price that is calculated in terms of wages is diminished.
Economist in July 2006 stated that due the emergence of China as the cheap manufacturer has flooded the market with labor and has made the capital quite scarce in relation to its labor resource. This has resulted in rise in the relative returns on capital due to its scarcity. This rise is reflected in the balance sheets of the advanced such as America and Japan, whose profits after tax has risen in proportion of GDP.
The financial times in October 20060 concluded that all the western advanced economies has seen a rise in their profits due to a number of factors. The most is being the decline that is being witnessed in labours share of national income.
Labor Productivity Growth
China, India, and other developing economies are seemed to have been rising in labor productivity also. This has halted the United States workers welfare to a large extent. It does have a great ion the economies of well developed nations mainly due to the fact that workers in United States including the firms in which they are employed, or were employed, are losing grounds in the international trade. This is mainly due to the rapid productivity in the overseas countries due to the cheap and abundant labor available with them. This will have two effects on the economy of United States, either a gain, or a loss. Consumers in United States can be at a benefit due to the import of cheap products from the developing nations, whereas some exporters from the United States will find it easy to gain competitive edge by accessing cheap intermediate products from overseas.
Labor productivity growth can be defined as the ability of a country to produce more output per hour worked. An economy is seemed to be rising when it becomes wealthier due to the strong labor productivity growth rate. In this situation the living standards increases and the short-term pressures can be easily tempered. But if the developing economies like China and India will strengthen more in labor productivity terms, this will negatively affect the labor utilization of the existing advanced economies. Their labor seems to have been displaced if the developed countries producers found cheap grounds for their business activities.
We see a rise in the labor productivity growth in the developing countries especially China and India are the two giants that are emerging as the economic superpowers. Other states include from the regions of developing Asia and Eastern Europe. China and India are seen growth rates above 4 percent per year.
If we want to analyze the effect of labor abundant economies with the advanced economies, we can compare United Sates of America with the rest of the world. In the rest of the world we are including the names of developing nations of South Korea, Russia, Mexico, Indonesia, India, China and Brazil. In our chart 2 we are measuring the productivity growth for each country. The data is for 1999-2005 period. In that data we can see that China, Russia, South Korea, and India saw a robust growth in that period, however, Mexico, Brazil and Indonesia saw a slower growth in comparison with USA. The United States of America at that time was having a growth rate of 2.
We may consider the Labor productivity growth as the engine of economic growth. If the labor is utilized efficiently and effectively, we may see strong emerging economies like China and India that are quickly catching up with the western markets. They are not only catching up with those advanced economies but are also becoming for the gigantic job losses in the developed countries. Moreover consumers are also more interested in gains by buying a cheap imported product produced by developing economies business hubs.
Conclusion
To conclude we can say that for firms working globally they may have two basic options. One is to offer low wages and ignore the environmental laws and other regulations. The second way is to achieve higher productivity and then produce high quality goods and services. If a free trade agreement is adopted in the first option, the producers will be at a tough completion, similarly high gains. If the second option is adopted, then the will work for the societal benefits as well as their firms value maximization. They will seek competitive advantages by offering innovative products developed by applying productivity enhancing techniques. Another important step for these organizations is to secure the labor gains. Labor should be given their due share in increasing the productivity in the form of increased income. If the producer the benefits to their employees, then only employees would see a rise in their purchasing power.