Is labour really losing out from globalisation?

June 21, 2007

In its latest Economic Outlook, the OECD assessed the impact of globalisation on labour. The conventional wisdom goes that labour, especially low-skilled labour, in the developed world is on the losing side of globalisation. Globalisation is said to raise inequality and to drive people out of work. The OECD’s research gives a differentiated and much more optimistic view. Its main findings are:

1) Trade openness does not reduce aggregate employment, on the contrary. As regards the EU, the OECD writes:

“Despite very little progress in easing rigid labour market policy settings, the structural unemployment rate has fallen by one percentage point in the European Union over the past ten years.”

2) Globalisation has not raised labour insecurity – it’s rather the two-tier labour markets prevailing in many rich OECD countries.

“Average job tenure has even increased in most OECD countries since the early 1990s, belying the perception that jobs have generally become more insecure. The longer average tenure has been paralleled by a rising incidence of temporary employment in a majority of OECD countries, driven to a large extent by changes in labour market regulation that have unfortunately favoured the emergence of a two-tier labour market. Despite fears of offshoring, the data show no systematic link between outward investment and lower domestic employment (Molnar et al., 2007). Nor does more employment in foreign affiliates necessarily mean slower employment growth at home”

3) Migration is not a threat to jobs On the contrary, it can contribute to a lowering of structural unemployment. However, it does tend to reduce the wage bargaining power of native workers who face competition from immigrants. Where labour markets are unprepared for immigration, though, unemployment can become a problem:

“where high minimum labour costs and generous social transfers conspire with low productivity of immigrants to generate unemployment traps.”

4) Globalisation fosters indeed more wage inequality. But this has occurred mainly at the top, because of the skill-premium the skilled receive in an era of increased international competition. But:

“….inequality remained broadly stable in the lower half of the wage distribution in most OECD countries over the past decade.”


5) However, due to tax policies and social transfers, real disposable income in most rich OECD countries has stayed the same in the last ten years.


  • Countries need to prepare labour markets to international competition. More open labour markets (i.e. less protected) mean more jobs, and generally even better paid ones. So much for many rich EU countries.
  • Skills, skills, education – that is the only way forward in the rich world. So much for the EU and the US
  • The welfare state with its progressive taxation and redistribution policies is not a bad thing. So much for the US.

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