Has globalisation hurt workers in the rich economies? The latest Economist discusses a new IMF study in its Economics Focus piece, Smaller shares, bigger slices. They conclude that globalisation has reduced labour's share of national output:
It finds that both technological change and the globalisation of labour markets have depressed labour's share in all four groups. For the 18 countries as a whole, reckons the IMF, technology has mattered more. However, there are marked differences among them.
...The effects of labour globalisation were most evident in Anglo-Saxon and small European countries. However ...In Anglo-Saxon and smaller European countries, labour-market policies have partially offset the depressing effects of technology and globalisation on labour's share, mainly by shaving the tax wedge between what workers take home and what they cost to employ. In large European countries, increases in the ratio of unemployment benefits to wages have hurt labour's prospects, probably against policymakers' intentions.
But globalisation has also boosted worker's living standards through lower inflation:
Although globalisation has reduced labour's share of the pie, it has made the whole pie bigger, raising output and productivity and lowering the prices of traded goods and services. So are workers getting smaller shares but larger slices? Yes, concludes the fund: trade has helped, largely by making imports cheaper. Across the 18 countries studied, changes in trade prices boosted average real pay by 0.24% a year.
The analysis comes from Chapter 5 of the semi-annual IMF World Economic Outlook, which has just been published. You can download the chapter, The Globalization of Labor (PDF), or watch a video of the briefing by IMF economist Florence Jaumotte, who along with Irina Tytell, was the main author.