Chris Giles summarises a new report on globalisation by the Ifo-affiliated European Economic Advisory Group in today's Financial Times: Globalisation ‘a blessing’ for west Europe
Increased trade, outsourcing and offshoring do not create unemployment but boost the number of jobs in advanced economies, a study of European labour markets says on Tuesday. The European Economic Advisory Group...argues that although globalisation can lead to a fall in demand for certain types of skill, it also tends to sweep away job-destroying rigidities in labour markets.
The evidence from the group’s work suggests the positive effects of globalisation outweigh the negative effects. Although the group concedes that its statistical work remains “crude”, the report concludes that globalisation is likely, if anything, to lead to long-term rises in employment. “If so, globalisation will not be a curse for employment in western Europe, it could instead turn out to be a blessing,” the report says.
The report in question is Chapter 3 of the EEAG's seventh report on the European Economy, Europe in a Globalised World, launched today in Brussels. It warns of "dark clouds" in the US, but no recession in Europe. The chapter, The effect of globalisation on Western European jobs: curse or blessing? (PDF 2.9Mb), comes to more qualified and tentative conclusions than the FT article suggests:
Our basic message is that we probably should not expect globalisation to have adverse effects on overall employment in Western Europe in the long run if one takes all effects into account. It is true that trade integration and factor mobility vis-à-vis low-wage economies are likely to cause unemployment if European labour markets remain rigid. But there is a good chance that globalisation will help reduce these rigidities. Politicians in some countries may try to swim against the tide and uphold or even strengthen regulations in the labour market, such as Germany is currently doing. But in the end, globalisation is likely to strengthen the incentives to deregulate. Therefore, the net result could be that employment is promoted.
If globalisation does not hurt employment, it will produce aggregate gains. There is a possibility that globalisation could eventually benefit almost everyone, although some will gain more than others. However, there is also a fair amount of evidence that economic integration with low-wage economies reduces the relative demand for less-skilled workers and their relative compensation. So, it is also possible that there could be a large group of losers.
But maybe that's the wrong way of looking at it? The authors suggest we should examine how effectively our institutions handle a more global world:
It makes more sense to recast the issue in the following way: are our labour market institutions and our welfare states designed well enough so that the gains from trade reform will be broadly shared? Or are they likely to breed opposition to these reforms?
The 34 page chapter ends with a useful discussion of the possible components of schemes to compensate the potential losers from the globalisation process. A thoughtful piece, deserving a wide readership.