UCL ECON1005' THE WORLD ECONOMY' Hugh Goodacre'

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UCL ECON1005. THE WORLD ECONOMY. Hugh
Goodacre. 11. GLOBALISATION OF THE LABOUR
MARKET. Massive reduction in global
capital-labour ratio. The pattern of inequality
in omks ICT globalisation. Offshoring,
immigration and wage bargaining in
omks. Offshoring and formerly-middle-income
earners. A third industrial revolution? The
politics of protectionism.
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Part 3 overview EMERGING ECONOMIES AND THEIR
IMPACT ON THE WORLD ECONOMY. General theme emecs
now impact on all major macro issues globally,
including in omks
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E2. GLOBALISATION OF THE LABOUR MARKET.
Summary. Massive reduction in global
capital-labour ratio. Doubling of labour force
open to employment by MNCs. Profit share
soars. The pattern of inequality in omks ICT and
globalisation. New degree and pattern of
inequality within omks. Offshoring, immigration
and wage bargaining in omks. Effect of offshoring
and threat of it on average and relative wages in
omks. Bargaining power. Immigration. Offshoring
and formerly-middle-income earners. Services
increasingly tradable. A new industrial
revolution? The politics of protectionism. Declini
ng wage share average and relative effects
inequality in general. Current US and UK issues.
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Massive reduction in global capital-labour
ratio. Labour force open to employment by MNCs
doubles

• Note also
• Vast additional labour reserves.
• e.g. rural underemployed in China (another 0.2
  bn?).
• Productivity in emecs growing faster than LF.
• ? unit labour costs falling.

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K/L ratio Little K ? world markets with this
new LF. ? K much scarcer relative to L than
previously. i.e. ?K ltlt ?L ? K / L
??. ? Returns on K ?. Labour relatively more
abundant. ? low bargaining power. Note W depend
on bargaining power not productivity, at any
rate in SR. i.e. a shift in balance of
bargaining power from L to K.
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• Outcome profit share soars.
• Share of wages and profits in national income

W/Y lowest in decades.
p/Y highest in decades.
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The pattern of income inequality in the
omks (1) 1980s / early 1990s. Widening income
gap between unskilled workers. skilled /
middle-income / white collar. Seen as due
to ICT. Switch to services / decline of
manufacture. ? demand for new skills.
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Income inequality in the omks.
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Income inequality in the omks (2) Since early
1990s A further round of increase in income
inequality Effect of globalisation of labour
market now more significant? i.e. Rather than
ICT, etc., as in previous period. This time the
gap grows between low-and-middle earners as a
whole top earners.
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Since early 1990s Effects of globalisation of
labour market? Top 1 earnings as age of US
national income 1980 8 2005 16
Wages Declined 4 in US in 5 years to
2006. Despite increase in productivity. NOT just
the low-skilled. Middle Squeezed. i.e. Net
effect Most benefit to corporate profits and top
earners.
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Since early 1990s Effects of globalisation of
labour market?
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Effects of ICT
Since early 1990s Effects of globalisation of
labour market?
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• Offshoring and formerly-middle-income earners.
• Operations susceptible to off-shoring ?.
• Global arbitrage / price equalisation.
• Formerly only traded goods
• So middle income / white collar / service workers
  not exposed to threat.
• But now
• Off-shoring affects services as well.

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• Actual number of off-shored jobs relatively
  small.
• Even decreasing in UK?
• BUT perceived threat weakens bargaining
  position.
• LR / theory
• W/P correlates with productivity.
• BUT Very long historical eras are involved.
• W // bargaining power in SR / MR / foreseeable
  future.
• Note Current slide in US real W alongside
  rising productivity.
• Confirms lack of correlation in SR / MR.

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• ?L includes expansion of EU to Eastern Europe,
  etc.
• ? Immigration ? direct local ?L.
• Same point regarding actual numbers and perceived
  threat.

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• Blinder third industrial revolution?
• New distinction to fore each time
• IR 1 Agriculture to industry.
• IR 2 Industry to services.
• IR 3 Non-tradables-through-ICT to
  tradables-through-ICT.

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Impact of IR3 admittedly slight. But effects only
beginning? Affects middle income more than low /
unskilled? ICT / easily-standardised work, e.g.
accountancy. More susceptible to off-shoring than
some manual labour! Note Higher-than-average
fall in earnings of US graduates 6 ? 2000-6.
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• We thus have, in omks
• Wage-earners / unskilled, etc.
• Loss of jobs to emecs, e.g. through
  off-shoring.
• Real wages in omks flat declining in US
• Actual age of jobs off-shored low. BUT
• Perceived threat ? reduces bargaining power.
• Middle-income / professionals increasingly hit as
  well.
• Corporate profits and high-earners income
  soaring.
• i.e. Overall outcome greatly increased income
  inequality.

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• ? Problems with making globalisation work
• Globalisation of the labour market
• ? omks gain
• BUT gains are unevenly spread.
• Majority in omks adversely affected
• ? pressure for protectionism?

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• Low W inflation in omks
• A central element of overall low inflation in
  recent years.
• Example of global impact of emecs on major macro
  issues in omks.
• Preview Other counter-inflationary influences
• Low commodity prices (notably oil) since
  mid-1980s.
• Cheap manufacture imports from China and other
  emecs.

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• We thus have
• Strong impact of emecs on Wo/P and income
  inequality in omks
• Average effect Sluggish absolute growth /
  decline.
• Relative effect W share ?, i.e. decline
  relative to p.
• Also Increasing gap between
• low-and-formerly-middle earners
• top earners.

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• The politics of protection (a) The problem.
• Profits
• Benefiting from globalisation of labour market.
• p share at historically high levels.
• High earners
• Income soaring.

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• Wages
• (a) Average (i.e. wages as a whole)
• Sluggish growth, stagnant, even falling.
• (b) Relative
• W share at historically low levels.
• Greatly increasing inequality.
• Middle earners
• Squeezed
• Even those formerly not exposed to foreign
  competition.

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• The politics of protection (b) Current situation
  / assessment.
• Higher earnings siphoned off by top earners.
• Majority do not share in benefits.
• Job losses readily attributable to globalisation
  of labour market.
• Note More visible than, e.g.
• Supposed benefits of lower inflation.
• LR efficiency gains, etc.

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E2. GLOBALISATION OF THE LABOUR MARKET.
Summary. Massive reduction in global
capital-labour ratio. Doubling of labour force
open to employment by MNCs. Profit share
soars. The pattern of inequality in omks ICT and
globalisation. New degree and pattern of
inequality within omks. Offshoring, immigration
and wage bargaining in omks. Effect of offshoring
and threat of it on average and relative wages in
omks. Bargaining power. Immigration. Offshoring
and formerly-middle-income earners. Services
increasingly tradable. A new industrial
revolution? The politics of protectionism. Declini
ng wage share average and relative effects
inequality in general. Current US and UK issues.