Globalization’s Impact on the Labor Market

Globalization’s Impact on the Labor Market

If globalization were put to a popular vote in the United States, it would lose, according to Jeffrey Immelt, CEO of General Electric, one of the world’s largest multinational employers.

Opponents of globalization contend that an economic race to the bottom is under way as workers in First World economies will be forced to cut their standard of living to compete with workers in Third World economies. Opponents also claim that only the wealthy benefit from globalization and the poor aren’t keeping pace.

On the other side of the issue, Columbia University Professor Jagdish Bhagwati argues in his book In Defense of Globalization that globalization is an engine of social change, helping to eradicate poverty, reduce child labor and increase literacy.

Yet unless you’re a skilled economist, it’s not always clear how globalization generates more rather than fewer job opportunities for skilled workers worldwide. So the question is: Have workers been seriously damaged as a result of globalization?

“I can’t find any evidence that supports the race-to-the-bottom view,” says Robert Flanagan, a Stanford economics professor and author of Globalization and Labor Conditions: Working Conditions and Worker Rights in a Global Economy. “Free trade does tend to improve conditions for workers and consumers around the world.” As an example, he cites greater investment in Third World and emerging economies that have led to economic development, job creation and improved living standards.

Where Do We Stand?

Even as globalization’s effects are debated, plenty of data suggest the pie is getting larger for nearly everyone:

  • The International Monetary Fund, which lends money to governments with struggling economies, claims that more than 200 million people have been lifted out of poverty in India and China since the 1990s in the wake of deregulation that has fueled high GDP growth in those countries.
  • Despite the recent addition of tens of millions of globally connected workers in Asia, the US unemployment rate hovers at about 4.6 percent (only 2.3 percent for college graduates), which, in a major economy, is considered close to full employment.
  • Fears about offshore outsourcing causing widespread job loss in the US are greatly exaggerated. According to the Washington Post’s analysis of this Bureau of Labor Statistics data for 2006, “Only about 12 percent of layoffs stemmed from ‘movement of work’ -- a category that would include offshore outsourcing.” Two-thirds of those outsourcing-related layoffs were domestic.
  • Far from being a concern, multinationals add considerable value to the American economy. “Foreign employers tend to pay generally better wages across all different sectors in the US and essentially everywhere else in the world, when compared to local, domestic-only companies,” says Jacob Kirkegaard, research associate at the Peterson Institute for International Economics in Washington, DC. “It is always great to get a job with a multinational.”

The wage gap between rich and poor nations is narrowing quickly, thanks in part to the rise of offshore outsourcing and corporate investment in company-owned offices called “captives,” primarily in Asia, Europe and South America. “Wages for top Indian software engineers rise by 20 to 30 percent a year, so that by some estimates, wages in Bangalore are now as high as 75 percent of US wages, though, of course, the costs of living are far lower,” Kirkegaard says. “In short, there are plenty of extremely skilled Indians, but they are not going to remain cheap.”

Globalization Hits Home

During the 2008 US presidential election campaign, some thorny issues concerning the global labor market made news.

First, bipartisan immigration legislation that would have reformed US guest-worker programs went down to defeat.

Second, the Department of Labor is starting to enforce immigration laws requiring employers to pay imported temporary workers the prevailing industry wage. One company caught in violation of that law was Patni. The India-based outsourcing company was recently forced to pay $2.4 million to 607 nonimmigrant workers it brought to the US on H-1B visas but systematically underpaid, according to Labor Department officials.

Forces of Change

No one contends that globalization is a panacea for every economy or every worker in the world, and many questions remain, such as:

  • Can the standard of living in India, China and other emerging economies grow without the standard of living in the US declining?
  • In the US, will laid-off workers or those who lack technical skills, specialized training or certifications receive the training they need to better compete in the fast-changing and demanding global economy?
  • And, finally, will the globalization of work -- and employment opportunities -- eventually raise the standard of living for less-skilled workers, too?

Says Nobel Prize winner Joseph Stiglitz in his book Making Globalization Work, the “issue is not whether globalization itself is good or bad but how we can reshape it to make it work better.”

In other words, globalization, like nearly everyone’s career, is a work in progress.

[A frequent public speaker on topics such as the globalization of work and social networking, San Francisco-based Rusty Weston blogs about career-management issues for My Global Career and Fast Company.