Category: Trade liberalization under segmented labor markets

Trade liberalization under segmented labor markets

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Abstract Any opinions expressed here are those of the author s and not those of the institute. Powered by:.One way to view such a reform is that it simply widens the range of goods that are tradeable. This kind of reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model, where labor cannot relocate to an-other sector upon a non expected increase in the range of goods that can be traded.

Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from East-ern workers and cannot relocate to other activities.

Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West.

trade liberalization under segmented labor markets

Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there. Location of Repository. Keywords, Trade liberalization, European integration, Bolkestein directive, labor mobility, labor market institutions, comparative advantage, terms of trade.

Trade Liberalization

Provided by: CiteSeerX. Suggested articles.Other versions of this item: Saint-Paul, Gilles, Saint-Paul, Gilles, Discussion Papers. Robert J. Gordon, Brander, James A. James A.

Globalization, Labor Markets, and Inequality

Spencer, Brecher, Richard A. Feenstra, Robert C.

trade liberalization under segmented labor markets

Feenstra, R. Robert C.

trade liberalization under segmented labor markets

Lewis, Samuelson, Grossman, Gene M. Leamer, Edward E. Srinivasan, Paul A. Joseph F. Hoekman, Potrafke, Niklas, Niklas Potrafke, Gilles Saint-Paul, Alexandre Janiak, David T Coe, You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ide:wpaper See general information about how to correct material in RePEc. For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact:.

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It also allows you to accept potential citations to this item that we are uncertain about. If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form. If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

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FRED data. Registered: Gilles Saint-Paul.Paris School of Economics. Other versions of this item: Saint-Paul, Gilles, Saint-Paul, Gilles, Discussion Papers. Gordon, Robert J. Brander, James A. James A. Spencer, Feenstra, Robert C. Feenstra, R. Robert C. Lewis, Srinivasan, Paul A. Samuelson, Brecher, Richard A. Grossman, Gene M.

Leamer, Edward E. Joseph F. Hoekman, Potrafke, Niklas, Niklas Potrafke, Gilles Saint-Paul, Alexandre Janiak, David T Coe, You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte.

trade liberalization under segmented labor markets

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about. If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.The blame for three decades of stagnant wages in most advanced countries is often laid at the doorstep of globalization, particularly competition from low-wage developing exporters.

Globalization is clearly contributing to increased integration of labor markets and closing the wage gap between workers in advanced and developing economies, especially through the spread of technology. It also plays a part in increasing domestic income inequality. But erecting protectionist policies to stanch the forces of globalization is not the best response.

Policymakers must instead focus on what can be done to help workers adjust to a changing world. We are very far from a global labor market, as evidenced by a wide disparity in wages. One study finds that the median wage for jobs in advanced countries is two and a half times the wage level for jobs with similar skill levels in the most advanced developing countries, and five times the level in low-income countries.

Ina Chinese manufacturing worker earned about one-twentieth the wage level of a U. That gap, however, is narrowing in part due to globalization. From to the year of the worst global recession since the saverage real wages rose by about 0. Globalization is far from being the whole story behind the narrowing gaps. If wage convergence were principally the result of an integrating global labor market, one would see wages in Africa, the poorest region, rise much faster than the others.

But differences in domestic factors, such as the business climate, governance, and education, also play a vital role in determining wage growth. Migration, trade, foreign investment, and the spread of technology—all channels of globalization—work to induce wage convergence in interconnected and mutually reinforcing ways.

Making Sense of Bolkestein-Bashing: Trade Liberalization under Segmented Labor Markets

Increased migration probably plays only a small role in wage convergence. The stock of emigrants from developing countries is just 2 percent of their population, so emigration has little role in raising wages by limiting the growth in labor supply in developing countries.

Most studies have found that immigration also has had only modest long-term effects on wages in advanced countries. There are many potential reasons for this: Immigrants typically only account for 10—15 percent of the labor force. Migrants and native workers are imperfect substitutes and may even complement each other, as migrants increase aggregate demand for the services of native workers.

And migrants reduce the price of services consumed by native workers. Trade can promote wage convergence even when workers do not move. Developing countries with abundant labor export goods intensive in labor, so trade induces their wages to rise relative to rich countries, which have less labor and plenty of capital.

Numerous studies of the direct impact of trade on wages in advanced countries conclude that the depressing effect is small. Foreign direct investment FDI in capital-scarce developing countries can raise the productivity of workers, and thus their wages, by transferring management skills, capital, and technology, and in the process sometimes outsourcing jobs from advanced countries. FDI inflows to developing countries rose from 0.

However, over the past decade, total net capital flows including official and private portfolio flows equal to 2.Recent examples include the so-called "Bolkestein" directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradeable. This kind of reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model, where labor cannot relocate to another sector upon a non expected increase in the range of goods that can be traded.

The effect of liberalization on the terms of trade tends to favor the poorer country the "East"if as assumed the most sophisticated goods are tradeable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities.

But if the East's economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West.

Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there. BoxD Bonn, Germany. Bibliographic data for series maintained by Holger Hinte.

Is your work missing from RePEc? Here is how to contribute. Questions or problems? Page updated Handle: RePEc:iza:izadps:dpMetrics details. Existing study argues that labour market flexibility accompanied by trade liberalisation helped in building complementary relationship between formal and informal sectors in India. However, no direct relation is established between the labour market flexibility and trade liberalisation with respect to inter- and intra-sectoral movement of labour.

The present study enquires whether the extent of labour mobility between and within formal—informal sectors affects the formal—informal growth linkages due to the tariff cut on traded goods, as a part of trade liberalisation in India. The findings based on static CGE analysis indicate that in absence of labour market segmentation i. Amongst growing informal sector activities, output growth is lower in absence of segmented labour market with full mobility of labour. Finally, restricted labour mobility leads to largest expansion of formal activities, but further exacerbates the growth of informal activities.

The study reveals that improvement in functional income distribution is mixed across households, depending on the degree of labour mobility, which implies labour market adjustment is costly due to structural reforms, that pitches for government intervention. Since a large mass of workforce in India is employed within informal segment of the economy, Footnote 1 enhancing income of the people engaged with this sector and bringing this sector out of poverty trap becomes crucial from a policy perspective NCEUS It is argued that one way of reaching this goal is to attach this sector to the dynamic formal sector through linkages Meagher Generally, informal sector is linked with formal sector either through vertical supply linkages by providing intermediate goods and services to the formal sector; or the informal sector operates independently by providing non-traded final goods and services meant for final consumption to the masses Marjit and Maiti However, in the context of liberalised open economy, economic reforms, such as trade liberalisation, and deregulation of formal labour market, have transformed the inter-relationship between formal and informal sectors of the economy Marjit and Maiti Empirical studies based on India show that trade openness and the consequent competitive pressure on Indian manufacturing bring about two forms of relation between formal—informal sectors due to the presence of wage rigidity in regulated formal labour market.

These two forms are production outsourcing to informal sectors e. Sundaram et al. Sen et al. Increasing pressure from international competition along with strict labour laws leads to adoption of flexibility in production organisation as a means of cost-cutting measures within formal enterprises in India, which allows formation of subcontracting relationship between formal—informal enterprises Ramaswamy ; Mazumdar and Sarkar ; Siggel However, no direct relation is established between the labour market flexibility, trade liberalisation and the consequent inter- and intra-sectoral labour mobility.

In Indian context, it is argued that benefits of economic reforms could be beneficial to a section of informal workforce engaged in high-income elastic informal services, such as construction, trade and transportations; and these growth-oriented informal services in turn absorb the labour from the low-productive sector such as agriculture, which ensures the overall growth of the economy Kotwal et al.

Hence, the mobility of labour from low-productive to high-productive sectors is essential to ensure the overall growth of the Indian economy Nayyar : ; Rada and von Arnim Besides, theoretical literature also, in the context of trade liberalisation and deregulation of formal labour market, depicts that mobility of labour between formal—informal sectors plays a crucial role in explaining growth linkages between these sectors of an economy e. Footnote 3 However, lack of availability of longitudinal data on labour force survey in India deters us to analyse empirically the transmission mechanism of inter-sectoral labour mobility and its concomitant impact on the formal—informal linkages due to exogenous policy shock such as trade liberalisation.

The present study explores whether and to what extent the degree of growth linkages between these two broad segments of the Indian economy varies with the varying degree of labour mobility across formal—informal sectors. In the present analysis, Computable General Equilibrium CGE tool is used to capture the degree of labour mobility under assumed alternative labour market scenarios where segmentation in labour market is considered as one important binding constraint for expansion of the sectors.

In India, increasing occupational segmentation and information asymmetry hinders free mobility of labour; at the same time, social and cultural differences create segmentation in the labour market with imperfect labour mobility, which further constraints the evolution of common national labour market Indian Labour and Employment Report Hence, there is a need for considering these aspects to conceptualise the labour market segmentation going beyond the formal—informal skill-specific segmentation in our analysis.

Footnote 4. Present study has its own importance in relation to public policy in India with special reference to trade liberalisation in India. Trade liberalisation, as a part of economic reforms in India, was initiated during through various measures like easing of quantitative restrictions on imports and reduction in import duties across all the segments of the industry and agriculture. Although quantitative restrictions on all capital goods, consumer goods and agricultural products were phased out completely byprocess of reduction of tariff duty was relatively slow Ahluwalia For instance, the weighted average tariff rate declined from However, external demand export growth did not ensure the overall growth of the Indian economy; it is rather domestic demand induced by gradual tariff liberalisation and the subsequent increase in competition in domestic market facilitated the growth of the economy Banga and Das b.

Lower tariff on final goods and inputs induced rising firm-level productivity of the Indian manufacturing, especially the import competitive industries and the industries where degree of regulation is relatively low Topalova and Khandelwal Several other studies also support the view that trade liberalisation in India enhances the firm-level productivity of the formal sector firms e.


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