Question

In the past few years, many concerns have been raised about the effects of globalization. One issues, has been the surge in imports from relatively poor countries over the past 20 years. Another is an increase in outsourcing (offshore). Discuss the implications for the Supply and Demand for Labor in the U.S. and in poor countries.

Answer 1

Clearly, globalization contributes to enhanced labor market integration and closes the wage gap between employees in developed and developing countries, particularly through technology spread. It also plays a role in enhancing inequality of national revenue.

Migration, trade, foreign investment, and the spread of technology—all channels of globalization—work to induce wage convergence in interconnected and mutually reinforcing ways.

Migrants and indigenous employees are incomplete replacements and can even complement each other as migrants boost aggregate demand for indigenous workers ' services. And migrants are lowering the cost of goods that indigenous employees consume.

Even when employees are not moving, trade can encourage salary convergence. Developing nations with an abundance of labor-intensive goods exporting products, so trade induces salaries to increase relative to wealthy nations with less labor and plenty of capital. 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.  Moreover, increased competition from low-wage countries tends to spur labor-saving technology in advanced countries.

Openness to trade and overseas investment, as in developed nations, has improved the relative return on skilled labor and capital, while decreasing the relative return on unskilled labor.

The labor challenge facing developed nations, still mired in elevated unemployment following the crisis, is more daunting despite their riches. Identifying the right policy reaction is made more difficult by the difficulty of attributing to trade, technology, demography the worsening of income distribution