New global labor market and its effects

According to the latest research from the University of Wisconsin-Madison Institute for Research on Poverty the new global labor market changed dramatically in the last few years.

Before the break down of Soviet Communism market leader were high developed countries like United States and Western Europe. These countries did not feel the threat by lower developed countries, with low-wages and low-technology. Everything changed rapidly with the fall of the Iron Curtain and the End of Maoist period in China. India, China and Soviet bloc joined altogether the global market and since then the world came closer. With this convergence the size of the global labor pool increased from former 1.46 billion workers to 2.93 billion. According to the study of Wisconsin-Madison Institute the flow of capital to China and India will increase. On the one, hand the low-wages of workers in these countries will rise up which reduces the poverty. On the other hand, the pressure on the employees of high-wage countries increases. Employers can threat their employees to work for a lower-wage because if they do not do this, the whole company will build up a plant in a low-wage country and so they will be unemployed. One does not have to be a brilliant economist to see how the doubling of the labor force affects the whole world. When labor force doubles, more people are in the labor pool and so employers have a greater choice. Therefore it is good for employers because wages will fall, while it is bad for workers because unemployment will rise. Because of the fact, that everyone is faced to duties, one cannot allow to lose his job in such tough times as we now have. So most of the people prefer working for lower wages instead of losing their job. Moreover it is a valid threat because wages in Central America e.g. are three to four times of those in China or India. But the problem does not lie in the acceptance of lower wages itself. Employers will continue their strategy by cutting the health-care plans for their employees and so, many have to cope with a job without coverage and even fewer will have private retirement plans. Therefore it is not just a short term effect the western economy is faced with. The long term effects are even worst.

Additionally we have a huge effect on the capital/labor balance. Because of the low capital they brought into the market the ratio of capital to labor in the world economy reduced to 61 percent of what it would have been before the entrance of low-wages countries. Relating on the conclusions the Institute for Research and Poverty China, India and the former Soviet bloc will save, invest and contribute to the growth of the world capital stock on the long run because of a way higher savings rate in comparison to the US one.

In summery one has to say, that the western well developed countries have never suffered from such a high pressure on the side of low-wage countries. The doubling of the global workforce presents one of the greatest challenges since the Great Depression. If the western countries adjust well, they will benefit from the globalization. If the adjust not well, the next several decades will exacerbate economic division and we all have to get common with a new world order.


2 thoughts on “New global labor market and its effects

  1. When reading articles about the global labour market and its effects, espacially this one right now, I recognize more and more that it is not self-evident for the majority of people all over the world to find a convinient job and also to earn enough money for the own living costs. I live in Austria and I am working there in a bank. I am getting more and more convenient to have such a good job!

  2. It is terrible that wise and smart specialists are forced to do low waged jobs. It is completely wrong and it should have been avoided long time before. Unfortunately it is easier for employers to hire simple workers that increase brain capital in the company. I think we should think about this issues, because all of us can be threaten by them. And most important provide some reasonable solutions for this problems without affecting low wage workers!


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