In its semi-annual World Economic Outlook, the International Monetary Fund examines how trade, technology and immigration have stitched the world’s labour markets together at an astonishing rate, leaving rich countries workers unsure of where they stand. Weighting each country’s workforce by its ratio of exports to GDP, the IMF estimates that global labour supply has in effect risen fourfold since 1980 as China, India and once-communist countries have opened up. Most of the extra workers got no further than secondary school altough the relative supply of gradiates has gone up by 50%. With this surge of competition, you might expect workers’ wages to shrink.
In some case, the competition is direct: workers cross borders to take jobs in rich countries. Although unwellcome in many places, immigrants’ share of the workforce has risen a lot in some European countries (notably Britain, Italy and Germany) and in America, where it’s close to 15%. The more important channel, though, is trade: largely because of China, developing countries’ share of rich countries’ manufacturing imports has doubled since the early 1990s. “Offshoring” (shifting production from here to there) has been on the rise, especially for intermediate goods and some services, although it has grown more slowly than total trade.
Globalisation is not the only possible reason why labour’s share has shrunk. New technologies have probably taken a few degrees off the workers ‘ slice too. Several countries have also fiddled with labour market regulation, pushing the wage share on one way or another.
The IMF has made perhaps the most valiant attempt so far to weigh these competing explanations. It is impossible to disentangle technology and globalisation entirely: advances in telecommunications, for example, are what enable Indian software engineers and call-centres to serve customers in America and Europe.
Technological change has the biggest effect in Europe and Japan. In Anglo-Saxon countries (US, Australia, Britain and Canada) it was much smaller. In America, indeed, technology seems to have raised labour’s share. the IMF thinks this may reflect America’s lead in using IT : When a country first exploits IT, labour’s share of the national market goes down. As time goes by, though, workers adjust and learn. Once their skills match the technology better, their productivity and their wages go up.
The effects of labour globalization were most evident in Anglo-Saxon and smaller European countries. However, it has touched places in different ways. In Europe, the effects of offshoring and immigration have been more marked than in the Anglo-Saxon world. The labour-intensive goods that rich countries import have fallen in price, pressing down on the workers’ share. But this has been broadly offset by price falls in the capital-intensive goods they export. In Japan, these prices fell by enough to yield an overall net gain in the labour share.