Skilled & Unskilled work: Segments and wedges

In Anglo-Saxon and smaller European countries, labour market policies have partially offset the depressing effect of technology and globalisation on labour’s share, mainly by shaving the tax wedge  between what workers cost to employ and what they take home. In larger European countries, increase in the ratio of unemployment benefits to wages have hurt labour’s prospects, probably against policies’ makers intentions.

Not all workers are equal. According to the IMF, globalisation has weighed  more heavily on skill-intensive than unskilled industries. This may be because of offshoring, which has probably intruded on the first lot of industries more than the second. But other factors have offset glottalization’s effects. Indeed, the labour share in skilled industries has gone up overall, because of a shift of jobs from unskilled to skilled sectors.

Although globalisation has reduced labour’s share of the pie, it has made the pie bigger, rising output and productivity and lowering prices of traded goods and services. So are workers getting getting smaller shares but larger slices of the pie ? Yes, concludes the IMF: “trade has helped, largely by making imports cheaper. Across the 18 European countries studied, changes in trade prices boosted average real pay by 0.24% a year”.

Labour is therefore getting some of the extra growth due to globalisation. However, that is unlikely to silence the grumbles. Many people believe that most workers have not gained much from globalization at all. The perception remains, especially in the UK, that people who already have plenty have enjoyed the bulk of extra prosperity. To reach a judgement on that, we need to dissect neither the labour share nor average pay, but the median wage – which the IMF’s study does not do.

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