Making Globalization Socially Sustainable

1. Making Globalization Socially Sustainable An ILO – WTO co-publication Edited by Marc Bacchetta (WTO) and Marion Jansen (ILO)

2. Social dimensions of globalization: public perceptions • About half of Americans and Europeans think that “freer trade” results in more job loss than job creation • 62% of respondents say that job security has declined (US survey) • In 43 European countries surveyed, the majority of people believed that globalization is an opportunity for economic growth but increases social inequalities

3. Motivations • Strengthen the evidence base of the debate on globalization and ... ... Employment ... Uncertainty ... Inequality • Provide policy guidance

4. The book is in three sections Section 1: Globalization and employment Section 2: Globalization and uncertainty Section 3: Ensuring a sustainable distribution of the gains from globalization

5. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Globalization and employment Chapter 1: Globalization, Offshoring and Jobs HolgerGörg (Kiel University) Chapter 2: Trade, Employment Structure and Structural Transformation Margaret McMillan (IFPRI) DaniRodrik (Harvard University) Chapter 3: The Crisis, Policy Reactions and Jobs David Bell (University of Stirling) David G. Blanchflower (Dartmouth College)

6. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Globalization, Offshoring and Jobs (Görg) How do trade opening and offshoring affect employment in developed economies and is there a role for governments in helping to maximize the gains from globalization? • Higher job turnover in the short run • No indication of long run effect on aggregate unemployment but low-skill workers may suffer • Structural change towards services linked to globalization • Challenge is identification and compensation of losers

7. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Trade, Employment Structure and Structural transformation (McMillan & Rodrik) What are the effects of globalization on the structure of employment and growth in developing economies?

8. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization The Crisis, Policy Reactions and Jobs (Bell and Blanchflower) How did the Great Recession affect employment and how did governments react? • During the recession, the labour market performance has been weaker in developed than in developing countries. • The young, the poorly educated and ethnic minorities have suffered disproportionately in terms of unemployment in developed countries. • Public sector intervention has often had an attenuating effect on employment impacts. • If recovery is jobless, demands for protectionism may grow , especially in countries where inequalities are widening.

9. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Globalization and Uncertainty Chapter 4: Globalization and Economic Volatility John Haltiwanger (University of Maryland) Chapter 5: Actual and Perceived Effects of Offshoring on Economic Insecurity: The Role of Labor Market Regimes William Millberg (New School for Social Research, New York) Deborah Winkler (New School for Social Research, New York) Chapter 6: Social Protection in Labour Markets Exposed to External Shocks Devashish Mitra (Syracuse University) Priya Ranjan (University of California – Irvine)

10. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Globalization and Economic Volatility (Haltiwanger) How does globalization affect the process of resources reallocation? • In open economies, less-productive firms are more likely to close down and more-productive firms to thrive. This contributes positively to productivity growth and possibly to workers’ earnings and employment. • However, during periods of economic crisis or in distorted economic environments, “de-coupling” can take place: i.e. closure of less-productive businesses not accompanied by creation and expansion of more-productive businesses.

11. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Actual and Perceived Effects of Offshoring on Economic Insecurity: The Role of Labor Market Regimes(Millberg & Winkler) Is globalization increasing labour-market related uncertainty or only the perception of uncertainty? • In many industrialized countries, the increase in the labour share of income of the 1970s began to level off in the 1980s and turned into a downward trend at the end of the 1990s. • Offshoring contributed to this evolution. Its effect on the labour share depends crucially on labour market institutions. • Offshoring seems to have raised the labour share in countries with strong labour market support.

12. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Social Protection in Labour Markets Exposed to External Shocks(Mitra & Ranjan) Can social protection help ensure that no one loses from trade opening? If yes, how should it be designed? • Social protection can lead to increased support for more open trade. But a focus on trade-displaced workers alone may not be enough. Equity concerns may need to be taken into account. • In low-income countries in which social protection systems with wide coverage are not yet in place, public works programmes can be very successful in mitigating the consequences of economic crises.

13. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Ensuring a Sustainable Distribution of the Gains from Globalization Chapter 7: Globalization and Within Country Income Inequality Nina Pavcnik (Dartmouth College) Chapter 8: Redistribution Policies in a Globalized WorldCarles Boix (Princeton University) Chapter 9: Education Policies to Make Globalization More Inclusive LudgerWoessmann (University of Munich)

14. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Globalization and Within Country Income Inequality(Pavcnik) Is globalization responsible for the growing inequality within countries? • Globalization can contribute to growing wage inequality between skilled and unskilled workers because: • Offshoring can contribute directly to skills-biased technological change in developing countries. • Trade can contribute to wage inequality by raising wages in exporting firms. • The effect of international trade on wage inequality depends on the specific country, the nature of trade liberalization and/or the type of trade that countries engage in.

15. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Redistribution Policies in a Globalized World (Boix) Does globalization curtail the capacity of national governments to pursue redistribution policies? • The observed positive correlation between the size of the public sector and the level of trade openness suggests that states can and do develop fiscal policies to compensate those made worse off by globalization. • This correlation may decline because globalization increases the mobility of labour and capital, but: • Policies of social compensation, by reducing social conflict, may reduce incentives of capital to move; • Dislocation of capital may be avoided by channelling increased public spending into infrastructure, education and training or the quality of public institutions.

16. A co-publication by the International Labour Office and the Secretariat of the World Trade Organization Education Policies to Make Globalization More Inclusive (Woessmann) What is the role of education and skills policies in spreading the benefits of globalization and making it more inclusive? • Education and skill policies determine whether people are able to share in the gains from globalization. • The quality of early childhood education is particularly relevant in this context because it fosters learning at subsequent stages in life. • To increase workers’ capacity to adapt to changing environments, Woessmann argues in favour of putting a stronger emphasis on "generalizable" skills in programmes of vocational and technical education, where they exist.

17. Conclusions In order to capture globalization's full potential to stimulate productivity and growth, three challenges need to be overcome : • Structure and levels of employment emanating from globalization can be more or less favourable for the labor force; • Openness provides a buffer against domestic shocks but increases labour markets’ vulnerability to external shocks; • Gains from globalization are not distributed equally: some firms and workers may lose in the short and possibly medium-run.

18. Conclusions Governments have an important role to play in making globalization socially sustainable: • Investment in public goods (e.g. infrastructure, legal system); • Strengthen the functioning of markets relevant for transition processes (e.g. financial markets); • Social protection to facilitate transition processes and assist those suffering from increased openness; • Education and skill development policies.

19. Making Globalization Socially Sustainable Available at: http://www.ilo.org and http://www.wto.org ht