TFR 49 – Globalization and Trilateral Labor Markets


Over the past few years large and populous states have entered the world economy. Rapid and far-reaching reform of their economic and political systems may enable them to become major participants in a truly globalized economy. This presents a dramatic challenge to the industrial countries. The initial discrepancy in cost levels is prompting widespread fears of a levelling down of wages towards a world average way below the standards to which even the poorest presently industrialized countries have become accustomed.

The surge in trade with and foreign investment in new partners has coincided with growing tensions in labor markets in Europe, North America and Japan— in particular a deterioration of the relative position of less-skilled workers in Europe and North America. The United States has experienced growing wage inequality and sustained slow growth in average wages (but relatively low rates of unemployment). Europe has experienced high rates of unemployment, particularly among workers with little skill or education (but average wages have continued to grow, with little evidence of increasing inequality).

The main task of this volume—undertaken in chapters on the United States, Japan and Europe—is to discuss the evidence of a link from globalization to growing tensions in Trilateral labor markets.

The authors conclude that the overall role played by trade with developing countries has been very small. They regard it as unlikely this conclusion will be greatly changed looking ahead. In order not to be suspected of understating the potential future threat, the authors construct—for the United States and Japan—what might be called disaster scenarios in which all their manufacturing industry which uses less-skilled labor above a certain threshold in its total employment is wiped out by new competitors. Even then, the growth of export opportunities and reasonable assumptions as the substitution between different categories of labor will prevent the scenario from developing into disastrous consequences for the weaker part of the labor force.

There is clearly a discrepancy of major proportion between the alarmist views often expressed in the public debate and the conclusions of most economic analyses, including this study.


Niels Thygesen, Professor of Economics, Economics Institute, Copenhagen University.
Yutaka Kosai, President, Japan Center for Economic Research, Tokyo
Robert Z. Lawrence, Albert L. Williams Professor of International Trade and Investment, Kennedy School of Government, Harvard University, and Research Associate, National Bureau of Economic Research.

Table of Contents

I. Introduction
A. The Challenge of a Truly Globalized Economy
- Global Equalization of Wages?
- Comparative Advantage Drives Mutually
- Beneficial Trade Flows
- Relative Wages of Less-Skilled Workers
- Trade Inside and Outside the OECD Area:
B. Growing Tensions in Trilateral Labor Markets
C. The Linkage Between Globalization and Growing Labor Market Tensions
- Measuring the Linkage
- Alternative Explanations for the Deteriorating Relative Position of the Less-Skilled
- Small GDP Shares of Trade with Non-OECD, Non-OPEC Countries
II. The United States
A. Why Have Average Wages Grown So Slowly?
B. The Small Role in Growing Wage Inequality of Developing Country Trade
- Quantitative Evidence
- Price Evidence
C. Wage Premiums of Unskilled Workers in Concentrated Import-Competing Industries
D. Multinationals and Outsourcing
E. The Future
- High-Skill and Basic Industries
- An Extreme Scenario
- Observations
- Qualifications
F. Conclusions
III. Trade, Employment, and Wages: The Japanese Case
A. Internationalization of the Japanese Economy
- Globalization
- Public Concerns
B. Labor Market Performance
- Employment
- Wages
C. Trade, Employment, and Wages
- Changes in Trade Structure Diminished Employment, Particularly of Less-Educated Workers
- Relative Wages of College-Educated Workers Generally Declined (while Employment Ratio Generally Increased)
- Why Has Wage Dispersion Narrowed Amidst Globalization?
- Wage Premiums
D. The Future
E. Concluding Remarks: More Flexible Labor Markets Needed in a More Integrated World
IV. Europe
A. Trade Flows with the Non-OECD Area
B. European Unemployment
C. Effects of Trade on Unemployment
D. Conclusions
V. Conclusions and Policy Implications
- Intra-Industry and Inter-Industry Trade

  • Topics: Economics, Trade, Multilateral Cooperation
  • Region:  North America, Europe, Middle East, Africa, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 1996
  • ISBN:  0-930503-73-2
  • Pages:  112
  • Complete Text: Click here to download