How Globalization affects Employment
October 6, 2010 6 Comments
Industrial production related employment had produced the middle class and the overall prosperity in the United States. Such employment has distinguished developed markets from those developing and undeveloped, indeed. The higher income from relatively higher margins of the industrial employment has helped fiscal reserves to risen, the social and infrastructural expenses to be enhanced, hence to setup the developed world’s higher standard of life and overall prosperity. In the last couple of Centuries, the United States had led the developed world into creating a vivid and productive workforce to respond to the demand, national and international, for industrial goods and the related engineering, marketing, etc employment. The system had performed sufficiently enough to let countries like Germany, Japan, e.g. to distinguish as highly developed industrialized nations. Developed industrialized countries had reached high productivity carried on by ever-developing mechanization, adequate education, infrastructure, and most important adequate employment. The industrial employment had been a main part of the market demand that spurred economic growth.
However, the China’s industrialization and the Soviet Block demise has changed the marketplace and related competition: whereas the globalization has accelerated and the productivity has risen. The vest Chinese capacity of qualified inexpensive labor and well developed infrastructure (labor expenses have been rising steadily, however the Chinese consumption has compensated by rising too). Comparably to China, the Post-Eastern Block has not succeeded in prompting adequate market development (i.e. economic growth).
Transnational corporations have been taking advantage of this new emerging opportunities, through moving and outsourcing of industrial production, through acquiring inexpensive assets (particularly in the Post-Eastern Block) and market expansion “CATCHING FISH IN THE MUDDY WATER”. However, Transnationals’ access to large pool of qualified workforce has loweried these markets equity and the consequencual demand by reducing salaries in an not functioning labor market.
Simultaneously, the US and other most developed markets’ industrial employment has been steady declining, alone with the middle class and fiscal reserves. Deficit has been running high alone with national debt.
The 2007-9 Recession has accelerated and aggregated the process of shorting employment. By itself, the 2007-9 Recession was a product of market imbalances, whereas the supply-to-demand gradually changed into demand-to-supply, because the demand in the practiced trickle-down Capitalism has become a gravitating issue.
In many places at my articles employment was directed as being mostly affected by the ongoing Globalization and ever rising Productivity, however this article is to localize and show the direct consequential relation between shortening employment and the ongoing Globalization and rising Productivity. It should be quite simple of a task to be objective when observing how many mostly industrial jobs have been diminishing in numbers because either (1) the improving technologies or/and (2) the outsourcing and moving out of industrial production from the US and EU to China, India and beyond. Thus manly these two reasons for reduction of employment are to be considered unquestionable by no one could be democrat or conservative. The difference between the democrats and the republicans is not, obviously, in the previously stated conclusion but mostly in the approach considered for getting out of the ongoing situation to economic revival that will reduce this conclusion, therefore the high and rising unemployment is directly related to the ongoing globalization and rising productivity: a fact to deal with by clearing some fundamental points. Then, only then economic parameters should be set up to overcome the situation and bring new instruments of economics to help to prompt and maintain better paid employment.
Two approaches considered:
1) First, the private employment is currently the mostly used economic instrument, which is prompted mostly (if tax breaks and subsidies are not included) by market forces. 2) Second, the government related employment has been either direct or indirect through projects or programs. Both approaches have been affected under the new conditions: in the first place, tax breaks and subsidies work until certain time when these directly could be overwhelmed by the resistance of the market forces such as shortening demand for thus manufactured goods or provided services and in the second place, under the current financial system the bulking deficit and national debt limits the abilities of any administration to keep long term projects and programs of such becoming political issue being most likely interrupted. Both approaches can not properly function in a system of high interest commercial lending because these are not directly connected to genuine market competition but are artificial methods for creating employment.
To establish more adequate market conditions for adequate employment, in which market forces are used in their best under such new developing conditions the free entrepreneurship should be let to create and maintain relative employment, whereas the role of the government is minimized.
The new conditions should be precisely evaluated and the necessary changes and approaches should be implemented:
- New global market conditions affected by the much cheaper industrial production in China, India and elsewhere have shorten the return on investment and profitability for the small and medium investors and the small to medium businesses,
- New global market has given all the powers to the transnational corporation and the big investors, which abilities to borrow on lower rates and access public funds through market exchanges, however the industrial production has been moved or outsourced the majority of their and their investment and reinvestment goes away from the US territory. Despite that the transnationals and large investors benefit directly from the globalization and rising productivity, they bring small and declining employment.
- For small and medium businesses and investors is relatively easy to open and establish new businesses, but the lack of business laws and regulations in contracting, the “shady” business practices, the lack of personal liability to corporate structures make life much easier, except when must go to the bank in attempt to borrow, and well then life may well become close to nightmare, because the financial institution consider the points from above more like a lack of security and high risk and either rejects such loans or lend on high interest to offset risk. When the government gets involved by making easy loans the consequences may well follow the steps prompting to the last recession by exasperating value of equity, of overcapitalization. Because whenever the market balance is disrupted, either redundancies or shortages occur.
- The relaxing financial policies and regulations allowing large financial institutions to speculate brings similar effect to the small and medium investors what the “shady” business practices bring to small and medium businesses such as expensive money and financial difficulties because of the lack of security and high risk, indeed.
- Whenever governmental regulation are used, instead of criminalizing business violations and enhancing personal liability for corporate structures and business transactions, consequences are negative to the market forces because most of the time such regulations are quite partial and politically influenced. Thus criminalizing business violations and enhancing personal liability of corporate structures could much better equalize the so much needed small businesses and investors, which are the main employer on the US market, to the big businesses and investors, it also will jack up the security and minimize the risk to lenders.
- The role of public equity should be also fundamental in balancing the ongoing effect from the Globalization and rising Productivity: so, what “public equity” could be considered for: Infrastructure, Medicare, Social Security, Education are considered public equity because of the effect these impose over the marketplace in time of shrinking industrial production (here it should be mentioned the gaining “equity” approach is some used by China for balancing their marketplace), but here also could be stated that such policies of gaining and growing “equity” may work much better on the US market that eventually may prompt more employment by replacing the artificial governmental programs to such market related approach to balance market demand-to-supply toward inflation.
- Instead of the debt as a main economic issue in this new market economics the balancing demand-to-supply should be the main issue pinned to inflation & deflation; to succeed in these new approach Monetary Policies should be well adapted to accommodate.
- Subsidies to targeted industries of renewable energies, organic farming, environmental tourism and etc. are to be market tools to prompt some employment when simultaneously save Earth. Under the current economic approaches, industrial production is just moved from one place to another considering profitability, thus the relatively expensive technologies to generate renewable energies, whereas reducing companies competitiveness and the consequential ROI. Only targeted subsidies, tax breaks, could make these industries compatible.
Obviously, to keep employment in functional working limits in these new economic conditions small and medium businesses and investors should be setup to be finance-able on a low interest rate; Monetary quantities should be enhanced to accumulate if SMB and SMI expand their market-share and ”equity” approaches alone with targeted subsidies should help the balance. The market security should be considered number one priority.
© Joshua Konov, 2009
SEE Market Economy under Rapid Globalization and Rising Productivity http://ideas.repec.org/p/pra/mprapa/48750.html
by JACOB GOLDSTEIN
After falling during the recession, the number of Americans with full-time jobs increased last year.
But median earnings for full-time workers fell. (Also: The wage gap between men and women did not change.)
And household income was stagnant across the income spectrum.
These figures, from a Census Bureau report released this morning, aren’t surprising. But they are a reminder of the fact that, while high unemployment remains a big problem for the U.S. labor market, it’s not the only problem. There’s also a long-term stagnation in real earnings for people who have jobs.
On a less-grim note, the report also found that the percentage of Americans without health insurance fell last year. Here’s more on that.