Globalization of labour markets

EU-LDC Trade and Capital Relations Series

The E U - L D C Trade and Capital Relations Series publishes the proceedings of the E U - L D C Trade and Capital Relations Network's annual workshops. Thanks to a grant from the Netherlands Ministry of Foreign Affairs, the Network was established at the Netherlands Economic Institute to monitor relations between the European Union and less developed countries. The activities of the Network include: (i) publication of a quarterly newsletter EU-LDC News which highlights recent developments; (ii) workshops which focus on strategic issues and (iii) publication of the workshops' proceedings. The activities of the Network are managed by a Network Team and supervised by a Steering Committee.

Steering Committee

Chairman Rolf Langhammer

Michael Green K. A d Koekkoek Arie Kuyvenhoven Patricio Meiler Patrick A . Messerlin Willem T. M . Molle H .M.A. Onitri Christopher Stevens

Secretary Nico van der Windt

Network Team at the Netherlands Economic Institute Olga Memedovic Marrie de Kreek

Globalization of Labour Markets

Challenges, Adjustment and Policy Response in the EU and LDCs

Edited by

OLGA MEMEDOVIC

ARIE KUYVENHOVEN

and

WILLEM T. M. MOLLE

SPRINGER SCIENCE+BUSINESS MEDIA, LLC

Library of Congress Cataloging-in-Publication Data

Globalization of labour markets : challenges, adjustment, and policy response in the E U and LCD's / edited by Olga Memedovic, Arie Kuyvenhoven, and Willem T . M . Molle.

p. cm. Articles resulting from a workshop held in Rotterdam in 1995. Includes bibliographical references and index. ISBN 978-1-4613-7857-0 ISBN 978-1-4615-6229-0 (eBook) DOI 10.1007/978-1-4615-6229-0 1. Labor market-Congresses. 2. Labor market-European Union

countries-Congresses. 3. Labor market-Developing countries--Congresses. 4. International division of labor-Congresses. 5. Foreign trade and employment—Congresses. 6. Alien labor--Congresses. 7. Emigration and immigration-Congresses. I. Memedovic, Olga. II. Kuyvenhoven, Arie. III. Molle, Willem. HD5701.3.G584 1997 331.12-dc21 97-33607

CIP

Copyright © 1998 by Springer Science+Business Media New Y o r k Originally published by Kluwer Academic Publishers in 1998 Softcover reprint o f the hardcover 1st edition 1998 A l l rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo­copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, L L C .

Printed on acid-free paper.

Contents

List offigures List of tables Preface Foreword Bernard S.M Berendsen Acknowledgements List of contributors

PART ONE: OVERVIEW

1 Introduction and summary Olga Memedovic, Arie Kuyvenhoven and Willem TM Molle 1 Introduction 2 Theoretical issues 3 Exporting goods or labour 4 Policy response

PART TWO: THEORETICAL ISSUES

2 Trade and wages: a malign relationship? Jagdish N Bhagwati 1 Introduction 2 Clarifications and caveats 3 Alternative theoretical approaches 4 Concluding thoughts Discussion Martin Wolf Zhang Xiaoji Adrian Wood

page

lX

Xl

XV

xv 11

XXI

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3

3 8

14 20

31

31 32 35 56 66

VI

3 Looking South and East: labour market implications of migration in Europe and LDCs 75 Thomas Bauer and Klaus F. Zimmermann 1 Introduction 75 2 Some stylized facts 76 3 Theoretical framework 86 4 Calculating the gains from immigration for

the destination country 91 5 Conclusions 97 Discussion 103 Andre Sapir Ruth Klinov

4 Locational innovation in LDC investment and its implications for migration: foreign direct investment in and by LDCs 111 Sheila Page 1 Introduction 111 2 New sources and directions 112 3 Reasons for investing 1 19 4 Why do countries want FDI? 122 5 Do the traditional explanations still work? 123 6 Multinationals and trade 126 7 Differences among foreign investors 13 1 8 Prospects for FDI 132 Discussion 135 Sartaj Aziz Marcel F. van Marion

PART THREE: EXPORTING GOODS OR LABOUR

5 Exporting goods or labour: experiences of East, South and South-East Asia Florian A. A/huro 1 Introduction: explosion of labour exports 2 Goods exports or labour exports? 3 Trade and turning-points 4 Conclusion Discussion Alutwala D. V. de S. Indraratna Morris Teubal

153

153 157 162 168 172

VII

6 Trade and employment in Latin America 183 Patricio Meller 1 Introduction 183 2 Review of the employment-trade relationship 184 3 The pattern of Latin American trade 187 4 Estimation of the employment effects of

Latin American trade in manufactures 191 5 Changes in employment in the Chilean and

Mexican manufacturing sector 199 Discussion 203 Karsten Nimh Pedersen Alfred Tovias

7 Exporting goods or labour: the experience of North and Sub-Saharan Africa 213 Festus 0. Fajana 1 Introduction 213 2 North and Sub-Saharan Africa's experience

with exporting goods to Europe 214 3 Migration of labour from North and

Sub-Saharan Africa to Europe 218 4 Prospects and the way out 223 Discussion 227 Giuseppe Gesano

PART FOUR: POLICY RESPONSE

8 Labour in the global economy: challenges, adjustment and policy response in the EU 237 Gijshert van Liemt 1 Introduction 237 2 The social dimension of globalization 239 3 The social dimension of the European integration 242 4 Conclusion 248 Discussion 251 Raymond Torres

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9 Labour market integration and policy response in East and South-East Asia 257 Suthiphand Chirathivat 1 Overview 257 2 Broad conceptual background 258 3 Recent experiences of labour mobility in ESEA 259 4 Labour market integration in the context of

regional economic integration 261 5 Further steps for regional policy 267 6 Conclusion 272 Discussion 275 Jose Antonio Ocampo Gaviria Maria del Carmen Pont- Vieira

10 Technological progress, innovation and employment in Latin America: the 1990s 283 Jorge Katz Jose Miguel Benavente 1 Introduction 283 2 'Old' and 'new' theoretical questions 286 3 A non-orthodox account of the Latin American

industrialization process 288 4 Industrial strategy and public policy in the 1990s 296 Discussion 303 Adell Gazarin Ludovico Alcorta

Index 313

Figures

page

2.1 The impact of trade deficit/surplus on the real wages of production factors 34

2.2 Increase in trade between the North and the South due to the trade liberalization in the South 36

2.3 Increase in trade between the North and the South due to the trade liberalization in the North 37

2.4 Stolper-Samuelson relationship between the goods prices and the real wage of unskilled labour and Samuelson relationship between goods prices and factor prices. 39

2.5 Changes in the real wage of unskilled labour for different goods price-ratios under autarky 42

2.6 Changes in the real wage of unskilled labour for different goods' price ratios under free trade and autarky 43

2.7 The impact of import increase of Apparel on the domestic price and production 46

2.8 Hicks-neutral technical change effect on the output in Machinery and Apparel 47

2.9 Effects of the Hicks-neutral technical change in Machinery on the relative wage of skilled labour 49

3.1 Unemployment rate and the share of foreign population in the EU Member States, the United States and Japan, 1991 81

3.2 Population growth (1994-2025) and share of foreign population (1991) in the EU Member States, the United States and Japan 82

3.3 Population pressure and economic development in countries of North Africa, the CEECs and the EU, 1991 83

3.4 South-North (unskilled) migration 88 3.5 East-West (skilled) migration 90 3.6 Immigration gain of native workers and immigrant

skills with different extents of immigration 92

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3.7 Immigration gain of native workers according to production factors 95

5.1 Ratio of merchandise exports to remittances in Asian countries, 1980-93 165

5.2 Annual changes in the value of exports in South Korea, Thailand and the Philippines, 1980-93 166

5.3 Annual changes in the number of migrant workers in South Korea, Thailand and the Philippines, 1976-93 168

Tables

page

1.1 EU imports from LDC regions, 1988-95 4 1.2 Foreign residents in selected EU Member States,

1982-93 6 1.3 Share of LDC regions in EU -15 imports from the world and

LDCs, 1988-95 19 3.1 Age structure of the population of the EU, Japan and

the United States in 1990, and forecast for 2020 77 3.2 Population structure of the EU: age groups 20-39/40-59,

1990-2020 78 3.3 Population in immigration countries in 1991 and 1994, and

population growth for 1994-2025 79 3.4 Population in emigration countries in 1994 and

forecast for 2025 80 3.5 Stock of foreign population in the EU in 1992 85 3.6 Labour market effects of migration for immigration and

emigration regions, 1993 93 4.1 Capital flows to LDCs, 1990-94 113 4.2 FDI inflows by country and region, 1987-93 114 4.3 Geographical breakdown of FDI, 1992 116 4.4 Principal investment flows, 1975-91 118 4.5 Total FDI by LDCs, 1975-91 120 4.6 The share of FDI inflows in gross domestic capital

formation, 1971-91 124 4.7 Investment in Mexico, 1993 and 1994 125 4.8 United States imports from affiliates, by area, 1989 128 4.9 Ratio of sales of foreign affiliates to total exports for

selected home countries, 1982-89, and average annual growth rates of sales and exports, 1982-85 and 1985-89 129

4.10 Production with components from Europe in the ED 143 4.11 Price difference between products sold by two major

producers in Korea and Korean products on the European market in 1986 and 1994 147

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5.1 Outflow of overseas contract workers from selected Asian countries, 1976-93 154

5.2 Labour outflow from Asian countries to selected host countries, 1993 156

5.3 Merchandise exports for selected Asian countries, 1980-93 159 5.4 Remittances of the Asian overseas contract workers,

1976-93 160 5.5 Ratio of merchandise exports to remittances,

for selected Asian countries, 1980-93 161 5.6 Migrant workers' outflows related to exports,

regression results for the Philippines, South Korea and Thailand, 1978-91 164

5.7 Revealed comparative advantage indices for selected Asian countries, 1980, 1985 and 1990 167

5.8 Labour force and employment growth of Asian countries, 1977-90 170

5.9 GDP growth rates in Asia, OECD countries and Africa, 1970-91 173

5.10 Annual remittances from Sri Lankan workers abroad and their share in total export earnings, 1984-94 175

5.11 Private remittances of Sri Lankan migrants, 1989-93 177 6.1 Latin American exports and imports by regions,

1980, 1990 and 1993 188 6.2 Latin American agricultural exports and imports

by countries and regions, 1980, 1990 and 1993 190 6.3 Latin American mining exports and imports by regions,

1980, 1990 and 1993 191 6.4 Latin American exports and imports of manufactures

by countries and regions, 1980, 1990 and 1993 192 6.5 Employment generation in manufactures due to

exports in LA and selected developed countries, 1990 196 6.6 Employment effects of Latin American exports and imports

of manufactures in selected countries and regions, 1993 197 6.7 Average wages and value added per worker in

the manufacturing sector in selected countries, 1990 198 6.8 White and blue collar employment mix in Chile and

Mexico in selected years of the period 1984-92 199 6.9 White and blue collar wage differential for Chile and

Mexico in selected years of the period 1984-92 200 6.10 Direction of exports from Latin America, Asia and

Sub-Saharan Africa 204

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6.11 Export of goods from Latin America, Asia, Sub-Saharan Africa and DCs, 1981-93, 1981-93 205

7. 1 Share of manufactures in total exports in LDCs, CEECs and developed countries, 1970-90 216

7.2 African imports-exports by commodity, 1980, 1985, 1991 229 7.3 Annual change in working-age population in Africa,

in selected periods 231 9.1 Measures of regional interdependence through two-way

trade in selected geographical regions, 1938-90 262 9.2 Changes in the geographical structure of Japanese trade,

1960-93 263 9.3 FDI flows to East and South-East Asia, 1981-92 265 9.4 Cumulative FDI flows into East and South-East Asia by

source region, 1980-89 265 9.5 Share of foreign firms in exports, value added,

employment and fixed assets in manufacturing in selected ESEA economies, 1972-91 266

9.6 Government perceptions of the level of immigration to and emigration from East and South-East Asia, for 1983 and 1993 269

9.7 Migration policy in East and South-East Asia, for 1983 and 1993 270

Preface

To the classical driving forces of migration such as poverty, oppression and war, yet another is being added: globalization. With the increasing economic interdependence between countries migration has become one of the important links. Many less developed countries (LDCs) accept migration of their workers to developed countries (DCs) because it reduces the pressure on unemployment, and remittances increase the capital inflow to the country. On the other hand, some of the DCs see migration as a threat to their employment and system of social security. Participants of the Second Annual Workshop of the Network EU-LDC Trade and Capital Relations gave a broad view of the problem which both DCs and LDCs are facing in connection with the globalization of labour markets. This volume consists of 10 chapters by scholars from the European Union (EU) and LDCs. Each paper is discussed in terms of its policy relevance by a policy maker as well as by an academic specializing in the field. In the opening chapter we aim to do justice to the discussion during the Workshop in Rotterdam in May 1995 at which preliminary versions of all chapters were presented. Edited versions of the interven­tions by the policy makers and experts are included as far as possible af­ter the chapters. The opinions expressed in this volume are those of the authors and not necessarily those of their organizations.

The editors

Foreword

The subject of this book' globalization of labour markets' is currently at­tracting a lot of attention, not only in academic circles but also in policy discussions and the popular press. The debate often concentrates on the links between employment, migration and development assistance.

This short introduction is limited to some preliminary remarks on trade, aid and migration, as seen from the perspective of development cooperation, in particular with Africa.

Globalization of labour markets

Even though international labour mobility is a very topical issue, it is still a phenomenon of limited dimension. Given economic differences be­tween nations, it is surprising how little international migration occurs. According to World Bank estimates, out of a global working population of 3.5 billion there are approximately 100 million people working out­side their countries of origin. Of these, some 45 million are refugees and 55 million can be considered economic migrants. These are estimates, not hard facts - there are a lot of illegal foreign workers not accounted for, though their numbers are relatively small. Moreover, most of the movement takes place within the developing world. Migration as we can see from these figures is not primarily a North-South issue: at least half of all migrant workers move from one developing country to another.

It is important to bear in mind that there are several types of mi­grants. They can be distinguished by their intention to migrate tempo­rarily or permanently, and according to the degree of voluntariness of their decision. In the context of this book, economic migration is proba­bly the most interesting category.

For most developing countries internal migration, the rural-urban drift, is just as important as international migration. For Africa the dis­tinction between internal and international migration can be especially doubtful. International migration is only international by virtue of the existence of man-made national boundaries. The colonial system brought, in the name of Commerce, Christianity, Civilization and

xviii

Conquest, highly artificial boundaries to Africa and restricted migration possibilities to more or less free movement of people within the African continent. In recent decades the independence of the former colonies in Africa has left their populations locked within those highly artificial boundaries. Many of the new states lacked the economic potential to provide sufficient employment. Labour mobility, moreover, is a tradi­tional feature of the economy of all regions in Africa. Seasonal migration has always been pronounced. The slave trade is a special historical exam­ple. More recently, the labour flows into South Africa come to mind. All this contributes to the fact that approximately 40 to 50 per cent of all migrants in the world are located in Sub-Saharan Africa. However, even though Africa's refugee burden is considerable, the majority of the re­gion's migrants are not classified as official refugees. This is because, most African migrants do not actually travel very far and not many are coming to Europe, yet.

So international labour mobility cannot be compared with the mobil­ity of capital and goods. This will not come as a surprise, since there is broad support in all developed countries for the protection of their labour markets. But the pressure is mounting. The global working population is increasing by 90 million persons annually. In the South, as a result of population growth, the job creation challenge is immense. In the North, even now, migration has grown into a subject of disproportionately great political significance. In principle, there are no sound economic reasons to fear a further increase of labour mobility. But migration is not just an economic issue. The framework of analysis will have to take the histori­cal, demographic, economic and political context into account.

Development cooperation policies

In the debate the question is often asked whether aid or trade policies can offer an alternative for migration. The link with development coopera­tion policy can be easily understood. The enormous differences in wealth in the world must provide an important incentive for migration. If one looks at the root causes of migration, such as demographic pressure, ecological distortions, economic inequalities, political instability and violations of human rights, it becomes clear that development policies are crucial. Industrial countries are spending more on immigration con­trol and integration assistance within their own boundaries than on offi­cial development assistance. However, aid is not an easy remedy. More needs to be learned about how development affects migration and migra­tion affects development.

XIX

In the long term, economic development can indeed be expected to moderate the pressures for migration. Over the short term, however, what has been called the development-migration paradox holds: eco­nomic development increases the propensity to migrate. Development and adjustment disturb social and economic patterns and lead to internal and international movements of labour. The phasing of emigration pres­sure is positively correlated with economic growth. Development aid in general can be expected to contribute to this process. Recent aid strate­gies have highlighted the importance of labour-intensive growth and pro­ductive employment for poverty reduction. But poverty reduction itself will in the short run lead to an increase of the number of potential mi­grants. It is a well-known fact that most migrants do not belong to the group below the poverty line.

In many African countries the problem of a brain drain is actually widening the development gap. Migrants are better skilled, talented and educated than people who stay behind, thus robbing these countries of scarce human capital. Alternatively, international labour mobility can contribute to economic growth in developing countries. Already now, remittances are a major source of foreign currency for many developing countries; for some, labour is their most significant export item. Total global remittances exceed the volume of foreign aid. This income can be turned into productive investment and thus raise employment in the emigration countries.

Would it not be preferable to create trade opportunities for goods in­stead of accepting labour mobility? Trade and migration are sometimes assumed to be substitutes. Trade in labour-intensive goods can to a certain degree be substituted for labour migration. Trade policies of industrial countries, still protecting their labour-intensive industries like textile and leather production, would thus stimulate migration from those countries where labour-intensive industries account for the lion's share of exports. The Uruguay Round did not bring many benefits for African countries. Would further trade liberalization reduce the flow of emigrants from these countries?

Unfortunately the answer is not that simple. Studies point in quite an­other direction. Most conclude that trade and migration are complements rather than substitutes. Relatively few migrant workers are employed in industries in which trade in goods in place of migration is an option. There is, however, a close link with trade in services. Liberalization of trade in services implies some form of labour mobility. That subject has sparked off an intense debate in the Uruguay Round about the definition of services, a debate that has not yet been resolved.

xx

I must conclude that migration pressures will increase in the coming period, especially for Africa, and that aid and trade policies cannot be seen as short-term instruments to contain the outflow. The need for in­ternational coordination regarding the treatment of migration is obvious. This coordination is still in its infancy; there is no international eco­nomic organization responsible for dealing with this subject, though there are organizations dealing with the humanitarian and legal side of migra­tion (e.g. UNHER, 10M).

This book, resulting from the Workshop organized by the EU-LDC Network, brings a European perspective to the issues discussed. Indeed, the EU is one of the regions most closely involved. Within the EU some Member States like Italy and Spain have recently made the switch from being emigration to immigration countries. Migration from the Maghreb countries to Europe is a long-standing phenomenon. Foreign migrants have enriched Europe in many ways over the centuries. Migration from African countries will continue to do so in the near future. Migration is more and more turning into a subject of negotiation in the case of free trade agreements. Thinking about a new Lome Convention should proba­bly also include the notion of a paragraph on labour mobility from Africa.

Bernard S.M Berendsen

Netherlands Ministry of Foreign Affairs

Acknowledgements

The Netherlands Economic Institute is grateful to the Netherlands Min­istry of Foreign Affairs for providing the financial resources to organize the Network EU-LDC Trade and Capital Relations and the workshop on Globalization of Labour Markets: Challenges, Adjustment and Policy Response in the EU and LDCs. We are also very appreciative for the personal interest taken by Jan Pronk, Minister for Development Cooperation, and Ad Koekkoek, Director of the Environment and Development Department and Marie Hulsman-Vejsova, Senior Officer Research and Developing Countries Division, both of the Netherlands Ministry of Foreign Affairs. Supporting the editors, Marrie de Kreek assisted with the organization of the 1995 Workshop. Thijs de Ruyter van Steveninck, Joel van der Beek and Henk van den Hooven, all of the Netherlands Economic Institute, assisted with technical editing of the text. Patricia Ellman helped with editing the text, correcting the English where necessary, and made a number of valuable technical suggestions.

Contributors

Florian A. Alburo University of the Philippines Ludovico Alcorta Institute for New Technologies (INTECH), Maastricht Sartaj Aziz Chairman Standing Committee on Foreign Affairs, Former

Minister of Finance of Pakistan Thomas Bauer University of Munich Jose Miguel Benavente United Nations Commission for Latin America

and the Caribbean, ECLAC, Santiago Jagdish N. Bhagwati Columbia University in the City of New York Suthiphand Chirathivat Center for International Economics, Bangkok F.O. Fajana University of Lagos, Nigeria AdelL Gazarin Former Chairman of the Egyptian Federation of

Chambers of Industry of Egypt Giuseppe Gesano Italian National Council of Research (CNR) Michael Green The Commission of the European Communities A.D.V. de S. Indraratna Sri Lanka Institute of Social and Economic

Studies Jorge Katz United Nations Commission for Latin America and the

Caribbean, ECLAC, Santiago Ruth Klinov The Hebrew University of Jerusalem Ad Koekkoek Ministry of Foreign Affairs of the Netherlands Arie Kuyvenhoven Netherlands Economic Institute and Wageningen

Agricultural University Rolf J. Langhammer Kiel Institute of World Economics, Germany Gijsbert van Liemt (EISTRAT), International Labour Office (ILO),

Geneva M.F. van Marion Philips International B. V, the Netherlands Patricio Meller Corporaci6n de Investigaciones Econ6micas para

Latinoamerica (CIEPLAN) , Santiago Olga Memedovic Netherlands Economic Institute Patrick A. Messerlin Institut d'Etudes Politiques de Paris Willem T.M. Molle Netherlands Economic Institute and Erasmus

University Rotterdam Jose Antonio Ocampo Minister of Finance of Colombia H.M.A. Onitiri Lagos, Nigeria

XXiV

Sheila Page Overseas Development Institute, London Karsten Nimh Pedersen Ministry of Foreign Affairs of Denmark at the

time of the Workshop Marfa del Carmen Pont-Vieira GATTIWTD, Geneva Andre Sapir Universite Libre de Bruxelles Christover Stevens University of Sussex Morris Teuhal The Jerusalem Institute for Israel Studies Raymond Torres DECD, Paris Alfred Tovias The Hebrew University, Jerusalem Martin Wolf Financial Times, London Adrian Wood University of Sussex Zhang Xiaoji Development Research Center of the State Council, China Klaus F. Zimmermann University of Munich