Globalization and the Labor Market

HSI Workforce Connections Corpus Christi, Texas

March 21, 2003

Richard Froeschle, DirectorCareer Development Resources(CDR)rich@cdr.state.tx.us(512) 491-4941

Why Do We Care About Globalization?

• Must understand effects of global capitalism on the job creation and destruction process

• To engage employers, must understand the market factors they face

• Better understand what jobseekers face, what employers are telling them

• Better prepare jobseekers to meet the skill and attitude needs of employers

Defining Globalization

“The inexorable integration of markets, nation-states, and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before.” Thomas Friedman, The Lexus and the Olive Tree

Global Labor Market of the 21st Century

Creative destruction—The process of simultaneous job creation and job destruction as new skill sets are required and old skills become outdated. The same employers will be both hiring and laying off continually regardless of labor market conditions to enhance productivity and competitive edge. Joseph Schumpeter

See “Churning in a Hypothetical Economy” from Technology Workers in the New Texas Economy

The New Rules of Globalization

Characteristic Cold War Period Globalization

Born in… 1945 after the end of WWII. Lasted almost 45 years

1989 after the fall of the Berlin Wall.

Friends and Neighbors…

Allies vs. enemies; divisions and walls

Everyone is a competitor

Defining Document…

The Treaty—with whom are you aligned?

The Deal—with whom are you doing business?

Technology Symbol…

The “hotline” connecting the two superpower nations

The Internet-- nobody in charge and everyone is connected

The New Rules of Globalization (continued)

Characteristic Cold War Period Globalization

World Economic System…

Capitalism, socialism, communism, and autocracies

Free market capitalism based on comparative advantage

Cultural Impacts…

Discrete ethnic or regional cultures and tradition. Past take precedence

Cultural melding. Future takes precedence. Innovation over tradition

Defining Power Structure of Nation-States…

Fixed borders allied with either the U.S., USSR

Government authority balanced by financial markets, individuals

Reigning Economist…

J. M. Keynes—posits strong role for government

J. Schumpeter–capital move free and at will; creative destruction

Globalization of the U.S. Economy

Total World Gross National Income (Product) 2001 = $31,500,012 million

 United States Gross National Product 2001=

$9,900,724 million The FACT is that the United States economy

represents 31.4 percent of the World Economy.

 The REALITY is that the top 20 richest countries

represent 85 percent of the World Economy and the top 10 richest account for 74 percent.

 

Top 10 Richest World Economies 2001

(in millions$$)• United States $9,900,724 31.4%• Japan $4,574,164 45.9%• Germany $1,947,951 52.1%• United Kingdom $1,451,442 56.7%• France $1,377,389 61.1%• China $1,130,984 64.7%• Italy $1,123,478 68.3%• Canada $661,881 70.4%• Spain $586,874 72.2%• Mexico $550,456 74.0%

The IMPLICATION is that U.S. companies have an opportunity to tap into an additional 68.6 percent of additional world-wide purchasing power, in addition to U.S. domestic spending.

The QUOTES:

“There are still good growth opportunities domestically. The economy is still strong. But American companies don’t want to be shut out of overseas growth.” 

“General Motors is here because of China’s growth. You’ve got a 15-20% growth in the rate of auto sales in China, and you’ve got 1.2 billion people. If you even look a 1% of that, think of how many people could buy a passenger car”.

Rudolph Schlais Jr, President GM China Operations

How Globalization Impacts the

Labor Market—The Basics• Globalization & new digital technology opens

producer/consumer markets around the world• Increased customer access to producers leads

to global price competition, driving employer need for greater productivity, lower prices

• Increased price competition leads to cost containment pressures

• Cost containments leads employers to new supply chain practices, concerns over labor costs, alternative labor options

Impacts of Globalization on Consumers

• Broader access to a wider variety of products and services than neighborhood offers

• Greater vendor diversity leads to better buying opportunities, lower prices; eg. comparison shopping via Internet

• Lost allegiance to domestic producers; what about the “union label” or U.S. TVs??

• More volatile labor market with stronger competition from global labor supply

Impacts of Globalization on Business

• Businesses with global reach access more customers and get exposed in new markets

• Businesses with regional niche lose local customers to a global market place

• Business is exposed to supply chain opportunities to acquire lower cost inputs

• Business is exposed to new labor supply options; foreign affiliates (L-1visa), H1B, global outsourcing, contract workers

An Integrated Corporate World

Percent of 2000 Revenue Outside U.S.

• YUM Brands Inc. 34.5%• General Motors 26.2%• Ford 30.4%• Boeing 34.3%• Intel 58.8%• Coca Cola 61.0%• Federal Express 29.9%• Emerson Electric 40.0%

• Texaco 65.9%• IBM 57.9%• Motorola 52.5%• Johnson/Johnson 38.2%• John Deere 25.1%• Colgate 69.4%• Nike 50.3%• Hasbro 36.0%

Recognizing Growth Potential

in a Global Economy• To whom does the industry sell

and are those sectors expanding?• Is their cost structure

competitive? e.g. are labor costs globally competitive relative to value added?

• Do they have Positive Pricing Power in their marketplace? PPP results in higher profits!

Texas Industries Adding the Most Jobs 1999-2002

Absolute Growth• Educational Services• Food Services/Drinking Places• Ambulatory Health Care

Services• Professional and Technical

Services• Local Government• Specialty Trade Contractors• General Merchandise Stores• Hospitals• Heavy and Civil Construction• Motor Vehicle and Parts

Dealers

Percent Change• Warehousing and Storage• Management of Companies• Financial Investment• Heavy and Civil Construction• Support Activities for Mining• Ambulatory Health Care

Services• Utilities• General Merchandise Stores• Educational Services• Motor Vehicles/Parts Dealers

(NAICS codes)

Texas Industries Losing the Most Jobs 1999-2002

Absolute Change• Agriculture/Forestry Support• Computer/Electronic Manuf.• Apparel Manufacturing• Transportation Equip Manuf.• Fabricated Metal Manuf.• Chemical Manuf.• Oil & Gas Extraction• Food & Beverage Stores• Administrative Support

Services• Federal Government (NAICS codes)

Percent Change• Agriculture/Forestry Support

• Apparel Manufacturing

• Computer/Electronic Manuf.

• Transportation Equip Manuf.

• Wood Product Manuf.

• Misc. Manufacturing

• Printing and Related Support

• Oil & Gas Extraction

• Electrical Equipment and Appliances

• Paper Manufacturing

Texas Exports 2001• Computer/Electronics $25.7 billion 27.0%• Chemicals $14.6 billion 15.4%• Machinery, ex. Electrical $12.8 billion 13.5%• Transportation Equipt $11.3 billion 11.8%• Electrical Components $4.8 billion 5.1%• Petroleum Products $3.7 billion 3.9%• Fabricated Metals $3.2 billion 3.4%• Plastic & Rubber Prod $2.8 billion 2.9%• Food & Kindred $2.6 billion 2.7%• Primary Metal Manuf. $2.1 billion 2.2%• Agricultural Products $1.9 billion 2.0%

What are the Realities or “Side Effects” of

Globalization?Globalization presents both opportunities and challenges to governments and corporations. Even with current “geopolitical risks”, globalization is here to stay. But, what likely phenomena will accompany “unmanaged” global capitalism? At least some of the Handwriting is already on the wall...

Side Effects of Globalization (part I)

• 1. Increased wealth inequality- Rich countries and rich people get richer. Per capita GDP gap between richest and poorest countries widened from 40:1 in 1973 to 72:1 in 1992

• 2. Environmental problems are getting worse- Unregulated markets encourage cheap waste dumping, encroaching on land and displacement of farmers.

• 3. Acceleration of capital movement w/o productive uses- 98% of currency trading in 1998 was for speculation, not investment in plant or equipment. Fast moves can undermine a developing country’s financial markets and economy (Argentina 2001).

Side Effects of Globalization (part II)

• 4. Industry and Occupational Winners and Losers- Global economy, comparative advantage causes upheaval in traditional industries. In see U.S. apparel, steel, call centers

• 5. Inequality of income based on comparative advantage- Countries that specialize in low wage, low value-added products gain jobs but fall behind on income equality.

• 6. An interconnected, interdependent global economy leads to a domino effect in recession. No exports, no earnings. When one country sneezes, another gets sick.

Side Effects of Globalization (part III)

• 7. The homogenization of global culture- a.k.a. the “McDonald-ization” World culture and diversity is downgraded with spread of American pop culture

• 8. Economic specialization leads to limited jobs choices- If you limit the breadth of the economy, you limit occupational choices. Is specialization really necessary? Should everybody be a programmer?

• 9. Continued economic growth threatens global limitations and capacities- Growth in undeveloped countries is important but does social inequality and environmental costs outweigh benefits to developed countries?