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The Dilemma of Globalisation: A German Perspective

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  • Hans-Werner Sinn

Abstract

Globalisation means gains from trade, but not for everyone. As gains from trade come along with factor price convergence, substantial fractions of the working classes in the high-wage countries of the West are likely to belong to the group of losers. In this situation it is tempting for the welfare state to help out, but the difficulties are enormous. On the one hand, the payment of social replacement incomes makes wages sticky, preventing the gains from trade, causing mass unemployment and turning the economies of the West into bazaars with excessive outsourcing and offshoring activities. On the other, the taxes needed for compensation payments to the working classes can hardly be levied from the mobile factors of production, given that globalisation has increased their mobility. This is a double dilemma for the welfare state. The paper discusses the possibilities of mitigating the dilemmas by paying wage subsidies for domestic residents and encouraging private savings so as to give workers a capital income in the future.

Suggested Citation

  • Hans-Werner Sinn, 2004. "The Dilemma of Globalisation: A German Perspective," Economie Internationale, CEPII research center, issue 100, pages 111-120.
  • Handle: RePEc:cii:cepiei:2004-4qh
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    File URL: http://www.cepii.fr/IE/rev100/rev100h.htm
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    Citations

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    Cited by:

    1. Raphael Chiappini, 2012. "Decomposition Internationale Des Processus Productifs Et « Economie De Bazar » :Une Analyse Sur Les Principaux Exportateurs De La Zone Euro," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(2), pages 205-234.
    2. Wolf-Heimo Grieben, 2006. "Globalization with Labor Market Frictions and Non-Scale Growth," DEGIT Conference Papers c011_053, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Jota Ishikawa & Yoshimasa Komoriya, 2010. "Stay Or Leave? Choice Of Plant Location With Cost Heterogeneity," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 97-115.
    4. Viet Do & Ngo Van Long, 2007. "International Outsourcing under Monopolistic Competition: Winners and Losers," CESifo Working Paper Series 2034, CESifo Group Munich.
    5. Wolf-Heimo Grieben, 2009. "Can Countries with Severe Labor Market Frictions Gain from Globalization?," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 230-247, May.

    More about this item

    Keywords

    Globalisation; welfare state; wages;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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