Labor Markets in a Globalizing World

This chapter provides an overview of labor markets in a globalizing economy. It starts by arguing that a country’s labor market outcomes are greatly influenced by the effects of the interplay of globalization, technological progress, and competitiveness; and documents the impact of the increase in worldwide employment due to the incorporation of the People’s Republic of China (PRC), India, and the countries of the ex-Soviet bloc into the global economy. It then discusses the major functions of the labor market—allocation of resources, income, and risk. These form an important component of the policies to achieve the full and productive employment objectives. An evaluation of the arguments for labor market reform follows, from the perspective of mainstream economists who are calling for increasing labor market flexibility. It is argued that this call is a consequence both of the theoretical models used by these economists to explain unemployment, and of the fact that competitiveness is a major policy objective of countries in today’s world. The next section provides a summary of Keynesian and Marxian theories of unemployment for the purpose of stressing that the neoclassical theory is not the only one that provides a coherent argument for the existence of unemployment. The next section offers a discussion of labor market policies in Asia today. Next, the chapter presents an empirical analysis of the relationship between growth, productivity, employment, and technological progress.