International Trade, Employment and Unemployment

During the past few decades, a variety of changes in the international economy have resulted in the increased integration of nations, both developed and developing. Globalization, or the increased openness of countries to the influences of the world economy, has accompanied or been associated with the increased mobility of factors, in particular capital, and with the growth of international trade and the increased importance of international competition in product markets. As a result the labour market in any one country has become more intricately linked with those in other countries. Indeed with the emergence of high and persistent unemployment in many OECD countries and the growing wage dispersion between skilled and unskilled workers in some countries, there has been lively debate as to whether globalization is responsible for these labour market changes. There is some irony in the extent to which trade with developing countries, relatively well-endowed with unskilled labour, is viewed as a culprit in this debate, since policy makers in many developing countries are also concerned with the labour market adjustments to the trade liberalization they have been encouraged to implement in order to expand their exports to the industrial countries!