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Labor markets in the global economy: How to prevent rising wage gaps and unemployment

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  • Gundlach, Erich
  • Nunnenkamp, Peter

Abstract

The strikingly different labor market performance of major industrial countries suggests that neither globalization nor skill-biased technological change necessarily result in rising unemployment or declining wages of low-skilled workers. Rather, globalization and technological change cause labor market problems in those economies that fail to adjust sectoral production structures in accordance with their comparative advantages. Labor market outcomes in Germany - especially when compared with the United States - suggest that high unemployment is the price for insufficient wage flexibility. However, the experience of Japan and the United Kingdom points to missing links in the debate on labor market effects of globalization and skill-biased technological change. In Japan, both unemployment and wage disparities remained low. The contrasting experience is provided by the United Kingdom, where the rising wage gap did not prevent high unemployment of low-skilled workers. All major industrial countries have been confronted with fiercer import competition and outsourcing in low-skill labor-intensive industries. But the response to this common challenge has different remarkably. Japan has outperformed its major competitors in restructuring manufacturing employment towards more sophisticated lines of production, and in achieving an appropriate pattern of trade specialization. Hence, structural change is the key to avoid labor market problems in the era of globalization. Different labor market outcomes are closely related to differences in the rate of factor accumulation, which comprises physical, human and technological capital. Especially industrial countries currently plagued with high unemployment have little choice but to forego consumption today in order to improve future real incomes and employment opportunities of lowskilled workers. Thus, successful structural change does not come for free.

Suggested Citation

  • Gundlach, Erich & Nunnenkamp, Peter, 1997. "Labor markets in the global economy: How to prevent rising wage gaps and unemployment," Kiel Discussion Papers 305, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkdp:305
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    File URL: https://www.econstor.eu/bitstream/10419/969/1/kd305.pdf
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    Cited by:

    1. Nunnenkamp, Peter, 2000. "Globalisierung der Automobilindustrie: neue Standorte auf dem Vormarsch, traditionelle Anbieter unter Druck?," Kiel Working Papers 1002, Kiel Institute for the World Economy (IfW).
    2. Nunnenkamp, Peter, 2000. "Boom, bust, recovery – What next in private capital flows to emerging markets?," Kiel Discussion Papers 362, Kiel Institute for the World Economy (IfW).
    3. Franz, Wolfgang, 1999. "Real and monetary challenges to wage policy in Germany at the turn of the millennium: technical progress, globalization and European Monetary Union," ZEW Discussion Papers 99-48, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Nunnenkamp, Peter, 1998. "Die deutsche Automobilindustrie im Prozeß der Globalisierung," Open Access Publications from Kiel Institute for the World Economy 1790, Kiel Institute for the World Economy (IfW).
    5. Nunnenkamp, Peter, 1998. "Wirtschaftliche Aufholprozesse und Globalisierungskrisen in Entwicklungsländern: Implikationen für die nationale Wirtschaftspolitik und den globalen Ordnungsrahmen," Kiel Discussion Papers 328, Kiel Institute for the World Economy (IfW).
    6. Nunnenkamp, Peter & Spatz, Julius, 2001. "Globalisierungsverlierer in der Automobilindustrie? Internationaler Wettbewerb und Arbeitsmarkteffekte in Deutschland, Japan und den Vereinigten Staaten," Open Access Publications from Kiel Institute for the World Economy 2608, Kiel Institute for the World Economy (IfW).
    7. Gundlach, Erich, 1998. "Das Wirtschaftswachstum der Nationen im zwanzigsten Jahrhundert," Open Access Publications from Kiel Institute for the World Economy 1756, Kiel Institute for the World Economy (IfW).
    8. Siebert, Horst & Klodt, Henning, 1998. "Towards global competition: catalysts and constraints," Kiel Working Papers 897, Kiel Institute for the World Economy (IfW).
    9. Lücke, Matthias, 1999. "Sectoral value added prices, TFP growth, and the low-skilled wage in high-income countries," Kiel Working Papers 923, Kiel Institute for the World Economy (IfW).

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