Free Exchange: False Fears
Globalisation may not be causing riots at the moment, but the anxieties about its impact on workers in rich countries continue to swell. Top of the list is usually the effect on jobs and inequality of the opening up of the world economy. For those who have not already made up their minds that globalisation is to blame, the OECD injects a bit of reason into the debate in its Employment Outlook published this week.
Trade is bad for jobs: right? If that were so you’d expect employment rates to be higher in more closed economies and lower in more open economies. Bad news for the gloomsters: there is no such relationship. The share of the working-age population who are employed is not linked to how open economies are, measured by the ratio of trade to GDP.
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What about rising inequality? The gap between between top and low earners has been increasing in rich countries. Globalisation is an obvious suspect, since it pits cheap labour in developing economies against low-skilled workers in rich countries while the high-skilled can gain from the opportunities of a global market. But there’s a puzzle in the figures, which suggests an alternative explanation. Top earners have also been gaining ground against middle earners, who by contrast have not pulled away from low earners. This suggests that advances in information technology, which reward the highly skilled and eliminate many middle-ranking administrative jobs, may be the likelier suspect. The OECD says that trade has contributed only modestly to the upward trend in inequality in recent decades.
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