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Globalization Impacts on Trade and Employment

Abstract

Globalization refers to the integration of the world markets. It facilitates smooth movement of goods and people from one country to another. Globalization has numerous impacts on trade and employment. Establishment of commerce agreements enables multinational corporations to engage in foreign direct investment. The companies relocate the production processes to foreign countries leading to loss of unskilled jobs in their mother countries. On the other hand, relocation of production processes creates jobs to unskilled workers in the foreign nations. Globalization facilitates establishment of trade blocks. In return, it becomes possible for countries to trade freely due to the elimination of tariffs and other trade barriers. Globalization also helps in infrastructural development. Consequently, it becomes possible to ship products from one nation to another. The primary drawback of globalization is that it contributes to trade imbalances between developed and developing countries.

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Introduction

Globalization refers to the amalgamation of the global markets. According to Lee and Vivarelli (2005), two primary aspects characterize globalization. They are the rise in cross-border trade and movement of factors of production, namely, capital, labor, and technology. Another element that characterizes globalization is enhanced social interaction. This paper will focus on the effects of globalization on trade and employment. Globalization has both positive and negative impacts on business and employment. It opens new markets for the developed countries. Besides, it promotes international trade. Sharp, Aguirre, and Kickham (2010) claim that globalization enables multinational corporations to engage in foreign direct investment. In return, it creates employment opportunities in the countries that the multinational companies establish subsidiaries. Globalization also results in some companies relocating their operations to countries with cheap labor or adequate raw materials. In such a scenario, it leads to many people losing their jobs.

Impacts of Globalization on Employment

Positive Impacts

Felbermayr, Prat, and Schmerer (2011) allege, “Globalization means the reduction in government intervention and control on private sector economic activities” (p. 54). Government involvement in the affairs of the private companies interferes with employment. It becomes hard for the private institutions to engage in economic activities that may create job opportunities freely. Globalization encourages private economic activities that result in an increase in international trade. Besides, the financial position of the companies improves resulting in job creation. Felbermayr et al. (2011) hold that globalization eliminates economic barriers and facilitates mobility. Hence, people can travel from one country to another in search of employment. Indeed, globalization has facilitated labor mobility across countries. Today, countries have signed jobs and travel agreements to promote movement of people from one nation to another. In the process, there has been the creation of employment opportunities at both local and international levels.

Globalization has contributed to the emergence of new market segments. The market segments serve as a primary source of employment particularly to the young people. According to Felbermayr et al. (2011), globalization has enhanced the development of consumer market. In return, various segments have cropped up in different quarters of the industries like information technology, beauty, and health care. The rise of the new segments has not only enhanced economic growth but also created employment opportunities for a lot of people. Globalization facilitates the growth of existing industries due to increased trade. In the process, it opens new job opportunities. For instance, in India, globalization has facilitated the growth of services sector. Consequently, many people have found employment in the industry.

Egger and Kreickemeier (2009) claim that globalization has helped to enhance social awareness amid employees. Today, most employees understand their rights and responsibilities. Previously, employers took advantage of workers particularly immigrants who had no knowledge about their rights. Nowadays, globalization has helped to improve the employment conditions for immigrants. Egger and Kreickemeier (2009) claim that globalization has led to many employees aspiring to improve their professions. Workers in the developing countries are going back to the universities to increase their skills. Egger and Kreickemeier (2009) maintain, “Globalization has empowered individuals to enroll in colleges and find better employment opportunities” (p. 193).

Lee and Vivarelli (2005) maintain that globalization has led to organizations hiring workers with diverse cultural backgrounds. Indeed, organizations have been compelled to train their managers in how to handle a diverse workforce. Besides, organizations have had to come up with new guidelines and policies for employees.

Negative Impacts

The impacts of globalization on employment depend on its general effects on economic growth. The comparative advantages of a country dictate its economic structure. Felbermayr et al. (2011) maintain that a country’s economic development depends on the availability of human and natural resources, the level of technology, infrastructural development, and the degree of international competition. In the developed countries, globalization leads to increase in capital outflows. As a result, the level of manufacturing activities goes down. A majority of the companies transfer their production operations to off-shore locations where there is the availability of ready market, cheap labor, and adequate raw materials. The relocation of production activities impacts the unskilled employment in the developed countries. Most unskilled workers lose their jobs. Globalization subjects organizations to stiff competition. The companies embark on strategies to boost and enhance productivity levels to remain competitive. At times, the plans include cutting down on the number of employees to minimize operations costs. Eventually, many employees end up losing their jobs.

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According to Lee and Vivarelli (2005), globalization has not only led to the loss of employment in the developed countries but also impacted salaries and wages across the globe. Today, employees can hardly negotiate for wages due to the availability of cheap labor. Indeed, globalization can be blamed for the increase in the rate of industrial actions across the globe. Companies can easily access cheap labor from foreign countries or outsource their services. Hence, they have the upper hand in times of salary or wage negotiation.

As per Egger and Kreickemeier (2009), globalization is associated with technological advancement. Organizations import technology from developed countries. Thus, they do not require hiring unskilled workers. Today, a majority of the foreign direct investments do not provide significant employment opportunities to the unskilled workers. Instead, multinational corporations use technology to handle the unskilled operations. The companies only recruit skilled employees whose functions are difficult to automate.

Impacts of Globalization on Trade

Positive Impacts

Hummels (2007) holds that globalization has resulted in enhanced interconnectedness amid markets across the globe. Additionally, it has led to intensified communication and knowledge of trade prospects in remote areas of the world. Globalization has enabled investors to identify investment opportunities and evaluate new markets efficiently. Currently, many countries have enhanced the relationship with their neighbors to promote trade. Hummels (2007) claims that globalization has made it possible for goods and services to move from one country to another. Products and services that were “previously available within one country are made available to new markets, resulting in improved economic opportunities for investors in those economies” (Koujianou & Nina, 2007, p. 43). Globalization has opened the global market to investors. Currently, no country can be said to be self-reliant. Globalization has made it possible for countries to come together and participate in trade at different levels. The conventional economic theory holds that trade supports economic competence. Globalization has helped to boost production, thus enhancing trade.

Koujianou and Nina (2007) argue that globalization has prompted the establishment of economic integrations. Currently, there are multiple commercial blocks across the globe. The blocks have aided trade through the elimination of trade barriers and reduction of tariffs. Economic disintegration is one of the factors that discouraged international trade. The current degree of economic integration has encouraged manufacturers to seek markets overseas. Globalization has brought about innovation and infrastructural development. In return, it has eased transportation of goods and services from one country to another. According to Koujianou and Nina (2007), globalization has enhanced production systems. Today, organizations use flexible and entrenched production systems. Improved production systems have led to the growth of foreign direct investment, thus promoting trade between countries.

Negative impacts

Globalization mainly benefits the developed countries. The countries can produce their goods cheaply and sell them in the developing states. Petia (2015) claims that globalization denies the developing countries an opportunity to compete on even ground. Competition from the developed countries deprives the developing nations of the opportunity to engage in productive trade. For instance, liberalization of commerce policies made it hard for Indian electronic enterprises to market their products. Cheap electronic products from developed countries like China and Korea found their way into the Indian market. Consequently, the local companies were unable to cope with the competition.

Raynolds, Murray, and Wilkinson (2006) claim that globalization widens trade deficit amid countries. In 2014, the United States trade deficit with China was over $343 billion (Petia, 2015). The United States abandoned its protective tariffs and engaged in commerce with a country that employs protectionist strategies to safeguard its economic interests. Eventually, the United States could not export as many products to China as it was importing. The net impact was an increase in trade deficit between the two countries. The same case happens to a majority of the developing countries. The countries import a lot of goods from the developed nations but export little. As a result, there is not trade balance between the developed and developing states.

Conclusion

Globalization facilitates free movement of goods and people from one country to another. Thus, it has numerous impacts on trade and employment. Multinational corporations transfer their production plants to overseas countries creating job opportunities in those nations. On the other hand, relocation of production activities to foreign countries leads to loss of unskilled jobs in the home country of the multinational corporations. Globalization has adversely affected the salary and wage structures across the globe. Organizations can easily access cheap labor from foreign markets. Thus, employees are forced to settle for reduced salaries or wages in fear of losing jobs. In the case of trade, globalization has facilitated the establishment of business blocks. Today, countries can easily trade with their neighbors with limited constraints. Besides the creation of commerce blocks, globalization has enabled infrastructural development. As a result, manufacturers can easily ship their goods and services to foreign markets. Globalization affects trade balance amid developed and developing countries. It also impacts the business deficit between developed nations. Products from developing countries can hardly compete with those from developed states concerning cost and quality.

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References

Egger, H., & Kreickemeier, U. (2009). Firm heterogeneity and the labor market effects of trade liberalization. International Economic Review, 50(1), 187-216.

Felbermayr, G., Prat, J., & Schmerer, H. (2011). Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity. Journal of Economic Theory, 146(1), 39-73.

Hummels, D. (2007). Transportation costs and international trade in the second era of globalization. The Journal of Economic Perspectives, 21(3), 131-154.

Koujianou, G., & Nina, P. (2007). Distributional effects of globalization in developing countries. Journal of Economic Literature, 45(1), 39-82.

Lee, E., & Vivarelli, M. (2005). Understanding globalization, employment, and poverty reduction. Industrial & Labor Relations Review, 59(1), 171-174.

Petia, T. (2015). Factor immobility and regional impacts of trade liberalization: Evidence on poverty from India. American Economic Journal: Applied Economics, 2(4), 1-41.

Raynolds, L., Murray, D., & Wilkinson, J. (2006). Fair trade: The challenges of transforming globalization. New York: Routledge.

Sharp, B., Aguirre, G., & Kickham, K. (2010). Managing in the public sector: A casebook in ethics and leadership. New York: Routledge.

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StudyCorgi. (2020, October 24). Globalization Impacts on Trade and Employment. Retrieved from https://studycorgi.com/globalization-impacts-on-trade-and-employment/

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