GLOBAL ECONOMY: LABOUR Chapter 9 Lecture 1

Not So Unlikely…

Global Labor Issues Labor as a Current Resource Movement of Labor—people to jobs and jobs to people Labor as a Future Resource Labor Issues Create –Legal Challenges –Ethical Challenges –Social Challenges to balance profits and equity

Labor as a Current Resource About 3 billion people are in the global labor force 100% more than in 1965 Work in the informal sector generates as much as ¼ of the formal economy legitimate but not reported – agriculture, casual work (like Avon salespeople), home-based workers, volunteering illegal – drugs, prostitution, illegal gambling, pornography, slave running Developing economies – most workers are in informal sectors, e.g., agriculture and low value-added industries – only 15% have wage contracts – Paid labor opportunities are increasing Advanced economies – most workers are in formal sector but 70% are in service jobs – many more are in high-value added industries that pay high wages – they work fewer hours than in the developing economies

Global Business Create Relatively Few Jobs So why are they so central?

Businesses Weigh Workforce Decisions Based on Different Labor Components –Labor Costs Wages/Salary, Benefits, Incentives –Skills and Education –Location, including proximity, supply chain access –Intangibles like work ethic, commitment to work

Hourly Wages for Textile Labor

Movement of Jobs People to jobs via immigration legal and not legal Jobs to other nations FDI Outsourcing from advanced to developing world – Many manufacturing jobs were exported –Service jobs have more recently been outsourced –Professional jobs have most recently begun outsourcing

FDI and Outsourcing to Developing Economies: Is it a Race to the Bottom or Slog to the Top? Evidence for “To the bottom” –Low wage jobs replaced with even lower wage ones –Labor standards will be relaxed to compete for low wage jobs –Disruption of social contracts within nations Evidence for “To the top” –Developing economies are now in the wage economy –Jobs beget jobs and grow economies –Global firms raise wages and labor standards

Centrality of Global Businesses Creates Challenges Such As Competitors compete on cost—stay put with high labor costs and competitors will move Workers want jobs to stay put and they want higher wages There is worldwide demand for equitable wages but these affect local economies Fair employment and social responsibilities, e.g., women, children at work Organizational self-interest vs. global justice interests

Labor as A Future Resource 50 years ago visionaries saw a world where machines did all of the manual labor We still have a need for labor In developing countries, labor is substituted for capital What will the future look like? – More migration in search of jobs unless local economies develop – More competition for low labor costs until labor costs stabilize worldwide – More demand for knowledge workers

Education is an Important Asset to Nations and People Returns to education accrue in advanced and developing economies Returns to education are greater for developing economies Returns to education often benefit underutilized groups in developing economies (women especially) Education will increase in developing economies

Legal Challenges for Businesses due to Labor Issues Extraterritoriality—the application of a country’s laws outside of its own borders Increasingly, nations such as the U.S. seek to regulate the behavior of its companies and citizens outside of own borders, e.g., EEOC Companies may find that they are caught in conflicting labor laws What is legal in one country may be illegal in another Restrictions on work by immigrants/expatriates – Needed skills – Visas, quotas, etc. Local content laws and need to build factories May drive temporary local labor demand Will it last? Or will jobs migrate again and disrupt economies?

Ethical Challenges Child labor – How is a child defined? – What if the income is needed? Appropriate wage – What is an appropriate wage? – What is the impact of wages on a local economy, on social systems? Defining acceptable vs. excessive profits Women and minorities at work; who works?

Social Challenges Anti-business social activism –Protests, boycotts, destruction Demands to lower profits, keep jobs local Demands to lower executive salaries Michael Eisner, CEO of the Disney Corporation earned $ million annually; this works out to $6,155 per hour as compared to 28 cents for a Haitian laborer

Business Activities that Improve Labor and Worldwide Labor Conditions Develop and follow standards and codes of behavior business industry global, e.g., Caux Principles Educate workers the pubic Collaborate across sectors Each of these increases business interconnections with other sectors