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Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries

Author

Listed:
  • Giovanni S.F. Bruno

    (Università Bocconi,Istituto di Economia Politica)

  • Anna M. Falzoni

    (Università degli Studi di Bergamo)

  • Rodolfo Helg

    (LIUC - Università Carlo Cattaneo)

Abstract

There are various paths through which globalization is channelled to the labour market. One of these is the effect on labour demand elasticity. Trade might induce an increase in this elasticity via a scale effect due to the increased competition on the output market and/or via a substitution effect generated by expanding the firm production possibility set to include additional inputs. The focus of this paper is centred on the latter channel of transmission. A labour demand equation is obtained from the solution of a firm’s cost minimization problem. The impact of globalization on domestic employment is not restricted to a wage elasticity effect, but also allows for a direct effect with globalization acting as a domestic labour demand shifter. A theoretically consistent labour demand is estimated using a industry-year panel from a number of industrialised countries, including major European countries, Japan and the US over the period 1970-96. Overall we find sig-nificant substitution effect of trade on labour demand elasticity only for the U.K. For Italy and France the evidence is mixed. In all remaining countries globalization has not significantly a .ected labour demand elasticity.

Suggested Citation

  • Giovanni S.F. Bruno & Anna M. Falzoni & Rodolfo Helg, 2004. "Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries," KITeS Working Papers 153, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2004.
    • Handle: RePEc:cri:cespri:wp153
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    Cited by:

    1. Paolo Epifani, 2003. "Trade liberalization, Firm Performances and Labor Market Outcomes in the Developing World, what Can We Learn From Micro-Level Data?," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 455-486.
    2. Rosario Crinò, 2009. "Offshoring, Multinationals And Labour Market: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 197-249, April.
    3. Michael Landesmann & Sandra M. Leitner, 2023. "Immigration and Offshoring: two forces of globalisation and their impact on employment and the bargaining power of occupational groups," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(2), pages 361-397, May.
    4. Neil Foster-McGregor & Johannes Poeschl & Robert Stehrer, 2016. "Offshoring and the Elasticity of Labour Demand," Open Economies Review, Springer, vol. 27(3), pages 515-540, July.
    5. Bushra Yasmin & Aliya H. Khan, 2011. "Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 55-85, Jul-Dec.
    6. Giovanna Vallanti, 2018. "International capital mobility and unemployment dynamics: Empirical evidence from OECD countries," The World Economy, Wiley Blackwell, vol. 41(11), pages 3130-3171, November.
    7. Fay Dunkerley & Amihai Glazer & Stef Proost, 2010. "What Drives Gasoline Prices?," Working Papers 091005, University of California-Irvine, Department of Economics.
    8. International Monetary Fund, 2014. "Philippines: Selected Issues," IMF Staff Country Reports 2014/246, International Monetary Fund.
    9. Konstantinos Drakos & Christos Kallandranis, 2006. "Modelling Labour Demand Dynamics beyond the Frictionless Environment," LABOUR, CEIS, vol. 20(4), pages 699-720, December.
    10. Vallanti, Giovanna, 2005. "Capital mobility and unemployment dynamics: evidence from a panel of OECD countries," LSE Research Online Documents on Economics 19897, London School of Economics and Political Science, LSE Library.
    11. Giorgio Barba Navaretti & Daniele Checchi & Alessandro Turrini, 2003. "Adjusting Labor Demand: Multinational Versus National Firms: A Cross-European Analysis," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 708-719, 04/05.
    12. Yuting Cen & Nannan Dong, 2022. "Impact of outward foreign direct investment on employment volatility: Evidence from China," Asian Economic Journal, East Asian Economic Association, vol. 36(4), pages 385-410, December.
    13. Hijzen, Alexander & Swaim, Paul, 2010. "Offshoring, labour market institutions and the elasticity of labour demand," European Economic Review, Elsevier, vol. 54(8), pages 1016-1034, November.
    14. Michael Gasiorek, 2007. "Determinants of Productivity in Morocco: The Role of Trade?," Working Papers 716, Economic Research Forum, revised 01 Jan 2007.
    15. Navarro, Lucas, 2009. "Employment dynamics and crises in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    16. Abugamea, Gaber, 2019. "The nexus of trade, employment and economic growth: evidence from Palestine," MPRA Paper 97100, University Library of Munich, Germany.

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    More about this item

    Keywords

    Trade; Labor demand.;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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