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Preparing Chemists and Chemical Engineers for a Globally Oriented Workforce: A Workshop Report to the Chemical Sciences Roundtable
1 How Do National Labor Forces Become Global, and Who Should Care?
Matthew J. Slaughter
Tuck School of Business, Dartmouth College
INTRODUCTION
The basic idea in economics and business is that firms tend to pay people according to their productivity. Labor unions and profit sharing are important, but looking at the big picture of the whole world over decades, they have not been as important as paying people according to their productivity.
In addressing how labor forces become global, I will discuss income, wages, and earnings, not unemployment. This is because the United States and comparable countries have adequately flexible labor markets. There are always business-cycle considerations, and in the United States there has been a business-cycle downturn in the last few years. The economy seems to be picking up now, but over the last couple of years unemployment rates have been higher than they were in the middle and late 1990s. People tend to be able to price themselves in the labor market. Therefore, it is more helpful, in understanding the forces that affect people in the labor market, to focus on earnings as opposed to how many people are working.
This presentation provides a quick survey of international economics to explore how labor forces become more global and what it means for the U.S. economy, its workers, and the chemical and allied enterprises in particular.
HOW LABOR FORCES BECOME MORE GLOBAL
In general, a number of key factors influence globalization of labor forces:
The number of people in a country who choose to be in the labor force,
The activities that firms choose in the country,
The prices that these activities get on world markets, and
The capital and technology used for the activities.
National labor forces become more global when cross-border flows—people (immigration), goods and services (trade), and capital and technology (foreign direct investment)—influence one or more of these four factors. These flows are relevant for understanding the integration of labor markets across countries.
Immigration—Flow of People Across Borders
Immigration influences other cross-border flows and affects the number of people choosing to be in the labor force. In much of the policy discussions about globalization, it is presumed that immigration matters most and that its economic impacts are obvious. People may say that if more people are in the labor force, wages will tend to go down. That is why some politicians think that immigration should be carefully controlled. In fact, the cap on H-1B visas (for temporary workers in specialty occupations) in the United States has been reduced by two-thirds, in part because of the presumption that too many skilled immigrants are entering the country and pushing particular occupational wages in the country down. Immigrants, however, constitute important flows of knowledge and capital across borders.
Back in the early 1800s, the textile industry was the high-tech, high-productivity industry—the most cutting-edge production activity in the world. Many countries had very strict laws on the export of that technology, either the capital goods or the knowledge embodying the technology.
This is an edited transcript of speaker and discussion remarks at the workshop. The discussions were edited and organized around major themes to provide a more readable summary.
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