Globalisation, Labour Markets, and the Welfare State

• Applicant: Professor Holger Görg, Ph.D.
• Subject Area: Economic Theory ; Economic Policy, Applied Economics
• Term: from 2014 to 2019
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 260338231

• Final Report Year: 2018

Final Report Abstract

In an age of high public debts and ever-growing international competition, the WS is often portrayed as generating a culture of welfare dependency and is ultimately seen as unsustainable. Against this background, GlobLabWS (https://www.abdn.ac.uk/business/research/research-projects-114.php#norface-globalisation-labour-markets-and-the-welfare-state-globlabws) aimed to explore the role of the welfare state (WS) in shaping the relationship between globalisation and labour markets and in affecting a country’s economic performance and ability to respond to exogenous shocks. Results from our research show that many conventional views arise from narrow theoretical premises that fail to capture the complexity of the processes at work. Globalisation and participation in the global production chain affect workforce structure, with increased importance of more skilled occupations and degree of mismatch between workers’ skills and those demanded by firms, e.g. over-education. The WS plays an important role in mediating these effects. Comparison among WS systems suggests that Nordic countries perform better in terms of aggregate labour market outcomes than countries with less generous WS and more flexible labour markets. A well-functioning labour market does not need to be thin on security. Crucial is not ‘labour market flexibility’, but the ‘social investment’ dimension of the WS: support for the unemployed, social investment and activation policies - important pillars of flexicurity. Crucially, unemployment insurance can act as an activation policy by fostering labour market participation, an effect that is strengthened if coordinated with other ALMPs. Complementarities between Active and Passive Labour Market Policies (ALMPs and PLMPs) can trigger a virtuous interaction between labour market participation and productivity growth. Flexicurity reforms of a ‘liberal’ WS, such as the UK’s, can improve employment, productivity and mitigate the effects of negative shocks even though it would require lowering flexibility and raising PLMPs and ALMPs expenditure. An important implication is the need to recognise and exploit policy interactions not only among WS policies but also among different policy areas: e.g., education and industrial policies can strengthen the effectiveness of WS policies. A country’s ability to compete internationally does not require WS retrenchments: e.g. higher welfare spending increases a country’s ability to attract and retain internationally mobile firms. The results of GlobLabWS are central to current socio-economic debates on the effectiveness and sustainability of WS institutions and provide policy makers with deeper understanding of the key trade-offs entailed by different policy scenarios. We show that globalization has relatively large distributional consequences. Benefits tend to be skewed towards high skilled workers at the expense of low/middle skilled groups. This warrants the need for ‘enabling WS’ systems that support workers’ movements between occupations, a prerequisite also to secure an acceptance for the economic benefits globalisation can bring at an aggregate level. GlobLabWS provides useful suggestions as to the key features of an enabling WS. We show that much is to be gained from the experiences of countries, such as Denmark, that combine good productivity and export performance with generous active and passive labour market policies.

Publications

• (2019) Employment Protection and Firm Relocation: Theory and Evidence. Economica 86 (344) 663–688
  Dewit, Gerda; Görg, Holger; Temouri, Yama
  
• Global Engagement, Complex Tasks, and the Distribution of Occupational Employment. Review of International Economics Vol. 24 2016 717-736
  Fredrik Sjöholm et al.
  
• Firm Size Distribution and Employment Fluctuations: Theory and Evidence. Research in Economics (Special Issue in Honour of 40 Years of the Dixit-Stiglitz Model) Vol. 71 2017 690-703
  Catia Montagna et al.
  
• Global Engagement and the Occupational Structure of Firms. European Economic Review Vol. 100 2017 273-292
  Fredrik Sjöholm et al.
  
• Offshoring: Causes and Consequences at the Firm and Worker Level. World Scientific Studies in International Economics 2018
  Holger Görg et al.