The Impacts of Globalisation on Workers

Top Left to Right: Guy Michaels, Giordano Mion, John Morrow, Gianmarco Ottaviano
Bottom Left to Right: Frédéric Robert-Nicoud, Stephen Redding, Thomas Sampson and John Van Reenen.

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Over the last few decades, trade liberalisation and reduction in transportation costs have dramatically increased trade. Understanding the effects of globalisation on the income distribution is an important policy issue for reasons of equity and political economy. Although trade theory generally predicts welfare gains from trade for the economy as a whole, the current era of globalization has often exacerbated income inequality. When policies fail to ensure that gains are broadly shared, calls for trade protection or redistribution may become irresistible. The ongoing process of globalisation may determine who occupies the factories and who Occupies the streets.

In fact, the impact of free trade on workers can be very different across groups. CEP researchers have provided a theoretical framework for analysing the distributional consequences of globalisation that recognises that not only firms, but also workers, display significant heterogeneity (Discussion Paper No 940, final version: Econometrica). We show, for example, how labour market frictions impact both wages and the allocation of workers across firms after trade liberalisation. This affects income distribution and explains why many groups strongly favor or oppose free trade.

To study the effect of reduced global trade barriers on inequality, our researchers use the construction of the United States Interstate Highway System as a source of exogenous variation in trade barriers (Discussion Paper No 772, final version: Review of Economic and Statistics). The study shows that the highway construction increased the wage-bill of high-skilled workers relative to low-skilled workers in counties where skill was abundant, but reduced it where skill was scarce. This suggests that the expansion of trade between economies that differ in their skill endowment, such as trade between the developed world and the less-developed world, may continue to contribute to changes in labour market inequality.

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent coverage discussing work of the Impacts of Globalisation on Workers group include:

The offshoring squabble (Washington Post)
http://cep.lse.ac.uk/_new/news/year.asp?yyyy=2012#3186
How Immigrants Create More Jobs (New York Times) https://www.nytimes.com/2010/10/31/business/economy/31view.html?_r=0

Recent CEP research in this area includes:

CEP Discussion Paper
Brain Drain or Brain Gain? Technology Diffusion and Learning On-the-job
Thomas Sampson, September 2012
Paper No' CEPDP1168: Read Abstract | Full paper

CEP Discussion Paper
Selection into Trade and Wage Inequality
Thomas Sampson, June 2012
Paper No' CEPDP1152: Read Abstract | Full paper

CEP Discussion Paper
Immigration, Offshoring and American Jobs
Gianmarco I. P. Ottaviano, Giovanni Peri, Greg C. Wright, May 2012
Paper No' CEPDP1147: Read Abstract | Full paper

CEP Discussion Paper
Assignment Reversals: Trade, Skill Allocation and Wage Inequality
Thomas Sampson, December 2011
Paper No' CEPDP1105: Read Abstract | Full paper

CEP Discussion Paper
Managers' Mobility, Trade Status and Wages
Giordano Mion, Luca David Opromolla, February 2011
Paper No' CEPDP1044: Read Abstract | Full paper

CEP Discussion Paper
Trade and Labor Market Outcomes
Elhanan Helpman, Oleg Itskhoki, Stephen Redding, December 2010
Paper No' CEPDP1028: Read Abstract | Full paper

CEP Discussion Paper
Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 Years
Guy Michaels, Ashwini Natraj, John Van Reenen, June 2010
Paper No' CEPDP0987: Read Abstract | Full paper

CEP Discussion Paper
Wage Bargaining and the Boundaries of the Multinational Firm
Maria Bas, Juan Carluccio, December 2009
Paper No' CEPDP0963: Read Abstract | Full paper

CEP Discussion Paper
Trade, Wages and Productivity
Kristian Behrens, Giordano Mion, Yasusada Murata, Jens Südekum, July 2009
Paper No' CEPDP0942: Read Abstract | Full paper

CEP Discussion Paper
Inequality and Unemployment in a Global Economy
Elhanan Helpman, Oleg Itskhoki, Stephen Redding, July 2009
Paper No' CEPDP0940: Read Abstract | Full paper

CEP Discussion Paper
Trade, Technology Adoption and Wage Inequalities: Theory and Evidence
Maria Bas, December 2008
Paper No' CEPDP0902: Read Abstract | Full paper


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