Abstract

Globalization is an attempt at general restructuring of the world and, consequently, the labor market as well. The basic demand of globalization on the labor market is the demand for its flexibility, i.e. lowering labor costs. Therefore, this study will pay special attention to domination in the global world as the prevailing type of relationship between the countries of the global core, the leaders of the globalization process, and the countries of the global semi-periphery, which are the object of globalization. The scope of research for this study includes the implications of globalization for the European labor market, and the transfer of jobs from the countries of the global core to the countries of global semi-periphery and periphery. The results of research are based on the methods of analysis and synthesis as well as the factor assessment method, representing qualitative starting points for enhancing the quality of workforce and improving the global competitive position of the global semi-periphery and periphery.

Key words: globalization, flexibilisation, labor market, labor costs

1. Introduction

Globalization of the world is inaugurating a new economy. Compared to the traditional economy, where the scope of competition was mostly determined by the boundaries of the national market, the global market environment in the new economy imposes the need for a permanent increase in efficiency on regional and/or global levels. A decreasing number of products bear national characteristics. Likewise, human potential is becoming a global factor despite the fact that the workforce is the least mobile production factor.

The task of this study is to research the interrelationship between globalization and labor market flexibilisation, i.e. to confirm the hypothesis that labor market flexibilisation occurs as a demand of globalization and is aimed at reducing labor costs.

The objective of research is closely connected with the research task and the hypothesis: to determine the interrelationship of globalization and labor market flexibilisation; to research the implications of the globalization of labor market on the European labor market, and to point to the need to raise workforce quality in integrating the countries of the global semi-periphery and periphery into the globalization processes.

2. Interrelation of globalization and labor market flexibilisation

Stiglitz [5,29] defines globalization as increasing interconnectedness of the world’s countries and nations, which has brought about a huge reduction in transport and communication costs and removal of artificial barriers to the flow of goods, services, capital, knowledge and (to a lesser extent) people across borders. It has the power to produce many benefits, provided that it is adopted under the conditions and at the pace that suits a certain country. Countries caught in the vortex of the globalization process should expand their development potential and take into account the comparative advantages.

The last decades of the last century in the world’s economy are characterized by an increasingly apparent polycentric development model, with the domination by a few most developed countries of the world. Domination in the global world, i.e. mutual trade relations, among certain countries is the prevailing model of interrelation. Dominant countries are those that are considered to need little or nothing from other countries in international exchange. They can also exert significant pressure on the countries they dominate, aimed at promoting certain political, economic or other interests. Each of these countries is involved in this interdependence matrix, either as dominant in mutual relationships or dominated in these relations.

3. The implications of globalization on the European work market

In order to consider the reflections of globalization on the European work market, it is crucial to bear in mind that, unlike North America or Asia, Europe is a unionized continent, and most of the countries of the European Union are defined as welfare states, which includes extensive economic and social rights of the employees protected by the state. The first reflection of globalization on the European market is the reinstatement of a 40-hour workweek in developed European countries comprising the global core. An average workweek shorter than 40 man-hours has been shown as an impediment to faster economic development, increased work productivity, reduced labor costs, competitiveness of domestic producers, foreign investment entry, and, above all, solving the problem of unemployment.

Due to the above reasons, an increasing number of companies, in cooperation with workers and trade unions, are preparing to extend the workweek from 35 to 40 man-hours without wage increases. This was one of the main conditions set by the management of Siemens in negotiations with the IG Metall trade union (comprising 2.7 million members) lest they transfer the production of mobile phones to Hungary. The same model was used by Daimler Chrysler and Robert Bosch, the French car spare parts producer, to solve the problem of high wage costs.

In the 1980s, the average workweek in the South Korean production sector was 53.4 man-hours and 48.4 working hours in Taiwan. Only 1% of South Korean and 29% of Japanese workers work the normal five-day week [3,13]. It is therefore not surprising that the number of fatal industrial accidents in these countries is nine times higher than in the US or Sweden. The average annual number of man-hours is 2,590 in South Korea, 2,124 in Japan, 2,522 in Singapore and 2,433 in Taiwan. In France, the annual average is 1,683; in Germany it is 1,598 and 1,948 in the US. The Europeans, to put it simply, enjoy more free time. According to estimates, the American worker works 40% more hours than his or her counterpart in Germany, France or Italy.

Reinstating the 40-hour workweek in developed European counties and retaining current wage levels will result in lower labor costs in these countries, which will result in  further pressure to lower wages in the countries of Central and Southeast Europe. This will endanger the competitiveness of less developed European countries, which necessarily means that they will seek their chance in a fast flexibilisation of the labor market and lowering taxes and dues on wages and from wages, or be exposed to a capital strike. Consequences will include unemployment, economic stagnation and decline in the quality of life. Professors Sundać and Rupnik [5,54-55] point out that, when a country with lower intellectual capital value emerges in the globalization process, (1) the prevalence of the dominant country’s intellectual capital is passivised and perhaps even diminished by the domestic intellectual capital, and (2) capital invested in human potential up to that moment is not returned to the country which is in the globalization process, but is wasted.

To ensure a unique labor market not only on the legislative level, but in reality as well, the free labor movement is one of the basic premises of the EU. The free movement of workers within the European Union enables the following: (1) adapting labor supply to a variety of enterprises’ needs; (2) a coherent and more efficient conjuncture policy; and (3) improved individual living standards (4) improved living conditions for people remaining in their regions and underdeveloped countries. To enable a higher extent of free labor movement and increase the transparency of the European labor market, the European Employment Service (EURES) was developed, comprising more than 500 counselors, national employment services, employment organizations or trade unions, and regional administration bodies or instructional organizations, which were established specifically for those seeking employment and work. On August 12, 2004, the EURES site registered 79,520 job seekers, as well as 2,495 companies offering 2,990 jobs. On July 19, 2005, the EURES site registered 89,793 job seekers and 4,069 companies offering 4,615 jobs. Tables 1 and 2 show the state of European labor market through EURES.

Source: http://eurescv-search.com/ECV/WebApplMisc.asp?WCI=WebApplMisc_Statistik_Kompetens_AG
edited by the authors ^[1]

Despite all of this, migration flows inside the European Union are very slow. Labor mobility is very low despite pronounced wage disparities and unemployment rates. The unemployed are even less mobile employed workers  as they are unable to afford the costs of moving, changing environments, learning languages, etc. The enlargement of the European Union will increase migration flows on the labor market, primarily from the new member countries to more developed European countries. To prevent this, some European countries have imposed a moratorium on migration and the influx of foreign workers. Cyprus, which, unlike larger and wealthier European Union members (Germany, Austria, Belgium, Finland, etc.), did not impose the moratorium on migration and influx of foreign workers, records a high influx of workers from new EU members, especially Poland and Slovakia.  As a result, employees in the Cypriot hotel industry have found themselves under strong pressure from employers to reduce basic wages.

4. Enhancing the workforce quality in including the countries of global semi-periphery and periphery into the globalization process.

Labor costs in the countries of the global periphery have reached  the level of one-third of labor costs in the countries of global core. For the countries of the global core to opt for transferring jobs into the countries of the global semi-periphery and/or periphery, the share of labor costs in the total production cost must be higher than 15%. If not, there will be no economic effect of job migration.

Labor is one of production costs, but this does not mean that countries with the cheapest labor will attract the most investment. For a country to attract foreign producers, it must necessarily have an available trained workforce capable of attaining the appropriate level of work productivity. Increasing work productivity also increases a country's competitive position in the global market. In many cases, it is cheaper to produce footwear or clothing in the countries of the global semi-periphery such as Taiwan and South Korea and transport it to the markets of the global core countries than produce them there. The three key variables in increasing productivity are: (1) labor, (2) capital, and (3) management.

Low productivity levels in the countries of the global semi-periphery and/or periphery can significantly increase total production costs and thereby seriously impair the advantage achieved by low labor costs. This assertion is best confirmed by the following example. The management of a company in a global core country is considering the option of relocating production to a country of the global periphery. The wage of a worker in a global core country who produces 60 pieces of a product each day is 70 euro. A worker in a global periphery country has a wage of only 25 euro, but only produces 20 pieces each day. The unit cost for the product can be calculated with the following formula:

T = cost per product unit
L = worker’s daily wage
P = work productivity

Case 1: Production costs per product unit in a global core country

euro

Case 2: Production costs per product unit in a global periphery country

euro

Poor workforce training, low work education levels, poor work ethics, absenteeism, etc. in the global periphery countries often annul the advantages achieved by low wages. Thus, apart from labor costs and work productivity, it seems appropriate to conduct scientifically based research of other factors of workforce quality.

The remainder of this study discusses the decision of the management of a company in a global core country on possible relocation of production to a country of the global semi-periphery or periphery, from the point of view of workforce quality. Assessing workforce quality in individual countries is based on the factor assessment method. The method comprises six steps: (1) determining key workforce quality factors relevant to relocating the production; (2) determining relevance weights for each of the key factors; (3) determining scales for each factor (i.e. 1 to 10 or 1 to 100); (4) determining the score for each country and each factor based on step 3; (5) determining the product of multiplying the relevance weight factor and the score assigned to each factor, and then establishing the total score; and (6) making a decision on relocating the production based on conducted quantitative analysis, i.e. the highest total score.

The result of the assessment is given in Table 4:

Legend: GCC – global core country
GSPC – global semi-periphery country
GPC – global periphery country

It is evident from the data in Table 4 that the management of the enterprise must make a decision to relocate production to a global periphery country. Savings achieved in wage costs outweigh the somewhat lower workforce quality from the point of view of work productivity, work ethics, lower workforce education levels, and the somewhat poorer quality of workforce supply. Furthermore, changing relevance weights of individual factors enables a new analysis of the options of relocating production from the workforce point of view. So, for example, direct foreign investment in the countries of East Asia was the result of creating a “good business climate” (low wages – below the possible labor market price, repressive employment policy, long working week) by their governments, but after the workers' movement had strengthened and wages increased, both foreign and domestic capital started relocating to Southeast Asian countries, notably Indonesia, Malaysia, Thailand, the Philippines and Vietnam. Total South Korean investment in East Asian countries increased 109 times, from 10.3 million USD in 1984 to 1,092 million in 1994. Taiwanese investment in Southeast Asian countries in the period from 1987 to 1994 reached almost 15 billion USD.

5. Conclusion

Globalization processes are conducted through market, economic, financial, technological and information flows, unstoppably accelerating capital movement. Other production factors, especially country and labor, are being neglected. The force of global competition outweighs the significance of labor as a production factor and demands lowering labor costs. Flexibilisation of labor market is a global step forward in this direction. Labor mobility as a production factor is very poor; thus, two contemporary phenomena are apparent on the market: (1) the transfer of the majority of the workforce from blue to white collar, and (2) the transfer of jobs from global core countries to the countries of the global semi-periphery and periphery. The implications of globalization on the European labor market are observable in the extended workweek in developed countries, retaining the current wage levels, lower job security of the employed and unemployed, pressures to lower the wages in the countries of Central and Southeast Europe, and attempts to establish a unified labor market.

Labor is one of the production costs, but this does not mean that countries with the cheapest labor attract the most investment. For a country to attract foreign producers, it must necessarily have an available trained workforce capable of attaining the appropriate level of work productivity. Apart from labor costs and work productivity, there are other important factors determining workforce quality and thus the potential producers’ decision to relocate production and jobs. The most significant of these factors are workforce education levels, work ethics levels, and workforce availability.

About the authors:

Professor Danica Drakulic, Ph.D., (Serbia and Montenegro). She obtained her M.Sc. and Ph.D. from the University of Belgrade, Serbia, in the field of the General Economic Theory.  She is a Professor of the Macroeconomics at the Faculty of Economics in Subotica, Serbia. Her main fields of expertise are economic theory, macroeconomics, microeconomics, globalization in the world economy, social impacts of technological changes, and university education issues. She is an author of several determinants in the Encyclopedia of Economy and Business, and of the books Macroeconomics and Technological Changes, and Globalization in the World Economy, as well as a number of articles published in scientific journals. She works on the project, “Technology, Culture and Development” and is active in the Scientific Association Technology and Society.
Contact: danad@eccf.su.ac.yu

Drago Pupavac (Croatia) is a senior lecturer at the Polytechnic of Rijeka. He earned M.Sc. in economics from the University of Zagreb, Croatia in 1998. He is a member of Croatian Scientific Society for Traffic and is now a researcher on the Ministry project, “Include Croatia in the European logistics system.” His major research interests lie in the areas of transport economy, human potential and logistics. He has published one hundred scientific papers and three books.
Contact: drago.pupavac@ri.htnet.hr

Translated from Serbian: Women’s Center for Democracy and Human Rights

Sources:

Books:

1.      Drakulić, D. (2003) Makroekonomija i tehnološke promene [Macroeconomics and Technological Changes]: Subotica, the Faculty of Economics Subotica.

2.      Heizer, J., Render, B. (2004.) Operations Management: seventh edition, Pearson Prentice Hall, New Jersey.

3.      Kwang Yeong Shin (1998.) The Political Economy of Economic Growth in East Asia: South Korea and Taiwan, in The four Asian Tigers (Eun Mee Kim, ed.): San Diego, California, USA, Academic Press.

4.      Stiglitz, J. (2004.) Globalization and its Discontents: Zagreb, Algoritam.

5.      Sundać, D., Rupnik, V. (2005.) Dominacija kapitala = klopka čovječanstvu [The Domination of Capital = a Trap to Humanity]: Rijeka, I.B.C.C.

6.      Drakulić, D. (2003.): „Tržište rada i zaposlenost u globalnim reformskim procesima“ [Labor Market and Employment in Global Reform processes], in Institucionalne promene kao determinanta privrednog razvoja Srbije [Institutional Changes as a Determinant of Economic Development in Serbia]: the Faculty of Economics in Kragujevac

Articles in collections of papers:

7.      Drakulić, D. (2004.) Doba znanja – otvaranje ili prevazilaženje kontraverzi razvoja [The Age of Knowledge – Opening or Overcoming the Controversies of Development], in the collection of papers of the Second Conference on the Route to the Age of Knowledge September 16-19, 2004., Valdanos; the Management College in Novi Sad

8.      Pupavac, D. (2004.) „Fleksibilizacija tržišta rada – preduvjet konkurentnosti u novoj ekonomiji” [Workforce Flexibility – a Prerequisite to Competitiveness in the New Economy], in the Collection of Papers of the Ninth conference on Technology, Culture and Development, Palić, September 6-10, 2004, pp. 251-261.

9.      Pupavac, D. (2005.) Labor market flexibility as a function of entrepreneurship development, International Conference Entrepreneurship and Macroeconomic Management, April 28 – 30, 2005. Pula, Conference proceedings Vol, 2, p. 626 – 635.

Other:

10.  Piana, V.: Hierarchy Structures in World Trade: Economics Web Institute, 2004.

11.  The Economist July 31 2004.

12.  http://eurescvsearch.com/ECV/WebApplMisc.asp?WCI=WebApplMisc_Statistik_Kompetens_AG, August 20, 2004. and July 19, 2005

^[1] Re-edited by the translator