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Globalization and Unemployment
The Downside of Integrating Markets
MICHAEL SPENCE is Distinguished Visiting Fellow at the Council on Foreign Relations and the author of The Next Convergence: The Future of Economic Growth in a Multispeed World. He received the Nobel Prize in Economics in 2001. His Web site is www.thenextconvergence.com.See more by this author
Globalization is the process by which markets integrate worldwide. Over the past 60 years, it has accelerated steadily as new technologies and management expertise have reduced transportation and transaction costs and as tariffs and other man-made barriers to international trade have been lowered. The impact has been stunning. More and more developing countries have been experiencing sustained growth rates of 7-10 percent; 13 countries, including China, have grown by more than 7 percent per year for 25 years or more. Although this was unclear at the outset, the world now finds itself just past the midpoint in a century-long process in which income levels in developing countries have been converging toward those in developed countries. Now, the emerging economies' impact on the global economy and the advanced economies is rising rapidly.
Until about a decade ago, the effects of globalization on the distribution of wealth and jobs were largely benign. On average, advanced economies were growing at a respectable rate of 2.5 percent, and in most of them, the breadth and variety of employment opportunities at various levels of education seemed to be increasing. With external help, even the countries ravaged by World War II recovered. Imported goods became cheaper as emerging markets engaged with the global economy, benefiting consumers in both developed and developing countries.
But as the developing countries became larger and richer, their economic structures changed in response to the forces of comparative advantage: they moved up the value-added chain. Now, developing countries increasingly produce the kind of high-value-added components that 30 years ago were the exclusive purview of advanced economies. This climb is a permanent, irreversible change. With China and India -- which together account for almost 40 percent of the world's population -- resolutely moving up this ladder, structural economic changes in emerging countries will only have more impact on the rest of the world in the future.
By relocating some parts of international supply chains, globalization has been affecting the price of goods, job patterns, and wages almost everywhere. It is changing the structure of individual economies in ways that affect different groups within those countries differently. In the advanced economies, it is redistributing employment opportunities and incomes.