Article
Reference
The impact of globalisation on work capability
KRISHNAKUMAR, Jaya, SARTI, Elena
KRISHNAKUMAR, Jaya, SARTI, Elena. The impact of globalisation on work capability.
International journal of sustainable human development , 2013, vol. 1, no. 4, p. 146-153
Available at:
http://archive-ouverte.unige.ch/unige:41672
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The impact of globalisation on work capability
Jaya Krishnakumar*, Elena Sarti#
Department of Economics, University of Geneva, Switzerland, *[email protected], #[email protected]
This paper investigates whether globalised economies are able to offer expanded and equalised opportunities for work using the capability approach as the theoretical framework. We not only look at the quantity of available work or its lack (employment/unemployment) but also its quality (working conditions) in order to obtain as complete a picture as possible of the 'employment freedom' in a given country. Further, we consider the different aspects of globalisation separately viz. economic, social and political, and study their impacts. Finally we adopt a novel modelling framework that acknowledges that the concepts 'globalisation' and 'capability to work' are not directly observable but manifest themselves through multiple indicators.
Introduction
In this analysis we investigate whether globalised economies are able to offer expanded and improved opportunities, focussing on work capability. We carry this out within the theoretical framework of the capability approach developed by Nobel Laureate Amartya K. Sen (Sen 1999a, 1999b), which defines (human) development as the enhancement of an individual’s choices to lead a valuable life. The specific objective of this study is to examine the relationship between globalisation and work freedom at the aggregate level. We put a special emphasis on the quality of employment opportunities in addition to its quantity, by exploring whether they are accompanied by stronger rights for employees, such as freedom of association and rights of equal pay for equal work. To this end, we analyse data for several countries over the period 2000-2009, using a structural econometric model.
This study contributes to the literature on the impact of globalisation on employment in many ways. First both the concepts of employment and globalisation are taken beyond their economic dimension. We not only look at the quantity of work opportunities or its lack (employment/unemployment) but also the quality (working conditions) in order to obtain as complete a picture as possible of the 'employment freedom' in a country. Next we consider different aspects of globalisation viz. economic, social and political, and study their impacts separately. Finally we adopt a novel modelling framework that formulates that both globalisation and employment capability are not directly observable as such but manifest themselves through many indicators.
Theoretical framework
The capability to work
ILO (1999, p. 3) states that "The primary goal of the ILO today is to promote opportunities for women and men to obtain decent and productive work, in conditions of freedom, equality, security and human dignity".
The concept of 'decent work', which embraces quantitative and qualitative dimensions, was introduced in these terms by ILO in 1999.
The approaches on quality of work vary across different fields and there is no general agreement on its definition and on what a good job is. While economists often look at the monetary aspect, especially considering hourly wages, fringe benefits and working hours, sociologists are more concerned with skills, autonomy and control, while psychologists tend to emphasize subjective measures, such as job satisfaction.
For these reasons the components of job quality in empirical studies differ in how it is measured, especially when available data are not designed for analysing it.
In this analysis, for going beyond the space of paid productive work and taking into account the comprehensive nature of 'decent work', we use the capability approach framework developed by Sen (1999a, 1999b), which is an alternative to the standard welfare economic approach that has been extensively used to study poverty, inequality and development. Sen's book 'Development as freedom' starts with this sentence:
"Development can be seen, it is argued here, as a process of expanding the real freedom that people enjoy"
(Sen, 1999a) and the philosopher Martha Nussbaum defines capability as "what people are actually able to do and to be" (Nussbaum, 2001, p. 5). In this approach the capability set is defined as the set of choices that an individual has while the outcomes or achievements resulting from exercising a choice are called functionings, or 'beings and doings'. Well-being therefore consists of two parts: freedom to achieve valuable beings and doings (i.e. potential functionings) and the actual achievements (i.e. functionings). Taking a simple example, having access to school creates the capability of being educated, but this does not necessarily mean that the person will end up being educated as the latter involves an active decision to avail of the opportunity.
This study follows the above approach in defining the capability to work not only in terms of job market opportunities (quantity) but also as inclusive of the conditions of work (quality). Our quality indicators largely cover the concept of 'decent work' promoted by the ILO. To our knowledge this is one of the first studies to combine quantity and quality of work in analysing the impact of globalisation.
Globalisation
In a very general manner, globalisation can be viewed as increasing forms of economic integration, global governance and social development. As underlined in Martens and Raza (2010, pp. 280-281), globalisation can mean different things, such as "the glowing interaction of markets and nation-states and the spread of technological advancement; receding geographical constraints on social and cultural arrangements; the increased dissemination of ideas and technologies; the threat to national sovereignty by trans-national actors;
or the transformation of the economic, political and cultural foundations of societies".
In the past globalisation was identified as a sort of economic process delineated by rising levels of deregulated trade, electronic communication and capital mobility, but then it also started encompassing social, cultural and environmental aspects. To better understand this vast phenomenon, scholars have recently introduced several indices, which are based on subjective assumptions on indicators and weights. We selected the KOF Index of Globalisation for our empirical analysis as we found it to be the most comprehensive index among all.
The KOF Index of Globalisation, produced by the KOF Swiss Economic Institute, was introduced in 2002. It is now available for 208 countries for the period 1970-2009. It involves three main dimensions:
economic globalisation, social globalisation and political globalisation, and ranges from 0 to 100. A sub- index is first calculated for each of three dimensions and then combined to form an overall index.
Economic globalisation includes two aspects: one correlated with actual economic flows and the other relating to restrictions on trade and capital. The actual economic flows sub-index includes data on trade (i.e.
sum of a country's exports and imports), foreign direct investment and portfolio investment (i.e. sum of a country's stock of assets and liabilities), while the restrictions on trade and capital sub-index includes hidden import barriers, mean tariff rates, taxes on international trade (as a share of current revenue) and an index of capital controls.
Social globalisation is divided into three main categories: personal contacts (which includes direct interaction among people living in different countries and considers international telecom traffic, the degree of incoming and outgoing tourism, the percentage of total population represented by foreign nationals and the number of international letters sent and received), information flows (which measures the potential flow of ideas and images, through the number of internet users, the share of households with television and the value of trade in international newspaper as percentage of GDP) and cultural proximity (which considers the number of McDonald's restaurants and of IKEA shops, as well as the imports and exports of books as percentage of GDP).
The third component, political globalisation, is measured by the number of embassies and high commissions in a country and the number of membership in international organisations, the number of participations in United Nations peace missions and the number of treaties signed with other country/ies since 1945 (Dreher, 2006 and Dreher et al., 2008).
Table 1: Indices and variables of the KOF Index of Globalisation
Indices and Variables Weights
Economic Globalisation i) Actual Flows
Trade (percent of GDP)
Foreign Direct Investment, stocks (percent of GDP) Portfolio Investment (percent of GDP)
Income Payments to Foreign Nationals (percent of GDP) ii) Restrictions
Hidden Import Barriers Mean Tariff Rate
Taxes on International Trade (percent of current revenue) Capital Account Restrictions
36%
50%
21%
28%
24%
27%
50%
24%
27%
26%
23%
Social Globalisation i) Data on Personal Contact Telephone Traffic
Transfers (percent of GDP) International Tourism
Foreign Population (percent of total population) International letters (per capita)
ii) Data on Information Flows Internet Users (per 1000 people) Television (per 1000 people)
Trade in Newspapers (percent of GDP) iii) Data on Cultural Proximity
N. of McDonald’s Restaurants (per capita) N. of Ikea (per capita)
Trade in books (percent of GDP)
37%
34%
25%
4%
26%
21%
25%
35%
33%
36%
32%
31%
44%
45%
11%
Political Globalisation Embassies in Country
Membership in International Organizations Participation in U.N. Security Council Missions International Treaties
26%
25%
28%
22%
25%
Source: Dreher (2006), Updated in: Dreher et al. (2008)
Impact of globalisation on work capability
Theories on globalisation and growth have argued that total economic welfare increases when countries get access to external markets through economic openness policies (Feldstein, 2000). Although recent theories have distinguished between endogenous and exogenous growth factors (e.g. Jones, 2002), empirical studies have remained indecisive in the choice of variables used, growth sustainability, model construction and such related issues as inequality, poverty, and inflation (Barro, 2000; Durlauf et al. 2005). There are hardly any works that emphasise on the input-base of the growth process and consider the ex-ante factors that would enable the growth process to become an all-inclusive welfare augmenting process. One such factor is the work capability.
Most of the studies that have analysed the impact of globalisation on working conditions refer to case studies using labour force survey data and only consider the economic aspect of globalisation. The general conclusion is that opening out favours better working conditions in the exposed industry, which does not always spill over to the 'domestic' sector.
Neak and Robertson (2007) discuss the impact of trade openness and foreign direct investment on working conditions (identified by hours of work and accidents at work) in Cambodia where the expansion of the garment sector resulting from the globalisation process produced an increase in the overall working conditions. Robertson et al. (2007) repeat a similar exercise for Indonesia, looking again at two aspects of globalisation, namely trade and foreign investment. Results show that globalisation seems to only improve
working conditions for those in manufacturing industries, confirming the hypothesis that foreign investment and liberalisation facilitate a shift from sectors with poor conditions and low wages to ones with better conditions and higher wages.
In a similar vein, Robertson and Tigueros-Argüello (2007) analyse the case of El Salvador and find that only a small percentage of workers exposed to international markets (i.e. working in the apparel sector) are positively affected by the impact of globalisation. Marcouiller and Robertson (2007) analyse the case of Honduras, where once again it is stressed that the increasing attention to the apparel sector by foreign governments, consumers and organizations led to improved conditions in that sector.
Finally, Cling et al. (2007) analyse the case of Madagascar, showing that the Zone Franche companies perform better than formal industrial ones in the private sector as far as job security, paid holidays and incidence of permanent and written contracts are concerned. In spite of this, employees in the Zone Franche do not state a satisfaction level higher than the average and this is mainly due to the progressive reduction of their advantages and benefits caused by the increase of international competition for clothing products.
Our analysis aims to contribute to the existing literature by widening the concept of globalisation to cover social and political aspects in addition to the standard economic openness aspect, and applying a different modelling framework which allows using the many available indicators simultaneously.
Empirical model
The dataset used in our research assembles information from different data sources. We use World Bank and ILO databanks to obtain information on labour market variables and the Cingranelli-Richards (CIRI) Human Rights Dataset for information on people’s rights in different countries. The ILO has two main sources:
KILM data on labour market outcomes and Normlex data on labour conventions on workers' rights ratified by each country. As mentioned earlier, our globalisation data come from the KOF Index of Globalisation (2012). The full sample includes information on 227 countries and 32 macro-areas/regions from 1960 to 2012, although availability of data varies greatly across countries and variables.
Our empirical approach assumes globalisation and work capability to be latent concepts observed in practice through multiple indicators. Thus we adopt a structural modelling framework known as Multiple Indicators Multiple Causes (MIMIC, see e.g. Krishnakumar, 2007; Krishnakumar and Ballon, 2008 for the use of such models to operationalise the capability approach). It is of course possible to focus only on one or two key indicators and apply standard regression techniques to study the impact of one on the other.
Literature has mostly relied on such methods whereas we propose to simultaneously use the many available indicators in our relationship.
The MIMIC model consists of two parts: a measurement part which postulates that the observed indicators (endogenous) are partial (correlated) measurements of the underlying latent concept (also endogenous), and a structural part which describes the causal relationship between the latent concept and several exogenous factors. In our study, in accordance with our previous argument on the importance of considering quantity as well as quality, we postulate two major latent dimensions of 'work opportunity' corresponding to these two elements. The quantity aspect is observed through a set of indicators such as employment, unemployment and part-time employment, including information on the vulnerability of the work situation, whereas the quality aspect includes indicators on conditions of work, labour protection, family responsibility and social security.
At this stage it is important to point out that we have two types of indicators regarding 'quality' in our data sources: a first type which reflects 'potential' quality consisting of the nature of labour conventions signed by the country, such as right to collective bargaining, abolition of forced labour, old age benefits, work environment, occupational safety and maternity protection. We say 'potential' because these indicators do not contain any information on the actual implementation of these conventions. The second type is the 'actual' quality, which covers workers' rights through indices on the level of their enforcement. Hence we decided to have two different latent dimensions for the quality aspect: the 'potential' quality and the 'actual' quality.
Therefore, in all, we have three latent factors, namely 'potential quality of work', 'actual quality of work' and 'quantity of work'. The first latent factor is measured by seven indicators (called 'g1', 'g2', 'g3', 'g4', 'g5', 'g6' and 'g7'), which refer to the number of labour (ILO) conventions ratified by each country on the above- mentioned qualitative issues regarding working conditions. The second latent factor is the 'actual quality of
work', with indicators on workers' economic rights, women's economic rights and women's social rights (named 'Workers', 'Women-eco' and 'Women-soc' in the model), from the CIRI Dataset. The corresponding dimension is called 'actual quality of work' precisely because its indicators measure the enforcement of basic rights. The third latent factor is called the 'quantity of work' and it is measured by five typical economic indicators, which look at the proportion of people employed, unemployed, working part-time and working in the sectors of industry or services (these variables are called 'Empl15+', 'Unempl', 'Part-time', 'Empl-ind' and 'Empl-ser' respectively). Many countries had missing values in our variables of interest and consequently have been dropped from the MIMIC analysis. Furthermore, for the same reason, the model has been estimated for a restricted period of time, namely 2000-2009. Therefore, the final dataset consists of 50 countries observed for 10 years. The countries selected are listed in Table 2. As one can see we have both developed countries (OECD) and developing countries (mainly from Latin America).
Table 2: List of countries in our final sample
Area List of countries
Europe & Central Asia
Austria, Belgium, Bulgaria, Switzerland, Cyprus, Czech Republic, Germany, Denmark, Spain, Estonia, Finland, France, United Kingdom, Greece, Hungary, Ireland, Iceland, Italy, Lithuania, Luxembourg, Latvia, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Sweden and Turkey.
Latin America &
Caribbean
Argentina, Bolivia, Brazil, Colombia, Ecuador, Honduras, Peru, El Salvador, Uruguay and Bolivarian Republic of Venezuela.
East Asia & Pacific Australia, Indonesia, Japan, Republic of Korea, New Zealand and Singapore.
North America Canada and United States.
Middle East &
North Africa
Israel.
Although our key relationship is the one going from globalisation to work capability represented by the three latent factors quantity, 'potential' quality and 'actual' quality, we include other exogenous variables characterising the economic, social, demographic and political context. Most of these control variables come from the World Bank data set: GDP-growth (annual percentage), population in working age (15-64) as percentage of the total population, population living in urban area as percentage of the total population, life expectancy at birth in years and proportion of labour force with tertiary education (as a human capital variable). We also include three CIRI indices reflecting political and civic freedom: an index indicating the level of freedom of assembly and association (in general), an index related to the freedom of domestic movement and an index on free and fair elections. For globalisation, we use the six sub-indices of KOF globalisation index. Our model is depicted in Figure 1 below.
Figure 1: Structure of our MIMIC model
Results
Our empirical results show that the impact of globalisation on the capability to work is not uniform, with the effect varying according to the particular aspect of globalisation and the particular dimension of work freedom (Table 3). More specifically, all globalisation indices have a positive impact on the 'actual' quality of work except for 'economic flows' which is insignificant and cultural closeness which negatively affects the 'actual' quality of work. In other words fewer restrictions on trade and capital, more interaction among people living in different countries, more potential flow of ideas and images and more political globalisation all contribute positively to the 'actual' quality of work. The negative effect of the cultural proximity index, identified by the number of McDonald's Restaurants and Ikea shops per capita, could be explained as a net effect between better working conditions in some countries (e.g. in Latin America) due to the presence of McDonald's Restaurants and Ikea shops possibly raising labour standards, and perhaps worse conditions in other (European) countries. 'Potential' quality of work is affected positively by economic openness and cultural closeness and negatively by personal exchanges, while all other measures of globalisation have no significant impact.
The 'quantity of work' dimension is positively affected by open economic flows confirming economic theoretical predictions, by political globalisation and by the 'personal contacts' component of social globalisation, which has the highest impact. Loosening of trade and capital movement restrictions, information flows and cultural closeness negatively affect this variable. The negative impact of loosening capital movement restrictions is the only negative impact of economic globalisation in the whole model and could imply that encouraging foreign ownership of companies may result in job losses possibly due to the use of labour saving technologies.
Concluding remarks
Overall, globalisation has more positive and significant impacts than negative and significant ones on all three dimensions of work capability. However all dimensions do undergo negative influences from some aspect of globalisation. Most of the negative influences are due to the social globalisation components.
Political globalisation is positive for both quantity and quality, meaning that the diffusion of government policies and increasing international linkages promote the implementation of policies that improve labour rights, possibly through implicit political pressure to conform to international standards. We explored a different variant of our model introducing some vulnerability indicators (underemployment, contributing family workers and vulnerable employment) in our measurement model but do not report the results due to poor fit in spite of the fact that all these variables have negative coefficients for the quality of work and
positive ones for the quantity of work as can theoretically be expected. Hence we would like to pursue this extension in the future. As a further extension, we would like to model heterogeneity of behaviour across geographical areas. Finally, we also wish to introduce a measure of social capital as a mediating variable in the relationship between globalisation, opportunities and outcomes.
Table 3: Causal Relationship - MIMIC model
Exogenous Variable Parameter Std. Coefficient
'Potential' quality: f1 ON GDP-growth
Pop-1564 Pop-urb Life Education Association Movement Election Glob-flows Glob-rest Glob-person Glob-info Glob-cult Glob-polit
-0.018 ** -0.103
-0.089 *** -0.314
-0.019 *** -0.349
0.051 *** 0.295
-0.019 *** -0.293
0.065 0.045
0.285 *** 0.163
-0.066 -0.034
0.020 *** 0.475
-0.003 -0.050
-0.008 * -0.220
0.005 0.092
0.009 *** 0.287
-0.003 -0.059
'Actual' quality: f2 ON GDP-growth
Pop-1564 Pop-urb Life Education Association Movement Election Glob-flows Glob-rest Glob-person Glob-info Glob-cult Glob-polit
-0.012 -0.082
-0.039 ** -0.163
0.005 * 0.112
0.015 0.099
0.003 0.058
0.182 ** 0.146
0.140 0.094
0.352 *** 0.212
0.002 0.051
0.010 *** 0.230
0.007 * 0.227
0.010 ** 0.228
-0.003 * -0.129
0.008 ** 0.168
Quantity: f3 ON GDP-growth Pop-1564 Pop-urb Life Education Association Movement Election Glob-flows Glob-rest Glob-person Glob-info Glob-cult Glob-polit
0.035 0.020
-0.333 ** -0.122
0.114 *** 0.218
0.376 *** 0.223
0.189 *** 0.295
1.126 * 0.080
0.140 0.008
1.358 * 0.072
0.053 ** 0.130
-0.062 ** -0.128
0.165 *** 0.457
-0.217 *** -0.418
-0.039 *** -0.135
0.049 * 0.097
*, **, *** denote significance at 10%, 5% and 1% level respectively.
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