The Impact Of Trade Globalization And Technological Progress On Employment And Wage Inequality

The impact of trade globalization and technological progress on Employment and WageInequality over the past two decades has become a hot and focal research issue. From themid-1990s until late1990s, this research issue lies in the determining factors which lead to theemployment and wage gap between skilled and unskilled workers in the United States and manyEuropean countries over the past few decades. In the late1990s, a new concern is thatemployment and wage gap between skilled and unskilled workers are enlarged in manydeveloping countries after trade liberalization, which is beyond the Stolper-Samuelsontheorem’s prediction, therefore, the aforementioned phenomenon definitely triggers offrethinking the issue.The first issue covers what kind of role the factors, such as trade globalization,technological progress and related aspects, plays in determining employment and wage gap inthe labor market and which factor is the predominantly determinant factor. The researchspotlight drawn from the research literature before2000is that technological progress exerts agreater impact on the labor market, compared with trade and other factors (such as tradeunions), that is to say, technological progress is primary, trade is secondary, and other factorsare negligible. The research in1990s has influenced the orientation of research for the recentdecades, thus technological progress is emphasized in influencing the wage gap, whereas tradeglobalization is to some extent neglected. Since Acemoglu (1998) study began, it has come torealize that the impact of trade globalization may be underestimated. Moreover, with furtherescalation of the trade globalization, the degree of underestimation is gradually increased, ascompared to the fact that global trade has now significantly increased since1990s. Acemoglu(1998) found that the most important issue in the previous studies, is to ignore the impact oftrade globalization on technological progress, and a separate look at the impact of tradeglobalization and technological progress on the labor market, and thus underestimate theimpact of trade globalization on the labor market.Recently, job “polarization” phenomenon appears in the labor market in the U.S. andEurope, and with respect to that of the medium-skilled workers, employment and wages ofhighly skilled workers and low-skilled workers are increased. Regarding this phenomenon,outsourcing and technological progress received widespread attention in explainingpolarization. In this paper, it is found that China’s labor market has also seen employment “polarization” phenomenon according to1998-2009manufacturing industry data, and thatoutsourcing, R&D and high-tech capital equipment have significantly affected the labor market.Secondly, trade and technological progress have the impact on skill structure according to1998-2007manufacturing industry data. In the whole industry level, enlargement in the exporttrade promotes the relatively larger share of wages for unskilled workers, which indicates thatthe promotion of export trade increases the demand for unskilled workers. However, the use ofhigh-tech capital equipment has increased the demand for skilled labor, which indicates that thetechnological progress is skill biased. R&D investment increase promotes the expansion ofdemand for unskilled workers, suggesting that the technological progress by R&D investment isnon-skill biased. When the industry is classified by the technical level, trade and technologicalprogress have the different impact on the skill structure in the technically classified industries.Thirdly, some studies have examined the impact of trade globalization on the labor marketin developed countries, and the models are designed mainly for the developed countries.However, in terms of scale or scope, the impact of trade globalization on developing countrieswill be even bigger, and it has become increasingly important. On account of tradeliberalization, Developing countries not only promote the export of labor-intensive productsand reduce production costs, but also expand the technology of foreign exchange, which isconducive to the introduction of advanced production technology. Trade globalization andtechnological progress also have had two important implications on the labor market indeveloping countries. First, trade globalization has a direct effect on price in the labor market.Second, trade globalization leads to skill-biased technological progress, thus having an indirectimpact on the labor market. The second effect outweighs the first effect, which leads to the factthat since trade liberalization the wage gap between skilled and unskilled workers has widenedin many developing countries.Finally, trade globalization has already linked developed and developing countries anddeveloping countries’ integration into the international trading system will have definitely animpact on the domestic labor market. As predicted by traditional trade theory, tradeliberalization may make some people gain and others lose, that is the trade liberalizationprocess may be accompanied by an increase or decrease in wage inequality. Trade globalizationhas incorporated a country into the international competition, and the domestic factor priceswill be affected by the integrated endowment structure. In the trade integration process, thosecountries which are abundant in unskilled labor may benefit, while the countries which areabundant in skilled labor may be damaged. However, when taking into account the process oftrade globalization, technical endowment structure is also facing the integration, the countriesbenefit whose technological endowments are the more skill biased and which are abundant in the skilled labor. While the countries will be damaged, whose technological endowments arethe more non-skill biased and which are abundant in the unskilled labor. The impact of changesin technological endowment structure and the impact of changes in factor endowment structureare diametrically opposite. Thus, the overall impact of the globalization of trade on wageinequality may be uncertain.This study helps to think about the mechanisms of the impact of trade globalization andtechnological progress on the labor market in developing countries, and to provide some usefulsuggestions for the government’s trade policy and industrial policy.