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Globalisation's joys and pains

October 24, 2003 18:44 IST

As he made love to the porcupine, the monkey is believed to have archly observed to a nosy-parker passer-by, "there is no pleasure without pain." As much can be said of workers in globalised firms. They get paid more and trained better, but they also get sacked more.

"Employees of 'globalised' firms face a riskier but potentially more rewarding menu of labour market outcomes." This is the central message of a recent paper by *Francesco Daveri, Paolo Manasse, Danila Serra who say that India in the late 1990s "is an ideal laboratory to study the effects of globalisation on firms' behaviour". The paper is part of the joint Luca d'Agliano-World Bank project on "Trade, technology diffusion and performance in Indian manufacturing".

Not just better pay, employees in firms that face foreign competition, also have better career and/or have more opportunities to train and upgrade their skills. So "the negative uncertainty costs and the positive incentive effects of globalisation are thus twin to each other. Concentrating on just one side of the coin gives a misleading picture of globalisation."

Their analysis is different, claim the authors, in that it does not focus only on wages and employment but also includes non-wage benefits such as promotions and training. They find that "employees of exporting firms are exposed to higher wage and employment variability, but also enjoy a higher probability of being promoted and trained than the employees of firms not subject to foreign competition." The same thing happens, albeit in a lesser degree, to importing firms and applies to employees of import-competing firms.

The paper is based on a newly assembled World Bank data set of Indian manufacturing firms for 1997 to 1999. Some 895 firms were surveyed and information was collected for ownership structure, investment and technology, relations with suppliers and government, location, trade, products and inputs, labour and human resources, and assets and liabilities.

Garments, textiles, drugs and pharmaceuticals, electronic consumer goods and electrical white goods have been covered. Ahmedabad, Bangalore, Kolkata, Chandigarh, Chennai, Cochin, Delhi, Hyderabad, Kanpur, Mumbai and Pune are the places the survey looked at. Orissa, Madhya Pradesh, Bihar, Rajasthan and so on were left out of the sample.

Where training and promotions are concerned, it turns out that an employee of an exporting firm is twice as likely to be promoted in the current year as the average worker, and no less than three times as likely as the employee of a protected firm.

Thus, while globalisation "makes life riskier for Indian workers and firms, at the same time it provides them with the incentives and opportunities to face the new challenges: higher investment in training and, possibly as a result, higher probability of promotions (for exporters)."

One finding is that globalisation does not have an effect on the skill premium. That is, factor prices do not equalise as Messrs Stolper and Samuelson suggested. The reason, of course, is that labour movement is not allowed. If it were, we might find the premia on skills dropping sharply.

From this, the authors come up with an important policy insight, one that the government should consider carefully. It is that "safety nets programmes should complement, and not substitute, the private sector response by making income support schemes conditional on firms and workers' revealed willingness to train and adapt themselves to the changing external environment."

This may well be so, but the paper doesn't take into account a very specific Indian public sector problem -- the age profile of those who might become redundant. Having been recruited during the great public sector expansion between 1971 and 1976, they are all in their late 40s and early 50s. These people would be unemployable even with training.

India has to wait until they all retire for proper labour market reform to become acceptable politically. In that sense, we are still about a decade away from a flexible labour market. Until then, makeshift solutions such as the one proposed by the labour ministry about two weeks ago -- extending contract labour -- will have to make do.

There is an important lesson for the Marxists as well in this paper, which confirms what their guru, D D Kosambi believed. He wrote that the reason why India fell behind in the technological race is that from about the fifth century AD, it became increasingly autarkic in its orientation. Indeed, the process went so far as to make every village self-sufficient.

Employment, wages and profits were stable. And so was technology. Nice enough, except for the result, which was conquest.

*The Twin Effects of Globalisation, ideas.repec.org/e/pda17.html

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T C A Srinivasa-Raghavan