Impact of Economic Competitiveness on Wages

Impact of Economic fight on Wages The crop of small-scale wage jobs is inevitable as national political relations seek to heighten frugalal competitiveness. Discuss.IntroductionThis set about discusses the hypothesis that governmental policies aimed at improving a nations relative performance in the global scrimping must lead to an increase in the low paid jobs. If considered in a global context the subject covers a wide spectrum. So the essay considers the United Kingdoms (UK) stinting experiences from the late 1970s, with particular emphasis on the Thatcher era from 1979-1990 when the foundations for the UKs economic reforms were laid. The profound change in economic management coupled with the rapid advances in communications and information technology has accelerated the effects of globalisation and led to severe disruption in the UK repulse mart. Evidence exists that the erosion of the bar deliver the goodsing power of employees due to the twin effects of government policy and globalisation has exacerbated the decrease in real earnings amongst the less skilled workforce. However this vulnerability raft be partially off-set by some of the benefits due to improvements in the UKs international economic competitiveness and an useful mix of domestic wear upon market policies.Economic Competitiveness A DefinitionFor centuries, international heap has been the bedrock of the UKs prosperity. Economists swallow immense debated the effect of government policies on carry on and national prosperity. In 1817 during the first stirrings of the industrial revolution David Ricardo unquestionable an argument which can be summarised as The classical possible action of international trade and its role in economic development is based on the principle of comparative gain. The comparative advantage paradigm states that a country performs better by concentrating on the production of those goods and run for which it possesses a comparative advantage over ot hers, and then trade those goods for those of other countries.1Modern economic possible action still supports the basic tenets of Ricardos argument, which was primarily developed as an attack on governments protectionist agricultural policies at the time. Recent research, however, goes a step further. Michael Porter devised the concept of National Advantage 2 which argues that governments ready a significant role to play in enhancing a nations comparative advantage when competing in the global economy. His Diamond of National Advantage (below) suggests that perusing policies that enhance company performance by, say, unrelenting product standards, elating demand for advanced products, focusing on factor creation, with improved worker skills and stimulating rivalry by enforcing antitrust legislation will support the development of a strong and internationally competitive trading economy.The UK ExperienceAfter the Second World War the UK government pursued policies to geld unemplo yment through subsidies, direct support for industry, including nationalisation of some economically challenged sectors such as coal-mining, railways and a study automotive manufacturer, limiting external competition through protectionism. Trade policy was largely governed by favouring solid ground countries, through the Commonwealth Preference arrangements. This approach was largely self-defeating as suggested by the Economist as premature as 1960. A comprehensive system involving the granting of large margins of preference might be pass judgment to have results of two kinds it should ensure to exporters a larger sh ar of the market than they would otherwise obtain, or enable them to charge higher prices for their goods than in non-preferential markets. An examination of Commonwealth Preference suggests that its effects in both directions are more limited than is implied by the support which it commands in the Commonwealth and the hostility it sometimes arouses in non-Commonwea lth countries. 3 In particular, it was in conflict with some of the concepts of the General Agreement on Tariffs and Trade, (GATT) formed in 1947 to promote economic recovery after the war by reducing barriers in international trade, especially the reduction in tariff barriers.The UK economy prospered under this regime particularly in the late 50s and early 60s but by the 70s the cracks were beginning to show. By the mid 70s it was obvious this economic model was not in tune with the needs of a in advance(p) nation in a rapidly changing world. Some of the old tenets were under scrutiny and the entrench bastions of economic power were at loggerheads. In particular, the power of the union movement and the entrenched conservatism and vindication to change of management in the traditional industries such as coal, rail and manufacturing led to conflict and industrial disputation which were ruinous to the economic health of the nation.Successive governments failed to address the underly ing economic causes of the problems, until Margaret Thatcher became Prime subgenus Pastor in 1979 with a new approach to economic governance. Her philosophy was not necessarily based on economic theory, although some of her advisors and ministers were well versed in Keynesian economics.Her government embarked on a serial of structural economic reforms including the privatisation of government-owned industries, deregulation of large swathes of UK economic activity, particularly fiscal services and the pursuance of an pugnacious free trade agenda. What became known as Thatcherism whitethorn have been an agenda which benefited corporate capital, as left wing critiques emphasize, but its ideological formulation was populist and it employed the petty bourgeois values of thrift, hard work, and family solidarity as the central justifications for privatization, tax cuts, reduction of state expenditure, and hostility to trade unions.4 Since that period it is true to say that Thatcherismwa s. to fix the ruling consensus of the British government . soon established and exported near the world5It is interesting to note that Thatchers economic policies predated Porters research outlined in section 2, as Hood and Young observe While what has occurred falls short of a systemic approach to counteract market-distorting behavior or to launch up created assets, there is little doubt that there have been consistent themes pursued since the Conservative government came to power in 1979. Deregulation, privatization, the restructuring of the handling of labour disputes, and so on have been driven by a clear philosophy concerning the role of the market and the negative economic and social effects of certain types of market distortions6Effect on Employment and WagesAs the Thatcher reforms began to bite, the short-term results reverberated around the UK. For example the industrial midlands in the late 70s was the heart of the automotive and machine tool manufacturing industries. By the mid 80s it was an industrial wasteland with acres of empty and derelict factory space with many thousands of workers displaced or redundant. This picture was repeated in many communities previously reliant on smokestack industries in the trade union and west of the UK. Anecdotal evidence suggested many of those displaced from manufacturing jobs had joined the informal self-employed workforce and those still in full-time employment had migrated to low-wage jobs in service industries such as retailing. This is backed up by comments from institution for Economic Cooperation and Development (OECD) which reports The labour market plays a crucial role in reaping potential gain from globalisation by facilitating a shift of jobs from declining sectors or occupations to expanding ones, in line with the changes in comparative advantage. However, this labour market adjustment is not always smooth because many workers displaced from declining sectors are poorly positioned to move into newly-created jobs in export sectors, which may be located in different regions or require different qualifications7 The global Labour Organisation (ILO) also echoes a similar theme Policies aimed at increasing competitiveness by lowering unit labour costs should consider the potential consequences on either workers (via wages) or firms and economic growth (via productivity). For example, on the one hand, an excessive and long-run emphasis on wage moderation may threaten a countrys productivity growth rate as it might reject innovation and investment in human capital8In the longer term, however the overall benefits to the UK economy were substantial. The shift from a manufacturing to serviced based economy has brought significant benefits to the nation. The UK, a leading trading power and financial centre, is one of the quintet of trillion dollar economies of Western europium. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force. The UK has large coal, innate(p) gas, and oil reserves primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Since emerging from recession in 1992, Britains economy has enjoyed the longest period of expansion on record growth has remained in the 2-3% range since 2004, outpacing most of Europe.9Not everyone has benefited from this development. In relative terms the rich have got richer whereas the lower-paid workers have seen their relative position decline. The UKs growth in wealth equality has been the fastest among the worlds 30 richest and most developed countries. But in 2005, when the or ganisation compiled its latest data, the UK remained a more unequal society than three-quarters of OECD countries, with the richest 10% earning club times more than the poorest 10%.10Striking the BalanceBased on the UK governments experience, desire to promote economic competitiveness can be beneficial for the national economy overall.Open trade and investment policies can be a powerful force for raising living standards. Economists have long emphasised this point and it is confirmed by much research. For example, the OECDs Growth Study estimated that a 10 percentage point increase in trade openness translates over time into an increase of around 4% in per capita income in the OECD area.11However to mitigate the disruptive effects of such aggressive economic policies, suitable social policies should go hand in hand. For example policies to enhance labour mobility and relocation, income security packages cogitate to retraining to increase re-employment options, skill-development p rograms and minimum wage policies to limit low-pay traps. A balanced policy approach can help offset the growth and pervasiveness of low wage jobs.BibliographyFidelis Ezeala-Harrison, Theory and Policy of global Competitiveness, rapscallion 4 Greenwood Publishing GroupMichael E. Porter The Competitive Advantage of Nations, Free Press, 1998Economist word of honor Unit, The Commonwealth and Europe (London Economist Intelligence Unit, 1960.)Philip Abbott, Leadership by Exemplar Reagans FDR and Thatchers Churchill, Presidential Studies Quarterly 27.2 (1997)Simon Jenkins, Thatcher and Sons, page 1, Allen Lane 2006Neil Hood, and Stephen Young, 8 The United Kingdom, Governments, Globalization, and International Business, ed. John H. Dunning (Oxford Oxford University Press, 1999)Globalisation, Jobs and Wages, Policy Brief, OECD, June 2007ILO Key Indicators of the Labour Market KILM quaternate Edition 2005 substitution Intelligence Agency Office of Public Affairs Washington, D.C. 20505Th e Guardian, Wednesday October 22 2008Globalisation, Jobs and Wages, Policy Brief, OECD, June 2007Footnotes1 Fidelis Ezeala-Harrison, Theory and Policy of International Competitiveness, page 4 Greenwood Publishing Group2 Michael E. Porter The Competitive Advantage of Nations, Free Press, 19983 Economist Intelligence Unit, The Commonwealth and Europe (London Economist Intelligence Unit, 1960.)4 Philip Abbott, Leadership by Exemplar Reagans FDR and Thatchers Churchill, Presidential Studies Quarterly 27.2 (1997)5 Simon Jenkins, Thatcher and Sons, page 1, Allen Lane 20066 Neil Hood, and Stephen Young, 8 The United Kingdom, Governments, Globalization, and International Business, ed. John H. Dunning (Oxford Oxford University Press, 1999)7 Globalisation, Jobs and Wages, Policy Brief, OECD, June 20078 ILO Key Indicators of the Labour Market KILM 4th Edition 20059 Central Intelligence Agency Office of Public Affairs Washington, D.C. 2050510 The Guardian, Wednesday October 22 200811 Globalisat ion, Jobs and Wages, Policy Brief, OECD, June 2007