Globalization and Labor Demand Elasticities: Empirical Evidence from Nine OECD Countries

Abstract

This study empirically analyzes the impact of globalization on the elasticity of demand for labor using manufacturing data for nine OECD countries. While previous studies focused on the relationship between trade and elasticity of demand for labor, we also consider the effect of international capital mobility. Our main findings can be summarized as follows. Firstly, the results confirm that increased trade has made labor demand more elastic in Austria, Finland, France, Germany, the UK and the US. Second, financial opening, as in the case of trade liberalization, affects labor demand, making it more elastic. We confirm this finding for Finland, Sweden, Korea, Germany and the UK In the case of Finland, Germany and the UK, both trade and financial opening render labor demand more elastic. Finally, we find that globalization has reduced the share of labor within total revenue, possibly due to reduction in the bargaining power of workers as suggested by Rodrik (1997).