A study of globalization model with respect to its impacts on labour market of Pakistan

Abstract

Economic globalization is intensely changing the macroeconomic fabric of the Pakistan’s labour market. The aim of this study is to shed light on the effects of both trade and technology on Pakistan’s labour market during the study period 2002-2012. Globalization is the independent variable and the dimensions of globalization in the study include; Female participation rate, Unemployment rate, Export & Import and Immigration. The dependent variable is Labour market which was measured by Wage difference between unskilled and skilled labour proxies AWE (Average Weekly Earnings) of the employed persons. The basic motivation of this study is to find out empirically whether the process of globalization, measuring through trade liberalization (effects of FPE and SS theorem) and the Marxian spectra of immigration, female labour force participation, labour saving technological modification and such other factors, contributed to the phenomena of widening wage disparity among skilled and unskilled labour and increasing unemployment rates in Pakistan. To empirically test the impact of globalization on Pakistan’s labour market, for the sample period 2000-2011, a database was compiled by using the electronic DX ABS (Pakistan’s Bureau of Statistics) time series data sources (Econdata, 2011). This study uses multi-cointegration econometrics and unit root, general to specific modeling and encompassing tests to study the impact of trade liberalization and technical progress on Pakistan’s labour market in terms of growing unemployment and widening of skill differentiated wage disparity. E-views (Econometric Views) were used for the data analysis through econometric model. The results of Granger causality tests were supported by FPE (Factor Price Equalization) and SS (Stolper-Samuelson) theorem worst impacts on Pakistan’s labour market. Both import and exports competition for the reason of trade liberalization appears to have increased the wage disparity among skilled and unskilled labours. Moreover, Marx turns out to have strike over again by the shift of labour saving technology. The results of encompassing model which was not non-nested have supported the argument that labour saving technological growth had an impact on wage disparity in Pakistan. For that reason, globalization operating by technology and trade shift has increased the skill metricated wage arrangement and in addition increased unemployment rates among unskilled labours in Pakistan. The immiseration of labour by the rise in unemployment can have impact on the wage rigidity due to institutional factors. Some challenge that trade liberalization and import penetration from the west has increased the immiseration of unskilled labours. Developing policies and training programs to re-skill and re-train immiserised unskilled labour for more creative jobs that generate positive externalities in a way prefigured in endogenous growth models can trigger off good cycles and economy-wide “lifting-of-all boats” impacts . The new government labour market re-skilling and training programs can be inspired by Swedish model and might be geared to overcome the failures of market. In the last, the study concludes with a number of policy perspectives on labour market deregulation in Pakistan. The research obtained few major findings; among these findings there was a positive relationship between export and WD (Wage difference of unskilled and skilled labour), positive relationship between import and WD and another positive relation between high rate of unemployment and WD. But female participation and immigration do not show any significant relationship with WD. The results of the current study would not only help the mining and retail sector but other organizations also to cope with the rapid change in the environment by bringing labour market laws, thus enabling them to perform better.