The effect of globalization on aggregate labour demand in EU countries

In: The effects of globalization on national labor markets: diagnosis and therapy, S. 35-46

Abstract

"Due to advances in economic integration especially in Europe, labour markets need to be more flexible to ensure a smooth transmission of shocks. A higher degree of flexibility might cause a shift in labour demand. For example, a rise in the output and real wage elasticities in absolute value would indicate a stronger response to the changing economic environment. Whether or not aggregated labour demand has become increasingly unstable in recent years, is explored in this paper. Several interesting conclusions are derived. Cointegration can be established between the variables entering a standard labour demand function. The long run vector is in line with economic theory and similar across EU countries. The error correction models are broadly robust to a wide range of specification tests. There is no reliable evidence that globalization indicators such as trade openness has affected the cointegration parameters. Hence, the presumption that aggregated labour demand has become more fragile in the course of globalization is not supported by the data." (author's abstract)