Working Papers,
Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness

Abstract: The aim of this paper is to discuss the outcomes of neoliberal globalization from the perspective of labor in the developing countries, with a particular emphasis on the crises that followed the substantial liberalization in capital accounts in the 1990s. Although a lot has been said about the effects of capital account liberalization on the macroeconomic performance of the economies, less attention is paid to the different effects on labor vs. capital. This paper analyses the outcomes of neoliberal globalization for labor in nine developing countries, and focuses on the episodes of crisis as part of the general class struggle where the question on who will carry the burden of adjustment is a part of the struggle. The paper describes the corner stones of the regime of growth in the neoliberal era, by analyzing the trends in growth, investment, unemployment, and labor’s share in income, and discusses the effects of the shocks generated by crises on these variables. We empirically test whether the lower wage share has had any effect on unemployment, as the neoclassical theory claims, or whether unemployment is primarily driven by the goods market conditions a la Keynes. An empirical analysis about the cyclical behaviour of labor’s share is carried on to understand whether the crises episodes change the effect of demand on distribution. Since the source of growth can also be important on how the generated output is distributed, we also discuss the effects of investment performance on labor’s share. Then we proceed with an analysis of the specific consequences of economic policy choices on distribution, in terms of exchange rate and fiscal policies. Finally we discuss the core stones of an alternative policy framework.

Keywords: Labor’s share, developing countries, crisis, neoliberal policies, globalization

JEL-codes: E24; O15; O19; J23; J30; F02 December 2004

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