Compensating the Losers of Globalisation

Globalisation is widely believed to disadvantage some groups in society. In fact, current debates on the effect of globalisation on Western economies are dominated by fears of job losses and rising inequality. While standard economic theory predicts that the net economic effects of globalisation are generally positive, it also suggests that both the overall gains and the distributional consequences of globalisation depend crucially on labour market institutions and other country-specific characteristics. Policy makers thus face the twin challenge of maximising the benefits of globalisation and making it more inclusive. This Policy Brief first reviews the evidence on the link between globalisation and inequality. It then establishes practical guidelines on how the losers of globalisation could be compensated. We argue that compensation policies should target workers in branches exposed to import competition by strengthening the incentives of displaced workers to seek re-employment and improve their chances of success. In the long run, sound skill and education policies are key instruments both for increasing the benefits of globalisation and for making it more inclusive, where a particular focus ought to be set on the early phase of the life cycle.