ADJUSTMENT TO GLOBALISATION: A STUDY OF THE FOOTWEAR INDUSTRY IN EUROPE

1. Introduction

Most of the economic literature on globalisation has concentrated upon the impact of
trade upon relative wages and relative employment opportunities for unskilled relative
to skilled workers in OECD countries.¹ This has been based upon the observed
worsening of the fortunes of less-skilled workers in many industrial countries and the
textbook Hechscher-Ohlin-Samuelson (HOS) model of international trade. This theory,
including the Stolper-Samuelson link between changing product prices and changing
relative wage rates, has been widely adopted despite rather shaky empirical support. In
this context globalisation leads to a reallocation of resources in OECD countries from
import competing, low-skill intensive industries to the skill intensive sectors in which
these countries have a comparative advantage. Most economists conclude that the role
of policy in this context is to assist this reallocation by providing training and increasing
the quantity of skilled labour.

This approach leads to concentration upon the skill intensive sectors whilst the unskill
intensive sectors are passed over. However, a number of observed features suggest that
this paradigm is inappropriate for a complete appraisal of the impact of globalisation in
OECD countries. Firstly, for many of the unskilled intensive sectors, as the import
penetration ratio has increased so has the ratio of exports to output. In the standard HOS
model countries either import or export products, not both. Hence, even in low-skill
intensive sectors product differentiation exists. This then provides another means of
adjustment to globalisation not possible within the standard model, the within sector
adjustment to produce different and higher quality products. Secondly, there appears to
be a range of experience across countries in the evolution of low-skill intensive sectors.
In some OECD countries certain sectors have maintained employment and output whilst
in other countries production has declined dramatically. If the trade shock from
globalisation is common across countries then this suggests that a variety of responses
to globalisation are available to firms in OECD countries.

Industrial adjustment to globalisation is the focus of this paper. Here we concentrate
upon one particular sector, footwear, which bears the characteristics of a typical low-
skill intensive manufacturing sector where comparative advantage has decisively shifted
to low-wage labour abundant countries. We do not provide a comprehensive overview

¹ See Wood (1998) and Slaughter (1998) for an overview.

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