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Globalization and Human Capitalindividual units of the micro-economy,mainly on households. The impact translatesthrough a network of communicationchannels at the intermediate level,including the demand side (that is, thedemand for the products and the factors ofproduction) and the supply side (that is,the economic structure providing basicproductive services and the socialstructure affecting human investment).● Economists hold different views on the likelyimpact of globalization. Some advocatethe view that enormous benefits willaccrue to developing countries as a resultof their increasing integration into theglobal economy. Gains will come fromenhancing the ability of these countries tocreate new and productive jobopportunities following the correction oflabor and capital price distortions, and thesubstitution of limited individual domesticmarkets for an expanded global market.Other economists fear that globalizationwill have a negative effect on developingcountries in general, and on labor marketsin particular. Their analysis is based onthe fact that globalization is accompaniedby large technological advances thatreduce the role of labor, specifically theunskilled labor which constitutes thelargest proportion of the labor force indeveloping countries, including Egypt.● In the 1980s and during the first half ofthe 1990s, the foreign direct investmentflows capable of creating new productivejobs were largely concentrated in theindustrial countries, especially the UnitedStates, Europe and Japan. Their share oftotal flows exceeded 75 per cent, whilethe share of all developing countries,during the same period, did not exceed 5per cent, of which two thirds was devotedto ten countries only, mainly in East Asiaand Latin America. This trend in theallocation of foreign investment tocountries enjoying advanced technologyand knowledge, rather than to developingcountries characterized by abundantunskilled and low-wage labor invalidatesthe assumptions of conventional neoclassicaltheory. The trend is expected to persistand to grow, because the cost of labor isestimated at only 20 per cent of the totalproduction cost of any industrial product.These reasons, among others, explain whyis it important to analyze the actual andpotential impact of globalization on theEgyptian labor market. The objective is totrace the implications of globalizationwhich, rather than being simply threats ofan economic nature, could spill over intopolitical and social instability.The Features of the Labor Marketin EgyptGlobalization could impact on a number ofdimensions of the Egyptian labor market, ofwhich the most important are: theemployment level; the demand for labor;the wage level; labor market segmentation;and labor force mobility. However, sincethe overall condition of the labor marketdepends on regional, national, andinternational factors, it is difficult toattribute all observed changes solely toglobalization.The Demand for Labor(1) The employment/unemployment databasein Egypt is incomplete and exhibitssome inaccuracy and inconsistency.However, available indicators and otherevidence show that the employment levelhas been declining in line with the implementationof ERSAP policies. Consequently,the rates of both unemploymentand underemployment (disguised andundisguised) appear to have been growingconsiderably during the 1990s. AsERSAP policies are closely related tothe globalization process, the growth inunemployment could be attributed to theimpact of globalization on the Egyptianeconomy. However, it is clear that thegrowth of unemployment has not beendue to globalization only. The slowdown,or contraction, of the migration ofEgyptian labor to oil-producing Arabcountries, and the decrease since the early1980s in the capacity of the Egyptianeconomy to create productive jobs sufficientto absorb the increase in the laborforce have also been contributing factors.According to the 1976 and the 1986 census,the open unemployment rate increased from4.27 per cent to 11.1 per cent between thesetwo periods. This could be an indication ofGlobalization couldimpact on a number ofdimensions of theEgyptian labormarket.It is clear that thegrowth ofunemployment hasnot been due toglobalization only.Egypt Human Development Report 2000/2001 - 95