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Symposium 2009

Proposal - Managing the New Global Division of Labour

The Challenge

Recent changes in how different stages of the production chain are dispersed across the globe have led to the notion of a new global division of labor. This will have far-reaching consequences for t ...

Recent changes in how different stages of the production chain are dispersed across the globe have led to the notion of a new global division of labor. This will have far-reaching consequences for the skills required from the workforce, their jobs, and the economy as whole in both developed and developing countries.

Background

What are the benefits of a new global division of labour? Possibilities for relocation of production stages to low-wage countries imply huge cost savings and productivity gains for firms. The manufacturing industries have long profited from these savings, but in the service industries offshoring is not yet a very common strategy. In general, backoffice services in all sectors of the economy have hardly ever been offshored. Service offshoring, which might importantly include the offshoring of medium- to high-skilled tasks, is only made possible by new ways of communication and storage (internet), which allows the fast and secure transmission and delivery of codifiable output that does not have to be delivered in person. Potential cost savings are sizeable: for example, one article claims that a call centre in India incurs only a quarter of the cost of a similar centre in the US.

The new global division of labour also allows developing countries to participate in production stages that have formerly been unavailable to them. Such new opportunities might change the incentive structure of educational investment in these countries, so that the existing education gap between developed and developing nations might finally be closed. In this respect, also western economies have an incentive to cooperate on education questions because the more skilled the foreign labour force is, the more attractive it becomes as an offshoring location.

On the one hand, it thus appears that a new global division of labour is generally a desirable development. On the other hand, it brings with it a number of uncertainties and consequences, which may present a big challenge to society and politics. In particular, the new global division of labour is likely to affect people that have not formerly been exposed to the forces of globalisation, namely those workers with skilled jobs. These workers suddenly become vulnerable, might slip into unemployment, or might see their wages fall relative to those of others. Entirely new patterns of inequalities might emerge. Mixed with the current financial crisis and the looming recession, public support for globalisation might be severely threatened, the risk of protectionism rises, and ultimately even a surge in political extremism is thinkable.

Solutions

Unwanted consequences of the new global division of labour need to be prevented.
(a) The population will have to be enabled to cope with the new challenges ahead of them. The current financial and economic crisis adds even more urgency to this point, as the crisis is very likely to completely reshuffle the world’s labour markets. It is yet unclear how firms react to contemporary critical situations, but structural change which usually takes a long time to unfold might be accelerated strongly due to the crisis. (b) Yet, throughout the crisis, support for globalisation will have to be held up and protectionist tendencies need to be prevented for the benefits of globalisation to be reaped. (c) Also the welfare state will have to react to the changing surroundings. (d) While a good and modern welfare state will play its part in keeping the workforce employable, teaching the (future) workforce the right skills to cope with rapid change is elementary.

Prevent protectionism
Less globalization and more redistribution would be an intuitive though misleading response to the perceived increase in inequality, for two reasons. One is that the increased international mobility of goods, financial assets, people, and ideas is most likely to create income gains and hence is worth having. What seems to matter for changes in inequality is technological change, or possibly the combination of globalization with technological change. Thus reducing globalization by taxing the winners to compensate the losers is a solution that will not help, because it will mean foregoing income gains without necessarily affecting rising inequality.

We need clarification which new patterns of inequalities might emerge and who becomes vulnerable.
Many researchers suggest that it will turn out to be wrong to look solely at educational skills only when considering emerging inequalities. Instead, job content in terms of tasks will matter more (routine vs. non-routine, personal vs. non-personal tasks). Only jobs consisting of internationally contestable tasks will be threatened by the new global division of labour. Technologocal change might play an important part in continuously altering the spectrum of contestable tasks. Hence, inequalities will be determined along these dimensions in the future, whereas they were cleary determined along educational differences in the past. Hence, economic policy might promote and strengthen the learning of personal, non-routine, cognitive tasks as these are the tasks that make a job a good job in the future. Research in this area should be strengthened to make clear where inequalities emerge and where action should be taken.

We have to teach the right skills for people to become and remain successful when the nature of work is becoming more heterogenous.
Rapid changes of job contents, individualised employment biographies, and the blurring occupational borders will make work very heterogenous. Consequently, workers will have to stay adaptable. It has been argued that workers need strong competences in social and emotional competences, problem-solving skills, and versatility to cope with such challenges. Teaching social and emotional competences (so-called non-cognitive skills) cannot start early enough, possibly even with children at pre-school age (Nobel Laureate James Heckman is a prominent proponent of this idea). At school and university, lessons have to strictly convey problem-solving capacities by designing instruction in a participative and activating manner. Such capacity will also foster versatility, which is urgently needed to stay successful in a world with rapid organizational change.

Instructional methods at school and university has to change radically.
Reports and videos from class rooms show a very limited number of varieties of instructional methods: the teacher speaks for most of the time and student involvement is limited. Yet, in order to obtain problem-solving skills and versatility, this is not sufficient. Instead, lessons should involve the study of real-life problems, should emphasize team work and cooperative learning, encourage students to produce own new ideas, and train social and organising abilities. Students should be able to autonomously analyse an issue, structure information, work in a team, conduct and chair discussions, and to present own ideas to an audience. Learning should occur by actively going out and finding the information the students need. Previous knowledge should be evoked, learning objectives should be transparent to the students, and the individual learning process should be closely monitored. Finally, also instructional quality is important. Educational research stresses three elements necessary for high-quality instruction: high cognitive activation, good classroom management, and personal and emotional support and respect of the student. Incentives for educators to adhere to these goals have to be improved.

The welfare state needs to consistently focus on policies that enable people to adapt to their individual new situation.
The welfare state will have to part from the current strategy of income support and helping particularly the low-skilled, low-paid workers in vulnerable sectors. For example, it is no longer appropriate to train people from losing sectors for jobs in apparently winning sectors. Instead, welfare state policies should enable all workers affected by the new global division of labour to adapt to their new situation, and hence account for the diversity (in terms of skills and sectors) of the affected. Welfare accounts and benefit transfers are two such measures:. Welfare accounts transfer property rights to people so that they can use their accounts of e.g. unemployment benefit according to their needs. Benefit transfers focus on changing the incentives to take on employment or participate in training programmes by transforming part of the benefit into vouchers.

Developing countries should take the chance to participate in the global market place and work on improving educational levels in their countries.
Recently emerging possibilities for services offshoring opens up new fields in which developing countries can participate in the global market place. Previously, only unskilled tasks were shifted abroad, but now also medium- and even high-skilled tasks might be done in developing countries. This entirely changes the incentives for a developing country citizen to obtain education. The argument here is similar to the brain gain idea from migration studies: the pure prospect of working in a skilled job abroad later in his life (perhaps a current migrant in the family has already made respective contacts) provides an incentive to get education today. Under a new global division of labour, this may be similar, except for the fact that one does not have to migrate. The new global division might thus help to close the education gap between developed and developing countries. The financial and economic crisis makes developing countries especially vulnerable. Consequently it will be important to continue the integration of poorer countries into the new global division of labour.

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