CHANGING PRODUCTION PATTERNS

AND JOBS

Raymond Torres, Director,

ILO Research Department

Structure

1. Emerging trends and patterns in Global Supply Chains

(GSCs)

2. Impact of GSCs on firms and workers

3. Policy challenges

Export growth and wage and salaried employment have been growing hand-in-hand

Relationship between export and wage and salaried employment, 2000-2013, (% point change)

Source: ILO, Trends Econometric Models, April, 2015 and World Bank, World Development indicators.

Rwanda

Burkina Faso

Uganda

Sierra Leone Mozambique

Sri Lanka

Nicaragua

Zambia

Morocco

Liberia

Zimbabwe

Bolivia

Mauritania

Ukraine

Cambodia

Viet Nam

-1

-0.5

0

0.5

1

1.5

2

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3

Wa

ge

an

d s

ala

rie

d e

mp

loym

en

t (%

to

tal

em

ply

om

en

t),

ave

rag

e y

ea

rly

perc

en

tag

e p

oin

t ch

an

ge, 2000-2

013

Export (% GDP), average yearly percentage point change, 2000-2013

Slowdown in trade since the crisis, notably with

respect to intermediate goods

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

90

110

130

150

170

190

210

230

250

270

290

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Inte

rme

diate

-to-fin

al goo

ds ratio

Tr

ade

in in

term

ed

iate

an

d f

inal

go

od

s (V

alu

e,

Ind

ex: 2

00

0 =

10

0)

Intermediate-to-final-goods ratio Trade in final goods

Global trade value in intermediate and final goods (Index, 2000=100)

Source: ILO Research Department calculation based on OECD STAN database.

Factors behind GSCs

• Lower transportation costs

• Freer international trade and (especially) investment

• New technology which facilitates fragmentation of production

Freer trade in goods boosts GSCs in services

Estimated impact of a 1-pp-decrease in trading partner’s average applied

goods tariff on a country’s number of related GSC jobs, by sector (in %)

Developed economies Emerging economies

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Manufacturing Services

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Manufacturing Services

Recent trends in re-shoring

• Re-shoring is the relocation of activities closer to country of origin

• More and more cases of re-shoring (GE moving manufacturing from China to Kentucky; Nestlé closing offices in Africa)

• Possible factors: role of proximity of new technology hubs and a large/stable pool of consumers that change habits fast; rising wages in China; stable labour relations

- Is this indicative of a new trend?

Increasing incidence of FDI inflows, and lower outflows

Source: Eurostat. Note: EU refers to EU-27 countries

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Inflows Outflows

Composition of EU FDI flows by directions

2. Impact of GSCs on enterprises and workers

Rising incidence of jobs associated with GSCs

40 countries (66% of the global labour force)

Source: ILO Research Department estimates based on WIOD.

Export growth and wage and salaried employment have been growing hand-in-hand

Relationship between export and wage and salaried employment, 2000-2013, (% point change)

Source: ILO, Trends Econometric Models, April, 2015 and World Bank, World Development indicators.

Rwanda

Burkina Faso

Uganda

Sierra Leone Mozambique

Sri Lanka

Nicaragua

Zambia

Morocco

Liberia

Zimbabwe

Bolivia

Mauritania

Ukraine

Cambodia

Viet Nam

-1

-0.5

0

0.5

1

1.5

2

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3

Wa

ge

an

d s

ala

rie

d e

mp

loym

en

t (%

to

tal

em

ply

om

en

t),

ave

rag

e y

ea

rly

perc

en

tag

e p

oin

t ch

an

ge, 2000-2

013

Export (% GDP), average yearly percentage point change, 2000-2013

Many women work in jobs related to GSCs in emerging economies…

Source: ILO Research Department estimates based on WIOD and ILO, Trends Econometric Models, October 2014.

Many of the newly created jobs linked to GSCs are in the service sector…

Change in number of GSC-related jobs by sector (millions), 2000-13

Source: ILO Research Department estimates based on WIOD and ILO, Trends Econometric Models, October 2014.

0

5

10

15

20

25

30

35

Agriculture Industry: manufacturing Indusry: non-manufacturing Services

Emerging economies Advanced economies

…and the share of GSC jobs in business services has increased

Annual change in the share of GSC jobs in total employment, 2000-11, by services sector (percentage points)

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Wholesale, retailtrade, incl motor

vehicles

Hotels andRestaurants

Transportationand

Communication

FinancialIntermediation

Business Services Education andHealth

Other services

Developed economies Emerging economies

… but the quality of employment and social upgrading require additional effort.

Notes: For detailed notes, see Chapter 5 of World Employment and Social Outlook: The Changing Nature of Jobs. Source ILO Research Department estimates based on OECD Trade in Value-Added (TiVA) database and WIOD.

Garment industry

• Growing role of “fast fashion” and on-time production

• Profit margins of suppliers are typically low, limiting the extent to which

working conditions can be improved, e.g. Bangladesh (Ahmed et al, 2014)

Electronics industry

• Ever shorter product cycles, but also by relatively high knowledge intensity

• Incidence of temporary workers, e.g. Mexico, Thailand (Holdcroft, 2012)

• More overtime work, e.g. Malaysia (Samel, 2012), China (Chan et al., 2013)

Working conditions in GSC-related jobs

• Between corporate finance and those working in the

real economy

• Between core firms and suppliers

• Between top workers and those at the bottom of the

chain, notably women in developing countries

Positive impact on productivity and job creation but shift in bargaining power

3. Policy challenges

Broad based policies to tackle imbalances

• Labour market regulations & institutions

• Labour provisions in trade & investment agreements

• Improved tax compliance (see G20)

• What should be the role of finance vis-à-vis real economy?

Policies for achieving decent work in GSCs

• Corporate social responsibility within the GSC

• International Framework Agreements

• ILO Better Work Programme

• Enhanced regulation on responsibility of buyers

• Compensation mechanisms: the Bangladesh Accord on Fire and Building Safety

Thank you!

ILO World Employment and Social Outlook: www.ilo.org/research