Transcript On the post-unification development of public and private

Challenges to OECD employment from greater
integration in the world economy
Simon Commander
European Bank for Reconstruction and Development
&
London Business School
Santiago, Chile: 16 March, 2007
1
Context: 1
• Widespread perception in Europe and North America that
workers are under siege
– Unemployment remains high and persistent in some of the major
European countries – e.g., France & Germany
– Rising K/L ratios
– Some evidence of downward pressure on wages
– Clear changes in relative wages & in income distributions
– Possible increase in unemployment risk &/or greater job insecurity
• Some have attributed these changes to trade – principally
the growth of Asia
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Context: 2
• Yet, evidence on movements in wages and
employment is more nuanced
• Further, trade has not been a major part of the
story, although the growth in tradability is
important
• More important in explaining evolution of
employment has been labour market policies that
lower aggregate employment
• European institutions – possibly in combination
with shocks – have been key in explaining high
unemployment rates and persistence
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Context: 3
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And – critically - there has been technical change driving:
– changes in relative wages and relative employment for different skill
categories
Evidence shows that technical change has been skill-biased
– losers are mostly those with few skills/low educational attainments
– these changes are not new: closely associated with ICT and its diffusion
over past two decades
Other factors perceived to be raising pressure on workers in OECD include:
– Rapid growth in services outsourcing/offshoring facilitated by technical
change and hence in job migration across borders
– Greater mobility of labour across borders due to changes in policy (e.g.,
points based migration programmes) and/or accession to trade blocs
(EU15→EU25)
– And, most recently, private equity
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Facts: migration of jobs
• Concern about job displacement has grown as services offshoring
affects a much broader skill range than manufacturing outsourcing
– Some consultancy studies estimate that the number of jobs offshored in
the US will rise from 400,000 to 3.3 million in 2015 – which would
translate into 2% of all American job losses every year
• Is this a zero sum game?
– McKinsey estimates that $1 of offshoring creates $1.14 of economic
benefits for the US and $0.33 for the Indian economy.
– Yet, gains are not equally distributed and there may be transition costs for
displaced workers.
– In contrast Germany and France are estimated to be losing between €0.25
and €0.15 for every €1 of offshoring even on the aggregate level
– European losses due to low re-employment probabilities resulting from
inflexible labour market institutions.
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Facts: mobility of labour
•
Labour market effects of immigration
– little evidence of negative employment effects on domestic workforce in either
Europe or USA
– Evidence on wages is more ambiguous
• in Europe small negative effects have been found
• for USA, Borjas (2003) found 10%↑in migrants→↓4% of earnings of
comparable native workers
• UK – indications that unskilled wages kept down at/around minimum wage
•
•
•
Clear that outcomes depend very much on nature of immigration - demand or
supply driven; complements or substitutes
In Europe – open borders likely to be linked to supply driven mobility & this
could put downward pressure on native wages
USA has been generally better at integrating immigrants into employment
– jobless rate of non-nationals in EU15 in 2002 twice rate of natives while in USA
jobless rates roughly similar
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Facts: mobility of labour
• Fiscal burden of migration often raised
• Yet, evidence is mixed;
– UK evidence is that foreign born have higher average
fiscal contributions compared to native British on
average – likely to be driven by education
– Austria, Belgium, France & Holland – dependence of
immigrants on welfare generally higher than locals
– And from sending end, brain drain arguments need
qualifying…..
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Current policy toolbox
•
•
•
Job migration :
– Offshoring: No particular policies (yet) in Europe
– In USA some argue for expanding wage insurance schemes for trade
displaced workers to displaced workers in the USA from offshoring
(Trade Adjustment Assistance)
• Yet evidence from Canada on wage insurance provides little evidence of
success and fiscal implications are still unclear
In Europe main emphasis is still on making labour markets more flexible (e.g.
UK labour market programmes/Lisbon agenda) and strong emphasis on
education and R&D
Migration of workers and job migration treated very differently in policy terms
• Former mostly pro-active (avoidance (Germany) or managed
migration (UK))
• Latter mostly reactive – viz; through flexible labour markets
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Looking ahead: 1
• Cost differences between OECD and developing countries
likely to remain large making space for job migration
• Costs of job displacement in Europe likely to be higher
than in USA due to labour market institutions
• But: many functions within firms ill suited for offshoring
for organisational or technical reasons & suitable
workforce in countries such as China and India is finite
• Indian firms already find it hard to fill posts; there is
large turnover in off-shoring firms and growing wage
pressure
• Chinese effective supply of skills also more limited
than aggregate data would suggest
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Looking ahead: 2
• Key challenge: coping with losers – low skilled;
minorities; disabled; elderly
• Challenge possibly analogous to post-1945
openness/fallbacks compact (Rodrik)
• Through what instruments?
–
–
–
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Wage insurance
Augmented job displacement schemes
Training and up-skilling (urgent for the UK)
Greater role for private & voluntary providers to
increase innovation and efficiency
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Looking ahead: 3
• What fiscal & other implications?
– Wage insurance likely to be costly
– Significant incentive issues
– Job displacement schemes hard to condition on
particular labour market experiences (viz; trade-related
displacements)
– Unskilled and disabled are also costly
• And don’t forget the longer run challenge of
demographics – OECD is ageing fast……
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