Jobs and globalisation

Promise or threat

“There has never been an economic discontinuity of this magnitude in the history of the world–these powerful forces are allowing companies to rethink their sourcing strategies across the entire value chain”. So said Mark Gottfredson of Bain & Co., quoted in the New York Times (19 August 2004). This may be hype, but is there smoke without fire?

Sure enough, some of this hype is marketed by the business services industry that wins from “outsourcing”, but governments still take it seriously.

Alas, any serious discussion of the potential offshoring of jobs is hampered by the absence of reliable data on employment developments. The ILO’s Employment Report 2001 estimated that up to 5% of service sector jobs in the US and western Europe (2-10 million) could potentially be offshored to lowwage economies. A much quoted report by Forrester Research estimated in November 2002 that 3.3 million US service sector jobs would move offshore by 2015. The sectoral impact could be larger in financial services, for instance. The OECD has also produced figures, saying 20% of certain IT-related tasks were “potentially offshoreable” (OECD Observer No 245, November 2004).

The European Foundation for the Improvement of Working and Living Conditions, for the second quarter of 2004, found 163 cases of company restructuring leading to nearly 60,000 job losses, compared to the creation of slightly more than 16,000 new jobs. A part of this reflects a shift to new member states.

The hype of many business commentators goes beyond the data, but there has nonetheless been a worsening in relations between trade unions and employers. Business attitudes are increasingly dictated by international competitiveness and global “fads”. This does not just affect OECD countries, nor is it North-South. From the US, through the EU, to the Philippines, the threat of relocation to an offshore site is now a standard ploy in wage negotiations.

Put plainly, the acceleration of international offshoring and the relocation of industrial and service sector activities, whatever spin economists put on it, have heightened the sense of job insecurity among many groups of workers, and not just blue collar ones. To them, talk of long-term benefits is not a comfort. To them, globalisation is a threat to decent living standards.

What can we do? No, the response must not be for national borders to be permanently closed to flows of physical capital or goods. But neither can we accept passively the working of economists’ “relative price effect” in terms of labour. Whatever the regression, one we must avoid is a “race to the bottom” in employment standards.

A “whole of government” policy response in the industrialised countries is now needed to deal with the consequences of offshoring on jobs. Governments must guarantee core workers’ rights on a global basis. A specific focus is needed on stopping the spread of abuse of labour rights in export processing zones and in supply chains.

OECD governments in particular must encourage dialogue and negotiations between trade unions and businesses, supported by targeted regional and industrial policies, as well as active labour market policies to help affected communities. The OECD Guidelines for Multinational Enterprises should be a benchmark for good practice in managing change. Trade unions and forward-looking employers are negotiating these issues both at the national and international level through the sectoral Global Union Federations, leading to the conclusion of global framework agreements. The focus of such agreements must be to achieve early negotiations to maintain sustainable employment, avoid compulsory lay-offs, and to promote internal firm-level redeployment and up-skilling. Workers’ rights must be respected and developed everywhere and companies must recognise and negotiate with trade unions, wherever they are. Sufficient time must be allowed for the socially acceptable management of change. This may at times require the use of trade measures allowed for under the WTO Agreement on Safeguards.

These are neither unreasonable demands nor business constraints. On the contrary, by addressing the employment dimension more fully, structural adjustments would be more sustainable. Only then will globalisation become a promise, not a threat.

©OECD Observer No 249, May 2005

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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