Ref. :  000022999
Date :  2006-03-27
Language :  English
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Is the rising international integration of products and services good for labour markets in the developed world?

Offshoring and job losses

Author :  OIT / ILO

We live in a world where more and more products and services are composed of parts sourced from all over the globe. This could symbolize that labour markets all over the world profit from globalization. However, job losses and the degradation of working conditions in the industrialized world have been blamed on globalization, internationalization and offshoring of work, but is this true? A new ILO publication (Note 1) analyzes trends and patterns in the internationalization of employment, and argues that while winners might outnumber losers over the long term, policies for losers are of utmost importance for a fair globalization to progress. ILO Online spoke with ILO employment analyst Peter Auer.

ILO Online: Globalization is widely seen as a threat to employment. What has your study concluded about this perception?

Peter Auer: When asked this question in a public opinion poll in May 2005, a total of 73 per cent of those questioned in France stated that they perceived globalization as a threat to jobs. During the referendum campaign on the European Constitution, the issue of offshoring also played an important part in the debate. It seems that almost everywhere in the industrialized countries, globalization is seen as a threat to employment rather than an opportunity. The facts tell us another story. According to recent studies in France and elsewhere in Europe, offshoring represented only a very small percentage of job losses - between 1995 and 2001, the ramifications of offshoring concerned, at most, an estimated 2.4 per cent of the industrial workforce in France, or some 13,500 jobs a year, which seems very little.

ILO Online: Are we in the presence of a limited phenomenon, blown out of proportion by the media?

Peter Auer: The chapter on "Service jobs on the move" in the study clearly shows that less than 5 per cent of all industrial and service job losses were attributable to a company's decision to relocate its production activities. In other words, of the 50,000 jobs lost on average each month in the 18 European countries monitored, less than 3,000 were the result of relocation. The authors also found that offshoring hasn't accelerated job losses in recent years. A recent study done by the social partners in Denmark shows that firms that offshore some of their production or services also create more jobs at home than those that are participating less in the global economy. One should realize, however, that more and more relocated jobs are high-skilled and the growth in offshoring to East European countries has been spectacular. And we should acknowledge that the phenomenon has not yet been completely measured. Statistics often only take into account major companies and fail to capture data for services and small and medium-sized enterprises, where it seems the offfshoring trend has accelerated. As the book states, whatever the real trend in offshoring is, people feel insecure, and politics have to respond to this fear. The argument that globalization, in the long-term and at the end of the day, will benefit to everybody, sounds odd in the ears of someone who has just lost her job because of globalization. The nature of structural change, which is accelerated under globalization, is such that it destroys jobs and creates jobs, but not in the same location or sector and not for the same workers, and increasingly not in the same country.

ILO Online: How far has the internationalization of employment progressed?

Peter Auer: Quite a bit. In the chapter "Globalization and employment", Daniel Cohen uses the Barbie doll as an example. The raw materials come from Taiwan and Japan, the assembly takes place in the Philippines, Indonesia and China, and the design and the final coat of paint come from the United States. This perfectly illustrates what economists call the "vertical disintegration" of the manufacturing process. This example, and there are many others, shows how products and increasingly services are assembled on the basis of globally sourced components. It also demonstrates how the design and marketing of products, which still represents most of their value, at present remains with the industrialized countries.

ILO Online: What are the characteristics of workers who lose their jobs because of globalization?

Peter Auer: Generally speaking, they are very similar in terms of age, level of education, seniority in the job and previous wage levels. But there are marked contrasts between workers displaced in manufacturing and those who have lost jobs in services. The latter tend to be much younger, have a higher level of education and are more often women.

ILO Online: Can trade-displaced workers find new jobs in the dynamic sectors of the economy?

Peter Auer: As the contribution of Raymond Torres in the volume shows, both in the United States and in Europe, half or more of all workers who lose their jobs in manufacturing find new work in the same sector, despite the downward trend of employment in this sector in most countries. Most other workers move to the services sector, such as the retail trade where the skills required tend to be relatively low-level and general. It is important to note that wages in the new jobs compare more favourably with those in the old if workers stay in the same sector, particularly in the United States. The proportion of European workers reporting pay cuts of at least 30 per cent is much lower than in the United States, which shows that the difference in wages between the old and the new jobs is smaller in Europe. However, while European workers endure fewer wage cuts, US workers find it easier to access new jobs.

ILO Online: How can employment policies improve the benefits of globalization?

Peter Auer: Bernhard Gazier shows that effective employment policies mean that help can be given to those displaced as a result of globalization while at the same time providing greater mobility towards new growth areas. Measures specifically targeting those affected by trade liberalization can be useful in certain circumstances, particularly where job losses are concentrated in declining regions or if they affect an entire sector. However, such specific measures have their limits and sometimes actually hinder adjustment. This is why activation schemes, effective public employment services and sufficiently lengthy redundancy notification periods and an adequate level of unemployment benefits are needed. The Nordic countries, the Netherlands, Ireland and the United Kingdom have all placed the emphasis on activation policies.

ILO Online: How can we make decent work a reality for all?

Peter Auer: By acknowledging that decent work is a dynamic concept, which extends beyond a single job and includes genuine social accompaniment or restructuring activities. To reintegrate workers in a stable way we have to promote appropriate labour market policies and set up permanent institutions to manage adjustments at local, national and international level. It may be politically wise to specifically address the problems of those displaced by trade and offshoring, as this could reduce the resistance against globalization and adjustment. However, because of equity reasons, such institutions for achieving the reintegration of the displaced should be considered a public good and be accessible to all those affected by redundancies, whether the cause is globalization, technology or any other. In the future, the adaptation of workers to structural change must be seen as a right, which implies the duty to take up offers that ensure one's own employability. It is clear that such labour market policies cannot be the only response to manage the employment effects of globalization; as shown by several authors of the book, ILO labour standards are ever more important for putting a social floor to globalization and allow for a fairer exchange between countries as asked by the report of the Commission on the Social Dimension of Globalization.

The book was launched at the March 2006 session of the Governing Body of the ILO on Wednesday, 22 March. It is the outcome of an international meeting organized jointly by France and the ILO and is available on-line at:

In 2000 the French Ministry of Labour and the Director-General of the ILO initiated a series of conferences on the subject of "The future of work". Their aim was not only to provoke a high-quality international dialogue on changes in work and employment and their impact on social protection and worker security, mostly in the industrialized countries, but also to stimulate exchanges between the academic and political communities and the social partners.

The present volume contains the proceedings of the Third Annecy Symposium on "Offshoring and the Internationalisation of Employment: A challenge for a fair globalization" which took place in April 2005. It is the third in a series of conference volumes, which also serve as follow-up to the report of the World Commission on the Social Dimension of Globalization "A fair globalization" published by the ILO in 2004.

Note 1 - Offshoring and the Internationalization of Employment - A challenge for a fair globalization? Proceedings of the France/ILO symposium. Edited by Peter Auer, Geneviève Besse and Dominique Méda, International Institute for Labour Studies, International Labour Office, ISBN 92-9014-783-0, Geneva, 2006.

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