Job market is the main channels

Introduction:

Job market is one of the main channels through which globalization can influence the developing countries. A common concern is that "cheap labor" and "drive to the bottom through fierce competition" may be the undesirable outcome of globalization. To remain competitive, countries may need to adopt efficiency-raising measures such as reduction of trade barriers, abolishing monopolies, privatizing state-owned enterprises and downsizing the large public sectors.

These reforms could in most cases lead to loss of good jobs and create new unemployment. The macroeconomic fluctuations resulting from short-term capital movements across national boundaries could also increase job insecurity. On the other hand, relocation of certain production activities to developing countries could also create new demand for labor resulting in the expansion of employment opportunities and higher wages. There is however growing concern on the worsening distribution of income resulting from such expansion in the labor market. Anecdotal evidence shows that there are positive and negative effects of globalization but a comprehensive picture is yet to emerge (Martin Rama, 2003).

With the rise of globalization, many companies are turning to either ‘Offshoring' or ‘Offshore outsourcing' and this has led to a massive redistribution of work around the globe. For example, the globalization in manufacturing activities has virtually turned China into a global factory as more and more industrialized countries are shifting their production activities partly or fully to different parts of china for taking advantage of China's low labor (as well as other business) costs. Similar developments are underway in the service sector (information technology, in particular), with thousands of jobs migrating to India, China, and other parts of the developing world. While many people are concerned about the adverse effects of outsourcing due mainly to loss of jobs, economists stress that outsourcing cuts costs in the same way as technological progress improves productivity, thus increasing profits that must be good for the economy in the long-run.

Another significant trend that has emerged from globalization in recent years is that companies and firms are increasingly employing workers on short-term contracts. As competition is growing in global marketplace and economic uncertainties abound, firms would like to keep the number of their core employees as small as possible and employ workers mainly on temporary or short-term contracts so that they can adjust their manpower more readily in response to change in demand.

Temporary workers are often referred to in the literature as “contingent workers”. Generally, the term “contingent workers” seems to carry a negative connotation implying less job security and studies have used it to describe a wide variety of employment arrangements including part-time work, self-employment, temporary help agency employment, contracting out, employee leasing, and so on. Contingent work is prevalent in most developed countries such as Denmark, France, UK and USA, and Singapore is just now catching on. Local employment agencies have reported that the number of contract jobs has more than doubled in the last five years. In this paper, we wish to study the impact of temporary employment on the economy. Particularly, we seek to answer the following questions: Does growing number of contract workers affect job stability? Does job stability ensure security? Are permanent jobs good jobs? Does job tenure affect productivity?

Job Stability: International Comparisons

Although a strong consensus exists on the recent development of labor markets toward more flexibility (numerical as well as functional), there is an ongoing debate among labor marker experts on the usefulness of such flexibility. One group of economists is critical of the ‘sclerotic' European labor markets and argue that flexibility must necessarily continue to rise under the increasingly competitive economies resulting from globalization and they predict that the future will see a marked rise in more flexible jobs. Another group of economists who oppose stronger deregulation of labor market see a real danger for working and living standards in the rise of ‘non-standard work arrangements'. They acknowledge an alarming and inexorable rise in temporary jobs and conclude that standard employment relationship is a thing of the past and the society is heading towards the end of salaried work. Has the permanent jobs really disappeared? What are the evidences like?

A recent study by the International Labor Office (ILO) provides some evidence on changes in flexible and stable jobs that have occurred in labor markets of the European Union (EU), the US, and Japan, using stock and flow data from both primary and secondary sources for 1990s (Peter Auer and Sandrine Cazes eds., 2003). Measuring job stability by the ‘average employment tenure', the study suggests that in most of the industrialized countries labor markets are more stable than is usually assumed. For example, average employment tenure for the 14 EU countries in 2000 was 10.6 years. Shortest tenure (8.2 years) was found in UK, followed by Denmark, the Netherlands and Ireland, with average tenure under 10 years. The longest average tenure was found in Greece, Italy and Portugal, followed closely by Belgium and Sweden. The average tenure in USA is far below the EU average and the United States has a much higher percentage of short-tenured jobs and a much smaller proportion of long-tenured jobs. Japan on the other hand has higher average tenure than the EU and a lower percentage of short-tenured jobs. The data also shows that both short-tenured and long-tenured jobs have tended to grow over time in most countries and growth in short-tenured jobs has been much faster than growth in long-tenured jobs on the average.

Disaggregated analyses across different sectors reveal that the longest employment tenures occur in agriculture and public administration and the shortest in financial intermediation. The wholesale and retail trade, and hospitality and tourism industries are also characterized by short average tenures. Classifying by occupation, higher-skilled white collar occupations (such as legislators, senior officials and managers) have the longest employment tenures, while semi-skilled and unskilled manual jobs have shorter tenures. The degree of dispersion of tenure by industry and occupation is rather similar in all selected countries. Average employment tenures by educational attainment show that workers with low educational attainments have longer tenure.

Job Stability Versus Job Security:

The relationship between job stability and the perception of job security is not clear-cut. Using the data provided by the International Survey Research, the above ILO study presented two indicators of perception of security- Indicator I is the percentage of those worried about the future of their company, and indicator II represents the percentage of those unsure of a job they hold in their company even if they perform well. A crude calculation of the correlation between tenure and the perception of job security tends to be slightly positive. However, while this suggests that in general perceived employment security rises with tenure, the relationship is weak. In some cases, it could well happen that despite being employed in a long-tenured position, the personal feeling of employment insecurity can be strong. This is particularly true in Japan which provides longest duration of tenure and one of the lowest rates of external job mobility in the OECD countries.

An OECD study (OECD, 2001) presents selected indicators of Job insecurity. It is clear that high job insecurity persists despite economic achievements. For the OECD countries as a whole, it is estimated that over half of all workers are worried about the future of their company and 35 percent are unsure of their job even if they perform well (see Table 1). Although the situation has improved over the period 1996-2000, the fact that perceptions of significant job insecurity persist is telling. One interpretation of this finding is that job insecurity may be related with firm reorganization and changes in job requirements rather than low employment tenure.

Source: International Survey Research cited in OECD, Knowledge, Work Organization, and Economic Growth, Directorate for Education, Employment, Labor and Social Affairs, Employment, Labor and Social Affairs Committee, Labor Market and Social Policy Occasional Paper No. 50, 5 June 2001, p.26.

Are Temporary Jobs Necessarily Bad?

Although stability is often associated with good or decent jobs, job satisfaction from permanent jobs are not always guaranteed since it depends on a multitude of factors such as compensation, job status, working conditions, nature of job, and so on. What about temporary jobs? Are they really bad jobs as is often perceived?

Using data from British Household Panel Survey (BHPS) conducted over the period 1991-97, a recent study (Alison L Booth, Macro Francesconi and Jeff Frank, 2002) confirms the common perception that temporary jobs are generally not desirable when compared to permanent employment. Temporary jobs typically pay less, are associated with lower satisfaction in some job components and provide less work-related training. Policies that create more temporary jobs are therefore likely to be creating bad jobs.

The study also found evidence that temporary jobs are a stepping stone to permanent work. The median time in temporary work before such a transition is between 18 months and three and a half years, depending on contract type. The estimated wage growth models predict that the wage growth penalty associated with experience of seasonal-casual jobs is quite high for both men and women. Even with 10 years of full-time experience, having held one seasonal-casual job has a wage penalty of 12.3 percent for men and 8.8 percent for women.

Effects Of Job Tenure On Productivity:

The possible links between tenure and productivity can also go in both directions and the empirical results are inconclusive. On the one hand, relatively short job tenure may reflect a greater degree of labor mobility between firms and occupations, thereby facilitating adjustments. This would enhance the extent to which the economies will seize new business and investment opportunities, which would be good for productivity and growth. Moreover, long-tenure may not always be positive for workers, particularly those who are well-trained and employable. For them, some job changes might be beneficial in terms of wages, career development and perhaps productivity, rather than being locked into a lifelong employment relationship. On the other hand, short employee tenure may deter long-term commitments between workers and employers, reducing firms' incentive to provide training. Human capital investments in the firm-specific skills will usually be made only when there is good probability that firms will recoup their investment costs and this is usually possible only when workers stay a sufficient length of time with the firm.

On a very aggregate country level, taking changes in hourly labor productivity and tenure between 1995 and 2000, the ILO study cited earlier (Peter Auer and Sandrine Cazes, 2003, op.cit, p 7), found a negative relationship- in countries where tenure has decreased, productivity has increased. It was also observed that in countries where tenure has decreased, employment has increased and the dependent variable seems to be tenure rather than employment. This suggests that the increasing productivity can be explained by the job creation capacity of the economy, which ultimately depends on growth. Similar approximations have been produced by the OECD. It seems that in countries with decreasing tenure, multifactor productivity has accelerated, whereas decelerating multifactor productivity has been observed in countries with increasing tenure. Low tenure is also seemingly associated with higher job creation. These relationships may reflect the fact that, hand-in-hand with new technology, new business opportunities have emerged, and countries where labor is more mobile and tenure correspondingly lower are better placed to exploit these opportunities at least in the short-run (OECD, op.cit, 2001, p. 20).

Conclusion:

It is clear that the share of temporary workers in total employment is increasing worldwide and is predicted to rise further. Due to shortening of job tenures and increase in turnover rates, job security is fast disappearing too. In this rapidly changing global environment, where competition is rising day by day and cross-border movement of labor is becoming more common, job security perhaps will lose its significance. The responsibility of ensuring job security has seemingly shifted to the employees from the employers. For example, an employee can secure his or her job by continuous upgrading so that he or she remains relevant in the fast changing job market.

The growing concern about lower standards of services provided by the contingent workforce (due to lack of commitment, lower pay, and so on) and their alleged exploitation by the recruiting agents should be taken seriously as this may hurt the economy in the long-run. Outsourcing of non-core activities by firms for cost consideration has become a common trend today. However, due caution should be taken to ensure that such activities meet the efficiency criteria which remains paramount. An essential prerequisite for efficient outsourcing is effective monitoring and supervision by the company staff and that imposes additional administrative burden on the company. There is a general skepticism on the quality of services outsourced and many have cautioned that outsourcing was proceeding too fast and in a haphazard manner that could eventually be harmful for the company as well as the economy. Research should be undertaken at enterprise-level to determine the extent of such activities, the quality of such tasks performed, and their impact on the company as well as the economy.

References

Alison L Booth, Macro Francesconi and Jeff Frank, “Temporary Jobs: Stepping Stones or Dead Ends?”, The Economic Journal, Vol. 112, June 2002, pp. F189-F213.

Martin Rama, “Globalization and Workers in Developing Countries”, Policy Research Working Paper No. 2958, The World Bank, Washington DC., January 2003.

OECD, Knowledge, Work Organization, and Economic Growth, Directorate for Education, Employment, Labor and Social Affairs, Employment, Labor and Social Affairs Committee, Labor Market and Social Policy Occasional Paper No. 50, 5 June 2001.

Peter Auer and Sandrine Cazes (eds.), Employment stability in an age of flexibility: Evidence from industrialized countries, ILO, Geneva, 2003.