Book reviews
World Employment Report, 1998–99: Employability in the Global Economy: How Training Matters. Washington, International Labor Office, 258 pp. Available from ILO Publications Center, Waldorf, MD. $34.95.
In its most recent World Employment Report, ILO focuses on the growing disparity between the rising labor market demand for skilled workers and the declining demand for what it terms "unskilled" workers. Be it noted at the outset that the report defines "skill" as a hierarchy of knowledge intensity and educational attainment, basing itself upon the International Standard Classification of Occupations of the ILO; but that "unskilled" remains undefined, and is evidently used interchangeably with "low-skilled." Be it also noted that the Bureau of Labor Statistics implicitly defines skill in terms of the knowledge level inherent in given occupations, and does not recognize the term "unskilled."
The report attributes the disparity that lies at the core of its concerns to the swiftness of globalization, technological developments, and changes in work organization. The three variables are closely interlinked, and exert competitive pressures upon business, pressures which are necessarily transmitted to its workforce, requiring it to adapt, chiefly, so the report’s argument runs, by way of better training and education, and greater skill. Such adaptation in fact appears to be the desideratum of employability today.
Globalization, one of the variables just mentioned, is most strikingly evidenced by the continued increase in world trade (its average annual rate of growth was 4.4 percent in 1980-89; 5.7 percent in 1990-94; and 6.4 percent in 1998); and in continued large net private direct investment in developing countries ($120 billion in 1997). Moreover, the share of "technologically advanced goods in manufacturing exports" from some developing countries rose substantially over the 1970-95 period—for example, for South Korea from 9 percent to 43 percent, for Brazil from 4 percent to 13 percent, and for Mexico from 15 percent to 42 percent. Technological changes, while prominent in information and communications, have been key elements in globalization, in turn compelling the updating of productive service equipment domestically, thus giving rise to new skill and training requirements. The spread of high-performance work practices has likewise tested worker adaptability. These practices have been diffusing rapidly in the United States, such that by 1997, job rotation, for example (which requires multi-skilling), has involved well over one-half of all establishments surveyed, with more than 70 percent of their employees participating. Diffusion has been similar for such work practices as total quality management and quality circles, all demanding "moderate-to-high" skills.
These developments, the report argues, have raised the demand for professionals and skilled workers while in effect displacing large numbers of the low-skilled. Such displacement, judging by the data the report presents, appears to have been most pronounced in manufacturing. In the member countries of the Organization for Economic Co-operation and Development (OECD), manufacturing employment as a whole has shrunk, but all of the decline has centered on low-skilled workers; skilled worker jobs have remained constant, the changing occupational profile of the workforce being transformed toward upskilling. White-collar jobs, too, have been displaced, being substituted where feasible by computers. Administrative support work in the insurance industry, for example, has plummeted by as much as 40 percent.
The drop in the demand for low-skilled workers has been associated with a significant widening of wage differentials, particularly in the United States, Canada, and the United Kingdom—but in the transitional economies and some developing countries as well. In the United States, the differential between the 9th decile and the 5th rose by 15 percent between 1980 and 1995; that between the 5th and the 1st by the same percentage. Of all the leading OECD countries, only Germany did not show an increase in wage inequality. Some of the increased dispersion in wages has been attributed to the trend toward decentralized wage bargaining, a trend perhaps less pronounced in Germany than elsewhere. In France, too, wage dispersion changes have been slight, owing in part to a decline in the educational premium.
Even as the report argues the urgency of adapting training systems to the drastically changing occupational and skill environment, and the need for these systems to become more inclusive to women, ethnic minorities, unemployed youth and persons with disabilities, it observes a deepening paradox: the very global and technological forces which necessitate upskilled and continual training create the conditions for increased labor market segmentation and exclusion. Among factors that aggravate that paradox are pressures for greater labor market flexibility, nonstandard forms of employment, and casualization of work, all of which "erode the share of workers receiving training in work." Furthermore, the relatively high cost of in-house training spurs subcontracting, thus devolving progressively smaller parts of a given value-added upon small firms, operating with "traditional" skills and often under poor working conditions. Additionally, changes in work organization have entailed a split between "a secure core of valued employees and a more casualized periphery of workers" without job security or seniority rights.
Like earlier ILO publications, the report urges that the "high road" of labor productivity and of raising incomes be chosen over the "low road" of competing through low wages and benefits. That is the report’s basic rationale for improving human capital by widening access to education and training so as to raise technical and social and intellectual abilities. The obstacles to raising the "high road," however, remain formidable. They are in part institutional in nature, consisting in the dubious capabilities of existing training and education systems. Yet, the larger impediment to the "high road" seems to be the availability of a vast "reserve army" of unemployed and underemployed men and women who have no choice but to take low-paid jobs, if offered, in low-productivity work environments.
The report’s discussion of training modes and systems is premised on the assumption of a solid educational base, for example, the acquisition of "foundational" skills, such as literacy and numeracy—skills which should be "accessible and mandatory" for all, and should be regarded as social rights. But accessibility itself is a problem, especially in developing countries where poorer households cannot afford the costs of even primary schooling, and where children must frequently contribute to the household’s livelihood by working for pay or just for food and shelter. This rather widespread situation vitiates much of the report’s premise.
A major concern of the report is the experience of some leading countries with the transition of youth from school to work, the role of apprenticeship in this transition, and the success in gaining permanent employment. Many countries have adopted a mix of school-based learning and vocational and/or workplace training. This has been much less the case in the United States where vocational training is usually offered after high school has been absolved; and has been located in such institutions as community colleges. However, the "vocationalization" of secondary education remains controversial, largely because the alleviation of youth unemployment remains so difficult. Moreover, the cost of vocationalization is substantial, and considerably exceeds the cost of academic secondary education. The report repeatedly insists on the need for government financing of post-school training, programmed in combination with employer (or employer networks) requirements, since employers cannot be sure that their outlays for training will be recompensed by the trained worker’s tenure. The report warns that unless the inability of the "market" to sustain a sound training system is corrected by government, a low-skill system of productivity might be perpetuated. There is evidence, however, that enterprise-provided training substantially raises skills, productivity, and earnings.
The report provides a quite interesting sketch of the training systems of some leading countries. All of these systems are experiencing stress from globalizing technological change and investment strategies.
Germany’s apprenticeship system embraces one-half of the relevant age group, which receives training at both the workplace and in vocational schools. It is employer-led, in cooperation with trade unions, works councils, state agencies, and employer organizations, and covers all sectors of the economy. It is considered highly successful, and frequently leads to permanent jobs. The decisions of what to train for and what to teach, however, are made by a slow, cumbersome bureaucratic process, rendering responses to global change slow and inadequate.
The Japanese training system is entirely enterprise-based, with technical skills taught on the job. High schools concentrate on teaching mathematics, science, and "citizen skills" designed to facilitate teamwork on the job. The system produces a highly skilled workforce, "very adaptable to change," and aims at low labor turnover and permanence of tenure. The system is now challenged, however, by the apparent need for greater labor mobility, financial stringencies, and the dictates of shorter-term investment strategies.
In the United States, the training system (if indeed one may speak of a coherent set of the pertinent institutions) is highly decentralized, and based to a large extent on individuals’ incentives to train or attend trade school. A national strategy for training in skills and coordinate individual training investment is lacking; and the United States employs a far higher proportion of workers at "minimal ability levels" than other advanced countries. There may be some degree of adjustment by employers to lower skill levels, the skill needs of the economy not being adequately met. The report points out, however, that the United States enjoys a strong comparative advantage "in developing an elite of … highly educated labor attuned to investing in their own skill and training." Nevertheless, the "polarization of the country’s skill base" is likely to persist.
The obstacle greater than training system inadequacies to the vaunted "high road" of greater productivity and incomes is the existence of large worldwide pools of unemployed and underemployed persons. The ILO estimates worldwide unemployment at 150 million men and women as of the end of 1998, of whom 60 million are youths 15–24 years old, 11 million of whom live in OECD countries. In addition, an estimated 25–30 percent of the world’s 3-billion strong labor force is "underemployed."
Underemployment manifests itself most strikingly in the size and growth of the "informal economy" prevalent in developing countries. Workers in the informal economy usually cannot find jobs in, or have been displaced from, the "formal" economy. Here, capital intensity is relatively high, as are wages and productivity. Public employment has shrunk, in part owing to privatization or to fiscal stringencies. The informal economy generally consists of employment in very small enterprises (with 15 or fewer employees, where, according to ILO studies, pay runs to one-half of pay in the formal economy and there is no social security coverage). Domestic service and self-employment are also part of the informal economy, as measured by income.
Employment in the informal economy rose in all Latin American countries between 1990 and 1996, according to the report. For example, it increased from 47.5 percent to 53.6 percent in Argentina; from 52.0 percent to 59.3 percent in Brazil; and from 55.5 percent to 60.2 percent in Mexico. Employment in the formal economy declined correspondingly.
The report discusses the training and business needs of the informal economy exhaustively, as it does those of "vulnerable workers." There are, to be sure, some encouraging developments, such as the mastery of the manufacture of surgical instruments by networks of small firms in Pakistan; or of leather goods in Brazil. But low productivity constrains income. Apprenticeship is the preferred (if traditional) training system. Credit is sparse at best. Technological advance is not always beneficial; "existing low-skill jobs may be threatened" by it. Basic education, the premise of a sound training system, is not as widely available as needed. Training systems themselves are often inadequately targeted on employer needs, and may be financially starved. Most important, to make such systems viable, economic growth must be spurred so as to reduce unemployment.
It remains open, then, whether the paradox of rising skill and continual training needs demanded by the forces of globalization and advancing technologies, and the increasing labor market segmentation and exclusion these forces likewise engender, will not persist. The choice between the "high road"" of productivity and rising income, and the "low road" of low-skill work and low-wage competition, postulated by ILO, remains far from clear cut.
—Horst Brand
Economist,
formerly with the Bureau
of Labor Statistics
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