Future of Work/Globalization Study Guide

Question 1

1. ICT Costs: Force that may slow down 2nd unbundling

Answer 1

• Moore’s, Gilder’s and Metcalfe’s Laws point to continued reduction in the cost of collecting, managing and transmitting data -> with communication costs down, fragmenting and offshoring are likely to continue
• BUT lower IT costs: more computing power -> more automation, more robots, less need to rely on cheap labor -> less offshoring and thus more “onshoring”

Question 2

2. Transportation Costs Force that may slow down 2nd unbundling

Answer 2

• Oil is a significant part of transportation and will continue to be so
• Oil price uncertainty and volatility make fragmentation of production uncertain
• Falling oil prices facilitated the 2nd unbundling during its early years but hindered it after 2000
• From the turn of the century, however, the 2nd unbundling has progressed despite sharply rising oil prices

Question 3

3. Barriers to trade, protectionism etc.. Force that may slow down 2nd unbundling

Answer 3

• The 2008 financial crisis has not led to protectionism despite similarities with the great depression era
• But barriers to trade have started to increase over the recent months

Question 4

4. Issues related to production Force that may slow down 2nd unbundling

Answer 4

1. Climate change: Increasing risks of natural disasters perturbing supply chain coordination (Fukushima disaster closing GM plants in the US, the coronavirus stopping or delaying production)
2. Smaller differences in wages around the world
   - China wages increase making production in China less interesting than it used to be
   - The same is/will be happening in other parts of the world
3. Cheaper/more efficient robots locations of production less determined by supply considerations -> the first robots were expensive and specific: only large firms (automobiles) could use them. Robots are becoming cheaper and more versatile leading to more widespread use.
4. 3D printing. Fewer pieces needed to be assembled thanks to 3D printing and other technologies decreasing trade in intermediate products
   • > Technological changes are making the supply chains shorter (less production stages) and less reliant on low-skilled labor. They are also decreasing the share/role of international trade for manufacturing products

Question 5

5. Issues related to Demand Force that may slow down 2nd unbundling

Answer 5

1. Environmental protection and constraints favoring quality and long lasting products at the expense of cheap and dirty products
2. Customization of products: it is increasingly easier and cheaper to produce any good specifically to each consumer’s tastes
   - Economies of scale still exist but it is less necessary to produce the same products over and over to exploit them
   - With customization, it is more important to be near the consumers
   - Technology makes it possible to re-bundle production and consumption
3. Planned product obsolescence is becoming less acceptable
   - See the controversy about Apple and its battery life, also about the regular introduction
   - Planned obsolescence is useful to have additional demand for a product in a saturated market (and thus production, lower average cost, etc)
   - Less acceptable planned obsolescence and higher product quality/durability might affect how and where production takes place (smaller scale of production)

Consumer’s demand for higher quality/more durable products that are specific to their individual tastes may also contribute to affect the 2nd unbundling

Question 6

3rd unbundling?

Answer 6

• 3rd unbundling unbundles labor & laborers
• Specialized/skilled services are the most likely to be affected
• At the international level, this is virtual migration

Question 7

Industrial revolutions and impacts on labor markets

Answer 7

First industrial revolution made machines/mechanization efficient

• Increased demand for workers operating these machines
• Increased demand for less skilled workers
• Decreased demand for skilled workers (artisans) producing similar products with older/low scale techniques
• Instead of long apprenticeship to learn how to produce a low volume of products, a less skilled worker could operate a machine producing a high volume of goods
• The quality of the good may be lower but the price is lower too
• More people can purchase these goods

Second industrial revolution: by making machines and firms able to produce larger volumes of production (internal economies of scale), it:

• Continued to increase overall demand for less skilled workers
• Increased the relative demand for higher skilled-workers:
• -Because more skilled workers were needed to manage production floors and teams of workers
• -Because the demand for white-collar, non-production workers increased as mass production required increased effort to sell more products over more distant markets

Question 8

Third IR and labor market

Answer 8

• The 3rd industrial revolution had an impact on skilled vs. less-skilled wages starting in the 1980s leading to more inequalities between skilled and less-skilled worker
• Dividing workers into unskilled, medium-skilled and skilled workers: the ratio of skilled-worker wage to medium-skilled and to unskilled worker wages increased from the 1980s
• Increased use of cheaper computers is the main reason
• This resulted into an increase in the return to education and skills

Question 9

Effect of computers on market for skilled labor

Answer 9

• Everything else being equal, a skilled worker becomes more productive with computers than with staff
• With computers, a firm does not need as many staff members to run efficiently
• Given a supply of skilled labor, the real wage of skilled labor rises (w* -> w’)

Question 10

Effect of computers on market for semi-skilled labor

Answer 10

As computers get cheaper, easier to use and can perform more tasks, the demand for medium-skilled labor falls and so does the real wage of medium-skilled labor

Question 11

4th industrial revolution and its impacts on the labour market

Answer 11

• The same fears exist today with advent of the 4th industrial revolution
• Before assessing this, let’s see first what we know from previous industrial revolutions
• Facts reveal two things:
• -Yes, industrial revolution destroy jobs, but they also create jobs
• -Yes, industrial revolutions disrupt industries, make some jobs obsolete, create unemployment, but they also lead to new jobs, new firms, new industries
• -Industrial revolutions like globalization change relative prices creating winners and loses (pains and gains)
• Every industrial revolution so far ultimately created more jobs than it destroyed. But there has always been a timing issue because technology has two effects on employment: A destructive effect and a demand effect. While the former is easy to imagine, the latter takes time to emerge.

Question 12

2nd force face-to-face constraint relaxed by technology

Answer 12

• Telepresence technology is improving and getting cheaper
• Virtual migration is occurring at an international level
• Skilled services most likely to be affected

Question 13

3rd force Compufacturing

Answer 13

• Shift towards more customized goods
• Transitioning from individual workers into advanced machinery and computers leading to threats to jobs
• A polarization (division) of skills on the shop floor