Steven Davis, professor of international business and economics and deputy dean at the University of Chicago Booth School of Business talked to The Indian Express on why employment in developed and developing world has shifted to service economy and why global uniform labour standards make it harder for poorer economies to compete. Excerpts:
In the US economy what are the current areas of concern for the labour market?
The picture for the labour market is mixed in the US. Signs for job vacancies are again up, unemployment rates have come down so that’s all good. But much of that improvement has happened because people have dropped out of the labour force and that’s a serious concern from the long term health of the economy. Among the sectors still in crisis is construction, obviously. Employment is, however, booming in shale gas exploration.
What are the main changes in employment conditions post the downturn? For instance has the demand for skilled labour become overwhelming even in developing countries?
Of course. The demand for skilled labour is rising fast throughout the world. There has been tremendous labour saving technological improvements. Typically manufacturing was the area where labour got a lot of good jobs.
But in the US for instance, as the jobs shifted to middle income economies, what remained behind was much less labour intensive.
Simultaneously the other big change happening is the rise in economic efficiency that is rise in productivity, which too is potentially very important.
How about changes in productivity?
Over 10 or 20 years, this makes a huge difference. There are hundreds of studies that show the single most improvement in living standards come from rise in productivity. Education is also important. Productivity gains show up as higher wages for workers and lower prices for consumers.
The movers of productivity are rising skill of workers, improvement in public infrastructure, the efficiency of the legal systems — that is, can contracts be enforced at low cost, and the increasing amount of capital per worker.
For labour intensive economies how can policy makers carry out labour reforms?
One reason why there may be large volume of low and medium skilled jobs in the organised sector is because regulatory restrictions make it difficult to scale up the efficiency of the manufacturing units. The character of the organised sector in any country is not an accident, it is a result of policy. That is the first point to make.
Second, it is important to move away from focusing on these workers to recognise that labour is moving out of manufacturing activity. Jobs involving doing things are getting scarce, but jobs are opening up in the services sector.
For people without exceptional skills, involving learning how to get along with people is a major job apprentice ship. But education courses in most countries including US don’t do a great job of training for those skills. So in consequence people are not prepared for the average everyday type of jobs.
How pervasive will be the role of service sector jobs?
Most of the job opportunities for most economies will be outside the manufacturing economy. And that’s been going on for decades, yet many observers have missed that fact. It was triggered by shift of jobs to middle income economies and the invention of labour saving devices. I expect it will deepen.
So will labour regulations will have to change and also labour standards?
There are some fundamental challenges for policy makers opening up. Reforming education system as I said is one of those. And lots of regulations that make sense in one region will not make sense in other. Restrictions on employment of young adults, for instance may not be great idea in poorer countries. It will be a mistake. High quality labour standards are a luxury that you can afford as you grow richer. I am largely against the efforts to impose these standards.