Offshoring: Value Creation through Economic Change

abstract    In this essay, I analyse the economic and managerial dimensions of offshoring, drawing from recent research by the McKinsey Global Institute. I argue that offshoring, like other forms of trade, creates enormous value for both companies and the economy as a whole. However, in the case of countries with less flexible labour markets such as Germany, findings are more nuanced. While the potential cost savings for companies from offshoring appear impressive, our research suggests that companies are leaving billions of dollars behind when they offshore. We propose several ways companies could make capital-labour trade-offs to create new markets and services. By maximizing gains from offshoring, companies can both cut costs and generate revenue. Given the benefits offshoring, the challenge is how to make the transition to a global economy less painful for workers and increase the participation in the wealth creation. Hence, I also identify options to help policymakers and companies manage the changes offshoring requires.     

Notional Defined Contribution Accounts

A bstract    Notional defined contribution (NDC) accounts represent a new model for social security reform that so far has been adopted in seven countries. While NDC schemes remain public, they call for the individual accounts favored by neoliberal policy analysts. NDC schemes would address many of the demographic and fiscal problems threatening pension systems but, depending on the country, could do so in a way that puts low-paid workers and women at greater risk than do the schemes being replaced. NDC systems are often the result of a compromise between different interest groups, typically between neoliberal economic elites on the right and labor unions or pensioners' organizations on the left.     

THE BENEFITS AND COSTS OF MONETARY UNION IN SOUTHERN AFRICA: A CRITICAL SURVEY OF THE LITERATURE

Abstract.  With the 14 members of the Southern African Development Community (SADC) having set the objective of adopting a common currency for the year 2018, an expanding empirical literature has emerged evaluating the benefits and costs of a common-currency area in Southern Africa. This paper reviews that literature, focusing on two categories of studies: (1) those that assume that a country's characteristics are invariant to the adoption of a common currency and (2) those that assume that a monetary union alters an economy's structure, resulting in trade creation and credibility gains. The literature reviewed suggests that a relatively small group of countries, typically including South Africa, satisfies the criteria necessary for monetary unification. The literature also suggests that, in a monetary union comprising all SADC countries and a regional central bank that sets monetary policy to reflect the average economic conditions (e.g. fiscal balances) in the region, the potential losses (i.e. higher inflation) from giving up an existing credible national central bank, a relevant consideration for South Africa, could outweigh any potential benefits of trade creation resulting from a common currency.     

Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey

This paper studies the effects on registered employment and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%–13% for the first program and 11%–15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (27%–46%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the theory that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.     

There's No Place Like Home

A bstract .   Employment stability for many nonstandard workers is tenuous and early research shows some types of nonstandard employment carry long-term consequences in the form of lower wages and fewer benefits over time. This paper seeks to add to the literature by considering another long-term consequence for nonstandard workers: the inability of some nonstandard workers to accumulate assets. The particular asset this paper focuses on is home ownership. Logistic regression results using data from the National Longitudinal Survey of Youth 1979 suggest that current and past employment in some nonstandard jobs, especially as a temporary worker, is associated with a lower probability of owning a home. This may have repercussions not only for households with temporary workers but for their community as well, since home ownership has been tied to positive spillovers such as increased social capital and community involvement.     

The difference a manager can make: organizational justice and knowledge worker commitment

The quality of the employment relationship is argued to be central to knowledge workers' commitment, which in turn supports knowledge creation. Given the high levels of discretion enjoyed by knowledge workers, managers' decisions over work distribution, content and resources become more critical for commitment and knowledge creation. However, little research has explored how justice perceptions shape the quality of the employment relationship and the consequences for commitment. Using a sample of 429 R&D workers from across six science and technology-based firms this paper explores the three-way interaction of procedural and interactional justice with the psychological contract to predict knowledge worker commitment. We found that when employees simultaneously perceived high levels of procedural and interactional justice this moderated the relationship between psychological contract breach and knowledge worker commitment. Furthermore, where there was contract breach, positive perceptions of procedural justice moderated the relationship with commitment. However, in the context of contract fulfilment, low perceived levels of interactional justice predicted lower comparative levels of commitment, regardless of the level of procedural justice.

The results suggest that the perceived quality of the relationship between knowledge workers and their manager can make a positive difference in the context of breach of the psychological contract and this in turn can help maintain levels of commitment important for knowledge creation.     

THE CREATION AND DIFFUSION OF INNOVATION IN DEVELOPING COUNTRIES: A SYSTEMATIC LITERATURE REVIEW

In this study, we review the literature on the creation and diffusion of innovation in the private sectors (industry and services) in developing countries. In particular, we collect evidence on what are the barriers to innovation creation and diffusion and the channels of innovation diffusion to and within developing countries. We find that innovation in developing countries is about creation or adoption of new ideas and technologies; but the capacity for innovation is embedded in and constituted by dynamics between geographical, socio‐economic, political and legal subsystems. We contextualize the findings from the review in the current theoretical framework of diffusion of innovations, and we emphasize how the institutional context typical of developing countries impacts the diffusion itself.     

A Meta‐Analytic Assessment of the Effect of Immigration on Wages

Abstract.  In our increasingly interconnected and open world, international migration is becoming an important socioeconomic phenomenon for many countries. Since the early 1980s, many studies about the impact of immigration on host labour markets have been undertaken. Borjas (2003 , The labor demand curve is downward sloping: reexamining the impact of immigration on the labor market. Quarterly Journal of Economics 118(4): 1335–1374) noted that the estimated effect of immigration on the wage of native workers varies widely from study to study and sometimes even within the same study. In addition, these effects cluster around zero. Such a small effect is a rather surprising outcome, given that in a closed competitive labour market an increase in labour supply may be expected to exert a downward pressure on wages. We revisit this issue by applying meta‐analytic techniques to a set of 18 papers, which altogether generated 348 estimates of the percentage change in the wage of a native worker with respect to a 1 percentage point increase in the ratio of immigrants over native workers. While many studies in our database employ US data, estimates are also obtained from Germany, The Netherlands, France, Norway, Austria, Israel and Australia. Our analysis shows that results vary across countries and are inter alia related to the type of modelling approach. Technical issues such as publication bias and quality of the estimates are addressed as well.     

Are Reports of Discrimination Valid? Considering the Moral Hazard Effect

A bstract .   Antidiscrimination laws are designed to prompt employers to stop excluding black workers from jobs they offer and from treating them unequally with respect to promotion and salaries once on the job. However, a moral hazard effect can arise if the existence of the laws leads black employees to bring unjustified claims of discrimination against employers. It has been argued that employers may become more reluctant to hire black workers for fear of being subjected to frivolous lawsuits.
Using the Multi-City Study of Urban Inequality (MCSUI), we find that male and female black workers are far more likely than whites to report racial discrimination at work. This is the case even when a host of human capital and labor market factors are controlled for. Further, nearly all black workers who report they have been discriminated against on the job in the MCSUI Surveys also show statistical evidence of wage discrimination. This is not the case for white males or females. We find little evidence to support a moral hazard effect.     

OFFSHORING, MULTINATIONALS AND LABOUR MARKET: A REVIEW OF THE EMPIRICAL LITERATURE

Abstract.  This paper reviews the empirical literature on the effects of offshoring and foreign activities of multinational enterprises on developed countries' labour markets. Results suggest that material offshoring worsens wage inequality between skilled and unskilled workers; it also seems to make employment more volatile, by raising the elasticity of labour demand and the risk of job losses. Service offshoring exerts at most small negative effects on total employment, and changes the composition of the workforce in favour of high-skilled white-collar employees. Multinationals tend to substitute domestic and foreign labour in response to changes in relative wages across countries; substitutability is weak, however, and mainly driven by horizontal, market-seeking foreign direct investments.     

Immigration, Labor Market Mobility, and the Earnings of Native-Born Workers

A bstract .   This article seeks to improve on previous estimates of the impact of immigration on native wages by using an occupational segmentation approach that directly controls for regional migration and other shifts in the native-born U.S. labor supply. The U.S. labor market is segmented by occupation in order to determine which, if any, native workers tend to be vulnerable to increased immigrant competition for jobs. The results suggest that native-born workers in the primary sector are the main beneficiaries of increased immigration, while native-born Hispanic females in the secondary sector are the most susceptible to downward wage pressures.     

Sisters organising in Japan and Korea: the development of women‐only unions

In this article, I explore the development of women‐only unions in Japan and Korea. Women‐only unions, which organise women workers across enterprises and employment status boundaries in both countries, have appeared only recently and are new areas of research. While the strategy to form autonomous women‐only unions in Japan and Korea is a recent phenomenon, women workers in both countries are continuing a tradition of women's activism that has challenged both management and the male domination of the union movement. By taking a broad scope and by organising the growing non‐full‐time workforce and women employed in small workplaces, the formation of women‐only unions in Japan and Korea is a positive development for both non‐unionised women workers and for the broader workers' movement in general.     

When is Contracting Preferable to Employment? An Exploration of Management and Worker Perspectives

abstract    Managers make choices regarding the types of employment structures that meet the needs of the firm, and workers make choices regarding the types of arrangement that meet their needs. Various streams of literature offer perspectives on why employment or contracting might be preferred but it is often the perspective of the firm that dominates the analysis. This kind of one-sidedness weakens our understanding of employment as a relationship . It lacks recognition of the importance of mutuality: of matching the needs of the worker with the needs of the business. This paper reports research investigating management decisions to use self-employed contractors or employees for particular jobs, and workers' decisions to seek or accept organizational employment or self-employment. Some 80 in-depth interviews were conducted with managers and workers across two industries (energy supply and engineering consultancy) with the intent of studying two groups of workers differing dramatically in skill levels. While largely confirming existing theory on the management conditions relevant to the contracting-out of work, the study identifies factors that make a contracting relationship more mutually beneficial, thus suggesting propositions for further research on worker preferences.     

Ageing of routine jobs in Europe

We study how the de-routinisation of jobs affects workers at different ages in 12 European countries. We combine O*NET occupation content data with EU-LFS individual data for the 1998–2015 period to construct five task content measures: non-routine cognitive analytical, non-routine cognitive interpersonal, routine cognitive, routine manual, and non-routine manual physical. We find that the shift away from routine work and toward non-routine work occurred much faster among workers aged between 25 and 44 than among older workers. In the majority of countries, the ageing of the workforce occurred more quickly in occupations that were initially more routine-intensive, as the share of older workers in these occupations was rising and the share of young workers declining. At the same time, the unemployment risk related to the routine task intensity was increasing, especially among individuals between the ages of 15 and 34, and to a larger extent in countries with fast ICT capital growth and in countries not increasing their participation in global value chains.     

Flexibility,labour retention and productivity in the EU

Abstract

This paper examines the relationship between internal flexibility, the employment of fixed-term contract workers and productivity in 27 European Union countries. Drawing on European Company Survey data, the paper assesses whether establishments that employ on a fixed-term basis experience higher productivity than their competitors and stronger labour productivity improvements over time. These issues are of importance, given the recent weakness of productivity growth in many EU member countries, the steps that governments have taken to relax rules relating to the employment of fixed-term workers and the emphasis placed on contractual flexibility within the European Commission’s flexicurity agenda. The paper finds that establishments that do not use fixed-term contracts enjoy productivity advantages over those that do. Establishments that employ on a fixed-term basis but retain workers once their fixed-term contract has expired perform better than those that do not retain workers. The findings also show that establishments that pursue internal flexibility report both higher productivity than competitors and productivity increases over time. In addition, they are more likely to retain workers who have reached the end of a fixed-term contract.     

No man is an island: Social and human capital in IT capacity building in the Maldives

In many developing countries, lack of IT skills and human capital impede the potential of IT investments in organizations in developing countries [Lee, J. (2001). Education for technology readiness: Prospects for developing countries. Journal of Human Development, 2(1), 115–151]. This paper draws upon theories of human and social capital, and knowledge, to explain enablers/obstacles for knowledge creation and transfer for IT capacity building in a tourism organization in a developing country – the Maldives. IT capacity building is intimately linked to knowledge and skills at the level of human resource development. Using the Nahapiet and Ghoshal (1998) [Nahapiet, J., & Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23, 242–267] framework for the role of social capital in knowledge creation and transfer, we examine the major issues of IT capacity building for the case organization. We conclude that the role of cognitive capital is the most important for the tourism sector of the Maldives, and may play a vital role in accumulating structural and relational capital, together with appropriate government policies on ICT.     

Urban search models under high-relocation costs. Theory and application to spatial mismatch

We develop a search-matching model in which mobility costs are so high that it is too costly for workers to relocate when a change in their employment status occurs. We show that, in equilibrium, wages increase with distance to jobs and commuting costs because firms need to compensate the transportation cost difference between the employed and unemployed workers at each location in the city. We also show that the equilibrium land rent is negatively affected by the unemployment benefit because an increase in the latter induce firms to create less jobs, which, in turn, reduces the competition in the land market. We then use this model to provide a mechanism for the observed spatial mismatch between where black workers live and where jobs are. We finally show that a transportation policy consisting in subsidizing the commuting costs of black workers can increase job creation and reduce unemployment if the level of the subsidy is set at a sufficiently high level.     

Whose Human Capital? The Challenge of Value Capture When Capital is Embedded

abstract    Current approaches that position human capital as central to value generation in knowledge-based industries obscure the importance of the relational nature of knowledge production. That is, separable and embodied forms of capital are interdependent in value creation and capture processes. We identify a relational form of capital, embedded capital, which we argue is the critical resource in knowledge-based industries such as professional services firms, because it allows us to include agency and interdependency in the value capture process. These dimensions have previously been overlooked by the resource-based view of the firm. Examples of embedded capital include brand value, processes and procedures. The deployment of embedded capital is also not clearly controlled by either the firm or individual employees. A model is developed to illustrate the links between each form of capital, and the processes of value capture. This conceptual identification of the embedded form of capital is therefore of importance to future value creation and capture debates.     

Japanese management and salary productivity: the case of the electronic and automotive industries in Portugal

This paper intended to assert in what form the Japanese approach to business management, concerning the factors human resources, research and development (R&D) and organization and methods, has effect on the value creation by workers, beyond that expressed in direct salaries. The investigation fell on companies in the electronic and automotive sectors operating in Portugal, with and without Japanese capital, in the 6-year span from 2001 to 2006. This paper is divided into four parts. The first part presents the Workonomic Index as an indicator of salary productivity – the measure of the value creation by workers, beyond that expressed in direct salaries. The second part presents in short the factors that are linked to the high productivity of the Japanese industrial worker. The third part presents the goal, hypothesis and methodology of the empirical study, namely the components of the above-mentioned factors. Finally, the fourth part is dedicated to the presentation of the empirical study and its conclusions. The specific results demonstrated that the impact on salary productivity is clearly visible over the factor organization and methods. In addition, there is evidence of substantial indirect influence of R&D on the creation of surplus value.     

Local development and business creation. The role of local development workers in project management

The participation of social inclusion workers in project management is to a large extent aimed at setting up businesses and mainly entails working with businessmen and women and entrepreneurs. Policies formulated to this end involve four lines of action: improving infrastructure; managing local businesses; supporting and managing the creation of micro-businesses and small and medium-sized enterprises; and carrying out socio-economic studies which aid the economic and social development of a particular local community. This study includes an analysis of the characteristics of the service provided by local development workers with regard to the development areas concerned, the nature of the work carried out and the groups involved, the characteristics of the service offered to entrepreneurs and groups of entrepreneurs and the characteristics of the projects managed. Field work was carried out during the 2004 which entailed the use of a questionnaire intended for all local development workers included in our own directory.