Career Paths in a Globalized World

Contrary to popular belief, the rate of redundancy in the manufacturing sector, which is highly exposed to international competition, is lower than in tradable services and, in particular, than in the non-tradable sector.

By
The 29/05/2018

The economic advantages of globalization are firmly established: it is associated with economic growth, increased productivity for companies, and a wider range of products available to consumers. Globalization has little impact on the overall volume of jobs in the long term, but economists admit that it does not benefit all workers: it creates winners and losers. The intensification of international trade, like the rise of new technologies, contributes to wider pay inequalities and modifies the structure of employment. In addition, because of the geographic concentration of activities exposed to international competition, the negative impacts of globalization are sometimes focused on a small number of geographical areas and individuals, which makes them very visible.

This note follows a number of individuals made redundant following the closure of their site in France from 1998 to 2010. Men, the youth, low-skilled and sometimes middle-skilled workers are amongst the hardest hit. Contrary to popular belief, the rate of redundancy in the manufacturing sector, which is highly exposed to international competition, is lower than in tradable services and, in particular, than in the non-tradable sector. In other words, the decline in employment in manufacturing is not so much because more companies are closing in the sector as because fewer jobs are being created there.

Laid-off manufacturing staff are however less likely to find work. They also suffer from a bigger, longer-lasting pay drop in their new job. This difference is partly due to workers’ socio-demographic characteristics, but the manufacturing sector is also subject to a specific effect. The latter can be explained by the geographic concentration of activities in this sector and the specific human capital of these workers. The former makes it harder or more expensive to find a job in the same activity, due to the distance separating production sites. Workers made redundant from industry are more likely to have to choose between changing region and changing sector, the inevitable cost of which hinders their return to employment. In addition, the specific human capital of industry workers means that their skills are less transferable and leads to bigger pay drops in their new jobs.

This view is backed up by the facts: to find employment, workers laid off from the manufacturing sector are more likely to change their activity (57% compared to 36% for the non-tradable sector), and occupation (49% compared to 37%). When they change sector, industry workers also undergo a bigger pay drop in their new job (-35% compared to -26% for those in the non-tradable sector), illustrating the low transferability of their skills. We also show that 40% of employees laid off from manufacturing find new employment in the non-tradable sector, most often in so-called local jobs that are more insecure and less skilled than those of employees who remain working in industry.

These results feed the debate on the assistance required by the losers of globalization. On the one hand, they justify pay compensation policies targeting the most vulnerable individuals who are the victims of a “trade shock”. On the other hand, they confirm the need to improve training policies to make it easier for laid-off workers to find employment in growth areas.

To order the Note in paper version, please go to the Presses des Mines website.

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