Fragmentation, Globalisation and Labour Markets

Most contributions to the debate on the role of trade versus technology in explaining labour market developments see the two forces operating separately in independent spheres. In this chapter, we study the impact of trade on labour markets transmitted by its effect on choice of technology. Two observations in particular motivate our interest in this issue. First, not only final goods production but production itself is becoming increasingly global. Recent revisions of trade statistics, which give more detailed information on the nature of products traded, suggest that trade in intermediates has significantly outpaced trade in final goods. Second, a more detailed examination of labour statistics reveals that the increase in the skill premium was accompanied by substantial shifts in the structure of employment (OECD (1996, 1999, 2000)). In particular, employment in service activities rose in tandem with the exposure of locals to foreign competition. The increase in services employment was not limited to lowskilled, poorly paid jobs, but rather has exhibited a bimodal pattern with growth especially strong at the lower and the upper end of the wage scale. In addition, the employment of professional, management and sales-related personnel has increased substantially faster than in other high skilled groups.1 These developments are indicative of fundamental changes in production methods and technology as the openness of economies increases. In addition, it suggests that the impact of trade on labour markets may be underrated in studies which neglect the indirect effect that increased openness has on labour markets via induced technical change.