Skills or Jobs?

One of the dominant assumptions made about economic development and upward social mobility is that skills are central to both. Labour markets and forms of production, for goods and services have now changed to the point where this orthodoxy needs to be challenged. Rather than skills, what is required for economic development are decently paid jobs.

Of course, it might be argued that skills are necessary for well-paid jobs but as we confront the possibility of high skill low income economies the equation of skills with income is being thrown into doubt. What has changed to bring about a fundamental questioning of skills orthodoxy?

Several things.

We need to look at the way the labour market is being constructed globally and then to peer inside to see how processes within organisations are changing to understand what is happening. Firstly, multinationals have constructed a global labour market in which they can determine where they will locate production. While not always a factor, the cost of labour is typically key and this includes graduates, that is highly skilled labour. The massive rise of graduate labour in East Asia is setting a benchmark for wages which is much lower than in the West, indeed they can be 10 per cent of the wage in the United States. Where multinational companies find these wages too high, they can either move westward into China or head for Vietnam or Indonesia. So even for high skilled labour, there is a race to the bottom.

Secondly, the production processes for both goods and services have changed dramatically. We used to think of Germany as a paradigm of skill formation. But now intermediate engineering multinationals are arguing that they no longer need an over trained workforce, which was once the key to German skills flexibility and production. Now their computer assisted quality assurance systems do the job. It is partly for this reason that China, ‘the factory of the world’   has been reducing its manufacturing work force.  Robots and computers can do the job!

When it comes to the service industries, the picture is no brighter. Computer algorithms, based on taking what is in workers’ heads, codifying and standardising it, is now rapidly moving up the skills chain. Eight years ago multinational law firms outsourced their ‘discovery’ work because while it cost £125K a year in London, in the Philippines it cost a fraction of that price. Now a computer algorithm can do it. Ask yourself how many people you have talked to at Amazon and you get the idea!

Finally, we should consider how quickly East Asian economies have provided the skills that are needed; it seems clear that for many skills the old idea of a long apprenticeship, no longer applies. All these production systems need workers that have a level of literacy and numeracy but after that corporation can take over!

It is for these reasons that we should focus our attention on how jobs can be created, for then the skills will follow but it will not work the other way around.

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