World Employment and Social Outlook 2015

Following decades of rapid increase, global supply chain jobs shrink

How many jobs worldwide are linked to global supply chains?

News | 21 May 2015
GENEVA (ILO News) – Global supply chains (GSCs)* developed at a fast rate over the last two decades and the number of jobs associated with them grew rapidly from the late 1990s until the financial crisis, reaching almost 500 million by 2007. But after a sharp drop in 2009, GSC-related jobs have only recovered modestly and their share of total employment in emerging economies has continued to decline, according to the ILO’s World Employment and Social Outlook 2015.

The flagship report of the International Labour Organization looks at a sample of 40 countries with available data and estimates that GSC-related jobs increased from 296 million in 1995 to 492 million in 2007, and then dropped to 453 million by 2013.

“In some cases, previously outsourced activities were brought back to the country of origin of the lead enterprise,” said Raymond Torres, Director of the ILO Research Department and lead author of the report. “But there are other root causes behind this slowdown.” Sluggish global growth and weak aggregate demand has continued to weigh on trade, which is growing much more slowly than in the two previous decades.

The crisis hit some export-oriented sectors, such as transport equipment and machinery, particularly hard. In addition, the increased availability of domestic inputs in some emerging countries, such as manufacturing parts and components that were previously imported, has reduced trade in intermediate inputs of those countries and is believed to explain part of the slowdown in global trade growth since the crisis. In general, this points to an increased perception of risks related to GSCs during the crisis.

“We do not know if the decline in global supply chain jobs is a short-term phenomenon or the beginning of a longer term trend, due to shrinking differences in wages between countries and lesser potential for outsourcing and offshoring to create savings on production costs,” added Torres. “Trade growth is expected to stagnate in coming years, so the number of GSC-related jobs is not likely to rebound quickly.”

Despite this recent drop, more than one in five jobs today is linked to GSCs. GSC-related jobs represent 20.6 per cent of total employment, up from 16.4 per cent in 1995.

Some Asian economies, European Union most affected

Among countries and areas included in the review, Taiwan, China has the largest share of jobs associated with GSCs – with more than half of its workforce involved in global supply chain jobs – followed by the Republic of Korea and the European Union, where around one third of workers hold a job related to GSCs.

By contrast, Japan and the United States have smaller shares of the workforce in jobs related to GSCs, with respectively 15 and 11 per cent of workers. This is partly due to their large internal markets and less dependency on foreign demand, but also because outsourcing to higher-wage and cost locations such as the US and Japan rather than to other locations, is less likely to be profitable for foreign companies. .

Benefits overestimated?

The report finds that GSCs are associated with economic benefits for firms in terms of higher productivity, but not necessarily for workers in terms of wages. This is due – among other reasons – to asymmetric power dynamics within GSCs, which are often dominated by lead firms, and lower margins for supplier firms. In addition, workers in supplier firms in some countries face strong restrictions on their ability to negotiate for wage improvements.

Turning to the garment industry, the report says that the globalization of the apparel sector created many employment opportunities. However, working conditions in many developing countries have not kept pace with economic growth. Wages and working conditions may be also suboptimal and the need for factories to respond quickly to volatile orders can lead to long or irregular working hours and the hiring of workers on extremely short-term contracts.

Policies for global supply chains

To enhance productivity and economic development, as well as to create decent work opportunities, both broad-based policies and policies directed at specific sectors are needed. Social dialogue on wages, work organization, safe work practices, technological change or restructuring, for example, is needed to ensure respect for workers’ rights while also improving productivity.

As to the garment industry, the Accord on Fire and Building Safety in Bangladesh from 2013 is an unprecedented, binding agreement between almost 200 buyer firms and two global trade unions. More than two million workers and 1700 factories are covered. Companies that have signed the Accord have agreed to implement and fund a collective fire and building safety inspection programme.

The ILO’s well-respected Better Work programme has improved workers’ rights and compliance with labour laws in seven countries in Africa, Asia, Latin America, and the Middle East, proving that sweatshops are not inevitable, but can be transformed by public policy and private sector collaboration.

* Global supply chains are defined as demand-supply relationships where different tasks of a production process are performed in two or more countries. They can involve both goods and services.