Inequalities on labour markets around the world are affected by three fundamental ‘transformations’: technological change that saves different types of labour to different degrees, globalisation and migration. Interactions between these three transformations shape both demand and supply of workers. It is unclear, however, to what extent the speed (or even the direction) of these transformations will deviate from rates in the recent past. In this report, we think in terms of scenarios.
To inform policy-makers of the changes that can be foreseen regarding inequalities between the employment opportunities of workers in eight macro-regions in the world, we develop eight scenarios. For each transformation, we choose parameter settings in line with “slow” and “fast” rates of change, relative to rates of change in the recent past. We then use a world input-output table to provide an internally consistent quantitative representation of the network of global value chains. This representation is then linked to data on the business function (fabrication or headquarter functions) workers perform, to obtain a benchmark outcome for 2014. This is the most recent year for which the required data are available. We divide the global economy into eight “macro-regions”: Old-EU, New-EU, Other Europe, North America, East Asia, China, Russia and Rest of the World.
We then use a linear programming approach to model changes in employment structures and consumption levels. These changes are driven by changes in the numbers of workers in fabrication functions and in headquarter functions required to produce a given quantity of final output by a value chain. This can change the comparative advantages of macro-regions regarding the participation in (global) value chains. Mobility and migration of labour can have impacts on labour supply and therefore on how much output a macro-region can generate (given the production technologies in value chains). Finally, the extent to which international trade is more or less restricted by protectionist measures determines the extent to which comparative advantages determine the structure of world production. All three transformations interact, which is why it is worthwhile to analyse the eight scenarios.