Economics usually distinguishes between different sectors as low-tech (e.g. garments), medium-tech (e.g. automobiles), or high-tech (e.g. IT products). But the splintering of production within global value chains (GVCs) shows a need for a finer differentiation of production segments by tasks based on their knowledge levels. This is because development is not so much a matter of the sector in which jobs are being carried out, as of the knowledge content of the activity itself.
A garment, for instance, though classified as a low-tech product, has within it production segments that have a high knowledge content and those with a low knowledge content. Design has a high knowledge content; detailed engineering from design to production organization has a medium knowledge content; while manufacturing a garment has a low knowledge content.
Similarly, IT software services too has high and medium to low-knowledge tasks. The initial formulation of the problem, design of the solution and its architecture all have a high knowledge content; while the programming, checking and maintenance of the IT software have a medium-knowledge content.
While we can talk of the technical level of sectors of products, from an employment or labor economics point of view there is a need to move from sector or product to the knowledge levels of tasks. The point is how these different knowledge levels of tasks relate to job characteristics.
Wage determinism
At a broad level, the international division of production tasks is driven by national wage levels. In the garment industry, manufacturing is out-sourced to developing countries with low wages. The programming, checking and maintenance of IT software services is also carried on in developing countries, while the design and architecture are often undertaken in developed, high-wage countries.
Moreover, there is a link between wage levels and security of employment. The just-released Cambridge University Press book, ‘Labour in GVCs in Asia’has analyzed this coarse-grained division of tasks by production segment within GVCs in Asia. It showed that employment in garment manufacturing tasks was generally low quality with poor employment security and low wages. In the automotive and electronics assembly segments jobs were more secure with wages somewhat above living wages. In the IT services sector jobs most jobs were secure with high levels of wages or earnings.
These differences in wages and security of employment and even nature of supervision, can be linked to the knowledge levels of the tasks. This in turn is related to the capability levels of workers required to carry out the tasks. In garment manufacture, the knowledge and capability levels of operators are easily acquired and thus competition among workers for these jobs is high. As we go up the knowledge level the capabilities are more difficult to acquire and thus entry into these segments of the working class more difficult.
A subsequent analysis of tasks and the nature of jobs within firms (in a paper on Knowledge, education and labour practices in India in a forthcoming issue of Economic and Political Weekly) investigated this relation through case studies of firms in garments, electronics, automobiles, chemical and IT services in India. This investigation saw that within firms, jobs are differentiated not only by wages but also by security of employment and other aspects of labor practices. Workers performing low-knowledge tasks tend to have poor security of employment and low wages; workers within the same firms carrying out medium-knowledge or high-knowledge tasks tend to have both higher wages and more secure employment.
Why do wages and terms of employment differ between segments of workers? In a sense, the external relations of the market have been brought within the firm. This points to a new form of segmentation of workers; segmentation based on knowledge level or capabilities. The human capital theory would predict that wages would differ with the education and capability levels of workers. But why do other factors of employment conditions or labor practices, such as the security of employment and forms of supervision also differ with education and capabilities? Policy makers need to analyze this question further to understand the contemporary segmentation of workers, between countries and firms - and within firms too.
At the policy level two points can be made. First, that development is not so much a matter of the sector of economic activity, as of the knowledge content of the activity being carried out. Within a sector, two countries can be in very different knowledge-differentiated production segments, e.g. design and architecture or programming in providing IT software services. A developed economy is one that carries out a greater proportion of high-knowledge content tasks.
Secondly, employment policy should seek to overcome the firm tendency to reduce the security of employment of low-knowledge workers. Since security of employment is crucial for inclusive development, governments need to step in and set up regulations to provide security of employment for all workers, irrespective of the knowledge-level of the tasks they perform.
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