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Four policy approaches to support job creation through Global Value Chains

Ruchira Kumar's picture
 Maria Fleischmann / World Bank

Mexico created over 60,000 jobs between 1993 to 2000 upgrading the apparel value chain from assembly to direct distribution to customers.  (Photo: Maria Fleischmann / World Bank)

As we discussed in our previous post, Global Value Chains can lead to the creation of more, inclusive and better jobs. GVCs can be a win-win for firms that create better jobs while they enjoy greater efficiency, productivity, and profits. However, there is a potential trade-off between increasing competitiveness and job creation, and the exact nature of positive labor market outcomes depends on several parameters. Given the cross-border (and, therefore, multiple jurisdictive) nature of GVCs, national policy choices to strengthen positive labor outcomes are limited. However, national governments can make policy decisions to facilitate GVC participation that is commensurate with positive labor market outcomes.

 

Upgrading strategies

One approach to facilitate a positive labor market outcome of participating in a GVC is for domestic policy makers to focus on upgrading strategies. For example, the Mexico apparel value chain went through significant upgrading between 1993 to 2000, moving from assembly to developing expertise in distribution directly to customers. The number of jobs in the chain increased from 12,000 to approximately 75,000 in this period. While sector-level policies will differ, they will cover a span of interventions, which include improving infrastructure and connectivity, improving business environment to trade and investment policy, financial and labor market development, and skill upgradation. Among these, the last one is of particular importance. Lack of adequate investment in human capital development can be mitigated through different approaches, including creating diverse sources of firm financing, such as matching grants, training funds, or tax incentives for training and firm apprenticeship programs. Public-private partnerships in this space are an efficient solution.

Another key area of policy intervention is to create and strengthen programs to help catalyze spillovers in GVCs. Therefore, small and medium enterprise (SME) development and supplier linkage programs that help facilitate information exchange, create access to technology for more firms, and help establish compliance with required standards can be instrumental in upgrading GVCs. For instance, the Spanish SME support program PIPE (Plan de Iniciación a la Promoción Exterior), created in 1997, is an example of providing training to SMEs to sell products and services to international markets.
 

Improve labor standards

The second approach for domestic policy makers is to focus on implementation and enforcement of private labor standards. As mentioned in the previous post, adherence to these standards has an important signaling effect that helps firms retain buyers and expand markets, in addition to generating technological innovation and creating better jobs. The creation of platforms with relevant stakeholders is an important vehicle through which standards on compliance and transparency in working conditions can be perpetuated from lead firms down in the supply chains. This is especially important in chains where subcontracting is prevalent. The Better Work Program in the textile sector across seven countries is an example of this type of intervention which facilitates the adoption of these private social and labor standards.

National regulations

Besides these standards, policy makers could also focus on improving national regulations, at the national, sub-national, and industry-specific level. Labor market regulations require a balance between promoting labor mobility and firm competitiveness in a way that labor turnover is optimal to allow improving productivity without penalizing workers. However, the right regulations can positively impact skill-building and capacity-building. Policies at the industry or sub-national level, such as tax or trade policy, if distortionary, can adversely impact the growth of GVCs and hence potential positive labor market outcomes.

Data collection and evaluation

Finally, policy makers should pay attention to strengthening the data collection and evaluation of GVC participation and impact on labor market outcomes. While the evidence base is building, much work needs to be done. Collective efforts need to be made in the areas of data collection and sharing in low-capacity environments, especially at the firm level, where it is incredibly important for analyzing GVCs. Furthermore, given the complex and dynamic operating environment of GVCs, there is a need to supplement the traditional monitoring and evaluation (M&E) approaches with innovative tools with faster feedback loops and those that can measure the sustainability of impact at multiple levels. This includes combining traditional evaluative approaches with qualitative methods such as knowledge, attitude, and practices surveys that can capture trust, confidence, and intent amongst critical GVC actors.

This post is part of a series in preparation of the G20 Leaders’ Summit, featuring four topics: the future of work, employment for women, integration of migrants in the labor market, and ensuring decent work in supply chains. You can read previous posts here.