Labour market effects of structural change

The purpose of the workshop is to set out the research agenda and the modalities of the project going forward. The motivation of the project is to understand the effects of twin forces of trade and technology on labour market outcomes in developing countries. The core research questions motivating much of this literature have been:

1. How does trade and technological change affect income or wage inequality in developing countries?
2. How does trade and technological change affect job creation and destruction in developing countries?

For most part, the literatures on labour market outcomes of trade and technology have moved in parallel, with relatively little overlap between the two. More recently, labour economists have taken a more nuanced view of skill-biased technological change (SBTC), suggesting that SBTC does not necessarily lead to a depressed demand for all low-skilled workers, but for workers involved in routine tasks that can now be executed by computer technologies.

This view of SBTC puts ‘occupations at the forefront of the inequality debate since the task content of work (routine nature of the job, cognitive skills required) is typically measured at the occupational level’ (Firpo et al. 2011). Since changes in occupational change is itself a function of structural change, it also finds a clear link between structural change and inequality.

Finally, since a crucial feature of the current wave of globalization is the movement of jobs with routine tasks from developed to developing countries (such as the ‘outsourcing’ of factory jobs to China and computer programming jobs to India), this implies that the effect of trade and technology on labour market outcomes should be looked at jointly, rather than separately as had been the case with the previous literature on the relationship between trade, technology and labour market outcomes.

The tentative research questions for the project are:

1. How rapid has been the movement of workers from agricultural to industrial and services occupations? What have been the new sets of occupations created in the process of structural transformation, and what are the proportions of new occupations in routine/non-routine, manual/cognitive tasks?
2. What has been the pattern on wage and income inequality across countries? How have the wages of low- and high-skilled workers changed relative to the wages of mid-skilled workers?
3. What are the regional (rural/urban), social, racial and ethnic differences in wage and income inequality? Are these related to changing relative demand and supply of workers of different skills?
4. To what extent can the changes in wage inequality be attributed to changes in occupational structure?
5. Can the role of trade and technology in driving structural change be isolated and, therefore, labour market outcomes?
6. Are there other mediating factors such as labour market institutions, and how important are they in explaining wage inequality changes (relative to trade and technology) over time?