Investing in Skills for Inclusive Trade: WTO-ILO Study

2019 ias preliminary exam test series

A joint ILO-WTO study, “Investing in Skills for Inclusive Trade”, shows that boosting core work, technical and management skills can help countries and businesses meet the challenges of an ever more competitive global economy by reducing costs and improving the quality of products.

The authors point to evidence that countries with responsive skills development systems tend to be more successful in putting skills to use in tradable activities and thereby improving that country’s competitive position in the global economy.

While trade has helped lift hundreds of millions of people out of poverty and been a crucially important tool for growth, development and job creation there are those who have been left behind. Improving the capacity of our workers and managers to respond to these changes is clearly the best way to foster more inclusive trade.

Providing the right skills is essential to reap the benefits of trade in increased productivity and better jobs, and to ensure that trade contributes to inclusive development. In a fast changing world of work it is more important than ever that skills development responds to current and emerging skills needs, enhancing outcomes for workers and firms both now and in the future.

The need for improving skills is present in both developed and developing countries as they seek to adapt to and find opportunities in a global economy which is going through a profound transformation, driven by political changes and the forces of trade integration and technological progress.

The authors point to four main mechanisms through which trade affects the relative demand for skills:

1. Trade raises demand for products in which countries have a comparative advantage. In countries with a comparative advantage in skill-intensive sectors, trade thus increases the demand for skilled workers.

2. International trade leads to the expansion of the most productive firms, which tend to employ relatively more skilled workers.

3. As the costs of offshoring fall, the least complex stages of production tend to relocate from high income to low-income economies.

4. Lower trade costs may be a catalyst for changes in production technology, including automation, which increase productivity and favour high-skilled labour in exporting and import-competing firms in both developed and developing countries.

Addressing the need for developing a more competitive workforce is a long-term process. In countries at all stages of development, continuing education and training, both at universities and in the form of technical and vocational education and training (TVET) and on-the-job training can help workers and managers cope with the big changes in demand for skills which are in varying degrees triggered by globalization.

The authors find evidence of a range of policy approaches which have helped countries in responding effectively to these challenges, including:

Policy coherence: Enhancing skills and improving national competitiveness requires a range of policies and it is vital that they be coherent.

Social dialogue between government and the social partners: This is central to making skills systems responsive to the needs of industry, including those industries producing tradable goods and services.

Broad access to education, skills development and lifelong learning: Low-skilled workers, workers who lack transferable skills, workers whose learning skills are weak, and workers whose skills are at risk of obsolescence benefit less from trade and are vulnerable to technological change or to a trade-connected employment shock.

Targeted training for displaced workers and/or workers at risk of displacement: Reskilling may be required to allow workers to move to a different occupation or a significantly different job, whether because their original job became unnecessary or because change offers a good opportunity.

Investing in training for employed workers: Training for workers at all skill levels is a necessary part of implementing effective strategies, in order to underpin the capabilities needed in markets for tradable products and services.

Core work skills: Strong core work skills, such as team working and problem-solving, complement technical skills and are a vital underpinning for employability, and for business performance.

Skills needs analysis and anticipation: Forward-looking skills needs analysis and skills anticipation are needed to inform policy coherence and social dialogue, and to inform decision-making by all relevant partners.

Background:

Over recent decades, the global economy has experienced a profound transformation, mostly as a result of the joint forces of trade integration and technological progress, accompanied by important political changes.

Increased trade integration has helped to drive economic growth in both high- and low-income economies, lifting millions out of poverty in emerging and developing countries. Since the global financial crisis of 2007–08, however, trade, productivity and income growth have decelerated.

At the same time, trade is increasingly perceived as leaving too many individuals and communities behind. Reaping the benefits from global trade and effective integration into global markets goes hand in hand with the adoption of new technologies, improved forms of work organization and productivity increases.

Given the role of skills in trade, it is vital to put a strong emphasis on skills development. Human capital is one of the principal enablers of trade growth and economic diversification, and is also an important “buffer” facilitating the adjustment to more open trade.

Appropriate skills development policies are key to helping firms expand their export activities; they are also key to helping workers who lose their jobs make a smooth and rapid transition to new jobs with equal or higher wages. These two effects reinforce each other. For trade to grow, it needs to be more inclusive; and more exports offer more employment opportunities.

Skills development policies constitute one among many policy instruments available to governments to make trade inclusive by enabling firms and workers to participate in trade, by lowering adjustment costs and by distributing more evenly the benefits of trade and technological progress.

Other active labour market policies (ALMPs), such as job-search assistance or activation strategies, passive labour market policies such as unemployment insurance, and social policies, as well as complementary policies such as housing or credit market policies, can also be used to lower adjustment costs, while various instruments are available to redistribute the gains from trade or technology to those whose skills are less in demand because of those changes.

Current Affairs for IAS Exam