The central concept of microeconomic theory is straightforward: Firms set price and quantity due to profit maximizing purposes. As profit is defined as revenue less cost, this optimization process is based on a production function and a cost function. For relevant inputs to the production function, companies face the decision to substitute domestic labor with either capital or foreign labor – provided a given output – whereas costs are deduced from the inputs . This substitution process represents the impacts triggered by technological progress and trade.
In the last few decades, computerization (as the dominant part of technical progress) as well as offshoring (of trade) have caused intensive debates in Northern countries. The public is concerned that these two phenomena might be a threat that functions at the expense of domestic labor. It is therefore to be analyzed if these worries are appropriate; that is, which jobs are at stake and which have future perspectives in terms of existence. This is going to be scrutinized by applying an analytical framework. Within this framework the questions of legality, feasibility and rationality are examined in systematical ordering. Furthermore, as recent literature suggests neither a sectoral- nor an indus-trial- or occupational-based analysis, but rather one on a task-level basis , this task-based approach is used in the framework and necessitates a re-assignment from tasks to jobs.
Table of Contents
1. Problem and Course of the Investigation
2. Clustering of OECD countries
3. The Task-Based Approach
4. Determinants of Labor Demand
4.1 Analytical Framework
4.2 Technological Progress
4.3 Trade
4.4 Merge of Technological progress and Trade
5. Conclusion
Objectives and Research Focus
This work aims to analyze the impact of technological progress and offshoring on labor demand within OECD countries, specifically addressing the concern that these phenomena threaten domestic employment by investigating which job categories are at risk and which possess future potential.
- Examination of the task-based approach to labor analysis.
- Clustering of OECD countries based on economic and technical indicators.
- Evaluation of the three conditions of substitution: legality, feasibility, and rationality.
- Comparison of computerization and trade as drivers of domestic labor substitution.
- Assessment of the relationship between skill levels and task vulnerability.
Excerpt from the Book
4.2 Technological Progress
The feasibility of substituting domestic labor by capital finds its way into economic growth as the concept of technological progress. This phenomenon suggests a shift in the production technology and is generally not factor-neutral, but rather favors some production factors more than others. The SBTC–hypothesis refers to a shift that favors skilled work more than unskilled work, which implies an increase in its relative productivity and, by conclusion, its relative demand. Hence, the SBTC–hypothesis suggests that upskilled jobs have to be seen as the ones with future perspectives. As since the end of World War II up to the millennium, computerization and upskilling coincided in the U.S., this has been (partly) seen as a corroboration of the SBTC–hypothesis.
The critique of the SBTC–hypothesis comprises that the relation between computerization and the skill level is drawn indirectly – by using economic indicators like education or wages – and creates a fallacious causal relation. This immanent theoretical flaw gained practical relevance as the income inequality stabilized in the 1990s, but computerization continued. This critique has been taken by ALM (2003) for developing a general equilibrium model, with the aim of analyzing the impact computerization makes on the contestability and composition of domestic work. In contrast to the SBTC–hypothesis, their model acts on the assumption that skill requirement can be measured directly. The authors use two variables to categorize all workplace tasks into four different groups: The first variable characterizes the relation between a task and the use of computers for performing it. If a task is well-defined, e.g., it can be broken down into explicit rules; it can be compiled into a computer code and therefore accomplished by computers. In this case it is labeled routine, otherwise it is labeled nonroutine. The second variable separates manual and information-processing tasks, whereas the latter category contains cognitive (for routine) and analytical / interactive (for nonroutine) tasks. A manual task requires physical action for performing it, whereas a cognitive task requires acquiring and processing information; an analytical task calls a worker to be
Summary of Chapters
1. Problem and Course of the Investigation: Introduces the economic motivation for studying labor substitution and explains the transition to a task-based analytical framework.
2. Clustering of OECD countries: Classifies OECD nations into Northern and Southern groups based on sector distribution and technical infrastructure to focus the subsequent analysis.
3. The Task-Based Approach: Presents the O*NET conceptualization to distinguish between jobs, tasks, and activities, justifying the use of task-level analysis in labor economics.
4. Determinants of Labor Demand: Analyzes the mechanisms of labor substitution driven by technological progress and trade through a logical framework of legality, feasibility, and rationality.
5. Conclusion: Synthesizes findings on how computerization and offshoring affect domestic labor, suggesting that jobs requiring routine tasks face the highest risk of substitution.
Keywords
Labor Demand, Offshoring, Computerization, Task-Based Approach, OECD, Technological Progress, SBTC-Hypothesis, Substitution, Marginal Costs, Transaction Costs, Skill Premium, Employment Polarization, Economic Theory, Domestic Labor, Value Chain.
Frequently Asked Questions
What is the primary objective of this research?
The paper aims to evaluate whether the public concern regarding the threat of computerization and offshoring to domestic jobs in Northern countries is justified by applying a task-based analytical framework.
Which scientific methodology is utilized?
The study employs a task-based approach to categorize work, utilizing a three-step decision calculus—legality, feasibility, and rationality—to model labor demand and substitution possibilities.
How are OECD countries categorized in this study?
Countries are clustered into 8 developing "Southern" and 22 developed "Northern" nations, based on the uniform distribution of employment across economic sectors and GERD per capita levels.
What is the significance of the "task-based approach"?
It allows for a more granular analysis than traditional sectoral or occupational methods by focusing on the specific tasks that can be automated or offshored, rather than whole job descriptions.
What defines "routine" versus "nonroutine" tasks?
According to the model, a task is "routine" if it is well-defined and can be expressed in explicit rules, making it susceptible to computerization; "nonroutine" tasks lack such explicit definitions and are generally complementary to computers.
What does the model conclude about future job prospects?
Jobs primarily composed of routine tasks face the highest risk of substitution, while those requiring nonroutine tasks—specifically those necessitating physical proximity or complex interaction—appear to have more secure future prospects.
How do transportation and transaction costs affect offshoring decisions?
Offshoring is only rational if the decrease in manufacturing labor costs outweighs the increase in transactional and transportation costs; as these costs shift, the viability of offshoring various tasks changes accordingly.
What is the role of "proximity" in the context of offshoring?
Proximity refers to the requirement for face-to-face interaction or physical presence. The study highlights that tasks requiring such proximity are less offshorable, serving as a protective factor for domestic employment.
What is the "Stolper-Samuelson effect" mentioned in the text?
In this context, it relates to the impact of international trade on real wages, suggesting that imports of labor-intensive goods can increase wage inequality in Northern countries.
How did the study reconcile "subjective" and "objective" estimation methods?
The author compared a subjective ranking of offshorable jobs with an objective O*NET-based score, finding that while both methods exist, they show a positive but relatively low statistical correlation.
- Quote paper
- Hendrik von der Brelie (Author), 2008, Zukunftsfähige Arbeitsplätze in den OECD-Staaten, Munich, GRIN Verlag, https://www.grin.com/document/147104
