Every economy today has patterns of inequality, exclusion, and polarisation due to labour force segmentation
Project Syndicate | Dani Rodrik | Around the world today, the central challenge for achieving inclusive economic prosperity is the creation of sufficient numbers of “good jobs.” Without productive and dependable employment for the vast majority of a country’s workforce, economic growth either remains elusive or its benefits end up concentrated among a tiny minority. The scarcity of good jobs also undermines trust in political elites, adding fuel to the authoritarian, nativist backlash affecting many countries today.
The definition of a good job obviously depends on a country’s level of economic development. It is typically a stable formal-sector position that comes with core labour protections such as safe working conditions, collective bargaining rights, and regulations against arbitrary dismissal. It enables at least a middle-class lifestyle, by that country’s standards, with enough income for housing, food, transportation, education, and other family expenses, as well as some saving.
There is much that individual enterprises all over the world can do to improve employment conditions. Large firms that treat their employees better – by providing them with higher pay, more autonomy, and greater responsibility – often reap benefits in the form of lower turnover, better worker morale, and higher productivity. As MIT’s Zeynep Ton has long argued, “good jobs” strategies can be as profitable to firms as they are to workers.
But the deeper problem is a structural one that goes beyond what firms can do on their own. Developed and developing countries alike are suffering today from a growing mismatch between the structure of production and the structure of the labor force. Production is becoming increasingly skill-intensive while the bulk of the labour force remains low-skilled. This generates a gap between the types of jobs that are created and the types of workers the country has.
Technology and globalisation have conspired to widen that gap, with manufacturing and services becoming increasingly automated and digitised. While new technologies could have benefited low-skilled workers in principle, in practice technological progress has been largely labour-replacing. In addition, global trade and investment flows, and global value chains in particular, have homogenised production techniques around the world, making it very difficult for poorer countries to compete in world markets without adopting skill- and capital-intensive techniques similar to those of the advanced economies.
The result is the intensification of economic dualism. Every economy in the world today is divided between an advanced segment, typically globally integrated, employing a minority of the labour force, and a low-productivity segment that absorbs the bulk of the workforce, often at low wages and under poor conditions. The shares of the two segments may differ: developed countries obviously have a greater preponderance of highly productive firms. But, qualitatively, the picture looks quite similar in rich and poor countries – and produces the same patterns of inequality, exclusion, and political polarization.