An Analysis of Global Value Chain GVC Income
An Analysis of Global Value Chain (GVC) Income and Jobs and Its Implication for the Workforce Policy Jinkeun Yu Korea Institute for Industrial Economics and Trade (KIET)
Contents Ⅰ Introduction Ⅱ Research Methodology and Data Ⅲ GVC Income and Jobs, All Manufactures Ⅳ GVC Income and Jobs, Korea’s IT Manufactures Ⅴ Current State of Korean IT Industry’s GVC Ⅵ Implication for the Workforce Policy
Ⅰ. Introduction Purpose of the Research: Analyze the relationship b/w GVC and employment - Chapter III of the Research Report (Global Value Chains and the Workforce Policy, KIET, 2015) - Focus on the changes in the distribution of jobs in global production There are two empirical methods to study how the internalization of production impacts employment. - Econometric Method: study the effect of offshoring and FDI on employment - International Input-Output Table Analysis The second trend of research has been possible since the World Input Output Database (WIOD) was released. - WIOD includes WIOT(Word Input-Output Table) and SEA(Socio-Economic Accounts) Previous Studies using WIOD - Choi and Han (2012), Jiang and Milberg (2013): Effect of trade on employment - Timmer et al. (2013): ex-post accounting framework of the value added and workers that are directly and indirectly related to the production of final manufacturing goods, called ‘manufactures GVC income’ and ‘manufactures GVC jobs’ 3
Ⅰ. Introduction <Table 1> Slicing Up the GVC of German Transport Equipment Manufacturing Unit: % 1995 2008 German value added 79 66 High-skilled labor 16 17 Medium-skilled labor 34 25 Low-skilled labor 7 4 Capital 21 20 Foreign value added 21 34 High-skilled labor 3 6 Medium-skilled labor 6 9 Low-skilled labor 4 4 Capital 8 15 Total final output 100 Source: Timmer et al. (2014), “Slicing Up Global Value Chains”, Journal of Economic Perspectives, Spring 2014 4
II. Research Methodology and Data Timmer et al. (2013) By tracing the value added at the various stages of production in an international input-out model, they are able to provide an ex-post accounting of the value of final demand. By using number of workers rather than value added per unit of output in each industry-country, they can trace the number of workers directly and indirectly involved in the production of manufacturing goods, and their sector of employment. They do not explicitly model the interaction of price and quantity like in CGE models. - Basically an ex-post accounting framework 5
II. Research Methodology and Data Assumption: There are S Industries and N Countries. Production Factors: Capital, Labor (High-skilled, Medium-skilled, Low-skilled) Data: WIOT, SEA - 40 Countries, 35 Industries - Variable: Gross Output, Gross Value Added, Labor Compensation, Capital Compensation, Number of Persons Engaged, Labor Compensation by Skill Type, Hours Worked by Persons Engaged by Skill Type - Other stats: Exchange Rate, US CPI 6
II. Research Methodology and Data <Figure 1> An Accounting Framework for Global Value Chains Final Product of a GVC, Identified by Country and Industry of Completion Country 1 Value Added from Country. Industries Participating in GVC Country 1 . . . Country N . . . Value Added Country N Industry 1 . . . Industry S … Industry 1 . . . Industry S Industry 1 … Industry S … Industry 1 . . . Industry S World GDP Total Final Output Value Source: Timmer et al. (2014), “Slicing Up Global Value Chains”, Journal of Economic Perspectives, Spring 2014 7
III. GVC Income and Jobs, All Manufactures 1 World GVC Income Between 1995 and 2011, the GVC income shares of advanced countries (USA, Japan, and Germany) declined. - USA (19. 9% → 15. 0%), Japan (17. 5% → 7. 6%), Germany (9. 4% → 6. 5%) - China: 4. 2% → 16. 7% - Korea: maintains 2% The GVC income share of ROW (Rest Of the World) increased from 11. 3% to 15. 6. ⇒ Interpreted as the expansion of GVC The ratio of world GVC income to world GDP decreased (23. 1% → 20. 9%) ⇒ Due to the servitization in the world economy 8
III. GVC Income and Jobs, All Manufactures <Table 2> Shares of GVC Income, All Manufactures Unit: % 1995 2000 2005 2009 2011 Brazil Canada China Germany France UK India Italy Japan Korea Mexico Russia USA ROW World GVC Income (Billion $, 1995 price) World GVC Income/ World GDP (%) 2. 5 1. 9 4. 2 9. 4 4. 4 3. 8 1. 7 4. 4 17. 5 2. 1 1. 5 1. 2 19. 9 11. 3 2. 0 2. 4 5. 8 7. 2 3. 9 4. 2 1. 8 4. 0 14. 2 2. 1 2. 7 1. 1 24. 3 11. 7 2. 2 2. 4 8. 7 7. 9 4. 2 3. 8 2. 4 4. 3 10. 0 2. 2 2. 5 1. 9 20. 1 12. 7 3. 1 2. 1 14. 9 6. 9 3. 9 2. 6 3. 0 3. 8 7. 8 1. 7 2. 0 2. 2 16. 7 14. 1 3. 3 2. 3 16. 7 6. 5 3. 1 2. 4 3. 2 7. 6 2. 0 2. 2 2. 8 15. 0 15. 6 6, 585 6, 036 7, 013 7, 754 9, 564 23. 1 22. 1 20. 7 19. 7 20. 9 9
III. GVC Income and Jobs, All Manufactures 2 World GVC Jobs In 2011, the world GVC jobs (40 countries) account for 25. 7% of the world jobs. - In 1995, 28. 1%. - Due to Servitization, Transfer of GVC jobs to ROW Between 1995 and 2011, the GVC jobs decreased in developed countries except Germany. - USA (-26. 1%), UK (-22. 7%), Japan (-33. 4%), Korea (-5. 3%) - Germany (+4. 6%) The GVC jobs of emerging countries increased except Russia. - China (13. 1%), India (23. 9%) 10
III. GVC Income and Jobs, All Manufactures <Table 3> World GVC Jobs, All Manufactures Unit: thousand, % China Germany France UK Japan Korea USA Total 40 Countries 1995 2000 2005 2009 2011 215, 948. 8 (31. 7) 10, 086. 5 (26. 8) 5, 004. 0 (22. 0) 5, 615. 8 (20. 1) 15, 083. 0 (22. 6) 6, 067. 8 (29. 7) 21, 483. 9 (16. 0) 507, 751. 5 (28. 1) 199, 375. 7 (27. 7) 10, 654. 5 (27. 2) 5, 406. 6 (22. 2) 5, 360. 3 (18. 1) 13, 504. 2 (20. 7) 5, 800. 9 (27. 4) 21, 724. 8 (14. 7) 497, 263. 1 (25. 8) 239, 458. 9 (31. 6) 10, 267. 2 (26. 4) 4, 978. 4 (19. 8) 4, 314. 4 (13. 9) 11, 965. 8 (18. 7) 5, 457. 2 (23. 9) 17, 854. 9 (12. 0) 548, 320. 9 (26. 8) 250, 194. 8 (32. 1) 10, 016. 8 (24. 5) 4, 766. 7 (18. 7) 3, 713. 3 (12. 0) 10, 036. 4 (17. 3) 5, 308. 2 (22. 6) 15, 147. 8 (10. 4) 554, 280. 5 (26. 5) 244, 136. 1 (30. 2) 10, 555. 1 (25. 1) 4, 623. 2 (18. 1) 4, 340. 9 (13. 2) 10, 041. 6 (17. 4) 5, 743. 5 (23. 7) 15, 866. 5 (10. 9) 553, 517. 0 (25. 7) 11
III. GVC Income and Jobs, All Manufactures 3 Korea’s GVC Income and Jobs In 2011, Manufacturing industries account for 69% of Korea’s GVC income. (In 1995, 62. 2%) - IT manufacturing (12. 6% → 18. 4%), Transportation equipment (10. 4% → 14. 6%) - Food, Beverages and Tobacco (5. 3% → 3. 1%), Textiles (6. 0% → 3. 4%) - Business services (5. 5% → 7. 1%) 12
III. GVC Income and Jobs, All Manufactures <Table 4> Shares of Korea’s GVC Income by Industries Unit: % Food, Beverages and Tobacco Textiles Leather and Footwear Wood Products Pulp, Paper, Printing and Publishing Coke, Refined Petroleum, Nuclear Fuel Chemical Products Rubber and Plastics Non-Metallic Mineral Basic Metals and Fabricated Metal Machinery Electrical and Optical Equipment Transportation Equipment Other Manufacturing (Total 14 Manufactures) Wholesale Trade Retail Trade Financial Intermediation Business Services Korea's Total GVC Income(Billion $, 1995) 1995 5. 3 6. 0 0. 9 0. 2 2. 9 0. 8 5. 7 2. 2 1. 1 6. 3 6. 1 12. 6 10. 4 1. 7 (62. 2) 4. 7 1. 3 5. 5 142 2000 4. 5 5. 9 0. 7 0. 2 2. 2 1. 2 4. 1 2. 4 1. 0 6. 1 6. 7 18. 5 10. 3 1. 7 (65. 7) 4. 5 1. 8 3. 8 5. 9 125 2005 3. 8 4. 0 0. 5 0. 2 1. 9 1. 4 4. 4 3. 2 1. 0 8. 7 7. 2 17. 8 11. 6 1. 2 (66. 9) 4. 2 1. 9 3. 5 6. 8 156 2009 3. 6 3. 8 0. 3 0. 2 1. 8 0. 9 4. 3 2. 7 0. 9 7. 7 7. 0 16. 9 15. 2 1. 1 (66. 3) 4. 3 2. 1 3. 7 7. 5 135 2011 3. 4 0. 3 0. 2 1. 7 1. 2 4. 5 2. 9 1. 1 9. 7 6. 9 18. 4 14. 6 1. 0 (69. 0) 4. 2 2. 0 3. 8 7. 1 193 13
III. GVC Income and Jobs, All Manufactures Between 1995 and 2011, Korea’s GVC jobs decreased from 6. 1 million to 5. 7 million. - Manufacturing Industry: 3. 4 million → 2. 8 million - IT manufacturing (+5, 100), Transportation equipment (+63, 600) In contrast to the manufacturing sector, Korea’s GVC jobs in services sector increased - Business services (+414, 600), Hotels and Restaurants (+129, 600), Transport (+121, 300) During the period (1995 -2011), the GVC jobs in business services sector increased in Germany and Japan, but decreased in USA - Germany (+1, 179, 600), Japan (+198, 000) - USA (-372, 000) 14
III. GVC Income and Jobs, All Manufactures <Table 5> Korea’s GVC Jobs by Industries Unit: Thousand Food, Beverages and Tobacco Textiles Leather and Footwear Wood Products Pulp, Paper, Printing and Publishing Coke, Refined Petroleum, Nuclear Fuel Chemical Products Rubber and Plastics Non-Metallic Mineral Basic Metals and Fabricated Metal Machinery Electrical and Optical Equipment Transportation Equipment Other Manufacturing (Total 14 Manufactures) Wholesale Trade Retail Trade Financial Intermediation Business Services Korea's Total GVC Jobs 1995 269. 9 665. 7 110. 2 15. 9 129. 6 18. 5 172. 5 139. 8 50. 3 247. 9 389. 2 624. 6 443. 2 110. 2 (3, 387. 6) 514. 4 142. 7 195. 4 203. 9 6, 067. 8 2011 170. 3 261. 8 32. 7 16. 6 104. 8 30. 5 107. 7 172. 9 42. 8 302. 4 363. 9 629. 7 506. 7 77. 2 (2, 820. 1) 494. 7 248. 6 136. 7 618. 5 5, 743. 5 Change -99. 6 -403. 9 -77. 4 0. 6 -24. 8 12. 0 -64. 9 33. 1 -7. 4 54. 5 -25. 4 5. 1 63. 6 -33. 1 (-567. 5) -19. 8 105. 8 -58. 7 414. 6 -324. 4 15
III. GVC Income and Jobs, All Manufactures 4 World GVC Jobs by Skill Type Labor skill types are classified on the basis of educational attainment levels as defined in the International Standard Classification of Education (ISCED) 16
III. GVC Income and Jobs, All Manufactures <Table 6> Definition of Skills in WIOD SEA WIOD skill-type 1997 ISCED level description Low 1 Primary education or first stage of basic education Low 2 Lower secondary or second stage of basic education Medium 3 (Upper) secondary education Medium 4 Post-secondary non-tertiary education High 5 First stage of tertiary education High 6 Second stage of tertiary education Source: The WIOD: Contents, Sources and Methods, 2012 17
III. GVC Income and Jobs, All Manufactures The changes in the share of GVC jobs by skill type (total 40 countries) between 1995 and 2009 - High-skilled (5. 3% → 8. 0%), Medium-skilled (30. 7% → 33. 8%) - Low-skilled (64. 0% → 58. 2%) In most countries, the share of High-skilled jobs increased and the share of Low-skilled jobs decreased during the sample period. But the share of Medium-skilled jobs shows different tendency across countries. - Diminishing trend: USA, Germany - Increasing trend: UK, Japan Korea showed the highest share of High-skilled jobs among sample countries. - In 2009, 40. 6% - Due to educational enthusiasm and the high college entrance rate in Korea 18
III. GVC Income and Jobs, All Manufactures <Table 7> Shares of GVC jobs by Skill Type (1995) China Germany France UK Italy Japan Korea USA Total 40 Countries High-Skilled 1. 4 18. 4 17. 6 16. 9 5. 1 16. 6 23. 3 22. 6 5. 3 Medium-Skilled 22. 6 63. 5 43. 7 43. 8 32. 6 63. 0 49. 0 63. 6 30. 7 Low-Skilled 76. 0 18. 1 38. 6 39. 3 62. 3 20. 4 27. 6 13. 8 64. 0 <Table 8> Shares of GVC jobs by Skill Type (2009) China Germany France UK Italy Japan Korea USA Total 40 Countries High-Skilled 3. 8 24. 6 31. 4 28. 5 11. 3 23. 0 40. 6 29. 0 8. 0 Medium-Skilled 26. 5 60. 4 45. 4 48. 1 46. 6 66. 5 48. 8 60. 5 33. 8 Low-Skilled 69. 7 15. 1 23. 2 23. 4 42. 0 10. 5 10. 6 10. 5 58. 2 Unit: %, Thousand GVC Jobs 215, 948. 8 10, 086. 5 5, 004. 0 5, 615. 8 6, 353. 2 15, 083. 0 6, 067. 8 21, 483. 9 507, 751. 5 Unit: %, Thousand GVC Jobs 250, 194. 8 10, 016. 8 4, 766. 7 3, 713. 3 6, 109. 4 10, 036. 4 5, 308. 2 15, 147. 8 554, 280. 5 19
III. GVC Income and Jobs, All Manufactures 5 Factor Shares in GVC During the sample period (1995 -2009), shares of Capital and High-skilled Labor increased, while those of Medium-skilled and Low-skilled dropped - Capital (38. 6% → 44. 1%), High-skilled (15. 0 → 17. 3) - Medium-skilled (31. 1% → 26. 3%), Low-skilled (15. 3 → 12. 3%) Looking into trends of individual country, we found - rising trend of High-skilled Labor’s share - shrinking trend of Low-skilled Labor’s share - share of Capital: different trends - share of Medium-skilled: drop in some countries (USA, Japan, Korea) 20
III. GVC Income and Jobs, All Manufactures <Table 9> Shares of GVC Income by Production Factors (1995) China Germany France UK Italy Japan Korea USA Total 40 Countries Capital 50. 9 26. 1 31. 7 36. 0 31. 0 40. 3 24. 2 39. 6 38. 6 High-Skilled 1. 3 21. 1 19. 5 16. 7 5. 9 14. 5 24. 4 20. 7 15. 0 Medium-Skilled 15. 9 43. 7 28. 0 27. 0 22. 3 35. 2 34. 6 34. 5 31. 1 Low-Skilled 31. 9 9. 1 20. 8 20. 2 40. 8 10. 0 16. 9 5. 2 15. 3 <Table 10> Shares of GVC Income by Production Factors (2009) China Germany France UK Italy Japan Korea USA Total 40 Countries Capital 60. 3 25. 0 28. 3 27. 7 24. 7 45. 5 32. 9 45. 0 44. 1 High-Skilled 3. 4 28. 8 30. 4 28. 8 11. 9 17. 3 32. 7 24. 9 17. 3 Medium-Skilled 13. 9 39. 7 28. 5 31. 2 36. 0 32. 7 29. 1 27. 2 26. 3 Unit: % Low-Skilled 22. 5 6. 5 12. 8 12. 3 27. 4 4. 6 5. 3 3. 0 12. 3 21
IV. GVC Income and Jobs, Korea’s IT Manufactures 1 GVC Incomes and Jobs Analyze GVC income and jobs induced by final demand (domestic and foreign) for Korea’s IT manufactures (i. e. electrical & optical equipment) Between 1995 and 2011, there were big changes in GVC income and jobs. Changes in shares of GVC income due to the expansion of offshoring to China and ROW, and reduced dependence on intermediate goods imported from Japan - Korea (70. 6% → 61. 8%) - Japan (8. 7% → 4. 8%) - China (1. 2% → 8. 9%) - ROW (4. 3% → 8. 1%) In 2011, 1. 3 million GVC jobs were involved in Korea’s IT manufacturing GVC worldwide. - In 1995, 0. 9 million GVC jobs. 22
IV. GVC Income and Jobs, Korea’s IT Manufactures Between 1995 and 2011, Korea’s overall GVC jobs increased from 587, 300 to 669, 700, but GVC jobs in IT manufacturing sector decreased by 41, 500. In the analysis in III, we found GVC jobs in Korea’s IT manufacturing sector increased by 5, 100. Here, GVC jobs dropped by 41, 500. (-41, 500) + X = 5, 100 ⇒ We are able to conclude that GVC jobs in Korea’s IT manufacturing sector, which were involved in Korea’s other manufacturing GVCs and Foreign manufacturing GVCs, increased by 46, 600. ⇒ In Korea’s IT manufacturing industry, jobs related to the production of final goods decreased due to offshoring, while jobs related to the supply of intermediate goods to other domestic manufacturing sectors and overseas manufacturing sectors expanded. 23
IV. GVC Income and Jobs, Korea’s IT Manufactures <Table 11> GVC Income and Jobs, Korea’s IT Manufacturing Industry Unit: %, Thousand 1995 2000 2005 2009 2011 GVC Income Share GVC Jobs GVC Income Share GVC Jobs Australia 0. 7 3. 4 0. 7 5. 4 0. 9 4. 1 1. 2 3. 4 1. 6 4. 6 China 1. 2 146. 3 2. 6 385. 4 4. 9 437. 3 8. 5 370. 7 8. 9 426. 1 Germany 1. 4 5. 1 1. 5 12. 4 2. 1 13. 5 2. 0 11. 0 1. 6 11. 5 Japan 8. 7 23. 0 9. 0 48. 3 6. 9 41. 2 5. 9 27. 3 4. 8 26. 8 Korea 70. 6 587. 3 62. 7 788. 6 64. 0 679. 3 60. 0 600. 4 61. 8 669. 7 (IT Manufactures) (41. 7) (341. 3) (39. 7) (377. 9) (38. 5) (325. 6) (35. 2) (270. 8) (38. 3) (299. 8) Taiwan 0. 9 7. 1 1. 7 21. 8 1. 9 27. 5 2. 2 28. 1 2. 1 32. 6 USA 7. 8 28. 5 9. 5 50. 8 6. 8 29. 3 5. 5 18. 2 5. 2 22. 3 ROW 4. 3 n. a. 6. 6 n. a. 6. 9 n. a. 8. 3 n. a. 8. 1 n. a. World GVC Income (Billion $, 1995) and Jobs 23. 3 861. 2 37. 7 1, 460. 5 36. 9 1, 347. 6 30. 2 1, 142. 7 43. 9 1, 295. 5 24
IV. GVC Income and Jobs, Korea’s IT Manufactures 2 GVC Jobs by Skill Type In Korea, the share of High-skilled Labor in GVC jobs rose rapidly during the sample period (1995 -2009) - High-skilled: 23. 6% → 43. 0% - Medium-skilled: 55. 8% → 49. 3% - Low-skilled: 20. 6% → 7. 7% However, the shares of foreign GVC jobs by skill type did not change much. 25
IV. GVC Income and Jobs, Korea’s IT Manufactures <Table 12> Shares of GVC Jobs by Skill Type Unit: Thousand, % High-Skilled Medium-Skilled Low-Skilled Total 1995 Korea 138. 6(23. 6) 327. 6(55. 8) 121. 2(20. 6) 587. 3 Foreign 25. 1(9. 1) 120. 2(43. 9) 128. 6(47. 0) 273. 9 Total 40 Countries 163. 6(19. 0) 447. 8(52. 0) 249. 8(29. 0) 861. 2 2000 Korea 249. 3(31. 6) 430. 2(54. 6) 109. 1(13. 8) 788. 6 Foreign 64. 9(9. 7) 317. 5(47. 3) 289. 6(43. 1) 672. 0 Total 40 Countries 314. 2(21. 5) 747. 7(51. 2) 398. 6(27. 3) 1, 460. 5 2005 Korea 289. 1(42. 6) 339. 1(49. 9) 51. 2(7. 5) 679. 3 Foreign 72. 6(10. 9) 288. 5(43. 2) 307. 2(46. 0) 668. 2 Total 40 Countries 361. 8(26. 8) 627. 5(46. 6) 358. 3(26. 6) 1, 347. 6 2009 Korea 258. 3(43. 0) 296. 0(49. 3) 46. 1(7. 7) 600. 4 Foreign 64. 0(11. 8) 234. 8(43. 3) 243. 6(44. 9) 542. 4 Total 40 Countries 322. 3(28. 2) 530. 8(46. 4) 289. 6(25. 3) 1, 142. 7 26
IV. GVC Income and Jobs, Korea’s IT Manufactures 3 Factor Shares in GVC In Korea, the share of High-skilled labor in GVC income expanded from 21. 6% to 32. 0% during the sample period (1995 -2009), while that of Lowskilled labor decreased from 11. 2% to 3. 1%. ⇒ reflecting the change in the composition of GVC jobs by skill type In China, the shares of HS, MS, and LS in GVC income were 4. 3%, 14. 7%, and 14. 1% respectively in 2009. ⇒ showing that activities offshored to China were areas using mainly MS and LS. 27
IV. GVC Income and Jobs, Korea’s IT Manufactures <Table 13> Shares of Production Factors in GVC Income Capital China Japan Korea USA Total 40 Countries 55. 1 39. 5 34. 6 39. 1 35. 9 China Japan Korea USA Total 40 Countries 57. 9 40. 5 46. 0 35. 1 44. 4 China Japan Korea USA Total 40 Countries 63. 9 43. 4 43. 0 35. 4 43. 7 China Japan Korea USA Total 40 Countries 70. 0 42. 6 40. 4 36. 6 43. 1 High-Skilled 1995 1. 8 16. 3 21. 6 24. 3 20. 5 2000 2. 6 18. 3 21. 9 29. 2 21. 2 2005 3. 8 19. 4 30. 6 33. 0 27. 1 2009 4. 3 19. 5 32. 0 33. 9 27. 3 Medium-Skilled Unit: % Low-Skilled 19. 3 35. 4 32. 7 32. 5 23. 7 8. 7 11. 2 3. 9 11. 0 20. 7 35. 2 26. 2 32. 4 27. 5 18. 8 6. 0 5. 8 3. 3 6. 9 16. 7 33. 3 23. 4 29. 0 24. 5 15. 6 4. 0 3. 0 2. 6 4. 8 14. 7 33. 9 24. 4 27. 2 24. 4 14. 1 4. 0 3. 1 2. 3 5. 1 28
V. Current State of Korean IT Industry’s GVC Korea’s IT industry records global top rank in items such as memory semiconductors, display, digital TV, smart phone, and secondary battery. To be a prominent leader of GVC, Korea’s IT industry needs to advance the capability of high value added areas including software, design, R&D, and brand marketing. Until the mid-2000 s, the portion of domestic production in IT manufactures had been high. Recently 80% of IT goods are produced in overseas facilities such as in China, Vietnam, and Thailand. In the middle of 1990 s, the largest production facilities were set up in China and overseas production of IT goods were mostly completed there. As the comparative advantage of Chinese location has been weakening, Korean IT industry looks to Southeast Asian countries such as Vietnam and India. 29
V. Current State of Korean IT Industry’s GVC Global Domestic GVC <Figure 2> GVC of Korea’s IT Industry R&D Design Procurement Production Marketing/ Service Planning / Design Components & Materials Assembly / Production Marketing, Distribution, A/S Key parts * High rate of Internalization in Key parts * Participate in Global Firms’ GVC(Apple) * New High-Tech goods * Common Parts * Share of Overseas : China, Southeast Production Asia : 80~90% Common Offshoring Key * Key parts * Key Location : USA, Japan, : China, Vietnam Europe Global Marketing Network Source: Choi et al. , GVC and the Workforce Policy, KIET, 2015 30
V. Current State of Korean IT Industry’s GVC <Figure 3> Disparity Index of Korean IT Industry’s GVC Value Added Desirable Capacity Level High Current IT Industry’s Smile Curve Disparity Index Current GVC Capacity Low Planning/ Design R&D (Pre-Production) Procurement Assembly/ Production (Production) Distribution Marketing/Sale Customer Service (Post-Production) Source: Kim et al. , Structural Change of GVC in the Korea’s ICT Industry and Development Strategies, KIET, 2014 31
V. Current State of Korean IT Industry’s GVC <Table 14> Comparison of Production Condition b/w Vietnam Affiliate and Gumi Plant (in Korea) of S Electronics Pool of High School Graduates Available for Recruitment Monthly Salary for Production Job Vietnam Affiliate Gumi Plant 220, 000 20, 000 -60, 000 $250 $3, 284 0 -4 year: Exemption Corporate Income Tax Rate 5 -16 year: 5% 22% 17 - : 10% Source: Maeil Economy, Apr. 23, 2013 32
VI. Implication for the Workforce Policy (1) The need for policies to deal with the skill biased effect of GVC without being caught in high skills trap Our analysis confirms the skill-biased effects (specialization in high-skill activities) in manufactures GVCs. As the employment structure shifts towards high-skilled jobs, the workforce policies have focused on enhancing skill levels of workers. However, a recent study (UKCES, Global Value Chains and the Future of High Skills, 2015) highlights the limitations of supply side approaches, typically based on ‘skills competition’ model. ⇒ Firms do not hire ‘skill’ but employees to perform specific roles and activities, often linked to a range of behavioral competence. ⇒ Simply expanding the numbers in tertiary education or putting on more training programs, will no longer be a source of competitive advantage. ⇒ A growing disconnect between skills, jobs and incomes A World Bank’s Report (2012) warns that ‘massive investments in training systems, as seen in many parts of the world, might show disappointing results. The need to formulate policies from the perspective of global ‘jobs competition’ not ‘skills competition’ 33
VI. Implication for the Workforce Policy (2) The importance of components and materials industry to maintain employment In Korea’s IT manufacturing industry, jobs related to the production of final goods decreased due to off-shoring, while jobs related to the supply of intermediate goods to other domestic manufacturing sectors and overseas manufacturing sectors expanded. Korean government has put much emphasis on the development of components and materials industry to lessen the trade deficit in these sectors vis-à-vis Japan. The policy has been evaluated to contribute to narrowing trade deficit with Japan. ⇒ Also proved to be an effective policy to maintain employment 34
VI. Implication for the Workforce Policy (3) The need to benchmark German case Among advanced countries, Germany is an exceptional case in which GVC jobs increased during the sample period. According to Timmer et al. (2013), the German economy has not been particularly successful in creating opportunities for HS workers. ⇒ Growth in German GVC activities is particularly characterized by the increasing use of medium-skilled labor relative to other EU 15 countries. The German educational system has a larger emphasis on vocational training than most other countries, and hence relative wages of workers classified as medium-skilled are generally higher. 35
VI. Implication for the Workforce Policy (4) The need to prepare for the change of manufacturing paradigm such as a smart factory system Recently, German government launched the “Industry 4. 0” projects, which focuses on information and communication technology. Also China, Japan, Korea, and the USA are taking steps to create global standards and system that will make factories smarter. ⇒ It will make manufacturing more affordable in high wage countries. The rise of automation and smart factories also brings with it the fear people will lose their jobs. Proponents of smart factory argue that it may not mean less employee, but different employees educated to specialize in mechatronics and IT. ⇒ Factory workers will have to re-skill to keep their jobs. ⇒ need broad-based training and further education 36
VI. Implication for the Workforce Policy (5) The importance of services jobs involved in manufacturing GVC In Germany, Japan, and Korea, GVC jobs in business services sector increased during the sample period. In Korea, GVC jobs in transportation and communication, which are highly linked to GVC, also increased. Business services are used as inputs to Manufacturing industry and have very high potential to create jobs in the future. ⇒ Software industry is an essential area to determine the competitiveness of future manufacturing industry. ⇒ need to develop creative manpower in software sector 37
Thank You
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