Marta Solaz, Francisco Pérez and Eva Benages Employment and occupations in manufacturing Global Value Chains (GVCs): an analysis of European countries Marta Solaz, Francisco Pérez and Eva Benages Fifth World KLEMS Conference June 4-5, 2018 Harvard University Occupations in global value chain: an analysis of European countries

Motivation The emergence of global value chains (GVCs) has led to a decline in the domestic value added (VA) content of countries’ final manufacturing production: Important differences among EU countries (ranging from 40% to 72% in 2014). What are the implications for employment? The share of domestic jobs over total GVC jobs shows greater differences among countries (ranging from 30% to 90%). In several countries, the decline in domestic employment has been larger than in VA. Figure 1. Domestic value added and jobs in EU countries’ manufacturing GVCs, 2000-2014 (percentage) a) Value added b) Jobs We observe a decline in the share of domestic VA over total VA in manufacturing GVCs in almost all EU countries during the reference period, although there are important differences among EU countries, ranging from 40% to 75%. Source: authors’ calculations based on WIOD (2016)

Motivation VA in manufacturing GVCs has increased (domestic and foreign), whereas the number of jobs have decreased in most European countries. Domestic jobs in manufacturing GVCs of European countries have decreased, whereas the amount of foreign workers has increased in many countries. c) Jobs: domestic and foreign b) Value added: domestic and foreign Figure 2. Changes in value added and jobs in EU countries’ manufacturing GVCs, 2000-2014 (annual percentage change) Source: authors’ calculations based on WIOD (2016) a) Value added and jobs

Objectives We analyse the trends in the employment and occupational content embodied in manufacturing GVCs (GVC Jobs): Jobs that are directly and indirectly involved in the production of a given country- sector (Timmer, Stehrer & de Vries (2013), Timmer et al. (2014)). We focus on the big five European countries (Germany, France, Italy, UK and Spain). The analysis covers the period 2000-2014 (2008-2014 when we distinguish employment by occupations).

Research questions How the employment in GVCs and its occupational content are evolving? Are there any differences in the employment and its occupational content in GVCs… across countries and sectors? between domestic and foreign workers? Is there upgrading in the occupational content of employment in GVCs (domestic and foreign)? Upgrading: changes in the occupational content of employment towards higher-skilled occupations and activities (Humphrey & Schmitz, 2002).

Related literature Relevant extension of GVC analysis: Estimates of the domestic VA content of production and trade; countries’ participation in GVCs: Daudin, Rifflart & Schweisguth (2011), Johnson & Noguera (2012), Baldwin & Lopez-Gonzalez (2013, 2015), Johnson (2014), Koopman, Wang & Wei (2014). Factor content of production and trade: Trefler & Zhu (2010), Timmer, Stehrer & de Vries (2013); Timmer et al. (2014). Skill content, upgrading and job polarization: De Vries et al. (2016), de Vries and Miroudot (2016), Reijnders & de Vries (2017), Marcolin, Miroudot & Squicciarini (2016). This analysis is a relevant extension of the literature of GVC analysis.

Methodology The fundamental input-output identity (Leontief, 1936): 𝑥=( 𝐼−𝐴) −1 𝑦 reflects the output needed (𝑥 ) to satisfy a certain level of final demand (𝑦). With N countries and S sectors, this equation can be expanded into an inter-regional input-output model: 𝐗=𝐁𝐘 where X is the output decomposition matrix, B is the Leontief inverse or total requeriment matrix, Y is the final demand matrix. The value added embodied in production flows can be derived by pre-multiplying by 𝑉 , a matrix with value-added ratios to gross output in the main diagonal: 𝐕 𝐗= 𝐕 𝐁𝐘 𝐕 𝐁𝐘 is the value-added production matrix. We replace the value-added matrix 𝑉 by the employment requeriments per dollar of production ( 𝐿 ): 𝐋 𝐗= 𝐋 𝐁𝐘

Methodology 𝐋 𝐁𝐘 gives the total amount of workers employed to satisfy a given level of final demand. Data on employment requirements can be decomposed into workers by occupations ( 𝐿 𝐺 ): 𝐿 𝐺1 0 … 0 0 𝐿 𝐺2 … 0 ⋮ ⋮ ⋱ ⋮ 0 0 ⋯ 𝐿 𝐺𝑁 𝑋 11 𝑋 12 … 𝑋 1𝑁 𝑋 21 𝑋 22 … 𝑋 2𝑁 ⋮ ⋮ ⋱ ⋮ 𝑋 𝑁1 𝑋 𝑁2 ⋯ 𝑋 𝑁𝑁 = 𝐿 𝐺1 𝑗 𝑁 𝐵 1𝑗 𝑌 𝑗1 𝐿 𝐺1 𝑗 𝑁 𝐵 1𝑗 𝑌 𝑗2 … 𝐿 𝐺1 𝑗 𝑁 𝐵 1𝑗 𝑌 𝑗𝑁 𝐿 𝐺2 𝑗 𝑁 𝐵 2𝑗 𝑌 𝑗1 𝐿 𝐺2 𝑗 𝑁 𝐵 2𝑗 𝑌 𝑗2 … 𝐿 𝐺2 𝑗 𝑁 𝐵 2𝑗 𝑌 𝑗𝑁 … … ⋱ … 𝐿 𝐺𝑁 𝑗 𝑁 𝐵 𝑁𝑗 𝑌 𝑗1 𝐿 𝐺𝑁 𝑗 𝑁 𝐵 𝑁𝑗 𝑌 𝑗2 … 𝐿 𝐺𝑁 𝑗 𝑁 𝐵 𝑁𝑗 𝑌 𝑗𝑁 where 𝐿 𝐺 is a matrix with occupational requeriments per dollar of production. We consider 9 different 𝐿 𝐺 matrices, one for each type of occupation (G=1,…,9). 𝐋 𝐆 𝐗= 𝐋 𝐆 𝐁𝐘 gives the total amount of workers by occupations employed to satisfy a given level of final demand. How much domestic value added a country generates by participating in GVCs. In the same vein, we can obtain how many jobs are created by participating in GVC. We can distinguish these jobs by occupations. Some occupations are more qualified than others. By looking at the occupational composition of countries’ production and exports, we can assess if countries’ have been upgrading their position in GVCs.

Methodology We calculate the number of workers by occupations employed in each manufacturing GVC. 532 GVCs for each year (19 manufacturing sectors x 28 European countries), from 2000 to 2014 (2008-2014 in the case of occupations). Results for the whole manufacturing sector and for the EU-28 are obtained by aggregating the data. Total jobs (directly and indirectly) involved in the GVC of a given country-sector are attributed to: Countries that participate (N) Industries (S) Workers by occupation (G)

Data International input-output tables from the World Input-Output database (WIOD, 2016 Release). Data on employment by occupations and economic activity is obtained from Eurostat Labour Force Survey (LFS). National industry classifications are mapped to the 56 industries in WIOD. 9 occupations (1 digit ISCO08). We aggregate them into 3 groups by skill type following ILO (2012): ISCO08 Name Qualification OC1 Managers High-skilled OC2 Professionals OC3 Technicians and Associate Professionals OC4 Clerical Support Workers Medium-skilled OC5 Services and Sales Workers OC6 Skilled Agricultural, Forestry and Fishery Workers OC7 Craft and Related Trades Workers OC8 Plant and Machine Operators and Assemblers OC9 Elementary Occupations Low-skilled Se puede mencionar que otros papers usan otras clasificaciones (routine, non-routine), otra clasificación de niveles como la de Reijnders y de Vries (2017) We calculate the occupation shares for each country, industry and year. These shares are applied to data on employment from WIOD Socio Economic Accounts (SEA), which we use as a benchmark.

Jobs in EU countries’ manufacturing GVCs Domestic jobs in EU countries’ manufacturing GVCs have decreased. Employment from outside the EU has increased in the EU-28, Spain, Germany and France. Figure 3. Jobs in EU countries’ manufacturing GVCs, 2000-2014 (number of persons in thousands) Source: authors’ calculations based on WIOD (2016)

Jobs in EU countries’ manufacturing GVCs From 2000 to 2014, the share of domestic jobs has decreased, and the importance of jobs coming from EU and especially non-EU countries has increased. Figure 4. Jobs by origin in the manufacturing GVCs of selected EU countries (percentage) Source: authors’ calculations based on WIOD (2016)

Jobs in EU countries’ manufacturing GVCs Domestic jobs have decreased in almost all manufacturing sectors, whereas the amount of foreign workers has increased, especially in Spain and Germany. Substantial heterogeneity across sectors and countries in terms of employment variations. Figure 5. Jobs by origin in the manufacturing GVCs of selected EU countries, 2000-2014 (annual percentage change) a) Spain b) Germany c) France d) Italy e) United Kingdom Source: authors’ calculations based on WIOD (2016)

Occupations in manufacturing GVCs: domestic vs. rest of Europe High-skilled (HS) occupations account for a larger share among foreign European workers in the case of Spain, and to a lesser extent, in Germany and Italy in 2014. The share of HS workers is higher for domestic workers in France and UK, increasing between 2008 and 2014, while in Spain, Germany and Italy, it has decreased. Figure 6. Jobs by occupations in the manufacturing GVCs of selected EU countries, 2008-2014 (percentage) a) Spain b) Germany c) France d) Italy e) United Kingdom Note: “Rest of Europe” includes other EU-28 countries, Norway and Switzerland. Source: authors’ calculations based on WIOD (2016) and Eurostat LFS (2018)

High-skilled occupations in manufacturing GVCs There are important differences in the share of HS occupations across sectors and countries. In Spain, HS occupations account for a larger share among foreign European workers compared with domestic workers in almost all sectors. Germany and Italy are in an intermediate situation. On the contrary, in France and UK, almost all sectors exhibit a higher share of HS occupations among domestic workers. Table 1. High-skilled occupations in the manufacturing GVCs of selected EU countries, 2014 (percentage)   Spain Germany Italy France United Kingdom DOM Rest EUR Food products, beverages and tobacco products C10-C12 20,9 23,2 21,9 26,1 23,3 28,0 29,5 31,3 29,8 Textiles, wearing apparel and leather products C13-C15 21,4 27,8 30,6 26,6 29,2 37,0 28,5 36,8 32,2 Wood and of products of wood and cork, except furniture C16 22,8 31,7 28,6 30,0 23,7 28,9 30,9 29,3 Paper and paper products C17 33,1 28,1 34,9 34,4 37,4 32,3 38,3 35,0 Printing and reproduction of recorded media C18 33,7 33,9 24,9 35,7 35,3 39,3 34,3 38,6 35,1 Coke and refined petroleum products C19 39,8 40,5 47,2 38,5 42,7 46,0 42,6 50,5 44,6 Chemicals and chemical products C20 36,6 39,6 37,1 38,0 49,7 46,4 Basic pharmaceutical products and pharmaceutical preparations C21 44,5 45,0 40,4 49,5 41,1 56,6 58,8 40,3 Rubber and plastic products C22 36,7 31,0 35,6 41,4 36,2 Other non-metallic mineral products C23 27,0 39,0 38,2 34,6 36,9 36,5 Basic metals C24 28,3 29,4 34,7 44,4 34,5 Fabricated metal products, except machinery and equipment C25 22,7 25,3 34,2 26,8 33,8 41,0 33,0 39,7 34,0 Computer, electronic and optical products C26 37,6 44,0 46,1 38,1 55,8 35,5 60,0 Electrical equipment C27 35,4 35,2 36,0 46,5 47,3 Machinery and equipment n.e.c. C28 37,2 44,3 34,1 42,3 Motor vehicles, trailers and semi-trailers C29 33,3 33,6 38,4 Other transport equipment C30 51,9 49,6 Furniture; other manufacturing C31_C32 27,6 32,8 40,0 32,9 31,2 43,0 Repair and installation of machinery and equipment C33 36,1 45,7 Total manufacturing MAN 26,4 31,5 32,1 Note: “Rest EUR” includes other EU-28 countries, Norway and Switzerland. Source: authors’ calculations based on WIOD (2016) and Eurostat LFS (2018)

High-skilled occupations in GVCs: evidence of upgrading? For the whole manufacturing sector, there is upgrading (domestic and foreign) in France and UK. Spain shows the opposite pattern. In Germany and Italy, the importance of HS occupations among foreign European workers has increased, whereas the share of domestic HS occupations has decreased. There is domestic upgrading during the period 2008-2014 in many sectors in Spain, France, Italy and United Kingdom, but not in Germany. Upgrading has been more general in foreign European jobs. Table 2. High-skilled occupations in the manufacturing GVCs of selected EU countries. Change over 2008-2014 (pp.)   Spain Germany Italy France United Kingdom DOM Rest EUR Food products, beverages and tobacco products C10-C12 -2,1 -5,2 -0,3 -2,4 -9,3 -1,9 2,9 -1,3 -0,8 Textiles, wearing apparel and leather products C13-C15 -3,3 -3,8 -3,0 2,0 -2,2 -0,1 1,8 -0,5 1,0 1,2 Wood and of products of wood and cork, except furniture C16 0,5 0,6 0,7 0,9 3,7 1,5 0,8 Paper and paper products C17 -0,6 -1,1 -1,5 2,8 2,2 Printing and reproduction of recorded media C18 -2,8 -0,7 -2,3 1,7 -7,6 6,8 Coke and refined petroleum products C19 8,6 3,5 10,0 0,0 6,7 5,6 4,4 5,8 Chemicals and chemical products C20 1,4 -1,4 5,3 Basic pharmaceutical products and pharmaceutical preparations C21 -4,0 0,1 -1,0 8,2 Rubber and plastic products C22 1,1 6,2 3,2 Other non-metallic mineral products C23 -0,2 3,4 -0,4 2,3 6,9 1,3 2,4 Basic metals C24 4,2 -1,6 2,1 6,1 Fabricated metal products, except machinery and equipment C25 1,9 9,9 3,8 Computer, electronic and optical products C26 0,3 0,4 -0,9 -1,7 12,9 Electrical equipment C27 -3,7 7,3 Machinery and equipment n.e.c. C28 6,0 1,6 2,7 Motor vehicles, trailers and semi-trailers C29 -2,9 0,2 Other transport equipment C30 3,0 5,1 Furniture; other manufacturing C31_C32 11,6 -1,8 3,6 2,5 Repair and installation of machinery and equipment C33 -4,2 -6,8 8,8 Total manufacturing MAN -1,2 Note: “Rest EUR” includes other EU-28 countries, Norway and Switzerland. Source: authors’ calculations based on WIOD (2016) and Eurostat LFS (2018)

Looking into high-skilled occupations The decrease in domestic HS occupations in Spain, Germany and Italy can be attributed to decreases in the share of managerial workers. Professional workers exhibit increases in these countries, although they do not compensate that decrease. In UK, the decline in managerial workers is more than compensated by the large increase in professional workers (8,5pp). In France, domestic upgrading is related to the increasing importance of technicians and associate professionals (OC3). Figure 7. High-skilled occupations in the manufacturing GVCs of selected EU countries (percentage) a) Spain b) Germany c) France d) Italy e) United Kingdom Note: “Rest of Europe” includes other EU-28 countries, Norway and Switzerland. Source: authors’ calculations based on WIOD (2016) and Eurostat LFS (2018)

Concluding remarks Trends in employment embodied in GVCs: The importance of manufacturing production for employment is decreasing in EU countries. Decreases in the amount of domestic workers involved in each country’s manufacturing GVCs, which are pervasive across the GVC of almost all manufacturing sectors. Integration in GVCs is progressing: the importance of foreign workers (from other EU and non-EU countries) has increased, particularly from non-EU countries. Occupations in GVC Jobs: Important differences in the share of HS occupations across sectors, and within the same sector by countries. In Spain, Germany and Italy, the share of HS occupations is higher among foreign European workers. In France and UK, the situation is the opposite. These differences at country-level are also found in many manufacturing sectors. Upgrading among workers from other European countries has taken place in almost all sectors. In Spain, Germany, Italy and UK, upgrading among domestic workers has been driven by professional occupations.

Implications and future extensions Generating good jobs in GVCs is a major concern. Higher value added activities. High-skilled jobs are less likely to be affected by automation. When working with European countries, no evidence that the foreign content embodied in the big five EU countries’ GVCs is composed of lower-skilled tasks. Future research: How would these results change if all countries included in WIOD were considered? Which is the trend for the period 2000-2014? Which is the evolution of countries’ participation in GVCs in terms of labour compensation?

Marta Solaz, Francisco Pérez and Eva Benages Employment and occupations in manufacturing global value chains (GVCs): an analysis of European countries Marta Solaz, Francisco Pérez and Eva Benages Fifth World KLEMS Conference June 4-5, 2018 Harvard University Occupations in global value chain: an analysis of European countries

Appendix. Structure of GVCs by occupations   Country 1 Country 2 Country N GVC1 … GVCv Jobs from each country-industry Industry 1  Ocup1  Ocup2  Ocup3 Ocup9 Industry S  … Total jobs by occupations employed in each GVC