But a second feature of new technologies, especially those associated with GVCs, also seems
noteworthy. The introduction of new technologies also makes it more dicult for unskilled labor to
substitute for other production inputs, including skilled labor, capital, and other capabilities. In other
words, the elasticity of substitution between unskilled labor and other factors of distribution drops.
Consider a manufacturing operation in a developing economy. Whether or not it is foreign-owned,
the technology will normally be imported from advanced countries. It will require certain types
of machinery, software, and workers to operate. But the blueprints may allow some exibility in
terms of how dierent factors of production are combined. In particular, since unskilled workers are
relatively cheap, the owners of the factory may want to economize on physical and human capital
and use more unskilled workers. Some tasks that are automated in the advanced economies (e.g.,
packing) may be produced by manual labor in the developing economy. In economics jargon, this
is called an adjustment in production technique along an isoquant. Using data over the 1973-1990
period, Blum (2010) shows that such adjustments are quantitatively very important. He nds that
changes in relative factor endowments across countries are accommodated mainly by shifts in
production techniques within sectors rather than output mix per se. In other words, an increase
in the supply of unskilled workers results in such workers being used more intensively across the
entire economy.
My argument is that newer technologies make it harder for this kind of factor substitution to be made,
especially in the more advanced rms where production is integrated in GVCs. This is because
of the demanding precision and quality standards associated with these technologies. It is often
impossible to satisfy these standards by substituting manual work, which necessarily introduces
irregularities in production. GVCs also imply that the governance of production environment
shifts from local governments, producers, and consumers to international rms, resulting in local
rms becoming more dependent on global rms’ requirements. Oshoring increases the ability
of producers in the advanced nations to substitute for domestic labor, by moving oshore. But
by increasing the stringency of production requirements, it makes unskilled labor in developing
countries less substitutable for other capabilities.
This can be true even in activities that are not technologically sophisticated and considered to be
labor-intensive. Consider, for example, African horticulture. Standards imposed by purchasers in
the advanced countries are very stringent:
“Standards have been one of them most signicant drivers of evolving horticulture GVC
and RVC dynamics, in many ways creating the rules for participation and upgrading.
Along with the rise of European supermarket GVCs, lead supermarkets have increasingly
used standards to govern their supply chains based on Western consumer preferences,
such as quality, appearance, hygiene, safety, and traceability. Adherence to supermarket
horticulture standards is often a double-edged sword – especially in Africa…. On the one
hand, it oers substantial opportunity for producer upgrading into higher value added
activities (examples of product, process, cold chain, and functional upgrading can be
found in Kenyan FFV chains), and in some cases, social upgrading for workers through
increased social protections (examples of more permanent employment contracts,
unionization and collective bargaining can be found in Ugandan oral cuttings chains).
On the other hand, it limits participation to only those producers with the necessary
investments needed for compliance.” (Goger et al. 2014; references omitted.)
9