Future trade shocks could hit gig economy workers hardest

When we think about trade shocks, we usually think about mining or manufacturing, whether the painful legacies of the coalpits closing in the 1980s or concerns about Tata Steel’s recent announcement that 2,423 jobs in the UK are at risk. This is partly for good reason – the manufacturing sector is heavily exposed to changes in global supply chains. But the UK economy has changed and manufacturing now employs only 8% of UK workers. When we prepare for future trade shocks, we must think carefully about the service sector, which employs more than 4 in 5 people in the UK today.

The UK has benefitted from the global surge in services trade and is now the second largest exporter of services in the world. Tradable services now make up 45% of our economy and employ around 8 million workers, just under a third of our workforce. Although global trade has slowed, we still expect growth in services trade, as digitisation enables more services to be delivered remotely. The UK is poised to benefit.

But as more workers are employed in the traded services sectors, we must think carefully about the trade shocks of the future and who may be most vulnerable. Well-paid workers in services sectors like finance and insurance are now the most exposed to trade but they are also best equipped to adapt. Meanwhile we are in real danger of leaving lower paid service workers without the skills or the systems in place to protect them.

Where will the trade shocks of the future hit the UK?

As it has become easier to provide services remotely, businesses have outsourced a greater range of functions, from accounting to IT, compliance, marketing and customer services to other companies. The US and UK may be the leading global exporters of these business-to-business services globally today but exports from emerging market economies are growing faster. If this trend is sustained, many jobs are likely to move from countries like the US and UK to developing countries, as they have substantial wage advantages.

This is sobering for the UK. It suggests we may face further downward wage pressure and the hollowing out of jobs in tradable services, with the lower skilled segments of the market most at risk. There’s already talk of a quiet second wave of offshoring of call centres, which account for one in twenty jobs across the North of England and Scotland. Last year saw Vodafone relocate some customer care jobs from the UK to South Africa and Egypt, two countries where the business services sector is booming. With more job dislocation expected from the AI, the scene looks set for really churn in the UK services sector.

Trade shocks are also hitting households in the supermarket and on the high street. As the Resolution Foundation report shows, while imports of cheap consumer goods has benefitted low-income households, when there are adverse price shocks on essential items such as food and fuel, they really struggle. Again, this trend of price volatility in import-reliant consumer markets is something that is likely to continue given geopolitical instability and climate change.

The UK can learn from Denmark when it comes to trade shock prevention

When households are struggling, with workers focused on day-to-day survival, it’s hard to invest time and resources in education and upskilling, to take risks or try out new jobs. This makes it harder to adapt in the face of employment market shocks – whether from trade or AI - and also drags down national productivity.

This isn’t inevitable. I’ve long been struck by Denmark’s ‘flexicurity’ model, which brings together ideas of flexible labour markets with security and upskilling of workers.

Denmark has a similar level of labour market flexibility as the UK and the US. But it is much better at providing social security and continual upskilling that enables both firms and households to thrive in an ever-changing global economy. Denmark invests 1.2% of its GDP in training and upskilling workers, six times as much as the UK. As one Danish trade union leader noted in 2007:

“Security is no longer to hold on desperately to the same job throughout your life. Security is to stay cool when you hear rumours of outsourcing… because deep down you know you have solid skills and that you will be able to quickly find a new job…. Security is not being able to stay on. Security is being able to move… Security through education and training.”

Workers have real voice and representation in Denmark, with collective bargaining between employers and unions setting wages and employment conditions: 82% of Danish workers are covered by collective bargaining arrangements, compared with just 27% in the UK.

What other steps can the UK take now to mitigate the impact of trade shocks? 

Trade shocks are here to stay and it’s vital for UK policymakers to pay careful attention and work with vulnerable groups to address them, especially if it wants to sustain broad political support for the UK’s open economy model.

All too often the policy discussion in the UK suggests that enhancing our social safety net to buffet households from trade shocks will be detrimental to productivity. But Denmark’s approach suggests otherwise – it has combined flexible labour markets with much better social security and really effective training and in the process it has been able to realise consistently higher levels of economic productivity and better quality of life for workers.

With fresh thinking and a mature policy dialogue between government, businesses, and unions, we can build resilience into the UK economy to weather the trade shocks of the future.