Decent Work in Global Supply Chains

Unit 4, Lecture 2 - The fragmentation of labor


TNCs = major source of fragmentation of employment standards and practices
A dominant characteristic of the global economy is the massive growth of TNCs and their global supply chains. The logic of organizational fragmentation is at the heart of capitalism – to make the business profitable. 80% of world trade takes place within these TNCs and their global supply chains. Fragmentation of employment relations is marked by “contracting out”, “outsourcing” and “offshoring”. Employment fragmentation is not only found at the lead TNCs – they repeat themselves all along the global supply chains.

Primary aims of outsourcing/offshoring – flexibility + cut labor costs
Union representation diminishes the further employees are from the lead TNC

Drivers of fragmentation
- restructuring of companies, public organizations and value chains through outsourcing and relocation of work … differentials in terms and conditions between companies, sectors and countries also act as strong incentives for restructuring in the 1st place
- strategies designed to achieve flexibility and lower costs → leads to growing diversification of forms of employment and contracts, often covering the same type of work
- in the public sector, austerity policies and privatization frequently change workforce conditions

changes in organizational forms and value-chain restructuring involve shifts in the forms of employment and the composition of labor. These tendencies are shaped by specific national employment relations and the consequences of restructuring for labor.
Outsourcing / disintegration
Foreign direct investment / relocation of work

Triangular employment relations
Multiple forms of employment

Disintegration of companies through outsourcing/subcontracting to cut costs and achieve flexibility
- pay and employment conditions usually differ between the client and the supplier company
- organizational boundaries may become blurred and the employment relationship ambiguous

‘insecurity-and-risk transfer chains’ - organizational strategy to achieve external flexibility → companies shift the risk of capacity utilization onto their suppliers/service providers which allows them to pass on flexibility demands and risk to their employees

Lengthening of global value chains and relocation of work
- wage differentials between countries are the main driver of work relocation in labor-intensive sectors
- differences in working hours, health and safety regulations influence decisions about business locations

Triangular employment relations – people working at the same place (i.e. within the same organization) but contracted to different employers

Fragmentation of employment also means that employment relations within a single organization become heterogeneous. Multiple forms of employment are combined with diverse terms and conditions of employees within the same company. Strategies to cut costs and to achieve flexibility often lead to flexible labor being employed in addition to the core workforce.

Fragmentation is not a universal trend – and it does not necessarily lead to precarious employment. Fragmentation is also strongly influenced by the national employment system.

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