Simon Commander is Director of the Centre for New and Emerging Markets at London Business School and a Research Fellow of IZA, the Insititute for the Study of Labor. Senior Adviser at EBRD. He is the author of numerous papers and publications on employment topics, including The Brain Drain – curse or boon? with MariKangasniemi and L.A. Winters and Who gains from skilled migration – evidence from the software industry with Mari Kangasniemi, Rupa Chanda and L.A. Winters. Simon Commander received his BA from Oxford University and his PhD from Cambridge University. From
1988 to 1998 he worked at the World Bank.

The migration of both jobs and skills is currently a growing phenomenon in the US and the UK and it is happening on two fronts. Both countries are experiencing inward movements of workers and jobs but there is also a substantial outward movement of jobs. The latter phenomenon is likely to be a major factor in particular in the forthcoming US elections.

However, it is important to understand that whilst both countries are experiencing this migration, it is happening in contrasting ways. In the US the major move over a protracted period of time has been through outsourcing in manufacturing, particularly to China. As a result, significant categories of American workers feel under threat, and it is creating a groundswell of opinion, particularly among blue-collar workers with limited or non-existent income and health care protection.

 
In the UK, the situation is very different. There is now a good deal of offshoring but mainly in services and much of it is happening at the skilled end of the labour market. A classic example is in the financial services sector. The back office may have started the trend but now major investment banks such as Deutsche Bank and Merrill Lynch have been off-shoring higher skilled components such as equity research. Over time more activities will be moved, as corporations look to divide up their business sectors and activities in a strategic manner.

Within Western Europe off-shoring is most active in the UK, with most of the jobs going to India, whilst in Scandinavia - for example - the approach is one of nearshoring, with many employment opportunities going to Lithuania and Estonia.

So why is this happening? Historically, it was generally driven not by skills shortages but by reasons of cost. But now the flow is being reversed. There is not an infinite supply of talent and migration has opened up skills shortages. As a result employers are having to pay a lot more for talent, in India in particular. Many Indian based managers or those working in IT are now rewarded better than they would be in, say, the UK.

Similarly, in China labour costs in manufacturing are rising, although the market for service employees remains much less competitive than Europe or North America. But then the latter is not where the major drive has been. In some cases service sector companies – such as NIIT - have now started working in China, in order to be able to diversify their labour pool out of India and to address potential skills shortages in the future. But it is a long term process and there are issues of both language and approach.

There has also been a lot of discussion of labour migration from Eastern Europe and indeed roughly 3/4 of a million workers have registered for employment in the UK alone since 2004 of which around two-thirds have been Polish. The numbers would be higher if restrictions had not been placed on the most recent accession countries. In Poland unemployment is dropping, although it remains at one of the higher levels within the EU. Definite skills shortages are now showing up, especially within the construction sector. But then non-participation in the workforce is also a major problem of the Eastern European countries in general. And to address that there will need to be not only a change of attitude, but also in institutional considerations such as forms of benefit and ages of retirement.

In short, technological change and other factors have driven the growth in demand for skills. Educated workers are more in demand than before and the hunger for skills is likely to grow. This has prompted companies to broaden their horizons to draw on talent outside their national borders. Rather than the story being all about flows of workers, it now involves flows of jobs as well. With respect to whether this is
a brain drain or not, the picture is actually very mixed and defies easy categorisation. 

Simon Commander spoke to Sarah Woodward.