Digitization and the Workplace.

Part 1/3. The times they are a changin. Is the workplace, ready?

Of the many things the internet has ensured, with the accessibility of a variety of cat videos at one’s whim being the crown jewel, Globalization takes a close second. Defined as, the process by which international organizations and businesses influence or operate on an international scale without being curtailed by geographical boundaries, Globalization has been the poster child of the Internet age. The effect of this on industries and wages has been tremendous.

The most famous study looking at this question is Autor, Dorn, and Hanson (2013):

Pro-Nationalists and Ethno centrists often cite this study, “The China syndrome: Local labor market effects of import competition in the United States”, by Autor, Dorn, and Hanson (2013), to point out the pitfalls of Globalization and the impact it has on unemployment and wages.

The paper looks at the change in labour markets in regions of America, that were most exposed to Chinese imports. The conclusions showed that an increase in exposure resulted in increased unemployment, a fall in labour force participation, and a decline in wages. There was also a noticeable increase in the number of people applying for unemployment benefits in those regions.

The above scatter plot, is the most popular graph from their study. It clearly shows that an increase in import exposure per worker leads to a fall in employment statistics. This graph has been used by many a Trump-supporter, to justify the culling of trade deals and imposing tariffs and bans on other countries, in a bid to ‘save’ the American working class.

The other side to this argument is that a member of the labour force must be looked at from the perspective of not just a worker, earning a minimum wage, but also as a consumer. From the latter’s point of view, the increase in imports has led to a fall in prices of goods, and she/he is now provided with an increased choice. This actually stands to benefit households, who could experience a net gain overall. This argument was strengthened in 2018, with the help of a study done in Mexico City, “Retail globalization and household welfare: Evidence from Mexico”, by Atkin, Faber, and Gonzalez-Navarro (2018).

The study showed that the arrival of global retail chains in Mexico, led to reduction in incomes of those in the retail sector, a tiny fraction of the labour force, there was no visible fall in incomes of government and municipal workers, and there was no significant effect on employment. Nonetheless, there was a clear fall in the living costs that were experienced by both the rich and poor alike (seen in the graph).

Proponents of the second argument, claim that global integration increases average incomes overall in all countries, an idea first floated by 19th-century British economist, David Ricardo. Ricardo came up with the term, ‘Comparative Advantage’, and he proposed that nations which are competent in certain industries concentrate solely on those and import all other necessities from other nations who possess competence in those. This would create a harmonious market for all and trade would continue to be an enabler for the growth of all nations. Lost in the fragrance of his English Tea and scones, Ricardo failed to realize the arrival of the behemoth known as the Internet. The internet, enabled trade across nations in its biggest and most widely used form today, the intangible trade in services.

The inequality that has been created by modern forms of trade, triggered Eric Maskin, a Nobel Laureate from Harvard University, to quantify this phenomenon in his research. Maskin opines that whilst average incomes may have increased as a consequence of trade and globalization, inequality has also increased. Muskin believes that inequality has emerged in two ways, one ‘worse’ and the other ‘less-worse’ as he describes it.

The ‘less-worse’ outcome is that inequality is tolerated as a necessary side-effect of increased economic growth. Not all segments experience an increase in wages, because every skill is valued differently in an economy that is highly integrated with others across the world. This leads to the ‘worse’ outcome, where the wages of the less-skilled workers, continues to plummet whilst their more skilled counterparts continue to receive higher wages.

To overcome all these problems, we must put an end to Globalization.

“That would be Foolish”, says Muskin. “Rather, what we must do is to find the most efficient way of allowing the low skilled workers to also experience the fruits of Globalization”. While there is no easy solution to achieve this, Muskin believes that raising what is considered to be the average skill of a worker, is the right step forward. Skill development and Job training need to be offered to ensure the 21st-century low-skilled worker, would have been a skilled worker in the 20th century.

But while the entire world continues to argue on what causes the problems, an important nation in the continent of Europe is focusing all its efforts in preparing framework, laws, and policies that would keep the interest of the 21st-century worker in its mind. That nation, is Germany.

The German Ministry of Labour has been working on what it calls, Arbeit 4.0 (Work 4.0), since 2015. The Ministry believes that with the advent of digitalization, work as we know it will change by 2030. Industrial workers will be replaced by robots and digitalization will lead a paradigm shift in all industries. Hence, new conditions for employment, work, and social security, to name a few, must be considered in order to take maximum advantage of this dawn of the digitalized industry. Following Germany’s lead, the World Development Report of 2019 published by the World Bank, takes cognizance of technology and the impact it could have on the nature of work in the years to come.

The truck driver of tomorrow will no longer drive cargo across the length and breadth of Europe in order to earn his wages. He would rather manage his 6 autonomous driving trucks, from the comfort of his home and use his free time to live more healthily and spend time with his family. This is just a tiny example of how digital transformation is going to change the work of tomorrow. Organizations these days do not require more than a laptop with internet access, to run their businesses. This also creates flexibility for employees to work from all corners of the world. Rigid office hours are slowly becoming obsolete and the example of a truck driver is to show, how professions that were traditionally thought to be reliant on human presence, can function perfectly without it.

Karl Marx believed that the fragmentation of society into the bourgeoisie and proletariat, the haves and the have nots, will emerge due to income inequalities and class differences. The biggest driver of this income inequality is the divide between skilled and unskilled labour. Arbeit 4.0 realizes that rather than perpetuating this class divide in the next labour revolution the world is primed to experience, it will seek to tackle it head-on and work towards integrating the society at large and achieving a collective growth and reducing inequalities as much as possible. To do anything less, would be an absolute travesty, considering this is, after all, the country of Marx himself.

(This is an introduction in the series, Digitization and the Workplace — with 2 more articles to follow, that will dive a little deeper into understanding the nuances of this policy and how there needs to be a response to this.)

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