How to Harness the Digital Transformation of the Covid Era

By September 29, 2020 blog No Comments

Digital technology is at the center of today’s economic development debate due to its wide use during the Covid-19 outbreak. While there is no doubt that the pandemic is amplifying the adoption of new technologies, technological advancements were already changing the world over the past two decades, from living standards to the very nature of our work.

Fears of robot-induced unemployment are on the rise as tasks traditionally performed by humans are increasingly performed using robots and artificial intelligence. The declining cost of machines threatens low-skill jobs and routine tasks — those most susceptible to automation and offshoring. Indeed, the number of robots operating worldwide is rising rapidly: by the end of 2020, there will be 3 million new industrial robots in operation, more than double the operational stock over the seven years spanning 2014-2020.

But technology can be a job creator, too. Increases in efficiency brought about by digital transformation can help businesses expand. Digital platforms can create entirely new occupations and jobs. Businesses can reach out to remote markets lacking infrastructure. To reshape technology as a job creator, it’s important to understand what, exactly, the current wave of technology is changing, and how policy makers and businesses can adapt to it.

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The foundations of change

Even before the pandemic struck, some features of the state of technological progress were especially salient.

First, technology was already disrupting production processes, especially through the rapid scale-up of digital platforms. Digital technology has been challenging the traditional boundaries of firms, changing global value chains and the geography of jobs. After all, technology decreases the costs of doing business, complementing investments in infrastructure, free trade agreements, and other liberalization efforts to reduce trade barriers, which in turn expands global value chains and changes the geography of jobs. New business models — digital platform firms — have been able to evolve rapidly from local start-ups to global behemoths, often with few employees or tangible assets. Digital platforms have enabled clusters of businesses to form in underdeveloped rural areas.

Second, technology created seismic shifts in the mix of skills required to succeed in the labor market. While returns to routine, job-specific skills are declining, the premium for skills that cannot be replaced by robots has been increasing; these include cognitive skills such as critical thinking, as well as socio-behavioral skills such as managing and recognizing emotions that enhance teamwork. Earnings are higher for those who have a combination of these skills. The evolving world of work demands adaptable skills that enable workers to transfer more easily from one task to another. Since 2001, the share of employment in occupations intensive in non-routine cognitive and socio-behavioral skills has increased from 19% to 23% in emerging economies, and from 33% to 41% in advanced economies.

Third, digital technology changed the terms of work. Rather than “standard” long-term contracts, digital technologies have given rise to more short-term work, often via online work platforms. These “gigs” make certain kinds of work more accessible and flexible. That said, despite the hype, the gig economy as of now has been slow to take over traditional occupations. The largest three global gig platforms — Freelancer of Australia, Upwork in the United States, and Zhubajia in China — have 60 million total users; only 0.3-0.5% of the active labor force participate in the gig economy globally.

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How will these changes play out in the post-Covid-19 world?

It is likely that the pandemic will reinforce these pre-existing trends and increase the urgency of corresponding policy responses. Some points already seem clear. “Platform firms” are dominating markets even more. We are already seeing Amazon and Alibaba getting even bigger and stronger as brick-and-mortar stores are unable to compete. Companies will invest more in their ability to conduct business over the internet to be more resilient to potential lockdowns. Some “gig” jobs will also continue to grow. Firms may also have more incentive to invest in automation and reshore production to shield against value chain disruption. Many businesses relying on imported inputs are facing lack of intermediate goods as value chains are disrupted. They may need to ensure that supplies are less vulnerable to travel restrictions.

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Digital technology is also improving people’s ability to work from home, although the amenability to remote work — which depends on the type of jobs and tasks to be done, as well as digital capacity — varies significantly across and within countries. Jobs that are conducive to remote work are more prevalent in rich countries, among workers with higher levels of education, and in salaried full-time jobs. Women and young workers are significantly less likely to work remotely. Digital infrastructure is scarce or of low quality in many developing countries.

Policies to prepare for the future of work

The rapid spread of technology accelerated by the pandemic has led to a pressing need for businesses and governments to adapt. Many businesses, especially in developing economies, are digitally disconnected. They may not have access to workers with the right skills and face challenging business environments. Workers, on the other hand, have little protection and do not have the skills or flexibility in labor markets to adapt. To face these challenges, businesses need to embrace technology and upgrade training programs to equip their workers with the best skills. Businesses can also consider apprenticeships to equip future workers with the right sets of skills.

Governments have an arsenal of policy options at their disposal, from incentives and regulations to infrastructure projects and taxation. Key priorities should be: 1) ramping up investment in human capital (knowledge, skills, and health) and lifelong learning if workers are to adapt to future labor markets; 2) strengthening social protections, expanding safety net coverage, and reforming financing arrangements and labor market norms to facilitate work transitions and to reduce disincentives to the creation of formal jobs; 3) ensuring affordable access to the internet while adapting regulations to confront the challenges posed by digital platforms (such as data privacy and protection and competition rules); and 4) upgrading taxation systems to address tax avoidance and to create fiscal space for universal social protection and human capital development.

Technology can be a boon to society if businesses and governments prepare and adapt. The pandemic has pushed societies to an inflection point where embracing technology is no longer an option but a necessity. It has also made workers more vulnerable. With the right steps and actions, businesses and governments can take the crisis as an opportunity to build for the future.

Harvard Business Review

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