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For the greater good? The loss of jobs in the digital era

2 July 2018
by Zoheir Ebrahim, Economic Policy and Small States Research Officer, Commonwealth Secretariat

The year is 2040. Drones buzz over neighbourhoods, delivering packages. Smart homes, with interconnected Wi-Fi devices, eliminate the need for housework. Driverless vehicles take us from A to B at great speed. Wars are still fought but digitally, with lines of code and armies of robots. We vacation in space, and share stories about the moon.

In this intelligent machine age, what role will we play? Some reports, examining the implications of the digital revolution for labour markets, are forecasting a bleak future.

The concerns relate to the potential for labour displacement, as systems of artificial intelligence and automation gain increasing traction in the workplace. As these systems evolve and become ever more sophisticated, the argument goes that they will be able to outperform humans, offering greater degrees of precision, efficiency, competitiveness and reliability. Over time, a larger share of our operations is likely to be outsourced to machines.

Does this hypothesis have merit? Will capital soon no longer be able to cohabit in harmony with labour? Should we be concerned about the prospect of mass ‘technological unemployment’?

The man vs. machine debate is centuries-old. John Maynard Keynes first popularised the term ‘technological unemployment’ in his 1930 essay Economic Possibilities for our Grandchildren. Keynes regarded the phenomenon as a “temporary phase of maladjustment” for countries at the frontier of progress. On the other side of the debate, techno-pessimists, such as the classical economist, David Ricardo, instead, believed that the introduction of new technologies could lead to a sustained decline of the working population.

To understand which argument aligns better with today’s technological and labour market landscape, let’s consider some recent developments.

It is undeniable that the world and our role within it is rapidly changing. Just look at the staggering developments taking place in the transportation sector. In the Jetsons, an animated sitcom which first aired six decades ago, the inhabitants of an imaginary future commuted to work in flying cars. Today, we are on the brink of turning that vision into reality. UBER has plans to establish an aerial taxi service by 2023, and other companies have already developed flying car prototypes. Many projects under development today weren’t even anticipated by the science fiction of the past. For instance, Elon Musk, the man behind both Tesla and SpaceX, is building an underground network of tunnels that run many layers deep across the eastern United States, to transport cars and alleviate congestion challenges. In addition, in several countries, driverless cars are currently being tested. Automakers anticipate that fully-autonomous vehicles will be chauffeuring us around within the next three years.

These are just a small selection of the numerous examples of comprehensive transformation taking place today. But will we really benefit from such change? We have to wonder whether there is some irrational exuberance.

The long view of innovation, however, provides good reason for optimism. During each era of revolutionary change, innovation has lifted productivity, reduced the prices of goods and services, created new industries, stimulated output and generated fresh employment opportunities.

The first industrial revolution brought with it the power of steam and machine-based manufacturing. The new industries and jobs it generated more than offset the displacement of skilled workers producing hand-made goods. The advent of the automobile in the 19th century did the same, relative to the jobs that were lost from the horse and carriage economy. More recently, the silicon revolution gave us the power of computing, and the internet. These technologies created new businesses, tore down geographical barriers and massively disrupted the ways in which we interact. Like those that preceded it, the silicon revolution, generated far more jobs than were lost, for example in basic administrative operations.

In other words, the available body of empirical evidence indicates that short-term labour displacement, arising from technological change, has always been more than offset by the expansion of labour markets in the long-term. There is also some evidence of a similar pattern taking shape today. Since the global financial crisis the rate of unemployment has fallen sharply, and the main reason behind this decline has been very strong rates of new job creation. In the UK, technology has recently contributed to the loss of 800,000 jobs but has helped to create at least 3.5 million jobs. Each of these jobs is paying, on average, almost £10,000 more per annum compared to those that have been lost. Business sentiment, additionally, remains largely positive regarding the impact of technology on labour markets. A recent survey, undertaken by KPMG, of chief executive officers (CEOs) in the UK, reveals that seventy-one per cent believe that artificial intelligence will create more jobs than it destroys.

OK, let’s pause for a bit.

The past is not always a reliable indicator of the future. So could this time be different? There is reason to think so. Technological change is progressing at an unprecedented rate. New advancements are taking place almost daily, and their diffusion into the workplace is accelerating.

Last year, over 40 per cent of adults in the UK managed their bank accounts using smartphones. Within the next five years, this figure is projected to rise to 70 per cent, reflecting increasing numbers of mobile users in rural areas. By that time, analysts believe that customers will only visit their bank only twice a year. These trends have driven a heavy consolidation of banks around the world. In 2017, major UK banks shut, or announced plans to shut, nearly 1,000 branches. Thousands of jobs have already been lost.

A shift to driverless vehicles, likewise, could impact significant numbers of people, from lorry drivers to bus drivers to the various constituents of the gig economy. In the UK alone, over a half million people are currently employed in road transportation. Relative to earlier anxieties regarding the potential of systems like UBER to reduce jobs for ‘black cab’ drivers, these new developments surely provide greater grounds for unease.

Workers in the fast food industry could also be at risk, owing to technologies that enable self-service. McDonald’s, for instance, recently piloted “create your taste” touchscreens in its US-based restaurants. Through this system, customers could craft their own burger, and place orders at the touch of a button. The need for human interaction was eliminated. In America alone, almost 4 million people are currently employed in fast food restaurants.

Even recruiters are finding themselves threatened. Based on social media activity, work tenure, and purchasing history, algorithms can now predict when someone will be ready for a job. Text analysis can identify skills and experience many times faster than humans can. As a result, some estimates are giving the existing HR recruitment industry two to four years more at best. Hiring, for now, will still require a human touch. But that may change over time too. It is not implausible to imagine software capable of assessing personality, which scrutinises candidates on factors such as tone, facial movements and body language.

The list of impacted industries goes on and on and on. All are in the same boat.

So was Keynes right, or was Ricardo? Before we jump to conclusions regarding the nature of the relationship between technological innovation and labour markets, let’s try a little thought experiment. Take it as given that, in line with empirical evidence, the disruption being observed in labour markets today will in the future be overshadowed by an expansion in output and jobs. That being the case, would you be prepared to forego your employment now to enable a higher standard of living for your children and your grandchildren tomorrow?

If the evidence checks out, then our view on technology and the value of innovation really boils down to this one question.

Contact me at z.ebrahim@commonwealth.int to share your perspective.

Notes to editors: 

The ‘Enabling Environment for Financial Technology’ is the theme for the 2018 Commonwealth Central Bank Governors Meeting (CCBG), which will be held on 10 October in Bali, Indonesia.

In recent years, the pace of technological innovation in the financial sector has accelerated significantly, and promises several benefits for growth and development. These include facilitating financial inclusion; driving efficiency gains and lowering the cost of financial services; and reducing the barriers for consumers to make payments, obtain credit, and invest.

CCBG 2018 will provide an important opportunity for Commonwealth members to deliberate on how they can incentivise and harness the benefits of financial technology (fintech), whilst minimising the associated risks, relating to areas such as cybercrime. The meeting will also inform the development of a Commonwealth Fintech Toolkit. The Toolkit, which will be ready in 2019, is designed to support Commonwealth member states in operationalising policy and regulatory best practices from countries around the world that have been successful at promoting and managing the growth of fintech.