Technology and the future of work

Historically, technology has enabled an unprecedented growth in labor income, but has also been a source of disruption. Technology has boosted productivity, which, in turn, has driven strong per-capita GDP growth and has been associated with expanding employment. However, the gains in employment and income can come in spurts and tend to favor different sectors over time. This forces deep and sometimes painful structural adjustment, with jobs changing or disappearing in some areas while new jobs are being created elsewhere. Moreover, while there are many reasons for the decline in labor income shares over the last three decades, technological progress in capital goods has played a role. Finally, the distribution of labor income itself has become more unequal as some skills—particularly those associated with more routine tasks—have become redundant, leading to a polarization of income gains favoring high-skilled and disadvantaging low-skilled labor. Technological advances are likely to have a similar impact in the future. Two interrelated factors that have been driving the impact of technology in the past are expected to continue to do so going forward: i) automation or, more broadly, an increase in the extent to which capital can technically substitute for labor; and ii) the falling relative prices of capital goods (which encourage the replacement of labor for a given degree of substitutability). Automation could allow machines to perform cognitive but routine tasks now handled by humans. This would put particular pressure on low-skilled labor doing routine work. Illustrative model simulations indicate that the more easily capital will substitute for labor, the more productivity and overall income growth will pick up, but the more this is likely to increase inequality by favoring income from capital and higher-skilled work. A decline in capital goods prices is also likely to benefit the high-skilled vis-à-vis the low-skilled. Transitions can be costly. An advance of automation and falling relative prices of capital goods can be expected to entail similar labor market disruptions as technological progress in the past: skill mismatches will have to be overcome; investment in human capital will have to be financed in the presence of credit constraints, especially for low-income households; and some workers could be dropping out of the labor force altogether. While a significant shift in technology requires adjustment across all skill levels, adjustment will likely be more difficult and costly for the low-skilled. And technology will have repercussions beyond labor market adjustment. Technology and global economic integration are intertwined and affect cross-country income convergence. For instance, new technologies could increase concentration in product markets and reduce labor shares. They can also redefine the boundaries of firms and the role of employees, potentially fissuring the workplace. Policies can change the impact of technological change. Depending on societies’ preferences for growth versus income equality, governments may want to distribute the gains from technology more evenly. Certain policies, if well designed, could mitigate the trade-off between both objectives. For example, illustrative model simulations show that higher education spending would not only allow low-skilled workers to participate in the gains of technological change, it would also increase output; this holds even when taking into account that higher spending will require higher rates of taxation. More generally, while the use of the tax/benefit system to redistribute the gains from technological advances tends to come with some loss in efficiency, the resulting loss in output tends to be relatively small. Other relevant policies include stronger and portable social safety nets centered on empowering and protecting workers (rather than preserving jobs). Competition policies might have a role to play as well—e.g., in response to more market concentration driven by digitalization—but will have to be mindful of the complex relationship between market power and the creation and diffusion of new technologies.