A Closer Look

The three-fold effects of technology and globalization on labor markets

The effects of technology—especially digital innovation—and globalization on labor markets Modern Timesare three-fold.

The first effect is disruption as jobs relocate to take advantage of lower costs, evolve to entail different tasks, or undergo wholesale change with the elimination of old jobs and the emergence of new ones. Disruption is a permanent feature of any dynamic economy, the upshot of markets responding to changing conditions. While the effects of disruption can be devastating for any particular individual or community, its effects for workers as a whole are positive if old jobs are replaced with new ones that are safer, less physically arduous, more stimulating, and provide greater autonomy. This has been the case for the median worker in rich economies throughout modern history up until recently, but less true for developing economies.[1] Today’s patterns of disruption are more discriminating, creating new groups of winners and losers, and can no longer be blithely assumed as a net positive. In addition, disruption is believed to be growing in intensity.

Technology has made capital goods cheaper and encouraged their substitution for workers. The result has been a shrinking share of national income accruing as wages as opposed to profits across rich and poor economies.

The second effect is a diminishing role of labor. Technology has made capital goods cheaper and encouraged their substitution for workers. The result has been a shrinking share of national income accruing as wages as opposed to profits across rich and poor economies. Some analysts view this phenomenon in combination with accelerating disruption as inevitably leading toward large-scale technological unemployment. This is an especially alarming prospect in the developing world where demographics are expected to increase the size of the global work age population by half a billion people by 2030. Another possible consequence is to reinforce the trend toward widening inequality.

The third effect is to decentralize economic activity away from corporations to which individuals provide their labor, toward the crowd in which workers participate as micro-entrepreneurs. This phenomenon is a facet of both the digital economy and globalization with the unbundling and contracting out of ancillary services from firms such as accounting and marketing. It is associated with changes in the terms of employment, both positive, such as increased flexibility, and negative, including the decline of unions and weakened workers’ bargaining power, the erosion of norms on pay equity, and reduced job security. These effects are most apparent in rich economies where the formal sector dominates.

Chosen excerpts by Job Market Monitor. Read the whole story at The future of work in the developing world | Brookings Institution

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