Future of Work in Europe – Innovation will create jobs in the future, but they will be in occupations other than those destroyed by technology

This STOA study investigates the potential employment effects of new information and communication technologies, by examining the relationship between innovation, new technologies, employment and inequality. It reviews the existing literature and experiences of previous technological revolutions, and argues that the race between job creation through new products, and job destruction from process innovation, has been won in the past by the job-creating effects of innovation. It concludes that there is an uneven distribution in the costs of digitalisation, because of the skills-biased nature of technological change – so the challenge of the future lies in coping with rising inequality from technological change. The study also proposes a set of policy options for dealing with the employment effects of digitalisation.

The relationship between new technologies, employment and inequality has gained a lot of attention in recent years. One reason for this interest is alarming reports about possible negative consequences for employment from the widespread use of new information and communication technologies (ICTs), including machine learning, digitalisation of production, robotics and automated vehicles. (Frey and Osborne 2013, 2017, Brynjolfsson and McAfee 2014, Ford 2015).
Innovation and employment
The pessimistic view on the impacts of new technologies is the starting point for a short review of the literature on employment and innovation, analysing the successful creation and commercialisation of new products and processes. On examining the existing literature, we can be optimistic about the future: in the past, innovations were mainly labour-friendly; the literature regards innovation and technology as the main drivers of economic growth and new employment, at least in the long run. A number of scientific contributions show that innovation destroys, but also creates employment. The race between job creation through new products and job destruction from new process technologies has in the past been won by the job-creating effects of innovation. There is no guarantee for a happy end this time; however, an important lesson from the past is that we tend to under-estimate the job-creating potential of fundamental technological transformations, because we lack sufficient knowledge and imagination about the types of jobs that will be created under the new technological paradigm.

New technologies and the demand for skills

The literature on new technologies and employment also features some worrying findings, in particular, that technological change is not skill-neutral. New technologies tend to favour some particular skills while devaluing and making others redundant, but also lowering the demand for them by firms that use such new technologies. The literature describes this trend as ‘skill-biased technological change’. Moreover, some authors have found that new technologies increasingly substitute routine tasks, and have labelled this phenomenon as ‘routine-biased technological change’. There is a high share of routine tasks not only in manual occupations, but also in white- collar and administrative ones.

Acemoglu and Autor (2011) show that the demand for routine jobs and tasks has fallen considerably in the US, regardless of whether these jobs and tasks have a cognitive or a manual character. As a consequence, demand for middle-skilled people has decreased, while demand for both high-skilled and low-skilled (paid accordingly) ones has risen. This trend has been labelled ‘job polarisation’.

The development of the European labour markets in the last 20 years has followed the path of skill-biased technological change (see the figure below). The number of jobs and occupations that require only low skills has constantly decreased. It is, however, difficult to say if this is due to the introduction of new technologies or to globalisation. There are also some contributions that have identified trends of job polarisation in Europe, but the evidence for Europe is weaker than for the US.

Innovation will create jobs in the future, but they will be in occupations other than those destroyed by technology, and will be characterised in particular by a low share of routine tasks and a high share of tasks that require creative and social skills. This includes many health, education and social occupations.

Technology and inequality

The challenge of the future – besides increasing innovation to spur employment growth – lies in coping with rising inequality as a result of technological change. Skill-biased and routine-biased technological changes are two mechanisms that may increase inequality, because they favour particular groups of the workforce and reduce the employability of other groups, in particular low- skilled workers who already bear a considerable share of the adjustment costs of innovation. The risk of displacement of their jobs is higher, and the number of available jobs that require only low qualification decreases.
Evidence shows that Europe witnessed growing income inequality between the mid-1980s and the late 2000s. In the past 10 years, there has not been any overall increase in income inequality in the EU. However, we find evidence that inequality between people engaged in elementary occupations and others in high-skilled ones has increased. The wage gap between managerial and elementary occupations has widened, which points to the role played by skill-biased technological change with regard to inequality in European economies. Romania, Portugal and Bulgaria reveal the highest inequality between occupations, while Sweden, Denmark and Ireland have the lowest wage spread.
The future organisation of work

Digitalisation is expected to change not only the volume of work and the demand for different skill levels, but also the organisation of work. Individual tasks performed by people will increasingly become tradable over the internet. Experts believe that the share of tasks performed outside the firm and the share of self-employed people who work on a project-by-project basis for various clients will increase (‘platform workers’). As a consequence, firms will gradually shift to more project- oriented organisational structures instead of fixed hierarchies. Such a ‘platform’ or ‘gig’ economy may lead to more self-determination and a better work-life-balance for employees, but may also result in more insecurity and periods of involuntary unemployment. Moreover, self-employed platform workers often lack legal protection and the various social benefits to which employees are entitled.

Digitalisation and the social economy

How will digitalisation affect employment in the social economy or the third sector, including social assistance services, education and training, or work integration? The social economy provides employment to many people who would not find work in other areas of the economy, because they lack the necessary skills or have special needs. Increased pressure on the job market for elementary occupations will also put strain on the jobs in the social economy. However, the social economy also includes a large number of non-routine tasks in health, social work, education and other areas, which are difficult to substitute by ICTs. Moreover, new ICTs may also provide new tools for the social economy to organise help in a more efficient way.

Chosen excerpts by Job Market Monitor. Read the whole story at The impact of new technologies on the labour market and the social economy – Think Tank