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The Impact of the Technological Revolution on Labour Markets and Income Distribution

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The Impact of the Technological Revolution on Labour Markets and Income Distribution Department of Economic & Social Affairs FRONTIER ISSUES 31 JULY 2017 The impact of the technological revolution on labour markets and income distribution CONTENTS Executive Summary .................................................... 1 1. Introduction ....................................................... 3 2. A new technological revolution? ....................................... 4 A. Technological progress and revolutions ............................. 4 B. Economic potential of the new technological breakthroughs ............. 7 3. Long term and recent trends .......................................... 8 A. Productivity trends .............................................. 8 B. Sectoral employment shifts and work conditions ..................... 11 C. Income inequality .............................................. 14 4. How does technological innovation affect labour markets and inequality? ..... 17 A. Job destruction and job creation ................................. 17 B. Occupational shifts, job polarization and wage inequality .............. 20 C. Technology and globalization .................................... 21 D. Technology and market structures. .22 E. Technology and the organization of work ........................... 23 F. Technology and the informal sector ............................... 23 G. Technology and female labour force participation .................... 24 5. Looking ahead: What will technology mean for labour and inequality? ........ 26 A. The future of technological progress ............................... 26 B. How will automation affect future employment? ...................... 27 C. Economic and other barriers to automation ......................... 31 D. Other possible long-term implications for employment and inequality .... 31 E. Technology, automation, and global production patterns .............. 33 6. National policies and need for global cooperation ........................ 37 A. Government policies towards new technologies ...................... 38 B. Labour market policies .......................................... 39 C. Social protection and fair distribution .............................. 40 D. International cooperation ........................................ 41 E. Conclusion and the way forward .................................. 43 Works Cited ......................................................... 44 ACKNOWLEDGMENTS This study was conducted in response to a request by the Secretary-General’s Executive Committee (deci- sion No. 2017/43 of 23 March 2017). It was prepared under the overall guidance of Pingfan Hong, Direc- tor of the Development Policy and Analysis Division of the United Nations Department of Economic and Social Affairs (DESA/DPAD), in collaboration with UNDP, ILO and UN Women. The writing team was led by Diana Alarcón, Chief of DPAD’s Global Economic Monitoring Unit. The lead authors of the report were: Matthias Bruckner ([email protected]), Marcelo LaFleur (laf- [email protected]) and Ingo Pitterle ([email protected]) of DESA/DPAD. You may contact them for any inquiries or feedback. Substantive contributions in the form of draft text for sections and boxes and research assistance were made by Daniel Gay, Poh Lynn Ng, Hoi Wai Cheng and Sebastian Vergara of DPAD. Comments and substantive inputs were also provided by: Ekkehard Ernst, Steve Tobin, Santo Milasi and Vinicius Pin- heiro (ILO); Seemin Qayum and Carla Kraft (UN Women); Almudena Fernandez and Sarah Renner (UNDP); Marta Roig, Maren Jimenez and Jonathan Perry of the Division of Social Policy and Develop- ment (DESA/DSPD); and Shantanu Mukherjee, Richard Alexander Roehrl and Clovis Freire of the Division for Sustainable Development (DESA/DSD). Administrative support was provided by Gerard F. Reyes. Editorial and typesetting support were provided by Nicole Hunt and Nancy Settecasi. Executive Summary or revolutionizing health care. Additive or 3D man- ufacturing has the potential to change how products There are many concerns that technological inno- are made and to address many of the problems of vation will lead to increased unemployment, sup- industrialisation in disadvantaged countries, such as pressed wages and greater inequality. However, the least developed countries (LDCs). impact of the new technologies on labour markets and income distribution is not predetermined. The Just as these new technologies hold immense prom- right policy mix and institutional arrangements can ise, they are also seen as a threat, potentially dis- ensure that the benefits of innovation are shared rupting labour markets and contributing to income broadly, an essential step to achieving the Sustain- inequality. The biggest public fear is that robots and able Development Goals (SDGs) for all. This work AI will replace human jobs on a large scale, resulting provides an evidence-based analysis of the link be- in mass unemployment or underemployment—and, tween recent technological progress, labour markets consequently, widespread impoverishment—around and inequality. the globe. In fact, labour has been losing its share of income. An ever-increasing inequality between tech- The promise and pitfalls of nology owners and workers could lead to protracted technological progress social conflict. Technological progress is a main driver of aggregate The destruction, transformation economic growth and improvements in living stand- and creation of jobs ards over the long term. It increases overall produc- tivity, thereby boosting per capita income and con- Estimates of the share of jobs at risk to being au- sumption. While technological progress has mostly tomated vary widely and can reach staggering been incremental and gradual over time, on a few numbers of over 80 per cent. Most analyses suggest occasions, technological change has been revolution- that AI and other new technologies will continue to ary, transforming the organizational structure of so- benefit higher-skilled workers with a high degree of cieties and economies. For instance, mechanization flexibility, creativity, and strong problem-solving and and productivity gains from technology led to large interpersonal skills. Low- and medium-skilled work- declines in agricultural employment and the reor- ers, both in manual and cognitive jobs, are expected ganization of economies and societies around indus- to face further pressures from ever more capable trial and urban centers. However, for this to happen, machines and AI software. This could exacerbate breakthrough technological inventions alone are not the decline of middle-skilled jobs and rising wage sufficient, as diffusion of new technologies is critical. inequality observed in the recent past, particularly in many developed countries. However, it is also possi- Now again, technologies are encroaching in areas ble that future AI-powered robots could increasingly where human abilities were once deemed indispen- displace highly educated and skilled professionals, sable, threatening to do for cognitive ability what such as doctors, architects and even programmers. machines did for muscle power. The pace of break- While there is no reason to downplay the impact of throughs in several clusters of technology—from new technologies on labour markets and inequality, gene editing to machine learning and advanced technology-induced unemployment rates of 80 per materials—may signify that a new technological cent are not part of realistic future scenarios. Tech- revolution is at hand, which could be transformative nologies replace certain tasks rather than complete for almost every industry and every country. occupations and, often ignored, new technologies The growing ability of artificial intelligence (AI) sys- also create jobs and demand new skills from workers. tems to autonomously solve complex problems could Throughout history, technological innovations have fundamentally reshape our economy and society, for enhanced the productivity of workers and created example by developing new forms of transportation new products and markets, thereby generating new 2 FRONTIER ISSUES jobs in the economy. This will be no different for AI, manufacturing. At the same time, many LDCs do 3D printing and robotics. not yet possess the required skills, energy infrastruc- ture, broadband or transport networks to take ad- Both job destruction and job creation are deter- vantage of the new production techniques. Hence, mined not only by technological feasibility, but also one of the biggest risks and international challenges by economic, legal, regulatory or socio-political fac- is that a new technological revolution will cause tors. The mere possibility that a job could be elimi- nated does not mean it will be eliminated. Firms will gains from manufacturing and participation in weigh the benefits of new automation technologies GVCs to become even more concentrated, limiting (for example, a lower wage bill or higher productivi- the scope for structural transformation in countries ty) against their costs. left behind. In fact, low wages partly explain why most develop- Conclusions and the way forward ing countries with abundant cheap labour have so Overall, technological innovation is a main engine far not been visibly affected by automation. There of productivity growth, but can also be a major are also immense legal and regulatory issues. For AI force of disruption. The influence of technology on to be deployed on a large scale in healthcare, for ex- economies is not preordained, but can be shaped ample, it must be decided whether the doctor or the by policies
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