Digitalization Vs Demographics: How Are They Connected?

The ongoing acceleration of digitalization around the world has had an unparalleled impact in almost any sphere of our lives. Undoubtedly, technology has become an integral part of modern society and its use is affecting every aspect of our daily routines. The majority of the services and resources that we use are now exclusively delivered by technological or digital means. These technological trends apart from simplifying and improving our day to day activities, have been argued to have significant effects on the demand for the labor market. Studies have shown that with the emergence of Artificial intelligence and Robotics several low-level jobs will be substituted by machines, thus reducing the demand for a certain group of occupations. The latest OECD report (2019) states that approximately 14% of jobs are facing risks for being automated whereas 32% have a high chance of being radically transformed in the medium-term.

While looking at the OECD report and its results, a study done by the Vienna Institute for International Economic Studies (wiiw) derives three main ‘limitations’ to this report.

Firstly, this study and other studies of this context, take little reference to the speed and time of the job disruptions and job creation. That means while studies show that there is a tendency for these new technologies to cause job destructions, they do not mention the time interval for this to happen. However, the spread of new technologies is expected to happen at a slower pace and at different speeds across industries. Overall, the process may turn out to be not as disruptive as assumed.

Secondly, apart from only recognizing the negative effect of these new technologies in the labor market, we should also state the positive effect of job-creation that is derived as a result of these new technologies. Lastly, several studies have shown that new technologies are a substitute for labor. While this may be true for some old-fashioned machinery or production lines, it means that for employment occupations its effect rather limited.

The wiiw report further argues that the employment challenges posed by the new technologies have to be looked also from another growing trend, namely demographics, which is characterized by a decline in the working-age population. Even though this trend is more dominant in European countries, labor shortages are on the rise due to aging reasons. Therefore, to combat this issue of decline in labor supply, it is perceived that higher labor productivity growth could be an alternative to sustain the growth of GDP. The wiiw report indicates that on average, the labor productivity growth would need to “increase by about 1 percentage point to sustain real value-added growth, which, on average, is equivalent to about a doubling of the labor productivity growth rates”.

Overall the extent to which technology and digitalization will disrupt the labor market is to be seen in the upcoming years. Here at ECIKS, we fully embrace and adhere to the benefits the digitalization can bring to any organization and are committed to helping our clients transform.

Photo by FranckV. on Unsplash