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Home Opinion Training and protecting in the innovating economy
Technology • Labour • Social Protection

Training and protecting in the innovating economy

Pierre-Yves Geoffard - 07 January 2016

The state must enable workers to take advantage of opportunities offered by new technologies, while adapting social protection so that it offers security in this high-risk, high-opportunity world

Like any period rich in innovation, the 'digital revolution' generates both, hope and fear. There is hope for new opportunities: new jobs emerge, more productive technologies create more wealth through less work and the use of intelligent machines relinquishes people of physical work; as well, more mutually beneficial exchanges are possible through a better flow of information. However, there is great fear of threats to many too: skills once valuable have now become obsolete; jobs which are created are structurally precarious, and the benefits of innovation remain concentrated within a few without benefiting all, subsequently increasing inequalities and threatening the cohesion of society.

So how can we limit or offset the negative consequences of digital innovation to unlock the potential created by these new technologies? In at least three areas, our societies must evolve profoundly: education, social protection, wealth redistribution.

Digital technologies penetrate all sectors of the economy, and deeply affect the organisation of our society; sometimes this is gradual, sometimes it is sudden. The smooth and fast flow of information that is distinctive for the ‘digital revolution’ is primarily a phenomenon of generalised disintermediation. The most striking examples of this are well known: AirBnB puts owners of homes in direct contact with potential tenants, eBay connects sellers and buyers, Uber links car owners and those wishing to be transported, etc. Previously, these relations were based on intermediate structures whose function was to collect relevant information, both on the supply and demand for these services. Therefore, perhaps less spectacular but equally important; the removal of intermediate levels lead to the formation of companies that are less hierarchical and slimmer than the large industrial enterprises that emerged during the industrial revolution. Middle management loses importance and is seen to be directly threatened by the direct flow of information between different individuals or entities making up a business.

The recent works of Ariel Reshef, James Harrigan and Farid Toubal [1] indicate that the destruction of intermediate jobs is especially prevalent in the top technology companies. It seems that the digitalisation of the economy renders employment obsolete whose tasks, manual or intellectual, has a rather repetitive nature; these jobs have also long been the preserve of the middle classes. Many countries experience a fragmentation or ‘dualisation’ of their labour markets: jobs created are both very skilled and well paid, or they are at the bottom of the ladder, insecure and poorly paid. This disappearance of intermediate jobs through information technology bypasses the core function of middle-income jobs, putting the richest and poorest in relation with one another.

Beyond these effects of disintermediation, many digital innovations make it possible to perform a set of tasks consisting of intellectual, but sometimes repetitive, content (accounting, back office, etc) automatically. The danger lies in the eradication of intellectual activities processing and synthesising information, tasks which can now be assigned machinery capable of handling infinitely large amounts of data that the human brain cannot grasp. So it is not only low-skilled workers, whose tasks can be performed by machines, which are under threat, but also many service trades too. The overall result is that many intermediate occupations, traditionally held by middle class workers, are directly threatened by digital innovations, which has made them more efficient with the help of ‘machines’, of ‘robots’ or ‘algorithms’.

These fears are legitimate, in part: innovation has certainly destroyed existing jobs; but the effect on total employment and unemployment that digital innovation has is not necessarily negative. Everything depends on social and political responses made to the challenges posed by changing technologies.

The first positive effect of innovation on employment is well known and often mentioned: if machines make certain human activities obsolete, we must also have a need to design, build, and manage these machines. This innovative destruction creates new, highly skilled business. Consequently, we need fewer workers but more engineers. So the first benefit of technological innovation is that it leads to productivity gains, and allows us to produce equal amounts of goods with less human labour. However, it is illusory and absurd to expect that these new jobs will be as numerous as those that are destroyed. This net job destruction has always been the effect of innovation, and this effect is profoundly beneficial: it is nothing but the only long-term engine of progress of human societies that entrusts more and more tasks to machines clearing people’s time, free to focus on other, often more rewarding, activities. The invention of the washing machine has destroyed the jobs of thousands, even millions, of washerwomen, but the spread of this technology has meant that hundreds of millions of people do not have to devote many hours each day to household laundry.

The second effect of innovation is macroeconomic, less immediate and less guaranteed.  Gains in productivity and more skilled jobs result in increased revenues. These income gains translate into increased consumption and therefore demand for many goods and services whose production requires labour: as a result, employment may increase. However, this looping effect is not mechanical. Because income from increased productivity benefits primarily the holders of capital, be it physical capital (for instance the owners of machines) or human capital (highly skilled workers who design or operate machinery).

Moreover, the most visible innovations include digital direct linking platforms of individuals to different situations but may engage in a mutually beneficial exchange. These platforms are strongly increasing returns to scale, and often have all the characteristics of a natural monopoly; even more than in traditional sectors of the economy, digital innovation is conducive to the phenomenon of the ‘winner takes all’ mentality grounded in the unprecedented speed of formation of considerable fortunes for a few individuals who had the right idea at the right time, and have been able to put this idea into practice.

But if the ‘winners of innovation’ are already rich or very rich, they spend their income gains to savings more than consumption, reinforcing the concentration of wealth without feeding new jobs. Certainly, they can also, as in any highly unequal society, appeal to many domestic services. But the prospect of a polarised world where the general population works in order to make the lives of a few Bill Gates or Marc Zuckerbergs more comfortable may not be more encouraging.

We see that for technological innovation benefits all, yet two things are needed: first, that enough workers are ready to perform the jobs created by new technologies; and second, that income gains are sufficiently divided, which is important both in terms of social justice but also to indirectly feed a demand for goods and services resulting in job creation.

If the number of workers trained in more skilled jobs is not increasing at the same rate as corporate demand for this type of work, innovation will result in a strong polarisation of wages. The Dutch economist Jan Tinbergen has identified the importance of this ‘race between technology and training’ as a powerful factor in increasing inequality. The only way to meet this danger is to invest heavily in education: they must be trained for future trades.

But what are the jobs of tomorrow or after tomorrow, in societies where workers will also have life-long careers? Nobody knows. The only certainty is that it will, throughout people’s careers, form new businesses and that more time should be devoted to it. Unless you accept that technological evolution leaves whole battalions of workers ‘on the tile’, educational systems must be adapted to match the needs of people’s life-long careers. In the future, initial training should prepare young people, not just for business today, not even the jobs of tomorrow, but for the training of tomorrow that allows them to constantly adapt their skills to an ever-changing job world, which in turn will prepare for careers after tomorrow.

The fight against the forces that, through innovation, lead to an increase in inequality is also necessary. Redistributive tax policies – taxing human or physical capital – have a crucial role to play in preventing such abuses. But such policies are themselves threatened by freer movement of capital, including financial, through the country. With the fight against tax havens increased coordination of fiscal policies across Europe it seems to be a minimum requirement in order to avoid tax competition between countries. As a result, this process has led to taxing less mobile production factors, ie the less skilled labour, producing deleterious effects on employment and incomes of these categories of workers.

The changes in work itself deserve our attention too. Not only will the jobs of tomorrow not be the same as those destroyed by new technologies, but the form itself may be very different, much more flexible but also more precarious. The role of platforms for the rapid exchange of real-time information on supply and demand for services is also crucial. The most striking example is urban transport: demand is structurally fluctuating, greatly challenging its levels of permanent supply. The flow of information allows workers to quickly determine and locate the upsurge of potential demand. The type of job created is precarious and uncertain, but allows individuals excluded from the ‘traditional’ labour market to take advantage of new opportunities for rewarding employment [2]; how then should companies be organised to allow these jobs to exist, while protecting workers who are engaged in such activity?

In many countries, the protection mechanisms against the major risks of life, unemployment, retirement, family or illness, are based on architecture that dates back to a period of high growth, full employment (male), and stable family structures. As the social rights were attached to the stable, full-time employment position of the householder, all family members used to be covered against risks. These models do not respond well to increased job insecurity. Today, job loss is often losing access to social protection, which adds to the precarious insecurity, and makes the effects of unemployment even more dramatic. We need to rethink social protection in depth: it is individuals who need to be covered against these risks, regardless of their activity, employed or not. Moreover, even if not directly from social protection, access to housing can also be weakened by the absence of regular income and stable characteristic of wage labour.

Digital innovation raises a crucial question with respect to social issues: should we protect the past from the future, or the future from the past? Preparing workers for the future means greatly increasing the training efforts of individuals but also enabling those who lose their jobs to not suddenly lose the social rights associated with that job. It is necessary to enable them to do everything they can to take advantage of opportunities and activities kicked-off by new technologies, and to adapt social protection so that it specifically protects workers engaged in precarious work.

Pierre-Yves Geoffard is director of the Paris School of Economics. He has been a professor at the school since 2006 and his research interests include public economics, the economics of information and the microeconomic foundations of public health policies



[1] The March of the Techies: Technology, Trade, and Job Polarization in France, 1994-2007, http://people.virginia.edu/~ar7kf/papers/Harrigan_Reshef_Toubal_September_2015.pdf

[2] The registration data of drivers VTC show that they are particularly concentrated in areas with high unemployment, low education level, and low wages. http://variationseconomiques.net/tag/vtc/

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