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Society • Technology • Future

The societal impact of technology

Maarten Goos - 14 May 2014

Technological advances in the 1950s and 1960s revolutionised the society and the economy. The lesson for policy makers this time is the need for policies to safeguard equity and equality of opportunity

In the 1950s and 1960s, vacuum cleaners, washing machines, electric stoves, refrigerators, toasters and kettles revolutionised the household. At that time, bright television and magazine advertisements encouraged women to stay at home and create a domestic haven for their families using the new appliances on offer. However, the societal impact of these new appliances turned out to be very different. They released housewives from the shackles of domestic chores and made women choose to join the paid workforce instead of staying at home, leading to a large demographic dividend to labour markets and economic growth in the 1950s and 1960s.

An important question is whether we can expect an equally large impact on labour markets and society from more recent and future digital innovations driven by, among others, Big Data, the Internet of Things, Robotics, Key Enabling Technologies, and Hyper Connectivity. An equally important question deals with the challenges this new digital age poses for policy makers.

1. It’s skills, not technology
One concern that has recently received much attention is the public fear that technology will soon make most of our jobs obsolete. This pessimism already existed during previous episodes of technological change. For example, during the Industrial Revolution, the Luddites violently protested against the use of labour-saving machinery in English textiles. Today, especially innovations in Machine Learning (e.g. IBM’s Watson successfully competed with humans in the television game show Jeopardy!) and Mobile Robotics (e.g. Google’s driverless car) have reinvigorated fears that technology is becoming more efficient than humans in doing many tasks.  

However, disappointing job growth in the future is more likely to result from a lack of worker skills than from too much and rapid technological progress. Whereas new technologies abound, the bottleneck in today’s labour market is a lack of worker specialisation to complement those technologies. For example, one in three adults regrets their choice of study in part because of poor job prospects after schooling. On-the-job training, experience in high performance work practices (e.g. working in problem solving teams, job rotation, information sharing etc.) and lifelong learning complement today’s technologies but are not yet commonplace.

Finally, skill-upgrading should not be restricted to high-paid jobs but also include the development of human talents relative to technology even for less-educated workers. For example, serving tables in a restaurant does not require much education. But a good waiter ensures that customers can enjoy their meal, which is a task that computer programmers still find impossible to express in matrix algebra.

2. Curing Baumol’s cost disease
New technologies cannot be implemented equally across sectors. For example, robots are increasingly used in car manufacturing but not in providing education. Similarly, not all regions in Europe are equally innovative. Bridging these sectoral and regional divides is an important second challenge for policymakers.

If wage growth is more compressed than labour productivity growth across sectors, technological progress leads to different unit labour costs (the ratio of the wage over labour productivity) between sectors and “Baumol’s cost disease” for sectors that can innovate the least. Combined with their increasing employment shares due to job polarisation, this loss in competitiveness for the least innovative sectors implies a drag on economy-wide labour productivity growth. Rather than decreasing the (minimum) wage in the least-innovative and therefore least-paid sectors to restore their competitiveness, policies should aim for increasing their labour productivity instead. This could be done by developing their technological potential or by allowing faster wage growth in more innovative sectors.

Some regions in Europe employ many high-tech workers and are characterised by strong local job multipliers (capturing that high-tech employment also creates other jobs in that region). However, there are also many regions (particularly in Portugal, Spain, South-Italy and Greece) with very limited high-tech employment. Moreover, there is very little “catching-up” by these less innovative regions relative to the more traditional high-tech hubs. An important policy challenge to improve the competitiveness of less innovative regions therefore is to stimulate high-tech employment there and to coordinate wage policies across Europe that allow for stronger wage growth in high-tech hubs.

3. Tackling rising inequality
Policies should care about the efficiency of outcomes from decisions made by workers, firms and households following recent technological progress. For example, governments can use online platforms to better match jobseekers to vacancies; can stimulate high-tech employment by helping firms implement new technologies; or can create public support for the acceptance of new technologies.

Besides improving efficiency, policies should also safeguard equity and equality of opportunity in society. Although there is only limited scientific evidence yet on the precise relationship between income (both from wages as well as capital) inequality and ongoing technological progress, there is a consensus among academics that top-income inequality is rising in most advanced economies. The coordinated taxation of capital income could tackle rising top-income inequality and end competition between governments to attract capital in a race to become a capital tax haven.

Maarten Goos is professor of economics at the University of Leuven

This is a contribution to the “Making Progressive Politics Work” publication ‒ ideas and policy proposals from 40 leading international experts.

Tags: Maarten Goos , Opinion , Progressive Governance Conference , Progressive Governance , Growth , Social stability , Living standards , Policy Network , Global Progress , Competitiveness , Growth , Solidarity , Globalisation , Centre-left , Centre-left , Europe , EU , European Union , Eurozone , Southern Europe , Northern Europe , Production , Productivity , Growth , Wages , Investment , Jobs , Globalisation , Equality , Pre-distribution

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