When technology progress is not matched by our skills
Series: The inequality created by innovation Part 3
Photo by Alexandre Debiève on Unsplash
Innovation inevitably plays a key role in long-term economic growth [1]
General-purpose technological revolutions are very disruptive. Such disruptions occur when “new technology is very flexible and pervasive”, influencing and modifying the day to day of great masses with its appearance and use. Think of the cellular phone, the electricity, the steam machine, to name some. All of them brought economic growth and improvements to our daily lives.
“By their very nature, general-purpose technological revolutions are also highly disruptive. The Luddites of the early 19th century resisted and tried to des troy machines that rendered their weaving skills obsolete, even though the machines ushered in new skills and jobs. Such disruption occurs precisely because the new technology is so flexible and pervasive. Consequently, many benefits come not simply from adopting the technology, but from adapting to the technology.”
The Impact of Digital Technology on Society and Economic Growth - IMF F&D Magazine - June 2018 | Volume 55 | Number 2
However, as we have read in part 1 and part 2 of this series, the benefits of the economic growth are not being equally distributed, nor geographically nor in terms of gender. Equally important, not every person nor every industry sector is prepared to grasp the productivity gains produced by innovation.
Skill biased technological change and the upscaling of some
Technological diffusion is a term used to explain how quickly and deeply technology is being adopted for mainstream use and the realization of its benefits. Once a new technology has been adopted massively or changed the way we conduct our daily life, we can say that it has a high technological diffusion. [10]
One effect of high technological diffusion is that it leads to a change of structure of employment in favor of skilled workers. This is not different for any type or level of economic country development. This is what is called Skill biased technological change.[2]
“Skill biased technological change is a shift in the production technology that favors skilled (e.g., more educated, more able, more experienced) labor over unskilled labor by increasing its relative productivity and, therefore, its relative demand. #PermNote [[biased technological change]]” Prof. Violante [9] - NYU.
Skill biased technological change (SBTC), has been there with us since the beginning of our times. And has always favored those who are quick to learn and adapt to the new technologies. Those with the right skills and education will take advantage of the arrival of new technology and will thrive with it.
We are not talking about just any kind of skill to be favored, we are talking about those skills that are not easily routinized, that require creativity, deep reasoning, analytical time, expertise.
Source 2017 Technological Change and the future of work, David Gruen, Australian Government
Several studies have confirmed the correlation between technological change and the increasing demand for high-skilled and educated people. Those studies also confirm the race between education and innovation, where to keep innovating it is necessary to improve the supply of high-skilled people into the process. [5] [9]
Studies also found that while the demand for high-skilled labor increases and their productivity and opportunities get boosted, the jobs and opportunities for middle-skilled people, those jobs with routinized tasks, diminish in availability and salary terms. These types of jobs are affected even more deeply than low skilled jobs, becoming vulnerable, slowly creating a middle hollowed skill-based job structure, with high-skilled labor on one end and low-skilled labor on the other [5]
“Those whose skills are substituted by smart machines lose out. Those whose skills are augmented by smart machines, allowing them to achieve better results at a lower cost, win. And those who own these machines win, too. - World Economic Forum [7]
Technology often does the routine tasks for us, thus allowing highly-skilled people to focus more on non-routine, abstract tasks that... set them apart. The routine tasks are often the bread and butter of the low-skilled worker however, so the new technology harms their prospects.
Source: 2017 Technological Change and the future of work, David Gruen, Australian Government
Innovation equips high-skilled labor to increase their productivity, which in turn increases their attractiveness and income. As technology evolves, routinary work will diminish and most probably will be replaced by higher analytical jobs, as well as by those jobs that require human empathy and creativity. [5][7]
The inter-sector skills gap
At the end of the 20th century, most countries have increasingly concentrated on their innovation activities in a few specific sectors [6]. This way a country makes efficient use of its public and private capital and resources: targeting those niches where the performance of the return on investment (ROI) will be the highest.
The problem of concentrating innovation is that it promotes talent mobility to and hoarding from those sectors that are the receivers of the capital and policy promotion, and therefore need that skilled talent, but leaving other sectors of the economy with lower innovation and productivity opportunities.
In England, the focus on and promotion of the Financial tech and creative entertainment industries are attracting high-skilled persons to those sectors, not only from England itself but also from all Europe, Asia, and America. While the effect on England’s financial industry is of important growth and capital attraction, the secondary effect on England’s manufacturing industry is relegation and lack of support to get the resources that global competition requires.
Technological differences between economic sectors create unbalance in talent and capital allocation, positioning the less favored, not only for the present but also for the medium term, if nothing else is done, to lose competitiveness both in local and global markets.
Our choice: Continuous purposeful upskilling or being left behind
When a potentially disruptive technology appears, it takes around three years to show its effects, both in labor and productivity. This seems to be the average time it takes people and companies to learn and integrate the innovations into their activities and gain the benefits.[5]
When new technology is ripe for use, the ones that learn to adopt and adapt to it are the ones that reap the most benefits, not only at the moment of adoption, but also for the long run, as this increased productivity, improved skills and capabilities position them with an advantage that allows them to adapt and adopt new technologies easier, compared to those who waited until the new tech is no longer an edge, but a requirement. This is as true for people as it is for companies.
We need to make sure we are not left behind: every new technology cycle that we miss, not only reduces our productivity and competitiveness compared to others which did embrace it but also impairs us from adopting and adapting to the upcoming new technologies and makes much harder for us to catch up.
Technology is evolving so quickly, and perhaps people and companies are struggling to understand which skills are needed, or they simply don't understand that the demand for high-skilled labor will only grow while those middle-skilled jobs will continue diminishing over time.
We need to invest in our education and skills, this will allow both companies and people to effectively absorb and adopt the knowledge we create and that is created elsewhere. We need to build a curriculum, for our own sake, that promotes those foundational skills of innovation - imagination, creativity, flexibility, analysis, problem-solving, solution composition - not only for those in the tech industry but elsewhere too.
We are facing an era where there is an unequal boost in opportunities and growth for those that can grasp new technologies, and we also are being challenged by an incredibly unequal skills supply: The OECD found in 2019, that over 28% of adults living in Developed countries were barely able to complete the most basic digital skills, limited only to writing emails, but not being able to use spreadsheets or word processing applications. [4]
Several studies have confirmed the positive impact of education investment over productivity and income, the higher the education and skills, the higher the household income. The same is true for companies, the higher the use of new technologies, the higher their productivity. Therefore it is in our best interest to invest and develop the skills and knowledge needed to adopt new technologies because this will not only enable us to compete in the present but also prepare us for the future.[3]
Ray Dalio, states that education, investment levels, and culture are the drivers of competitiveness at all levels:
“In other words, there's a world market for productive resources that increases the demand and hence the growth rates, for the countries that are most competitive because of “the cost of production arbitrage, ...the magnitude of this competitiveness arbitrage is driven more by the cost of the workers relative to how hard they work, their education, and investment levels, than by anything else”
The level of education has a significant impact on the income of individuals and social welfare as a whole, the higher, the better the benefits for the collective, but if a higher level of education is not accessible to all, it will create a wage gap between the educated and uneducated ones. [2]
“Inequality as a result of technological innovation isn't a forgone conclusion, but it's clear that society as a whole needs to get much better at improving the skills development of all citizens if the dividend is to be spread more widely.”
Technology Isn't Destroying Jobs, But Is Increasing Inequality - Forbes
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