International business economics THE IMPACT OF DIGITAL ECONOMY ON THE LABOR FORCE

FOREIGN TRADE UNIVERSITY ECONOMICS AND INTERNATIONAL BUSINESS DEPARTMENT   International Business Economics THE IMPACT OF DIGITAL ECONOMY ON THE LABOR FORCE Nguyễn Phương Hoa 2012150034 Đỗ Quỳnh[.]

FOREIGN TRADE UNIVERSITY ECONOMICS AND INTERNATIONAL BUSINESS DEPARTMENT  _ _ International Business Economics THE IMPACT OF DIGITAL ECONOMY ON THE LABOR FORCE Nguyễn Phương Hoa- 2012150034 Đỗ Quỳnh Chi- 2012150014 Đại Thị Tuyết Chinh- 2014150206 Class: KTEE308.2- K59 Lecturer: Nguyễn Bình Dương Ha Noi, December 3rd 2021 TABLE OF CONTENTS 1.Theoretical background .4 1.1 Digital economy and Digital Transformation Key Concepts and Definition .4 1.2 Analysis of current state Methodology Impact of digital economy on the labor force 3.1 Opportunities .7 3.1.1 Productivity enhancement 3.1.2 New job opportunities 3.2 Challenges .10 3.2.1 Job displacement/ Sectoral shift .10 3.2.2 Requirements for reskilling, upskilling, and soft sills; higher adaptability and flexibility .13 3.2.3 Income inequality/ wage polarization .14 Policy implications 15 4.1 Implications for employment policies .15 4.2 Implications for skills policies 15 Conclusion 16 Abtract This paper looks to understand the two-fold impact of digital economy on labor market outcomes, based on existing literature and data from World Bank, European Commission, OECD, et cetera In recent years, the digital economy has achieved rapid development, especially playing an irreplaceable role in increasing productivity, creating new job opportunities, and adjusting employment structure Since digital technologies enable the production of more goods and services with less labour, they expose some workers to the risk of unemployment or lower wages They also result in the requirements for upskilling, with implications for the capability of existing policies and programmes to ensure employment and skills development To take advantage of the adoption of technology, the government will need to focus on policies to foster growth and employment in new economic activities enabled by digital technologies Introduction The fourth industrial revolution (4IR), also known as industry 4.0, is upon us The rapid advancement of new emerging technologies and the escalation in technology usage is altering our society and penetrating every sector of the economy Continuous technological development is an essential condition for companies to maintain their competitive advantage This technological development can be examined via the example of earlier industrial revolutions However, the most significant technological and labor market turnaround were brought about by the third and fourth industrial revolutions, whereby computer-controlled automation was replaced by the digital transformation of the fourth industrial revolution, wherein devices communicate autonomously along the value chain The spread of automation, robotics, digitalization, and the use of virtual autonomous systems has already led to an analysis of the impact on the workforce by many researchers.  According to research on this topic, automation and digitalization are some of the most relevant labor market topics today, as the technological revolution brings about significant employment changes, the replacement of human work by robotics, and the need for workers and companies to adapt to changing conditions, as well as its social and economic impacts Technological development enables networked machines, computers and algorithms to take over considerable parts of work currently done by humans It transforms the tasks needed to be performed to complete the work and the work processes A demand for new work that has never been needed before is being created Therefore, workers need to improve and change themselves to adapt to the digital area Additionally, job transformation will likely lead to an increase in income inequality among different categories of employees The goal of this study is to investigate the effects on the labor market of digitalization based on existing studies Digitalization and the use of industrial robots are widespread; however, opinions are divided on their mass appearance, and the extent of their effects on employees and jobs On the one hand, digitalization stimulates further development, demanding more innovative approaches in order to be capable of actively participating and shaping the digital transformation It influences the expectations for the competencies of both the employers and employees Hence, productivity will increase significantly On the other hand, the projections on the future demand for knowledge and skills reveal that digital technology is more likely to displace primarily routinized work than low-skilled work, and therefore can be the first revolution that takes away middle-class jobs Consequently, it can lead to the point where the worst jobs, not only in terms of income but more demanding physically and less safely, are left for humans Workers will need to improve their capabilities or switch to another jobs This requires flexibility and adaptability of each individual For those aforementioned difficulties, to successfully overcome the challenges created by digitalization in the labor force, policies of the government and programs are essential THEORETICAL BACKGROUND 1.1 Digital economy and Digital Transformation Key Concepts and Definition There is no common agreed definitions of digital sector, products, or transactions, let alone the digital economy (IMF, 2018) The “digital economy” is sometimes defined narrowly as online platforms, and activities that owe their existence to such platforms, yet, in a broad sense, all activities that use digitized data are part of the digital economy: in modern economies, the entire economy As highlighted by UNCTAD (2017), the evolving digital economy can be associated with an increased use of advanced robotics, AI, the Internet of Things (IoT), cloud computing, big data analytics and three-dimensional (3D) printing “Digitalization” is defined as a process that digital technologies, services, products, techniques, and skills are diffusing across economies, and businesses make use of these factors (Brennen and Kreiss, 2014) Under the study entitled “Vietnam Today: The First Report of Vietnam’s Future Digital Economy Project” implemented under the partnership of the Ministry of Science and Technology and the Australian Government, the following broad definition is used: “Digital economy is all businesses and services that have a business model based primarily on selling or servicing digital goods and services or their supporting equipment and infrastructure.” In the EU, the Strategic plan 2016-2020 – Communications Networks, Content and Technology of the DG Connect articulates the aims of “creating a Digital Single Market for more growth and jobs, where citizens, businesses, and public administrations can seamlessly and fairly access and provide digital goods, content and services” Digital transformation is defined as “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies” (Vial, Gregory, 2019) Digital transformation is essential to all businesses, regardless of size and industry Digital transformation describes the practice of business organizations using technology to optimize their current processes and enhancing customer experience - in order to stay competitive and relevant in the new customer-centric economy Yet, digital transformation is more than just simply installing new software or moving to the cloud - digital transformation, at its core, is all about business, and requires business expertise and involvement from business users Even though digital transformation is driven by an everchanging customer expectations in a new business landscape that is highly connected and digital savvy, simply executing transformation with just technology alone is inadequate Digital transformation requires the right mix of business and digital expertise to make the whole endeavor a success 1.2 Analysis of current state Automation as a part of digital transformation of businesses is a critical and one of the most important issue which will be affecting the labor market in the near future (Goos 2018) As we can see in the figure and according to the OECD publication “Job Creation and Local Economic Development” (2018) at the beginning of the century, 100 000 industrial robots were delivered to the businesses each year across the world By the 2016 this number has reached 300 000 annually Figure 1: worldwide annual supply of robot in OECD countries Based upon this, the aggregate pattern is reflected in an increase in the use of robots in several OECD countries Many economic models predict that increasing digitalization and a growing use of industrial robots will lead to higher labor productivity growth Some workers will benefit from new technology that makes their jobs more pleasant and leads to rising wages Other workers will struggle to adapt to the new environment and will face job losses This means that the importance of some jobs will decline and gradually such job positions will disappear and, on the contrary the importance of some jobs will increase significantly With the widespread adoption of Wi-Fi, connecting devices to an Internet connection has become quite simple And now, practical appliances such as your television, coffee maker and refrigerator can all be a part of the IoT However, the practical implication of IoT technology goes far beyond the home Within the next two years, it’s projected there will be four IoT devices for every human being which means more than 24 billion IoT devices across the globe Research on the impact of AI within the workforce presents two polarizing viewpoints It’s seen as extremely beneficial in efficiency But at the same time it’s believed to be the biggest employment disruption since the last Industrial Revolution Georgios Petropoulos, an industrial organization researcher, outlined what roles he believes to be most directly impacted He argues that mid-level jobs requiring routine manual skills are at risk The author argues that in the long run, initial labor displacement effects of jobs with routinized manual or cognitive skills, as in previous industrial revolutions, will be compensated for by the growth in non-routine jobs at the high and low end of the economy (Georgios Petropoulos, 2018) During the COVID pandemic the use of digital technologies has skyrocketed and with it Artificial Intelligence is taking a very prominent role According to the data from the McKinsey Global Institute, AI can potentially add 16% to the global economy by 2030 and boost the global gross domestic product GDP up to 26% 2020 is the year that moved AI out of the corners and into the mainstream The "early adopter" advantage is petering out, with a Deloitte survey revealing that only 27% of enterprises now rank as "starters" in terms of AI adoption, while 47% are considered "skilled" and 26% "seasoned." 71% of participants plan to increase their investment in 2021, and the IDC forecasts that AI spending will grow to $97.9 billion by 2023, 2.5 times that of 2019 (Ofer Razon, 2021) As AI becomes ubiquitous, the most mature organizations are looking for more use cases While AI is still primarily utilized for IT, cybersecurity, and engineering and production, it's seeping into more business-critical functions like marketing, legal, HR and procurement (Ofer Razon, 2021) Advanced enterprises are moving on from using AI to automate processes and optimize efficiency and are becoming more creative AI is slowly being used to develop new products and services, with seasoned adopters rating this as the second most desired outcome, while starter adopters still rank it a distant fourth (Ofer Razon, 2021) METHODOLOGY The aim of the paper is to analyze, define and characterize the impact of digital technologies on the labor market In order to achieve this goal, at the introduction we defined the context in which the subject was dealt with As part of the analysis of the current state, we applied secondary research, which consisted of data collection and processing methods and their subsequent analysis and synthesis The main sources of realized secondary research are the publications of foreign authors and research reports from the OECD and the World Economic Forum In the research, we conducted, we examined the correlation and the trend between the selected data we obtained from the OECD (2018) statistical databases and which we also used to analyze the current state Data of employment and unemployment are from year 2013, same as data on jobs with high risk automation which are from year 2013 Countries whose data we taken into account are: Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Israel, Italy, Japan, Korea, Lithuania, Netherlands, New Zealand, Norway, Poland, Slovak Republic, Slovenia, Spain, Sweden, Turkey, United Kingdom an United States The research is dedicated to characterizing trends that may have an impact on the labor market IMPACT OF DIGITAL ECONOMY ON THE LABOR FORCE 3.1 Opportunities 3.1.1 Productivity enhancement Digital transformation creates an opportunity for improving productivity growth by enabling innovation and reducing the costs of a range of business processes Yet, over the past decade, there is a negative correlation between the growth of digital technologies and productivity (OECD, 2019) Figure 2: Productivity growth across OCED countries However, OECD work shows a hope for the future Although not yet showing up in the aggregate productivity data, digital transformation is starting to have impacts on productivity in individual firms and certain industries as well Further and larger impacts are expected to evolve alongside with the evolution of digital transformation and digital technologies (OECD, 2019) Figure 3: Firm productivity supported by adoption of digital technologies (Annual gain in multifactor productivity associated with technology adoption (average EU firm) Figure 4: Digitalization impact on industry productivity (1 Data are from six OECD countries: Australia, Germany, Norway, Sweden, the U.K., and the U.S This data is based on a 10 percent increase in digitization Services refers to overall services other than financial services.) Another case in Vietnam, according to a publication titled "Annual Vietnam Economic Review: Improving Labor Productivity in the Digital Economy" published by the National Economics University (NEU) in 2019, the digital economy can contribute between 7% and 16.5 percent to the overall growth rate of labor productivity each year from 2020 to 2030 The digital economy makes a significant contribution to the overall economy's productivity and efficiency, and it provides a new driving force for rapid increases in labor productivity According to the report, the digital economy has the greatest impact on labor productivity in the fields of science and technology, financial - banking activities and insurance, real estate, and ICT, while having the least impact in agriculture, forestry, and fisheries, and a minor impact in processing and manufacturing 3.1.2 New job opportunities Digitalization has proved to create new job opportunities for the labor force Despite automation, the demand for work and workers could increase as economies grow, partly fueled by productivity growth enabled by technological progress (Mc Kinsey 2017) Figure 5: Digitization’s regional impact on GDP and jobs in 2016 However, this positive employment impact is statistically significant only in high- and medium-tech manufacturing sectors, while irrelevant in low-tech manufacturing and in services (Vincent Van Roy, Dániel Vértesy, Marco Vivarelli 2018) Strong employment growth in digital industries like Internet, Computer and Network Security, and Computer Software industries in the last years is experienced among countries across the development spectrum and geographic locations(World Bank 2018) 10 Figure 6: Digital Industry Development Growth from 2015-2017 However, digitization may have more far-reaching results on this issue in developing countries Together with economic growth, rising wages and consumption, as well as increased health care for aging societies, infrastructure and energy investment, other factors included, will stimulate demand for labor, which may assist to counterbalance worker displacement Additional investments such as in infrastructure and construction, beneficial in their own right, could be needed to reduce the risk of job shortages in some advanced economies (McKinsey 2017) 3.2 Challenges 3.2.1 Job displacement/ Sectoral shift The widespread use of digital technologies has spurred the demand for high-skilled, technology-based employees, while making the low-qualified ones redundant According to various authors (Brynjolfsson and McAfee 2014; Harmon and Silberman 2018, Rifkin 2014), the current technological revolution presents some radical new 11 prospects that can result in significant changes not only in how we produce and conduct business, but also in the entire economic system By 2022, 38% of businesses intend to extend their workforce to new productivity-enhancing jobs, and more than a quarter expect automation to help them establish new positions (the World Economic Forum's "Future of Occupations" survey, 2018) Businesses plan to increase their use of contractors to perform task-specific work, as well as engage workers in a more flexible way by deploying remote workforce outside of physical offices and decentralization of operations Another point has been added is that there will be a significant shift in the quality, location, format and permanency of new roles Study further adds that among the range of roles that are set to experience increasing demand in the period up to 2022 are established roles such as data analysts and scientists, software and applications developers, and ecommerce and social media specialists that are significantly base on and enhanced by the use of technology (Corejova, Al Kassiri 2016) Also expected to grow are roles that leverage distinctively human skills – for example customer service workers, sales and marketing professionals, professionals in the field of training and development, organizational development specialists and innovation managers An increased demand is expected for a variety of new specialist roles related to the new emerging technologies Such roles are AI and machine learning specialists, big data specialists, process automation experts, information security analysts, user experience and human-machine interaction designers, robotics engineers and blockchain specialists Across the industries surveyed in the study, jobs expected to become increasingly redundant over the 2018-2022 period are routinebased, middle-skilled white-collar roles – such as data entry clerks, accounting and payroll clerk’s secretaries, auditors, bank tellers and cashiers In overall these jobs – are more susceptible to advances in new technologies and process automation These shifts reflect unfolding and accelerating trends that have evolved over a number of recent years (Corejova, Al Kassiri 2015) These trends are also consolidated by other figures published by OECD in 2018 about the share of jobs at high risk of automation by occupation (averaged across countries) and average percentage change in employment level by occupation (averaged across countries), 2012-2019 12 Figure 7: Share of jobs at high risk of automation by occupation (averaged across countries)   Figure 8: Average percentage change in employment level by occupation (averaged across countries), 2012-2019 13 On a global scale, the issue of job automation is discussed in the publication “Job Creation and Local Economic Development”(2018) from OECD Most recent findings of the OECD from the year 2013 in the context of the percentage of jobs at high and significant risk of automation are stated in figure Figure 9: Share of jobs at risk of automation by the countries of OECD By the high risk of automation we can understand the share of workers whose jobs face a risk of automation of  70 % or above Significant risk of change reflects the share of workers whose jobs have a 50-70 % chance of being automated.   Although this rate varies among countries, we can see that developing countries are more negatively affected by this transformation Besides, taking the fact that these economies often gain a competitive edge over others by their cheap, low-skilled labor force, digitalization can drive a higher unemployment rate resulting from the reshoring phenomena (Dachs, Kinkel and Jager et al 2017 and ILO study 2020) 3.2.2 Requirements for reskilling, upskilling, and soft skills; higher adaptability and flexibility As a result of job displacement and sectoral shift, there is an urgent need for the labor force to reskill and upskill themselves, as well as improve their adaptability, flexibility and soft skills (ILO 2020) All workers will need to adapt, as their occupations evolve alongside increasingly capable machines Some of that adaptation will require higher educational attainment, or spending more time on activities that require social and emotional skills, creativity, high-level cognitive capabilities and other skills relatively hard to automate (McKinsey 2017) 14 In a digitally driven society, education and workforce training should focus on developing soft skills (also known as socioemotional skills) alongside technical capabilities Four of the top ten skills on LinkedIn that had the largest growth in penetration across all sectors and occupations were technical, were businessoriented, and were soft skills These patterns suggest that a wide range of talents will continue to stress importance, creating opportunities for workers from all backgrounds (World Bank 2018) Figure 10: Skills with the largest increase in penetration across industries 3.2.3 Income inequality/ wage polarization Jobs are lost or transformed as a result of digitalization, and this is expected to increase inequality among different categories of employees For example, low-qualified and low-skilled young individuals are more likely to be displaced by technological advancement (ILO 2020) Moreover, wage polarization could be exacerbated in advanced economies This issue has somehow been dramatized by the Covid 19 pandemic As the coronavirus disease (COVID-19) drives economies into recession, many jobs are at risk The Asian Development Bank (ADB) estimates that the COVID-19 pandemic could cost the global economy from $5.8 trillion in a 3-month containment scenario to $8.8 trillion in a 6-month scenario, with Asia and the Pacific accounting for about 30% of global economic losses (ADB 2020) These estimates also suggest that the equivalent of 158 million to 242 million full-time jobs (6.0% to 9.2% of total employment) will be lost globally in the two scenarios, with job losses in 15 Asia and the Pacific accounting for about 70% However, not all professions are equally affected by the epidemic; some industries are flourishing or even rising faster In mid-April, global tech heavyweights like Microsoft, Apple, and Amazon were among the top-10 stocks by market cap, increasing their portion of the S&P 500's total value by 25% Other businesses are also doing well and hiring These are companies that use cutting-edge technology like online retail and food delivery with contactless alternatives, 3D printing companies for personal protective equipment, and video conferencing apps like Zoom (Mirza 2020) POLICY IMPLICATIONS 4.1 Implications for employment policies Advances in digital technologies can generate new jobs, increase the productivity of firms and workers and enhance the ability of governments to implement policies Such benefits will not, however, be automatic and more coherent demand- and supply- side interventions will be required to reap the benefits This includes a thorough review of tax systems and public expenditure to ensure that there is sufficient funding to support innovation, productive employment, adequate social protection and access to lifelong learning Digital technologies will lead to the loss and/or transformation of jobs and is likely to have an impact on inequality among different groups of workers Low-qualified and low-skilled young people, for example, face a greater risk of being displaced by advanced technologies than those with higher qualifications and skills At the same time, in light of inefficiencies in job-matching mechanisms and discrepancies between jobseekers, skills and those required by employers, many overqualified young people are pushed into occupations typically performed by those with lower levels of education This places low-skilled young people as well as older workers in need of up- and re-skilling in a particularly vulnerable situation because they face both upward pressure (the risk of automation) and downward pressure (displacement by more highly qualified people) (c.f ILO, 2020; Sakamoto and Sung, 2018) 4.2 Implications for skills policies The challenges outlined in the previous sections and, in particular, the increasing number of job-to-job transitions, suggest several implications for skills policies (Figure 11) 16 Better responsiveness of educational systems will enable a swift adaptation to the fastevolving demand for skills and hence prevents both skills shortages and mismatches Current curricula are not aligned with the technical skills demanded on the labor market Workers need to acquire new technical skills (including STEM) as well as a mix of transferable digital (e.g., big data analytics, cyber security, social media) and non-technical soft skills, to improve employability across economic sectors and occupations Active labor market policies and other measures to support inclusive lifelong learning and flexible learning pathways are needed to facilitate constant upand reskilling Skills development should in particular target women, rural workers and older workers Digitalization is also affecting the delivery and assessment of learning, with perhaps the most significant impact occurring in the area of skills recognition and certification Figure 11: Implications for skills policies As anticipating skill needs is increasingly important, identifying needs for a fast moving target is a challenge Digital technologies can be harnessed to understand skills demand and supply and to assess the impact of digitalization on skills demand New solutions that include big data analytics should be explored and mainstreamed The digitization of TVET necessitates multiple and well-coordinated policies and actions at all levels of government Such policy coherence at national level is often missing Much innovation in digital TVET is driven by individual education and training institutions, whereas the innovations occurring in the labor market follow innovation pathways that are neither captured nor reflected in TVET curricula or TVET institutions’ operations (c.f ILO and UNESCO, 2020) 17 CONCLUSION Digitalization of the economy is not a new phenomenon Yet even though it has been underway for several decades, there is today a consensus that it has reached a tipping point The emergence of Big Data and robotization creates a new economy and, hence, a new world of work The fourth industrial revolution is marked by emerging breakthroughs in a number of fields, including robotics, artificial intelligence, the industrial internet of things, and so on This wave of new technological advancements brings with itself new challenges that we as a society face One of these challenges is the impact of these modern digital technologies on the labor market Labor market will be affected by the technological factors that will make the market more innovation-friendly than it used to be during the last century IT applications of these technological factors span, for example, from online monitoring of speed, consumption, optimal path, congestion avoidance, driving help and assistance (Madlenak et al 2018) These technologies will also require a higher degree of qualifications and skills of workers in the labor force.  Industries are changing and the number of robots delivered to the businesses across the world has risen from 100000 per year to 300000 in 2016 Adoption of industrial robots will lead on one hand to labor productivity growth, creation of new types of jobs, rising wages and making some of the jobs more pleasant to On the other hand, robots will make some jobs less and less important and some jobs will be expendable altogether Jobs that are set to experience increasing demand are information and communication technology professionals and technicians such as: data analysts, scientists, software developers, ecommerce and social media specialists, et cetera Redundant jobs are those that are routine-based For example data entry clerks, accounting and payroll specialists, secretaries, auditors, bank tellers, cashiers and so on This leads to Job displacement and hence, a high chance of income inequality or wage polarization To leverage transformative technologies for decent work, the following policy options could be considered in doing so:  Investing in digital infrastructure: Acquiring, maintaining and upgrading digital technologies and equipment is not cheap and requires sustainable financing A meticulous review on the tax systems and government spending is much needed  Targeting vulnerable groups: When adopting technology, measures should be put in place to help the less digitally literate and those with no access to technology in order not to exacerbate inequalities and ensure universal access to public 18 ... communicate autonomously along the value chain The spread of automation, robotics, digitalization, and the use of virtual autonomous systems has already led to an analysis of the impact on the workforce... by digitalization in the labor force, policies of the government and programs are essential THEORETICAL BACKGROUND 1.1 Digital economy and Digital Transformation Key Concepts and Definition There... different categories of employees The goal of this study is to investigate the effects on the labor market of digitalization based on existing studies Digitalization and the use of industrial robots