The Fourth Industrial Revolution (The Digital Age) and the future of work

As we enter the digital age, where the internet and cloud allow machine to machine technology to become more and more intelligent, it is important to understand the impact that this Fourth Industrial Revolution (FIR) will have on employment.

During the 1970s when the Third Industrial Revolution gained momentum, there was a change where demand and use of knowledge became as important as the need for physical labour. In his far sighted book, Peter Drucker calls this the rise of Knowledge Work (1959) and the Knowledge Society (1992), continuing on that a country’s prosperity and success in a post industrial society would be reflected by the application and use of knowledge. In 1930, the economist John Maynard Keynes predicted that, by the early 21st century, advances in technology would lead to an “age of leisure and abundance”, in which people would work 15 hours a week. Gorz (1980) declared that the abolition of work was a process already underway. Ford foresaw technological unemployment due to automation (Ford 2015). Toffler (1970, 1980), affirms this by noting that a post-industrial society would exist when the majority of people were using their brains, rather than their physical activities, to carry out their work.

A recent report by the Organisation for Economic Cooperation and Development (OECD, 2016) estimates that, due to the impact of the FIR, 7.1 million jobs will disappear and two million new jobs will be created by 2020. The ‘Future of Jobs Report’ by the World Economic Forum pessimistically envisions devastating changes in organizational structures that will have a great influence on employment from the effects of the FIR in the coming years (WEF, 2016). Elon Musk envisions few or no humans in the ‘lights out production’ of future Tesla car plants and Nikon already have ‘dark factories’ for manufacturing their products.

French economist Gilles Saint-Paul developed a formula which shows that, while demand for unskilled human labour declines, the demand for skilled human capital increases faster. (Saint-Paul 2008). However, authors note that not only ‘blue collar’ manual work, but also ‘white collar’ employees (ie skilled human capital), such as office based jobs, have been, and will continue to be, affected by developments in the FIR (Brynjolfsson and McAfee 2014, Kaplan 2015). This can be seen in offices, where secretaries with typewriters have been replaced with computers with software for accounting, databases and many other services. The banking sector is now highly automated with the increasing loss of jobs.

Another example is in stock broking and share trading. In the 1980’s intelligent software took over from the conventional traders on the floor and hedge funds made millions of dollars in instantaneous transactions 24 hours a day – with few people involved.

A study published by the business consultancy Deloitte, analysing U.K. census data since 1871, concluded that far more jobs have been created by technology than lost in that time. They note that in only the last two decades in the UK, there has been a 900% rise in nursing assistants and a 580% increase in teaching assistants (Deloitte 2015). A report of employment in America noted that, although the unemployment rate in 2017 was less than 5%, the types of jobs are changing rapidly, with 94% of new employment in the US between 2005 and 2015 were in gig and freelance positions, rather than from traditional jobs (Katz and Kruger 2016, citing National Bureau of Economic Research).

Toyota, famed for its lean manufacturing’ processes, places a high value on the need for humans in its factories – albeit less of them with higher skills. Their largest vehicle assembly in its global production network is in Georgetown, Kentucky, USA, producing more than half a million vehicles per year and employing 8,000 people. They also have workers they call superstar welders, who pass on their skills to local workers at their factories in Thailand and other developing countries. Senior Technical Executive, Mitsuru Kawai, stated that Toyota viewed a bigger picture in automation, with the need for people to be trained and have the increased skills to stay ahead of machines, “otherwise, there will be no further advances in machinery” he said. (Forbes 2018, asia.nikkei 2018). So in a change from the past, machines will do the repetitive tasks and humans will do the thinking and creativity.

This indicates that the loss of traditional and industrial employment does not mean mass unemployment in the longer term and highlights the erroneous thinking left over from the Second Industrial Revolution, that mass production equals mass employment. The FIR transformation will continue have an even greater influence, becoming the main driving force in jobs being created and disappearing, as well as challenging labor productivity, while also expanding skills gaps.

The service sector will continue to increase and be the dominant employment point, albeit with increasing automation of tasks within them and gig contracts and the platform economy will increase as business adapts to the changing employment environment. Additionally, there can be an assumption that becoming part of a high-skilled workforce results in high wages, whereas the reality may be the person is more employable than someone with lower skills, but wages remain lower than expected due to the high competition for jobs.

Automation and its effects support Joseph Schumpeter’s theory (1934) of creative destruction (the modern popular term is disruption). New innovations disrupt markets by displacing an earlier existing product or service. Examples of this are steam power replacing horses and then being replaced by the motorised engine. But, while Schumpeter’s framework adheres to the old perpetually replaced by the new, not everyone wants a burger manufactured by a machine and served by a robot. There will always be people who, given the choice, prefer food, art, music and many other areas, created by humans (even if some of the tasks are automated).

Many professions of today did not exist at the beginning of the Third Industrial Revolution. This will continue and the pace of change will accelerate dramatically through the developments in the FIR. Looking forward it is estimated that 65% of children starting primary school today will begin their work on entirely new types of jobs that are not currently available (Fırat, 2017). How does education and skills training today provide for jobs that do not yet exist?

However, two other factors suggest that, although automation will increase, there will be continued demand for employment. The first is an ageing global population and decreasing number of offspring. After the middle of this century, lower rates of population growth are likely to coincide with slower rates of ageing (Harper, 2006; Lutz , Sanderson and Scherbov 2008, CASS 2018). In higher income countries, the prevalence of poverty was lower for older people, than for the average in the total population because they have benefitted from strong public social security systems, as well as their personal asset accumulation. In high-income countries, on average, older persons tend to consume more than working-age adults (UN 2015; WHO, 2013). This means, in higher income countries, consumer demand will continue, but not the filling of work spaces. At the same time, in those countries, there is a decrease in the number of children being born. This means there will be less number of working age people to employ in the coming years. In Asian and African countries, the prevalence of poverty is higher is older people and there are less government social service structures, so the elderly are supported by their families. However, in the majority of those countries there is still population increase (Lee and Mason 2011; UN 2015).

Secondly, poverty is decreasing in many Asian countries, leading to the growth and demand of consumerism increasing there. Even though automation will affect the number of workspaces available, there will still be demand, but with the need for higher skills (Saint-Paul 2008). Rather than low skilled, low salaried, many Asian countries are adopting a high-value, low-cost model in an attempt to compete for global market share. Many Asian countries have realised this and are increasing their research and development investments and more are people are attending universities, resulting in the breakdown of the previous situation where innovation and knowledge was based in the western countries and manufacturing in the east, to a global ‘war for talent’ (Michaels, Handfield-Jones, and Axelrod 2001).

Authors indicate that an emphasis on arts and soft skills is going to become more important as the FIR develops (Chase 2015, Colvin 2015, Toffler 2017). Brynjolfsson and McAfee (2016) assert that the education systems in many countries needs to be redesigned to emphasise soft skills, praising the Montessori School approach of self-directed learning and hands-on engagement with teachers as coaches, guiding the students. Indeed, education systems should start with soft skills rather than certification of theory that pervades from previous eras.

The First Industrial Revolution resulted in huge benefits to society, but it also brought with it other serious and unacceptable consequences such as pollution and child labour. In the same way Kaplan (2014) notes that the new Digital Age, will bring ‘techno-threats’ and, according to Brynjolfsson & McAfee (2014), challenges of ‘ever-bigger differences among people in economic success – wealth, income, mobility and other important measures’.

This is a challenge for all stakeholders including employees, companies, unions, and especially governments. Holistic and innovative strategies are essential to meet them.