Ethiopia: Technology's Impact On the Labor Market

Though an outright conclusion cannot be reached on the argument that technological surge affects the labor market adversely and put millions of labors out of the loop, there are many concerns that technological innovation will lead to increased unemployment, suppressed wages and greater inequality.

New technologies, as they hold immense promise, are also seen as a threat, potentially disrupting labor markets and contributing to income inequality. The biggest public fear is that robots and Artificial Intelligence /AI/ will replace human jobs on a large scale, resulting in mass unemployment or underemployment--and, consequently, widespread impoverishment around the globe. In fact, labor has been losing its share of income. An ever-increasing inequality between technology owners and workers could lead to a protracted social conflict, economists forewarn.

The Ethiopian Prime Minister, Dr. Abiy Ahmed, argues against the notion that 'Technology adversely affects the labor market'. On his book, 'Medemer/Coming together', Dr. Abiy explains that such an adverse effect happens in the short-run. It is possible, as Dr. Abiy, to devise a mitigation plan in the long-run and reap the benefits of technological advancements in economic activities; agriculture, industry and servicesectorsand also in all aspects of our day-to-day life. On the contrary, other scholars hold on to the counterargument that expound how 'Technology destroys jobs'.

This argument has of course been held for centuries. During the Industrial Revolution in Great Britain, there was an incident in a textile factory where the workmen destroyed the machine which they thought would replace their labor and put them out of work. This incident is oftentimes termed as 'The Luddite Contradiction' and it signifies the long held contentious correlation between employment opportunities and the advancement of technology.

Technological progress is of course a main driver of aggregate economic growth and improvements in living standards over the long term. It increases overall productivity, thereby boosting per capita income and consumption. While technological progress has mostly been incremental and gradual over time, on a few occasions, technological change has been revolutionary, transforming the organizational structure of societies and economies. For instance, mechanization and productivity gains from technology led to large declines in agricultural employment and the reorganization of economies and societies around industrial and urban centers. However, for this to happen, breakthrough technological inventions alone are not sufficient, as diffusion of new technologies is critical.

In this respect, it is indeed crucial to look into and diagnose other vital aspects of a nation under consideration such as the economic system, the political culture, the literacy rate, the level and rate of industrialization, the number of skilled and unskilled labor force, demographic features, and other macroeconomic indicators. For instance, in the United States, less three percent of the labor force engage in agriculture and manage to feed the rest 97 percent. In Ethiopia on the other hand about 80 percent of the labor force engages in the agricultural sector and yet we struggle with food insecurity. Even though there are so many factors for the inefficiency of the sector, most people lean to conclude that it is because of the backwardness of the farming system we have had for millennia. Well, at prima facie, the solution to this would be the mechanization (and automation if necessary) of the farming system.

Since mechanization of farms doesn't require as much agricultural labor as it does now, a huge amount of labor force would be left unemployed. Meanwhile, the industrial and the service sectors are not in a position to absorb the abandoned labor migrating to the urban areas. When these idle labors migrate in search of jobs, they struggle in securing one due to the lack of skill and illiteracy. Mechanization of farming in areas that has been idle thus far, in Afar region for instance, is however highly commendable since it increases production of cereals without causing any trouble in unemployment.

In addition to the agricultural sector, developing countries need to pay due attention to the adverse impact that technological advancement can pose on the informal sector. In most developing countries the informal sector employs a huge amount of unskilled labor particularly women and young people. Automation of manufacturing and digitalization of the service industry in least developed countries (LDCs) such as ours pose a threat on the already created jobs and the opportunities yet to be created.

The International Labor Organization (ILO 2016) report described how the increasing use of digital platforms (the so called 'gig economy') has brought an additional concern on the labor market. Even though these platforms are often set up with the explicit purpose to evade existing regulation and taxation, new forms of informal employment might arise and grow fast, in both advanced and developing countries, the impact on employment quality seems to have been more limited, with less than 1 per cent of total employment accounting for this type of new employment form, even in those countries where such services are most widespread.

The fewer number of employees in companies worth of billions of dollars such as Facebook, twitter, WhatsApp are cases in point.

On the contrary, there is a line of argument which states that the job destroying effects of new workplace technology are counterbalanced by job creation effects. There are of course several channels through which technology helps create jobs. Automation, for instance, complements specific job tasks. This makes workers who perform these tasks more productive and more valuable, potentially boosting demand for such labor. In recent decades, this effect has been reflected in the increased demand for workers that perform non-routine, cognitive tasks, particularly in knowledge-intensive industries.In the long run, technological progress reinforces rather than weakening the overall need for human labor.

However, the disruptive effects of new technologies should not be ignored. While technology-induced job losses are immediate, the creation of new jobs often takes time. In addition, the new jobs frequently differ from the old ones in terms of industry, required skills and geographical location. This not only increases the risk of displacement for workers, but also poses challenges for policymakers since both job destruction and job creation are determined not only by technological feasibility, but also by economic, legal, regulatory and other socio-political factors.

Unemployment is among the evils that befall on the macroeconomic healthiness of a nation. Particularly, the advancement and diffusion of technology can cause a structural unemployment unless the labor force is befriended with the newly innovated and adopted technology. Proactive policies are therefore needed to ensure that the gains are broadly shared and displaced workers receive support. If technology changes the nature of work and disrupts traditional social insurance systems, policies can reduce vulnerabilities by expanding social protection systems. If technology leads to less equal income distribution, policies are called to redistribute income. If new technologies change the nature of skills demanded on labor markets, curriculums in schools and universities can be adapted and on-the-job and life-long learning opportunities can be promoted. In addition to this, Dr. Abiy's book suggests that the Ethiopian economy needs a strategy that aims at achieving high rate of industrialization and building knowledge based economy at the same time.

Technological innovation is a main engine of productivity growth, but can also be a major force of disruption. The future of technological progress is one where the nature of work will change, some professions will disappear, some will grow, and new ones will be created. However, these long-term dynamics will be coupled with significant negative short-term effects for those that lose their jobs and find it difficult to reenter the labor market. However, country specific analysis should be conducted before forwarding any policy recommendation. How newer waves of technologies will shape labor markets and income distribution ultimately depends on the institutions and policies that are in place at the national and global level.

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