Technology is disrupting employment for the low-skilled labor, World Bank report states

The Internet of Things, advanced robotics, and 3-D printing are shifting the criteria that make locations attractive for production and are threatening significant disruptions in employment, particularly for the low-skilled labor states a World Bank dubbed:  Trouble in the Making? The Future of Manufacturing-Led Development . 

The report states that manufacturing will no longer offer an accessible pathway for low-income countries to develop and, even if feasible, would no longer provide the same dual benefits of productivity gains and job creation for unskilled labor. As a result, the potential risk of growing inequality across and within countries warrants closer attention to the implications of changing technology and globalization patterns.

“Technology and globalization are changing how manufacturing contributes to development. We will need to embrace this change rather than fear it. In the past, the manufacturing sector created jobs for unskilled workers and increased productivity. In the future, developing countries will need to update their policies along with their infrastructure, firm capabilities and job creation strategies to meet the demands of a more technologically advanced world,” said Anabel Gonzalez, the World Bank Group’s Senior Director for Trade & Competitiveness.

Distinct Trends

The report further stated that though technological advancement and globalization are treated as distinct trends, the two are not independent and the two have the biggest impact on how and where goods will get made.

“Technology and globalization are changing how manufacturing contributes to development. We will need to embrace this change rather than fear it. In the past, the manufacturing sector created jobs for unskilled workers and increased productivity. In the future, developing countries will need to update their policies along with their infrastructure, firm capabilities and job creation strategies to meet the demands of a more technologically advanced world,”

Anabel Gonzalez, Senior Director for Trade & Competitiveness, World Bank Group.

Technology intersects with trade and investment in affecting where and how production happens, where different types of jobs are being created, the extent of productivity growth, and thus the extent of economic opportunities around the world. They need to be understood together when analyzing how the geography of production is likely to change in the future.

“Technology has the potential to introduce radically labor-saving processes, disrupt traditional scale economies, change the required skill mix of workers, and increase the need for complex, firm ecosystems to support production. The resulting possibility of reshoring to high-income countries could limit the production opportunities coming to lower-income countries,” the report added.

“Countries can seize promising new opportunities for productivity growth and job creation if policymakers pursue approaches that adapt to changing technologies and changing patterns of globalization,” said Mary Hallward-Driemeier, a Senior Economic Advisor in the World Bank Group’s Trade & Competitiveness Global Practice and the report’s co-author. “Those countries that don’t are likely to face not just economic costs, but also social costs associated with increased inequality and more limited access to opportunities.”

The report offers “3Cs” for countries seeking to bolster their manufacturing sectors: competitiveness, capabilities and connectedness.

• Ensuring competitiveness will increase the importance of reforms that reduce unit-labor costs. But it will also require each economy to be better able to consider new business models; to seek new contracting relationships that embrace new technologies; and to devise new ways for manufactured goods to also deliver services.
• Building capabilities will involve giving workers new sets of skills, strengthening firms’ abilities to absorb new technologies, and providing new infrastructure and new rules to support the use of new technologies.
• Promoting connectedness will continue to emphasize openness to trade in goods, including raw materials and components. But it also increases the importance of grasping the synergies with services that are increasingly embodied and embedded within manufactured goods.

“New processes and new technologies will change how traditional goods are made,” said Gaurav Nayyar, an Economist in the World Bank Group’s Trade & Competitiveness Global Practice and the report’s co-author. “To make the most of each economy’s potential, policymakers and private-sector decision-makers will need to seize new opportunities by re-thinking their manufacturing-led development strategies.”