Business tech post-COVID 19: Accelerated automation to disrupt labor markets

The COVID-19 pandemic has brought the majority of economic activity to a halt and has made businesses question their resilience. Billions of people are ordered to stay inside their homes to contain the pandemic and most businesses have either switched to remote working or have suspended operations.

Companies that had invested in automation and the latest technologies are faring much better than old economy businesses that rely on traditional methods of doing business. The pandemic could accelerate the fourth industrial revolution as companies realize the potential of technology in addressing the problems of the 21^st century.

Robots have already been deployed to help almost every aspect of the fight against COVID-19 pandemic. From healthcare to supply chain management to helping governments in maintaining law and order, technological progress is helping to increase efficiency and workers’ safety.

Hospitals in different parts of the world are using robots to do tasks that would have otherwise been done by medical staff. Circolo Hospital in Italy’s Varese has deployed a team of six robots to care for COVID-19 patients. These robots can track the health of patients by monitoring parameters from equipment in the room and relay it to doctors. Stanley Medical College and Hospital in India’s Chennai has deployed robots to deliver food and medicine to patients.

Many other hospitals in different parts of the world have also deployed robots for tasks like monitoring blood pressure of patients, delivering food and medicines, disinfecting hospitals, and allowing doctors to remotely interact with patients in non-serious cases. These robots haven’t replaced the medical staff but instead are helping reduce the burden on them by minimizing their physical contact with patients and reducing the usage of protective equipment at a time when many countries are grappling with shortages.

It’s not just hospitals, companies that had introduced some degree of automation in their operations and can switch to remote working are doing better to stay afloat during coronavirus disruptions. The pandemic has also accelerated testing of drones and robots in real-life scenarios as governments incline towards safer alternatives.

Digital communication platform Zoom has become one of the most popular apps during lockdowns and the number of users on the platform has skyrocketed. The company can handle the increased load because many aspects of their data centers can be controlled remotely and some of the success is also being attributed to automatic load sharing. Netflix, Dropbox, and Equinix are also able to support the increased demand for remote working and virtual entertainment with the help of automation and technical capabilities.

Even the manufacturing units like that of China’s Xinxin Semiconductor Manufacturing Co. (XMC) and Yangtze Memory Technologies Co. (YMTC) located in the original epicenter of the pandemic, Wuhan, were able to minimize the impact on production due to their highly-automated production process.

The COVID-19 pandemic has highlighted the potential of robots and automation in dealing with modern problems but how will they change the world, and more importantly, what will be the human cost of this revolution?

How a technological revolution could impact labor markets?

• Automation anxiety has been haunting job markets for decades and the panic usually grows during recessions as companies strive to cut costs. The changing market displaces workers, especially the low-skilled ones and forces them to retool their skills to remain relevant.
• While technology displaces jobs, it also creates new job roles that have the potential to improve the overall quality of life. Robots or machines have been replacing human workers from decades as technology revamped agriculture, sewing, auto manufacturing, and several other industries. But technology has also given rise to new job roles like social media managers, app developers, Zumba Instructors, and creative producers that were rare or didn’t even exist in the last decade.
• The adoption of technology and automation increases the demand for high-skilled and better-paying jobs and allows workers to move up the ladder. Historically, technological advancements in high-income countries have shifted employees from manufacturing to the service industry as companies automate their production or move production to other locations.
• With improvements in Artificial Intelligence, certain high-skilled jobs could also be automated. Financial analysts, loan officers, and paralegals are being replaced in recent years as companies use AI and big data to handle complex calculations and large documents.
• The COVID-19 pandemic has essentially triggered the largest-ever remote working experiment. Realizing the potential benefits, employers are likely to get more comfortable with remote working, setting off a new phase of growth in the gig economy.

Why is automation important after the COVID-19 pandemic?

• Cost efficiency amid a global recession

Automation can standardize the production process and enable companies to reduce workforce, input costs, lead times, and overhead costs. Labor-intensive manufacturing process, on the other hand, is less streamlined, vulnerable to disruptions, and is subjected to strict labor laws. Achieving economies of scale is much easier with automated process and companies are also able to pass on the benefits to consumers.

As a global recession looms due to the fallout of COVID-19 pandemic, millions of jobs are at stake and the purchasing power in many countries would be impacted for years to come. Automating production processes can address increasing price sensitivity and the changing demands of consumers.

• Move closer to consumers

Companies in the post-COVID 19 world will aim to make their supply chains more resilient. Robots can address the problem of labor unavailability that companies faced during lockdowns but supply chain disruptions would remain a challenge unless production is moved closer to consumers.

Large firms manufacture their goods in developing countries with cheaper labor resulting in lower production costs. But robots could solve the problem of high labor costs and allow these companies to move production closer to consumers if the incentives to reduce labor and transportation costs are big enough to offset other costs like procuring raw material. In the past few years, technological advancements have allowed companies like Adidas and Philipps to move production from East Asia to high-income countries without substantially increasing costs.

• Reducing human touch

The pandemic has created an environment of uncertainty and fear which will drive a paradigm shift in consumer behavior. Hygiene practices followed by companies will be of utmost importance and consumers would expect human touch to reduce along the value chains.

Automation can help companies achieve that as robots can allow clean, uncrowded, and hygienic workplaces to an extent not possible with human workers.

• Labor issues

Robots don’t need vacations or weekends, they are also immune to illness and will never go on a strike. Companies adopting an automated production process can have a high level of certainty and can withstand most disruptions as long as necessities are in place. Automation also allows companies to scale up production and other operations without worrying about labor issues.

• Safety

Automation can help companies reduce the risk of human errors and improve occupational safety and health standards. Newer safety systems utilize automated mechanisms to promptly respond and address potential problems without depending on human input. Further technological advancements and integrating machine learning and other artificial intelligence solutions can enhance the capabilities of these systems. In turn, these systems will be able to respond to emergencies and unexpected developments, while also generating preventative solutions and maintenance schedules.

• New possibilities from production to sales

Technological advancements have historically allowed companies to unlock new possibilities to undertaking revenue-generating activities. Improvements in digital communication have allowed companies to expand globally without investing heavily in infrastructure. Platform marketplaces have allowed rural businesses to sell their products in national and international markets. Another technological revolution would unlock even more possibilities, automation, and industrial-scale 3D printing can enable businesses to overhaul traditional business models and meet the demands of the 21st-century marketplace.

How should the human workforce cope up?

The benefits of automation are not distributed evenly across the workforce. While high-skilled workers could benefit from the technological progress in executing their routine and non-routine tasks, workers involved in low-skilled routine tasks are more vulnerable to automation. As companies deploy the latest technologies, these workers could be the first to be replaced by robots or algorithms. They would need to retool their skills to sustain in the labor markets.

It is very important for countries, especially in developing regions, to invest in human capital and prepare their workforce for the future so a technological revolution doesn’t end up further suppressing their growth. Prosperity and economic growth will be closely linked to progress in human capital in the age of automation. Non-routine tasks that require advanced analytical, interpersonal, or manual skills will earn the most premium, and countries need to prepare their workforce for upcoming disruptions to stimulate economic growth.

Informal employment has been unusually persistent in developing countries and these countries have made little progress in addressing the challenge despite economic growth. If automation manages to outpace globalization in the coming years, these countries might not be able to industrialize in a manner that moves workers to the formal sector.

Both wages and productivity are significantly lower in the informal sector and developing countries should work towards bridging the gap between informal and formal sectors. A minimum wage, required benefits, and other taxes and regulations often drive away small businesses from the formal sector, governments need to optimize regulations and investments to pull more workers into the formal sector by increasing their productivity.

Technological progress could change how people work and also the terms under which they work, a rise in the gig economy will allow companies to hire independent workers on contracts for short-term engagements. The line between traditional informal workers and those working in the gig economy is very blurry when it comes to social protection and other benefits. Individuals hired for short-term contracts could be highly-skilled individuals but might lack access to social protection and insurance programs because a formal permanent employment contract is the most common basis for these benefits. Changing the nature of workplaces could reduce the relevance of current policies that link social protection to formal employment.

Centre of Excellence on Emerging Development Perspectives (COE-EDP) is an initiative of VisionRI and aims to keep track of the transition trajectory of the global development sector and works towards conceptualization, development, and mainstreaming of innovative developmental approaches, frameworks, and practices.