Pivotal contributions to economies can be made by underutilised parts of society. Technology can promote economic inclusion, and in doing so, boost growth.
January 10, 2022
Managing Director, Head of Investment StrategyRBC Europe Limited
In 2021, we featured a series of articles on how developing technologies can respond to the challenge of making the global economy more sustainable, a concept we call “SusTech.” This year, we are digging deeper into some of these themes in a new series.
First up, we look at how SusTech technologies can help some segments of the population that are finding it difficult to fully participate in the workplace. This should enable the labour force to expand and improve productivity over time, fostering economic growth in the process.
Much as technology swept away small workshops and expedited the establishment of large factories in the 19th century, advancements over the past few decades are changing the nature of work. The proliferation of connectivity and the fast, cheap exchange of large amounts of data and information are instrumental to this profound transformation.
As a result, certain segments of society that have been facing barriers to fully contribute to the global economy can now participate more meaningfully. Women, in particular, should benefit from these trends. Employment prospects for people with disabilities should also improve. This should not only grow the labour force but also enhance productivity, countering at least partly the negative impact of ageing populations now prevalent across the developed economies, as well as China, on economic growth.
Technology can cultivate greater inclusion by creating new ways of working, such as through digital labour platforms, and by mitigating obstacles to employment, such as long commutes. Beyond the world of work, technology can support educational attainment at all levels and enable faster, more effective retraining, thereby accelerating the adoption of innovations to boost productivity and grow businesses. All this can help lift more people out of poverty, narrow the gender gap, and increase the overall participation in the global labour force, nurturing a stronger and more sustainable economy for all of us.
Digital innovations in areas such as information communication technology (ICT networks), artificial intelligence (AI), blockchain, Internet of Things devices, cloud computing, and the use of Big Data and algorithms have dramatically transformed the workplace (see appendix for definitions).
Many semi-skilled jobs that have been central to middle class life—e.g., bank tellers, production line workers, brick-and-mortar retail and cashier positions—are under threat even as other opportunities have emerged, such as warehousing and logistics with Amazon alone employing more than a million workers. Over the past 15 years, digital labour platforms have emerged, connecting businesses and clients to workers, enabling and simplifying how they all interact. Some examples include facilitating the search for a freelancer to translate a document or design a website, as well as meal delivery and ride-hailing services.
Digital labour platforms have fostered innovative ways of working, and underpinned the explosion in e-commerce, e-services, and online freelance work. They are enabling a more productive society to become richer over time, with demand for goods and services escalating more and more.
Mastercard estimates that global “gig economy” transaction volumes reached some $350 billion in 2021, and it expects that to grow by more than 30 percent over the next two years, having doubled in size over the past five years. This exceptionally fast growth has brought challenges, including the need for protection of workers’ and consumers’ rights. Continued growth will require adapting existing policy settings in traditional labour and product markets and applying them to digital labour platforms.
Online web-based platforms
Freelance & contest-based:
Note: A microtask is a temporary task-type job of all types, often booked online, such as writing blogs, child-sitting, website design, and virtual assistants.
Source – International Labour Organization, RBC Wealth Management
The Organisation for Economic Co-operation and Development (OECD), a group of mostly rich countries, puts the gig economy’s share of total employment at between one percent and three percent in 2019, though other sources suggest the numbers are higher. For instance, in the UK, the number of gig workers reached 4.7 million in 2019, according to the University of Hertfordshire, or just under 15 percent of the country’s labour force at that time.
COVID-19 has reinforced and accelerated the metamorphosis in the nature of work, and increased the prevalence of remote working or working-from-home (WFH) arrangements, particularly for office jobs.
In a Feb. 2021 report, McKinsey estimated that up to a quarter of the labour force in advanced economies could work remotely three to five days a week, a fourfold increase compared to pre-pandemic days.
Both digital labour platforms and WFH facilitate more job flexibility, a main motivating factor for workers making use of these arrangements, according to the International Labour Organization (ILO). But businesses also benefit. The metamorphosis of work processes will have profound consequences beyond the potential reduction of office space and carbon footprints as companies are seeing the clear boon to their operations and output.
The ILO found that these platforms help migrant workers and people with disabilities join the labour force. Both are sizeable groups. Migrant workers represent just under 20 percent of the U.S. labour force, while close to 20 percent of workers in the U.S. have disabilities.
Women, the largest affected group, make up some 39 percent of the global labour force, according to McKinsey, and are perhaps the biggest beneficiaries of this opportunity. Already in five of the G20 countries, the percentage of women who work via digital platforms exceeds the global participation rate for women in the traditional economy: 58 percent in Italy, 53 percent in the UK, 51 percent in Canada, 48 percent in the U.S., and 41 percent in Germany.
Bringing all these groups, and women in particular, more fully into the labour force stands to benefit the global economy. The Japan experience is noteworthy.
In 2013, faced with a rapidly ageing population, the Japanese government made getting more women into the workforce a core pillar of the nation’s growth strategy, which it dubbed “Womenomics.” Then-Prime Minister Shinzo Abe removed barriers to labour market opportunity, such as providing access to affordable daycare and ensuring that women’s economic contributions were not capped.
According to the World Bank, the labour force participation rate of women between the ages of 15 and 64 in Japan rose to as much as 72.7 percent in 2019 (from just 40.4 percent in 1990), one of the highest rates in the world and an important offset to Japan’s shrinking working-age population, which has been in steady decline since the mid-1990s (and is forecast by the government to continue declining for decades).
The policy lifted living standards by increasing household income, improved women’s economic security, and promoted the overall empowerment and advancement of women in society. It was unable alone to counteract the drastic ageing of the working-age population, but one can surmise that the country’s muted economic growth would have been even weaker without the increased participation of women in the labour force.
Canada has also sought to increase its labour force to boost its economy. It has done so by continuing to pursue a controlled immigration policy even as many other developed economies have soured on immigration. These workers not only fill available jobs and gaps in the workforce, they also pay taxes and spend money on goods and services. China’s strong economic growth from the late 1970s to the 2008 financial crisis was in part achieved thanks to the expansion of its industrial labour force as people migrated from rural areas to cities. The low-productivity agricultural labour force represented three-quarters of total workers in China in the late 1970s, but has declined steadily to no more than 25 percent four decades later.
In addition to growing the labour force, the transformation of work processes and WFH in particular can also boost productivity by removing barriers to work, such as the miserable commutes endured by many workers. Women are often constrained by childcare arrangements and family priorities, which can lead them to compromise on the nature of their job. A job close to home might be chosen over one farther away even if the former doesn’t make full use of their skills or provide adequate satisfaction. The increased prevalence of remote working means that more roles are feasible options, many of which may provide a closer match with existing skills or qualifications, creating higher engagement and in turn higher performance.
Remote working can also free up time that can be put to productive use, such as towards entrepreneurship. The Peterson Institute for International Economics, an American think tank, calculates that business startups in the U.S. grew from 3.5 million in 2019 to 4.4 million in 2020, and a similar boom was observed in the UK, lending a hand to the underlying vibrancy of the economy.
Despite technological advancement, progress on inclusion of women does not occur in a straight line. Even as digital platforms and WFH were in full use during the initial stages of the pandemic, women’s jobs were disproportionately affected. WFH after all does not apply to the majority of the labor force, as most people are unable to work a full day from home without suffering productivity losses, given that many responsibilities and tasks need to be performed onsite. McKinsey calculates that women’s jobs were 1.8 times more vulnerable to the crisis than men’s, and that they accounted for 54 percent of overall job losses. The pandemic also increased the burden of unpaid care, which women disproportionately undertake. In effect, gender equality took a step backward during the pandemic. But overall, digital labour platforms and WFH can help to redress this inequality and may have contributed to the recent strength of the labour market, with the overall unemployment rate falling back in most Western countries close to pre-pandemic levels.
The issue of the gender gap needs to be tackled and here too, technology can play a role.
When one hears the expression “gender gap”—the well-documented gender pay gap comes to mind. The UN estimates the global gender pay gap to be 23 percent, meaning that women on average earn 77 percent of what men earn for work of equal value. But these figures understate the real extent of the problem, according to the UN, as women with children face an even greater discrepancy, while in developing countries, informal, low-paying self-employment is prevalent. It estimates that the gender pay gap costs the global economy some 15 percent of GDP.
The reasons for this gap are many. In a December 2019 report, the World Economic Forum (WEF) pointed out that as many as 10 percent of girls aged 15–24 in the world are illiterate, largely, but not exclusively, in developing countries, which limits their opportunities. It noted that “in many countries, women are significantly disadvantaged in accessing credit, land or financial products, which makes it difficult to start a company or make a living by managing assets.”
Moreover, even though the proportion of women among skilled professionals continues to increase, women tend to be underrepresented in the sectors with the highest employment growth rate, including data and AI, engineering, and cloud computing. The WEF also lamented the persistent lack of women in leadership positions, with women representing just 27 percent of all manager positions.
Women are also at a disadvantage with respect to access to health care and representation in the political classes. The WEF encapsulates all these conditions in the Global Gender Gap Index, in which it assesses four key areas: economic participation and opportunity, education attainment, health, and political empowerment. On all metrics, women’s conditions fall below those of men, with stark regional differences.
The bar chart shows the extent of the gender gap by region, as calculated by the World Economic Forum. Western Europe has the smallest gender gap worldwide, though it remains substantial, at 22.4%, closely followed by North America at 23.6%. Latin America and the Caribbean is next at 27.9%; Eastern Europe and Central Asia, 28.8%; East Asia and the Pacific, 31.2%; Sub-Saharan Africa, 32.8%; South Asia, 37.7%; and the Middle East and North Africa’s gap is the largest at 39.1%.
Source – World Economic Forum’s Global Gender Gap Report 2021, RBC Wealth Management
Governments can do much to address these gaps. Liberating markets and ensuring there are no restrictive practices, e.g., forbidding women’s access to bank accounts, property ownership, or inheritance rights, are the most essential steps towards empowerment. Targeted policies such as basic social safety nets also help, but improved access to education, health care, and basic financial services are critical.
Technology can help provide education, as well as opportunities to upgrade skills and re-skill. It can also deliver the financing that nurtures businesses. For instance, a digital wallet linked to a debit card can help small farmers or shop owners gain access to financial services, facilitating their ability to obtain better pricing from suppliers, greater savings, faster payments, credit, and government subsidies.
Finally, remote health care not only widens access to treatment but also gives working mothers flexibility. It may no longer be necessary to miss a day of work to go to a pediatrician’s office as virtual appointments can allow patients to see a doctor via online videoconferencing.
According to McKinsey, taking action to counter the excess deterioration in the employment condition of women over the past two years and advancing gender equality could add some $7 trillion to global GDP in 2030, with this figure representing some eight percent of 2020 global GDP.
The global economy has untapped resources that could make decisive contributions as populations age and growth slows. Inclusion can draw in those segments of society that have been unable to fully participate in the labour force, with improving gender equality a key way to boost growth. Progress remains slow and uneven across countries, but as policymakers and the corporate sector start to grasp that the persistent decline in the working-age population in most developed countries is a headwind to growth, they may be quick to embrace inclusion as a desirable and necessary strategy. We expect technology will be at the forefront of leading this charge.
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