Digitalisation and automation: How will they impact the global labour market?

Modern information technology and the importance of the Internet have strongly influenced the world of work in the 21st century. Intelligent algorithms simplify everyday tasks, and it is impossible to imagine how we could manage our jobs without them. The use of artificial intelligence (AI) and robotics is accelerating. Thus, the question arises - what will the future world of work look like?

Some experts emphasise mass unemployment, mass poverty, and social distortions as possible scenarios for the new world of work.1 However, even though intelligent systems and algorithms play an increasingly central role in the new world of work, no jobs are likely to be lost abruptly as a consequence of digitalisation. Rather, a gradual transition will take place, which has already commenced, and will differ from industry to industry and from company to company.2

The benefits of digitalisation and automation for many companies is clear and it is worthwhile to invest in robots and intelligent software. Big data analyses and intelligent algorithms are increasingly supporting (and replacing) humans in the service sector. In the industry sector, automation and the use of production robots will lead to considerable savings with regard to the cost of labour and can release workers from hard, dangerous, repetitive, and monotonous work.

1. Categories of Artificial Intelligence (AI) in the Economic Field Deep Learning: machine learning based on a set of algorithms that attempt to model high-level abstractions in data. Gig Economy: independent contractors looking for individual tasks that companies advertise on an online platform (e.g. "Amazon Mechanical Turk"). Robotization: production robots replacing employees because of advanced technology (they work more precisely than humans, e.g. 3D printers). Autonomous Driving: vehicles have the power for self-governance using sensors and navigating without human input. Taxi and truck drivers are no longer necessary. The same applies to stock managers and postal carriers (e.g. delivery drones). Dematerialization: Thanks to automatic data recording and data processing, traditional office activities are no longer necessary (e.g. accounting or lawyer assistants).

1. The Global View According to recent studies, about 47 percent of all U.S. employment is at risk of being replaced by intelligent algorithms or production robots,3and some 70 percent of total employment in Thailand and India are at risk.4 Low-wage countries such as China, India, and Bangladesh are still benefiting from their surplus of low-skilled workers because Western companies are still outsourcing production and services to these countries. However, this may not hold true for long; in the European automotive industry one working hour of production costs more than €40, the costs for using a robot range from €5 to €8 per hour,5 slightly cheaper than a worker in China.6 In most developing countries, the implementation of (partly) autonomous systems is not likely to be worthwhile at present for economic reasons, since the labour costs are not much higher than the costs for acquisition, development, and maintenance of the necessary equipment.7 On the other hand, companies located in low-wage countries have to invest in relevant IT-systems to improve their productivity and attractiveness and remain competitive in the long run. Eventually, however, companies who currently outsource will likely decide to produce in their home countries using production robots and a vastly reduced number of workers. In this case, the surplus of low-skilled workers in developing countries will require assistance; governments will be forced to integrate the large number of unskilled production workers into a productive labour market. Another problem is that there are currently no comparable social security systems in place in most developing countries. In extreme cases, mass unemployment could lead to humanitarian catastrophes and migration. Due to the lack of financial investments in many developing countries, digitalisation and automation will continue to become more prevalent in developed countries. One example: more than 80 percent of the robots sold each year are used in Japan, South Korea, the U.S. and Germany.8
2. New Job Structures Many of the jobs of today will disappear partly or completely, and new jobs will come into being, especially in the “third service sector”. According to a survey by the Pew Research Center, 65 percent of Americans expect that a robot or an intelligent algorithm will be doing their work within 50 years.9 Changes in the service sector can already be seen - intelligent algorithms are replacing human employees in the insurance and financial sector by automatically carrying out traditional back-office tasks, answering client questions via “chatbots”, and presenting financial planning or insurance policies.10 “Crowd working” is an example of how these newly created job present legal challenges. Due to the digitalisation and the internationalisation of the online platforms on which crowd workers offer their services, the applicable law is usually uncertain. Moreover, legislatures and companies face the challenge of defining crowd working, differentiate between Crowdworkers and employees, establishing working conditions for compensation, and determining which tax, social security and welfare rules apply.11 It is certain that both blue and white-collar sectors are and will be affected. In the medium-wage sector, routine jobs will be eliminated. Even one third of the jobs that require a bachelor's degree may be replaced by a machine or intelligent software in the coming years. At the same time, it is expected that new jobs will be created in the service sector, ranging from data analysts to software programmers.
3. Labour Relations The role of humans within the world of work is changing. Employee organisations have realised that new challenges are in store for employees from all professional and social classes because of robotics and the computerisation of the workplace. Trade unions will pay particular attention that no "lost generation" is left behind and that there are no mass dismissals caused by the introduction of AI. Unions will advocate further training, advanced training, and retraining of employees.12 Trade unions will remain the main player when it comes to fighting for employees' rights and they will expand their constituency by also representing the increasing number of freelancers. Finally, the lawmakers will have to introduce new forms of employee representation structures to avoid their slow decline caused by a decrease in trade union membership. Required employee thresholds for works councils will also need to be adjusted, as they will likely no longer be reached.
4. Outsourcing Employment and Creating New Internal Structures Companies will focus on their core competencies and will outsource other activities in a cost-effective manner.13It is a global trend that digital work will take place outside traditional employment structures with a rise in self-employment.14 Even in European countries, the so-called platform economy is becoming more and more common. In addition, larger companies use external workers for their purposes instead of hiring new employees. Some highly qualified young employees enjoy their independence and will focus their work on the development of creative solutions for a changing client base. The demand for social security is no longer as high with the Generation Y, but freedom with regard to working time, the place of work and the choice of clients is more important. Professional connections between companies, clients, competitors and external providers involve some risks with regard to business secrets, especially, if companies create open innovation models or use prosumers to develop their products. Especially in big companies, hierarchy levels will be eliminated, and smaller organisational units will be necessary. An automatic supply chain connection between the company's systems and the systems of its external providers will be the basis for success in the digital world.
5. Distinction Between Employee and Independent Contractor Classic employment can be detrimental to business due to the high wage costs in European countries.15 An employee is primarily characterised by the fact that he is subject to the authority of the employer to issue instructions regarding his job assignment. The borderlines between the employee's professional life and private life become blurred. If the place of work and working time become flexible and if employees are granted more powers to work independently, it becomes harder to distinguish between an employee and an external freelance worker.16
6. Liability and Safety Risks The introduction of intelligent algorithms and more independent production robots will create new risks for employees and employers. At the moment, a spatial separation between robotic and human workers characterises production facilities. In the world of work of tomorrow, human workers will collaborate with robots and intelligent algorithms. Work will be characterised by the use of connected technical wearables (e.g. data glasses or fitness trackers). In the production sector, risk analyses must be carried out in advance. In addition, software faults can come into consideration as potential safety hazards relating to autonomous systems and assistant robots. Recently, the European Parliament voted for a resolution concerning the introduction of legal standards for robots and intelligent algorithms ("electronic persons") and a compulsory insurance to compensate for occurred damages caused by these systems.17 Self-employed contractors are not released from liability. If an independent contractor destroys the principal's property while working for the principal, he has to pay full damages whereas the employee's liability is limited in most cases.
7. Working Time In the future, employees and employers will agree on a flexible management of working hours. The breakdown of the boundaries for working hours also makes it possible to implement working lifetime models that are beneficial to the "work-life balance," especially in the "rush hour of life". In most European countries, the maximum working hours or rest periods are exceeded in everyday practice. National and European lawmakers should create frameworks offering more flexibility and less strict regulations to avoid this legal uncertainty (e.g. daily rest periods). Some alternative working-time models will become common, especially for the younger generation. Examples are home office, job sharing, on-call work, zero-hour contracts, employee-sharing, sabbaticals or reduced working time models for older employees. However, there are individual legal risks concerning the contractual design of every alternative working time model. In most cases, negotiations with employee representatives will be necessary.
8. Remuneration The breakdown of boundaries in terms of the place of work and working hours makes it difficult for the employer to check how many hours the employee actually worked. There is no factor linking the time/wage system, which makes this system unattractive for employees and employers since, in general, the employees' motivation is enhanced by more performance-related payments. In the future, elements of performance-linked payment, or alternatives like stock options, annual bonuses or company pensions, will be used increasingly also for non-executive employees. The central issue regarding performance-related remuneration structures is not the type of agreement, but how to define "performance-related". A combination of an individual team target (turnover or a "soft target") and the turnover achieved by the employing company or the turnover achieved by the group is possible.
9. Data Privacy and Big Data For big data analyses, the data are anonymised and exist in an unstructured form. Thus, in most countries big data analyses do not violate applicable law. For companies, data are not only an asset worth protecting, but at the same time merchandise and thought of as the "oil of the future".18 Nevertheless, the EU General Data Protection Regulation, applicable from May 2018, provides that collecting personal data without a permissive rule is prohibited in all European countries. U.S. data privacy protection laws are not based on the general assumption that data are confidential, but provide for data confidentiality in individual cases (e.g., with regard to health insurance and the protection of minors). Additionally, at least in the EU, the introduction of many technical aids (production robots, wearables, intelligent algorithms and the employees’ own devices) is also not possible without the consent of employee representatives.
10. Conclusion It is certain that both blue and white collar sectors will be affected to the same degree.19 A high level of unemployment in some sectors will be unavoidable, even if the major share of jobs will be shifted to a different area of work, mainly to the service sector where new service models will be created. Finally, AI will result in growth and prosperity: employees will also benefit from flexible solutions concerning working time and the place of work caused by the introduction of AI. The digitalisation (and automation) of services is a global phenomenon affecting a far-reaching and diversified field of advisory services in general and the labour and employment law in particular. It would be desirable if future laws were to take the technological developments and the increased need for flexibility into account. Artificial intelligence is creating a gap between existing legislation and new laws necessary for an emerging workplace reality.

1 http://www.spiegel.de/wirtschaft/soziales/arbeitsmarkt-der-zukunft-die-jobfresser-kommen-a-1105032.html (last accessed on February 16, 2017, 1:47 p.m.).

2 Brzeski/Burk, "Die Roboter kommen, Folgen der Automatisierung für den deutschen Arbeitsmarkt," 2015.

3 Frey/Osborne, "The Future of Employment: How Susceptible Are Jobs to Computerisation," 2013, p. 1.

4 "Automat trifft Armut", Handelsblatt News am Abend, July 15; No. 135, p. 6.

5 https://www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/ (last accessed on February 13, 2017, 9:17 a.m.).

6 "Kollege Roboter," Fokus No. 38/2015 of October 19, 2015, p. 69.

7 https://www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/ (last accessed on February 13, 2017, 2:38 p.m.).

8 https://www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/ (last accessed on August 3, 2016, 2:58 p.m.).

9 http://www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p. 3 (last accessed on February 13, 2017, 10:10 a.m.).

10 http://www3.asiainsurancereview.com/News/View-NewsLetter-Article/id/38286/Type/eDaily/South-Korea-Insurers-to-evolve-into-integrated-service-providers-integrated-service-providers (last accessed on February 17, 2017, 10:11 a.m.).

11 "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law September, 2016, p. 31.

12 https://innovation-gute-arbeit.verdi.de/++file++540998f5ba949b358400004e/download/138.1411_digit_arbeit_RZ3_web.pdf S.25 (last accessed on February 13, 2017, 2:24 p.m.).

13 "Understanding the Future of Work", International Organisation of Employers Brief 06-07-2016, p.7.

14 "Automation and Independent Work in a Digital Economy", OECD Policy Brief on the Future of Work, May, 2016, p.3.

15 "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law September, 2016, p. 27.

16 "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law September, 2016, p. 26.

17 http://www.spiegel.de/netzwelt/netzpolitik/kuenstliche-intelligenz-eu-parlament-fordert-regeln-fuer-roboter-technologie-a-1134949.html (last accessed on February 17, 2017, 7:21 a.m.).

18 http://www.faz.net/aktuell/wirtschaft/netzwirtschaft/was-taugt-die-eu-datenschutz-verordnung-13972055.htm (last accessed on February 13, 2017, 5:13 p.m.).

19 http://www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p. 5 (last accessed on February 12, 2017, 10:44 a.m.).