As technology advances, firms adopt new methods of production, markets expand, and societies evolve. Firms rely on new technologies to better use capital, overcome information barriers, outsource, and innovate. Workers, firms and governments are building new comparative advantages as conditions change. For example, by being the first to adopt 3-D technologies, Danish firms strengthened their hold on the global market for hearing aid products in the 2000s.
The Indian government invested in technical universities across the country, and subsequently India became a world leader in high-tech sectors. By integrating into global value chains, Vietnamese workers developed their foreign-language abilities, building additional human capital that allows them to expand into other markets.
Notwithstanding the opportunities, however, there are still disruptions. The declining cost of machines especially puts at risk those workers in low skill jobs engaged in routine tasks. These are the occupations most susceptible to automation. Displaced workers are likely to compete with (other) low-skill workers for jobs with low wages. Even when new jobs are created, retooling is costly, and often impossible.
Irrespective of technological progress, persistent informality continues to pose the greatest challenge for emerging economies. Informal employment remains at more than 70 percent in Sub-Saharan Africa and 60 percent in South Asia and at more than 50 percent in Latin America. In India, the informal sector has remained at around 90 percent, notwithstanding fast economic growth and technology adoption. Both wages and productivity are significantly lower in the informal sector. Informal workers have neither health insurance nor social protection. Technology may prevent Africa and South Asia from industrializing in a manner that moves workers to the formal sector.
Technology is changing how people work and the terms under which they work. Instead of the once standard long-term contracts, digital technologies are giving rise to more short-term work, often via online work platforms.
The changing nature of firms
As the boundaries of firms have expanded, the corporate labour share has declined in 75 percent of advanced countries and 59 percent of emerging economies between 1975 and 2012. The World Bank, using total labour shares from Penn World Tables, including the self-employed and government sectors, has calculated a decline in two-thirds of 76 developing countries.
Governments are struggling to respond to this decline and often blame the rise of large firms to explain it. Politicians are trying to create jobs by financing programmes for the development of small and medium enterprises.
However, these programmes are rarely cost-effective. They are based on the belief that small and medium enterprises create stable jobs, and yet the evidence shows that large firms account for the largest proportion of stable jobs in many economies.
Technological change favours the most productive firms in each industry, incentivizing the reallocation of resources toward them.
Digital technologies allow for fast scaling. Jamalon, an online book retailer since 2010 in Amman, Jordan, has been able, with fewer than 100 staff, to establish partnerships with over 3,000 Arabic-language and 27,000 English-language publishers, delivering 10 million titles to the drive out unproductive firms. And they achieve economies of scale that lower prices for consumers. Middle East region. Platform-based businesses are on the rise across the globe, providing new opportunities to trade goods and services.
Large firms dominate the global economy: 10 percent of the world’s companies are estimated to generate 80 percent of all profits. Superstar firms shape a country’s exports. One study of 32 developing countries found that, on average, the five largest exporters in a country account for a third of its exports, nearly half of export growth, and a third of growth due to export diversification.
Large firms have a beneficial effect on economic growth. They accelerate growth in developing economies by pulling resources out of subsistence agriculture. Large firms are at the forefront of adopting new technologies. They increase aggregate productivity by upgrading their internal capabilities to become more efficient and drive out unproductive firms. And they achieve economies of scale that lower prices for consumers.
In recent years, firms with more than 100 employees have accounted for 60 percent of the total employment share in Malaysia, Myanmar, and Vietnam. In Cambodia, they accounted for 70 percent. This situation plays out in other regions as well: large firms accounted for 53 percent of total employment in Argentina,46 percent in Bolivia, 62 percent in the Dominican Republic, and 54 percent in Ecuador.
Competitive markets and efficient trade require basic infrastructure roads, bridges, ports, and airports. Lower transport costs, as well as streamlined, cheaper border compliance processes, increase exports. Logistics infrastructure facilitates the online trading of non-digital products.
Broadband access is a prerequisite for business in the digital era after all, many firms depend in part or even exclusively on the Internet. Mobile phone access alone is not enough; broadband technologies push down transaction costs even further in remote markets that lack transport infrastructure.
Those living in the Middle East and North Africa region are some of the most underserved. Although that region can boast over 120 mobile phone subscriptions for every 100 inhabitants (one of the highest levels in the world), it has fewer than 10 broadband subscriptions per 100 inhabitants, and bandwidth per subscriber is limited. In the end, this means that although the citizens of these countries are active on social media, digital-finance has barely any presence. Broadband access is a prerequisite for business in the digital era. Mobile phone access alone is not enough.
Those living in the Middle East and North Africa region are some of the most underserved. Although that region can boast over 120 mobile phone subscriptions for every 100 inhabitants (one of the highest levels in the world), it has fewer than 10 broadband subscriptions per 100 inhabitants, and bandwidth per subscriber is limited. In the end, this means that although the citizens of these countries are active on social media, digital finance has barely any presence. Upwork, a U.S. platform, has since 2015 connected 5 million businesses with more than 12 million freelancers. Its fourth-largest community of task providers is in Ukraine.
Building human capital
Human capital consists of the knowledge, skills, and health that people accumulate over their lives, enabling them to realize their potential as productive members of society. The benefits of human capital transcend private returns, extending to others and across generations. Government actions to support investment in human capital go well beyond spending on health, education, and social protection programmes. Housing programmes improve the education and labour market outcomes of the most disadvantaged by changing the quality of the peers with whom they interact. The earlier children are exposed to better-off neighbours, the stronger are the effects.
Creating a skilled workforce for the future of work rests on the growing demand for advanced cognitive skills, socio-behavioural skills, and adaptability. Evidence across low- to high-income countries suggests that in recent decades jobs are being defined by more cognitive, analytical tasks. In Bolivia and Kenya, more than 40 percent of workers using computers perform complex tasks that require advanced programming. Close collaboration between industry and vocational education also plays a role. Incorporating more general education in tertiary programmes is one way to increase the acquisition of transferable higher-order cognitive skills.
Adult learning outside the workplace
Globally, some 260 million people ages 15–24 are out of school and out of work. A pool of unemployed adults is a political risk as well as an economic concern. Three promising routes to more effective adult learning programmes are better diagnosis and evaluation, better design, and better delivery. Adult learning programmes are more successful when they are explicitly linked to employment opportunities. The success of adult learning programmes may also depend on addressing multiple constraints at the same time. Combining training with cash or capital in some cases is a direct way to boost effectiveness. In Cameroon, 54,000 people who participated in a programme that coupled training with financial assistance found employment.
Learning does not end in school. Students who move into jobs have an opportunity to continue to accumulate human capital, but they face obstacles. For one thing, the emerging economies have a large informal sector. People working in this sector tend to be in low productivity jobs that do not provide learning or stable sources of income.
By creating the conditions for formal sector jobs, governments can offer better learning and income opportunities for the poor. Another obstacle is that women are often excluded from work. And yet another is that the poor in emerging economies are concentrated in rural areas in the agriculture sector. Raising their productivity is crucial to gaining human capital.
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