(Photo by Michal Jarmoluk via Pixabay)

Digitalization, automation, and other technologies have developed rapidly over the past 20 years. As a result, our lives and work environment have also changed significantly. How will the employment environment change as the use of DX (digital transformation) and AI in companies continues to gain traction? The World Employment and Social Outlook: September 2024 Update released by the International Labour Organization (ILO) examines how workers are being impacted by developments in technology.

Workers may not be fully benefiting from new technologies

In recent years, automation at manufacturing plants has become more prevalent due to developments in AI and the adoption of IoT. Labor costs can be reduced when processes that were traditionally performed by hand are automated. Productivity also increases due to improved work efficiency. Notwithstanding external factors such as higher raw material costs, this simply leads to greater profits for companies.

Increased profits for companies are a positive development for workers. However, the ILO’s report points out that while technological innovation based on automation improves productivity, it also contributes to a decline in the labor share. In other words, it suggests that workers are not fully benefiting from the advancements in technology.

Labor share has dropped by 1.6% in the past 20 years

The labor share is an indicator that shows how much of the added value (gross profit) generated by a company is allocated to labor costs. From the perspective of the overall economy, it refers to the proportion of labor income in the gross domestic product (GDP). It has decreased from 53.9% in 2004 and has continued to decline since 2019 due to the impact of the COVID-19 pandemic, falling to 52.3% in 2022. It is forecasted to remain at the same level in 2023 and 2024.

The report warns that this decline in the labor share is leading to widening disparities in the labor market, and if companies continue to advance the use of AI technology, this trend may intensify even further.

Ensuring that technological innovation helps build better organizations and a better society

The report emphasizes how critical it will be for countries and companies to mitigate potential adverse impacts through appropriate policies and measures in the process of technological innovation.

It is quite natural for labor costs to decrease as operational efficiency improves owing to the use of digital technology and the like. However, companies have a social responsibility to appropriately distribute the profits gained to employees, and they must also review the rights and working conditions of their workers at the same time. Such measures should lead to even greater added value for companies by securing better talent and enhancing employee motivation. Employees in turn need to remain aware of whether changes in their work environment are properly reflected in their compensation and to speak up if they feel something is amiss.

So that technological innovation can help build better organizations and a better society, companies and employees need to work together to explore a virtuous cycle that further enhances the added value already created.

(Author: Chiaki Iwamura, Translation: Alex Koolhof)