Digitalization - The Great Equalizer?
As digitalization ploughs through our lives, it leaves no stone unturned. Simona Scarpaleggia and Nir Jaimovich discuss the effects on the labor market, the challenges employees face, gender equality, and how all members of society have a role to play in managing the process.
Is digitalization increasing or decreasing inequalities on the labor market?
NIR JAIMOVICH: There is a lot of evidence that automation and digital transformation have created inequalities and a polarization in the labor market. Highly skilled people benefit twofold: Technology increases their productivity and wages. It also creates new opportunities for profits, from which these people are more likely to benefit. At the same time, the demand for unskilled labor, e.g. cleaning, delivery, and catering services is also increasing. This leaves employees stuck in the middle of the job market – they have fewer employment opportunities and their relative wages are stagnating.
SIMONA SCARPALEGGIA: It depends how we deal with it. My experience is that digitalization can be used to decrease inequality. The question is, do we take the easy route, let existing employees go, and replace them with new ones, or do we take a holistic approach and build an eco-system in which we support ongoing requalification. Investing in the skills and the capabilities of individuals can be a great opportunity for increasing equality.
Your company, EDGE, uses digital tools to decrease inequality within companies. How?
SCARPALEGGIA: Yes, we use technology to measure, accelerate, and certify gender and intersectional equality in organizations. We look at representation of men and women at the different levels of the organization, pay, policies and practices, and inclusiveness of the culture. After an independent third-party audit, the organization gets certified based on their level of equality within these areas. Our clients receive a complete analysis and action plan with an indication of the impact of each action. It is up to the company to decide which actions they want to implement. We see that the companies that implement these actions progress and become more equal over time. This is a great example how, by using technology as a tool, we can advance equality. But, you have to do it.
The pandemic has accelerated change in many areas, i.e. remote working. What impacts are we seeing?
JAIMOVICH: Working from home has an impact on the quality of the training of new employees or teaching students. Learning is not a linear process and has a significant social component. If you have to call a colleague every time you have a small question, it’s a huge hurdle compared to having the person in the same room and being able to ask. Anecdotal evidence suggests that some companies have even halted hiring for this reason, which also affects productivity. Such distanced and very functional working arrangements will have an effect on staff commitment and turnover in the long run. If I can work for company X from home, I can also work for company Y from home. It doesn’t make a difference. High turnover rates are costly for companies.
SCARPALEGGIA: I used to be responsible for global the “Future of Work” program at IKEA, which included projects for remote working. The main concerns were about technology, so we planned to test it, run a pilot, and roll it out. And then the pandemic came, and within a week the entire organization was working remotely. No major technological issues. However, what is becoming increasingly clear is that company culture is at risk when remote working is the norm. We all have company specific rituals, shaking hands, hugging, how we interact in the cafeteria. These rituals are a fundamental part of a company’s DNA. After a year of working from home, many of our interactions have become two-dimensional. Every meeting looks and feels the same, and people are becoming detached from their work and identify less with the company they work for.
Simona Scarpaleggia: Company culture is at risk when remote working is the norm.
You mentioned the polarization of the labor market. Which roles are disappearing?
JAIMOVICH: What we are seeing now is that technology is starting to replace jobs that we didn’t think were at risk of being automated. Roles that require education and cognitive skills, i.e. lawyers, doctors, reporters, translators. Computers can do large parts of their work today, more efficiently and at greater speed. These jobs are changing significantly.
SCARPALEGGIA: We are also seeing a significant decrease in the number of middle management positions and a change in the tasks that these people fulfill. Instead of coordinating a small team, these managers need find other ways of contributing. And, it’s not only management roles that are changing, the people on the shop floor, in the warehouses need to be reskilled in this whole process.
What kind of skills do people currently in mid-tier jobs need to develop?
SCARPALEGGIA: As we are experiencing very clearly now, the need for good leadership increases in a digitalized workplace, especially when working remotely. How do you lead a team if you cannot meet with them? Social skills, communication skills, the ability to motivate and enthuse are becoming more important. These are the skills people currently in middle management need to develop.
JAIMOVICH: We need to think about the skills that humans have a comparative advantage in, such as adaptability, flexibility, creativity, and communication. These skills are becoming increasingly important. For example, I teach my students that while knowing a specific result is important, the ability to explain to people why the result is both relevant and important.
Are there gender differences in the ability to respond to these new requirements?
JAIMOVICH: We have some interesting findings in this area. There is a lot of scientific evidence that women have comparative advantages in social skills. While there is still discrimination against women in the labor market, we see a rise of women in higher-paying jobs requiring these skills. In the US, the probability of college-educated men working in top high paying roles has decreased in the last 20 years. However, the probability of a woman with the same level of education working in this type of job has increased. The gap is still there, but the trend seems to confirm the assumption that the labor market rewards skills in which women have a comparative advantage. This trend might further intensify and may be an opportunity for even further gender gap closure.
You both mentioned the need for reskilling, which sounds great for everybody. However, education and teaching people skills is expensive. Who is going to pay?
SCARPALEGGIA: When people ask me who is going to pay, I answer: What if nobody pays? What is the alternative? We cannot be passive about this; it is a necessary investment society needs to make. Digitalization is not a journey a person or company or country does in isolation. It is a collective effort. Government and companies, citizens and employees: all share the responsibility to make it a success.
Simona Scarpaleggia: When people ask me who is going to pay, I answer 'What if nobody pays?'.
JAIMOVICH: There is certainly evidence that retraining programs successfully enhance participants’ skills and wages once they go back into work. At the same time, applying these programs to very big parts of the population can be very expensive and would need to be funded through an increase in taxes which has distortionary and negative impact on the economy. At the end of the day, we are talking about major societal and political decisions that deal with the costs and benefits of a big-scale “retooling” of the population.
SCARPALEGGIA: I definitely believe that that companies have a responsibility to contribute and carry some of the costs.
JAIMOICH But will they? Will companies have incentive to do so? Doesn’t the stock market incentivize short-term gains that do not reward the long-term gains of retraining?
SCARPALEGGIA: Yes, stock markets are most sensitive to short-term benefits. However, the ESG factors (Environmental, Social, and Corporate Governance) are becoming increasingly important for investors. Over the last decade, the discussion has shifted toward, or back to, business ethics, purpose, and a company’s role in society. Follow the money and you see that the largest investors are diverting their money towards companies that are contributing to economic, social, or environmental sustainability. So companies are increasingly incentivized to contribute to the greater good.
