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The Fourth Industrial Revolution is redefining the economy as we know it

The middle class provide the majority of demand in the global economy. Image: REUTERS/Thomas Peter

CEO, Pipeline

The Fourth Industrial Revolution (4IR) upends current economic frameworks. Who makes money – and how – has changed. Demographics have changed. Even the skills that brought our society to where we are today have changed. Leaders must account for these transformations or risk leaving behind their companies, their customers and their constituents.

The top three economic frameworks in most urgent need of a 4IR overhaul include income generation, labour force participation and gross domestic product (GDP) measures. Let’s unpack these concepts one at a time and redefine what they mean as we advance bravely into the Fourth Industrial Revolution.

Making money in a world of increased automation

The global middle class will play an influential role in how we make money in the future. Today, more than 50% of the world’s 7.7 billion people live in middle-class households.

Wealth divisions and rates of middle-class growth differ from region to region. More advanced economies such as Europe and Japan see their middle-class markets growing by 0.5% each year. Rising economies, namely China and India, are expanding their middle classes at 6% each year. Perhaps most striking, however, will be the maturity of Asia’s middle class, which will soon constitute 88% of the world’s entire middle class.

The implications of these changes mark an inflection point in world history: no longer do the poor make up the majority of the world population. That title now belongs to the middle class – who also provide the majority of demand in the global economy.

September 2018 – the global income tipping point
Image: Brookings

 

Despite the anticipated disruption and uncertainty of workers of nearly all skill levels, one thing remains clear: Workers are increasingly turning to alternative work arrangements like side hustles, freelancing, independent contracting and gigging.

In monetary terms, the size of the world’s gig economy exceeds $200 billion in gross volume, an amount that’s expected to more than double to approximately $455 billion by 2023.

The majority (more than 75%) of those currently generating income through alternative work arrangements do so by choice. For 86% of females in the gig economy, freelancing provides more than an opportunity to make a living – it’s an opportunity to receive equal pay.

Only 41% of female freelancers believe traditional work arrangements would offer them pay equity. This finding presents massive potential as the average gender pay gap is 16% at the global level; closing it and moving towards gender parity could unlock $12 trillion from the world’s economy.

What’s fuelling the global gig economy?

A host of factors contribute to the rise of the gig economy, including increased globalization, advancements in technology and static educational and institutional inertia that can’t keep pace with changing workforce demands.

It’s not only the alternative workforce that is impacted by these factors. Workers in every industry – women and men – will experience the transformation brought about by the 4IR, if they haven’t already.

Approximately 50% of companies worldwide predict that automation will trim their current full-time workforce by 2022. And, by that same year, researchers expect at least 54% of employees will need re-skilling and upskilling to complete their jobs.

The future economy cuts straight through the heart of gender equity

We cannot deny the role technology will play in the future of work. Indeed, the future of work is technology. However, no conversation would be complete without addressing how technology and the future of work affect half of the world’s population: women.

Never mind issues of fairness, or the fact that women make up 39% of the labour force and are the majority of university students in 97 countries. Failure to view the future of work in tandem with gender equity compromises the efforts of businesses and governments to prepare for the dynamic new economy.

Automation will replace 11% of the female labour force but only 9% of the male labour force over the next two decades. The explanation is simple: despite their making up less than half of the global labour force, many jobs often held by women (secretaries, cashiers, and fast-food workers) are 70% more likely to be replaced by automation.

These data contrast narratives put forth by the media that tend to portray technology and robots as overtaking “men’s work”.

In addition to “high risk” jobs, high paying jobs in technology are leaving women behind in the future of work. Information and communication technology (ICT) specialists are four times more likely to be male than female, and only 24% of ICT graduates in 2015 were women. An analysis of companies working with open-source software, for example, found that only 15% of their software authors are women.

Women are the majority of university students in 50% of the world’s countries at a time when we are experiencing a global labour force shortage of 40 million workers.

Considering the changing workforce and the advancement of technology, gender gaps in technology fields should send a signal to leaders. It doesn’t help that men earn higher returns on their digital skills than women, either. Something needs to change.

 

Measuring success in the fourth industrial revolution’s digital economy

As we examine how the Fourth Industrial Revolution will transform the global economy, it’s important to consider how we measure its success. We currently rely on GDP as an indicator of economic growth. GDP calculates a country’s production of physical goods, and policymakers use it to inform decision-making.

GDP works well as a performance indicator in a manufacturing society, but in a world of increased reliance on services and technologies, GDP fails to accurately capture the intricacy of the economy.

In the past 30 years, $1 put towards digital technology investment increased GDP by $20, whereas $1 put towards non-digital investment increased GDP by only $3. By 2025, nearly a quarter (24.3%) of global GDP will come from digital technologies such as artificial intelligence and cloud computing. But how accurate are these estimates if they fail to capture the value of intangible assets such as networks, data, services and intelligence?

Depending on GDP as a measure of success in the Fourth Industrial Revolution will adversely affect policy decisions because technology as a product has a deflationary effect.

Instead of GDP, we should measure the health of our economy by what MIT calls GDP-B, where B estimates the benefits we obtain from digital goods and services. Analysts can calculate the value of B by determining how much money people are willing to pay to use zero-price digital services (such as Wikipedia, Instagram or Google Maps).

And just as the UN provides a gender lens to its global measurements (the Gender Development Index and the Gender Inequality Index), so too should we add the gender lens to the digital economy’s GDP-B. After all, if 50% of our population is thriving while the other 50% is struggling, can we call that progress?

The Fourth Industrial Revolution for leaders

To adapt to the wave of changes that are transforming our economy, policy and business leaders should consider the following guidelines to ensure no one, male or female, is left behind.

First, we need to redefine work in the context of the digital economy. What constitutes work in an expanding gig economy? What social protections are in place to keep workers healthy? What about keeping them safe as they work from remote and informal environments?

Second, we must remember the changing labour force demographics and create solutions to support the workforce of the future.

Third, governments and businesses must take action now to proactively retrain their workforce. For example, the US government could re-skill more than three-quarters of its technology-displaced workforce with a $19.9 billion investment and generate a positive return via taxes and lower welfare costs.

Finally, we must apply the gender lens to all decision-making going forward – and not only because it’s the right thing to do. Gender equity is a $12 trillion global economic opportunity. So when we collect data, let’s gender-disaggregate it. And when we train and re-skill workers, let’s ensure women and girls aren’t being left behind.

The challenges of the Fourth Industrial Revolution have the potential to expand the economic pie for all and bend the arc of history toward inclusion. We have the choice to be stronger because of it.

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