The Jobs vs Technology Dilemma

The greatest challenge in terms of development is the creation of productive jobs. After all, in addition to economic growth, employment is also closely associated with people’s quality of life and a country’s social and political stability. While employment is already permanently on the public agenda, the issue has gained even more traction in recent decades due to globalization. Skeptics argue that globalization of production may have diverted jobs to developing countries abounding in cheap labor, leading to unemployment and wage stagnation.

The topic gained new momentum with the increasing automation of repetitive activities, which are supposed to have increased productivity, at the expense of jobs. But a new phase is apparently underway, with the emergence of recent technologies such as artificial intelligence and machine learning, which will also lead to automation of non-repetitive tasks.

Empirical evidence has confirmed that technologies are behind the weaknesses of labor markets, fueling the employment-technology dilemma. But evidence also suggests that job destruction has been offset, at least in part, by the creation of jobs in emerging activities such as developing, managing and distributing sophisticated management and production technologies, digital services and platforms, e-commerce and so many other innovations delivered remotely and globally and which are increasingly active in the daily lives of individuals and businesses.

But this debate focuses on first-world countries. What is happening in Latin American countries? Despite the abundance of workers and the relatively low share of labor costs as part of the total costs of many sectors, many of these technologies have also been gradually introduced to the region.

New business models that include tech developers, managers and distributors, which “commoditize” sophisticated technologies, which are requirements to comply with technical and regulatory standards as a condition for tapping into international markets—think phytosanitary requirements for fruits to be harvested and packed by mechanical means—and the demonstration effect, which would influence consumer preferences, would be among the explanations for the adoption of labor-saving technologies—in a region where cheap labor abounds—and which includes the demographic bonus.

The commoditization of technologies affects the region’s labor markets through various channels. One is associated with technologies that would increase informality and exacerbate unemployment, such as digital platforms for personal transport services. Another is the replacement of people with technologies, even in domestic markets, such as robotic call centers. A third element is the relocation, or use of sophisticated technologies to make it economically feasible to return to countries with advanced plants before operating in developing countries. Think about the evidence of relocation of Mexico’s automotive industry or El Salvador’s textile industry. Therefore, workers would be competing with “robots” in advanced countries, and also right here in the region.

The pandemic has helped accelerate the replacement of people with technologies. It therefore seems reasonable to consider that we could be witnessing a change in the comparative advantages of the region to the detriment of labor, and we are likely to be experiencing a decline in employment generated by every percentage point of GDP growth. More than in a dilemma, it looks like the region is trapped.

Are we going too far by replacing people with technology? This is a question with no clear answers yet, but empirical evidence in the United States shows that large-scale adoption of automation might not have had the expected effects of increased productivity. This is possibly due to the fact that over-automation does not necessarily lead to the expected cost reduction, and that the social costs of automation could be excessive and counterproductive. It could also be that excessive automation may lead to more difficult tasks and the loss of interaction opportunities, allowing for greater work productivity.

What about Latin America? In general, it would seem reasonable to admit that managing the issue with a slightly more local touch is possible. But we also need to consider the limited possibilities of a region that arrived late to the technology party and needs to be more integrated into the world economy. Therefore, we will need to try to turn threats into opportunities.

It is possible to use the knowledge already available to us in order to develop or adapt technologies and innovations that value the importance of labor, rather than replace it, especially in sectors that help create more and better jobs for the benefit of the people. Opportunities abound that include technologies that help improve the quality and availability of education, health and public transportation services, as well as affordable housing and remote work.

There is also ample room for technologies that help make the industrialization of our comparative advantages feasible, adding value to agriculture, mining, oil & gas, biodiversity, waters and forests, new energy sources, climate change and so many other sectors where the region has enormous potential for business and employment. This issue is especially relevant in the region with the largest urban population in the world. Other technologies also exist that help enable the expansion of domestic consumer markets, the integration of regional markets and the digitalization of small and medium-sized enterprises.

Because of the nature and urgency of the challenges, public policies will play a decisive role in transforming threats into opportunities. Regulatory issues, investment in science and technology, training, public procurement and international and public-private partnerships, as well as international trade and taxation—particular big techs—should all be part of the region’s agenda.