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The Fourth Industrial Revolution by Dr Jassim Haji

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The advancement of digitalisation and artificial intelligence, sometimes referred to as the fourth industrial revolution, is one of the most topical issues among economy experts and policy-makers worldwide.

Lately the productivity growth rates have been subdued in many developed countries. In some Eastern European countries, they have also moderated compared to their levels before the crisis when the economy saw very rapid growth. On a global scale, the productivity growth has been and will continue to be affected by factors such as demographic challenges (population ageing) and mounting government debt inhibiting policy efforts to introduce changes. Meanwhile, some researchers believe that the existing statistical methods of data presentation simply might not reflect part of the productivity growth.

The digitalisation of the economy comes with high expectations: the development of the internet of things, big data, 3D printing and sharing economy would make it possible to optimise the existing processes and unlock the potential for new development incentives. Examples are countless but some of the most notable and known to the Latvian public are the virtual assistants of the technology and entertainment company “Tet” and the Enterprise Register. Such new solutions allow us to save both material and human resources. Furthermore, they would enable us to improve our productivity over time. Already today, digital algorithms can replace workers in many occupations, allowing businesses worldwide to reduce costs and boost productivity.

Economists largely agree on the productivity gains of digitalisation, but their opinions on employment-related issues in this context vary greatly. There are two opposing views of how digitalisation will affect employment in the future. The first view holds that up to a half of jobs in the developed world will be automated in the coming 10 to 20 years. The share of automated jobs might be even larger in developing countries due to their employment structure. Such rapid changes might result in mass unemployment. Meanwhile, those with the opposing viewpoint remind us that, historically, the replacement of labour with technologies has consistently led to the creation of new jobs, and they believe that digitalisation will also increase the demand for new professions. Time will show what will be the actual development. Either way, it is already clear that we can expect major changes, and policy-makers should prepare for them in good time.

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Empirical studies have shown that jobs are not only lost but also created in the process of digitalisation. For instance, a study conducted in Europe found that in more digitalised sectors the number of created jobs is five times higher than that of lost jobs, while in less digitalised sectors the number of created jobs is almost half of those lost. This indicates that the employment growth and the progress of digitalisation can be positively correlated in the economy. However, the technological development results in the creation of new jobs only under certain conditions.

Regardless the total number of jobs remained unchanged or increased due to further introduction of digital technologies, it is obvious that this process can significantly change the skills profile of in-demand employees.

by Dr. Jassim Haji

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