Are We on the Verge of a Labor Revolution or an Unprecedented Crisis?
Most commonly, high levels of employment mean prosperous economies. In this vein, to the casual observer, the current labor landscape may appear promising, with unemployment rates at historic lows and global employment recovering after the COVID-19 crisis. According to a report by the OECD (Organisation for Economic Co-operation and Development), there are fewer working-age inactive people than before the crisis, and the average hours worked per employed person are above pre-2020 levels. At the same time, the economy is marked by high inflation and a buoyant increase in interest rates by the US Federal Reserve. With the latest increase, the Fed has already made 11 hikes in the current monetary contraction cycle, reaching the highest level in over 22 years. But this does not mean everything is going well.
In a context of high inflation and sustained demand, we would expect to find rising wages… indeed, we see this in nominal terms, but that number does not reflect the redistributive reality. In addition to a generalized seasonal landscape, the average wage has been falling for 40 years relative to productivity, which has been growing (albeit somewhat slowed by the pandemic) at historic levels. The current situation challenges some forecasts: instead of registering a cooling of the productive market, as many anticipated, employment is increasing and relative remuneration is decreasing. It is difficult to discern where we are headed and how long this trend will last. The current feeling is that the labor market is in full swing.
Broadly speaking, throughout history, humanity has managed to develop ways to produce more and more quickly. Generally, increased production is accompanied by an increase in average wages, which reflects some level of redistribution of the goods and services produced. However, this has changed in the last 40 years: since 1973, we can observe a growing divergence between productivity and wages. Taking the US economy as an example, while productivity there grew by 1.55% per year, wages barely reached an annual average of 0.31%.
Something happened in 1973. As with any historical process, we understand that this divergence is multifaceted. Nevertheless, we cannot ignore the fact that what we now know as the Digital Environment laid its foundations that same year: the first personal computer was installed in an office, the first cell phone call was made, and the implementation of fiber optics began.
These events mark the beginning of a new era. Digital technologies began to infiltrate people’s lives, but especially our jobs… and they arrived to transform everything. Can we find in history other moments of transformation and uncertainty that can shed light on what we are observing?
Growth and Depression Cycles
The advent of digital technologies represents a new era of the productive system. While it is not necessary to agree on which wave of industrial revolutions we are in, it is possible to recognize that the digital revolution has disrupted all productive systems and has an impact comparable to the appearance of the steam engine or the organization of production in factories.
Historically, human beings have been relentlessly increasing our global productivity. We are capable of producing more and more, devoting less cost, less time, and less effort to do so. Each technological advance meant a quantitative leap: the development of metal, writing (and accounting), the implementation of electric light, the installation of sewer systems, and the steam engine (the loom and the train). Industrial revolutions allow us to produce more, and in the long run, they may enable us to live better. But if we look at economic cycles, we can see that when they begin, they bring significant imbalances.
When we think of an economic crisis, our minds automatically suggest the crash of ’39: bankruptcies followed by a severe depression of markets that spread to most of the planet. However, it is also not news that this depression process was preceded by a significant economic expansion, driven mainly by the end of World War I and the dynamism inspired by the popularization of productive technologies associated with the automobile, electric power, and the perfect combination of innovative mass production and popular consumption.
Another historical example takes us back to the first Industrial Revolution, which marked the first turning point in human history concerning production processes. For the first time, large numbers of peasants moved to cities to work in factories, leading to a rapid increase in the urban labor force. The mass production of goods, quickly and efficiently, led to the massive production of merchandise. This resulted in a historical peak in production and profitability. As one might imagine, we find the flip side of this process in the last third of the 19th century, in precarious working conditions, poor public health, poverty-level wages, and increasing urban misery. Precariousness transformed traditional ways of life, triggering the Great Depression of 1873. This date poses a significant symmetry: precisely 100 years later, in 1973, we recorded the current wage stagnation and the first steps of digitalization in the world of work.
In history, great productive revolutions are triggered by the inclusion of new technologies. At first, they seem to lead to a period of clear economic expansion. But then, these periods end up being merely a bubble that bursts in a crisis process. In the last century, starting in the 1970s, globalization, population aging, rising unemployment, and the predominance of neoliberal policies weakened the traditional model of resource redistribution. Today, the welfare state no longer has any effect in countries where it still applies. But also, starting in that decade, digital communication and information technologies appear in our lives.
The difficulty in understanding the present moment and the distortion in all indicators speak of a crisis that is looming. Are we living in a sustainable model?
A Digital Economy
The technological element is inescapable in any analysis of the current economy. In the third decade of the 21st century, companies adopt cutting-edge technologies that pursue greater automation and cause the reconfiguration of labor markets. This has not only been a fear that has spread for decades, but many forecasts also place particular emphasis on this idea to predict a catastrophic decline in labor demand.
Although recent studies suggest that large language models could automate up to 50% of tasks when combined with specific applications, the truth is that automation has advanced less than expected today. It is a process that is looming in all industries, but it is possible to imagine that it is not the catastrophe that has been predicted. The central challenge is different, and all indications are that we have been perceiving concrete indicators for decades.
When a productive model enters into crisis, it does so for various reasons. Since the 1970s, we can identify a series of economic and social transformations that impact our ways of producing. One of the most potent, undoubtedly, is the inclusion of digital technologies in production processes. The labor landscape will never be the same now that we can make the service industry more flexible, delocalize commercial supply, and work from home for almost any country on the planet. Just these three changes have altered the way we have always organized work. Has our productive model already fallen behind? How do we interpret the emergence of an impoverished labor force?
The problem we point out is not intrinsic to the new ways of working, but we do not have an economic model that takes into account our acquired capabilities. We are beginning to feel the crisis in the way resources are redistributed. A model crisis is not a bad thing, but it certainly implies the advent of difficult times. If we do not manage intelligently how these new technologies enter the productive system and our lives, we may be creating the conditions for the overheating of the economy to begin to burn, and everyone starts feeling the pressure.
Perhaps the technologies that facilitate the beginning of a new stage of global economic depression are under development, but unlike what many predict, it will likely not be driven by massive waves of layoffs and productive redundancies. There is no need to wait for a catastrophic event: the impoverishment of labor is already a process we have seen happening for decades. Are we responsible? Will we be the ones to find the solution?
The problem arises with some urgency. On the one hand, we do not know how long the current model can survive. On the other hand, these processes of impoverishment of conditions and labor remunerations can open processes of political radicalization, of which we can already see signs in different parts of the world. It is in the face of these chiaroscuro moments that humanity must engage in serious collective debates.
These are critical times, of instability and confusion. We are plunging into a crisis that can sweep us away if we do not address the dilemmas with the practicality they deserve and the necessary time to develop and implement collective actions. We must seek solutions that ensure a sustainable and equitable labor future for all. It is up to us to restructure collective projects so that they become useful to us again. Can we adapt institutions to our new needs? The collective task of ensuring the sustainability of ever-growing production falls upon us before the whole model collapses. Perhaps the very technological tools that trigger all this are the ideal platform to try.
