WASHINGTON, USA – Latin America and the Caribbean is in the midst of a “Fourth Industrial Revolution” of technological innovation which requires enhancing the productivity of the services sector, investing in human capital and rethinking labor regulations and social protection policies, according to a new World Bank report.
These policy priorities have become all the more urgent now that the COVID-19 pandemic is fueling the biggest contraction in economic activity since the great depression. Digitization has become more important to support economic activity at a time of social distancing and is accelerating this technological transformation, potentially putting jobs at risk across Latin America and the Caribbean (LAC).
According to Going Viral: COVID-19 and the Accelerated Transformation of Jobs in Latin America and the Caribbean employment transformations that were already apparent in the last few decades are bound to deepen, and the question in this context is how to recover from the crisis and build back better.
“We need to rethink the future and not just try to get back to where we were before the pandemic,” said World Bank Vice President for Latin America and the Caribbean Carlos Felipe Jaramillo. “Governments need to find ways to support the creation of new jobs, train workers to be ready for these new jobs and support their citizens through this disruptive transformation.”
Premature deindustrialization and rapid technological innovation will require policies to support a smooth transformation of jobs that is socially acceptable. The region was already struggling with the end of the so-called “Golden Decade” (2003-2013) of rapid development and strong improvements in social indicators. Economic growth and poverty reduction had stalled. The pandemic has only made things worse.
While fears of mass “technological unemployment” are largely unfounded, many jobs are at risk due to lower external demand, a protracted period of quarantines and lockdowns, solvency problems for firms, and financial crises in some cases. In addition, the social unrest seen in 2019 is a warning. It is urgent to restore economic growth and create more and better jobs.
However, this “Fourth Industrial Revolution” of technological innovation means that further industrialization or re-industrialization will be limited in many developing countries. Low-paid, uneducated workers and those in high-contact activities typical of the informal sector are at highest risk of being replaced by machines. In addition, informal workers are harder to reach with essential social protection programs. The COVID-19 crisis could accelerate these changes, bringing the future much closer than anticipated.
With limited scope for employment growth in manufacturing, modernizing the services sector is a priority. This calls for an emphasis on removing the distortions that prevent competition and innovation from occurring at a rapid pace.
Preparing workers for the changes is also fundamental. “Education offers the best insurance against the risks of automation,” said the report’s lead author Guillermo Beylis, Research Economist in the World Bank’s Office of the Chief Economist for Latin America and the Caribbean. “Workers will have to adapt to demand for cognitive or analytical skills, as well as interpersonal skills.”
Adult learning and re-training will be key as new automation technologies are adopted in LAC countries. The focus should be on policy reforms to increase productivity in the services sector, which already employs 60 percent of the workforce and will play an increasingly important role in the future.
Finally, a rethinking of labor regulations and social protection policies is needed. This involves flexible regulation of the emerging forms of work in a way that encourages employment and supports formalization, thereby expanding the coverage of social protection to larger segments of the population.