COVID-19 accelerates technology adoption and deepens inequality among workers in Latin America and the Caribbean

The blog post is available in Spanish.

The International Labor Organization estimates that 47 million jobs were lost across Latin America and the Caribbean so far due to COVID-19. And  telephone surveys suggest that many more families lost income as consumption decreased and employers reduced workers’ hours. Are you one of them?

And news is not getting any better: COVID-19 is accelerating some pre-existing trends in the labor market: the adoption of new technology, and the deepening of income inequality.  What can be done?

I want to share some insights on where we are now and how the countries in the region can turn this bleak panorama into opportunities to strengthen the labor market across the region.

Software, robots, and digital solutions

Even before the pandemic, economists had identified automatization and the adoption of new technologies as major drivers of change in labor markets and the nature of jobs. New evidence shows that firms are responding to the crisis by adopting more technology. According to a new World Bank working paper, “around 34 % of firms have increased (around 22 % ) or started (around 8 %) the use of internet, social media, and digital platforms; and 17 % of firms have invested in new equipment, software, or digital solutions in response to the pandemic.”

Figure: Fraction of businesses across responses to the shock

Similarly, National Geographic magazine reports that demand for robots has surged around the world. As of early July, robots of all sorts were directly involved fighting the pandemic in at least 33 nations, according to Robotics for Infectious Diseases. In part, this reflects efforts to accommodate remote and home-based work, but the investments in new equipment, software, or digital solutions also suggest that pre-pandemic trends have accelerated and many jobs that were lost during the pandemic may not return. 

Workers will be replaced

As firms incorporate new technologies, more and more of the labor market is quickly entering the digital space, either by teleworking or by supplying work through digital platforms.

These changes affect workers differently. Those employed in jobs which are intensive in routine manual tasks (e.g. factory workers) and routine cognitive tasks (clerks and administrative) are quickly being replaced by machines and software. This transformation, known in the economic literature as the Routine Biased Technical Change (RBTC) theory, is well documented in advanced economies. Evidence in our new report “Going Viral: COVID-19 and the Accelerated Transformation of Jobs in Latin America and the Caribbean” shows that these changes were already happening in LAC countries as well.

Unfortunately, the crisis has deepened inequality in a region that already has very high levels of inequality. As in the rest of the world, only a segment of the workforce was able to telework and work remotely: generally higher income, more educated workers. According to a new survey by the Interamerican Development Bank (IDB) and Cornell University, members of a poor household were three times as likely to have lost their job than members of wealthier households. 

What can be done?

On the one hand, government responses in the region have generally been strong, reaching millions with income support. However, formal workers have enjoyed protections of their jobs and incomes while informal workers have had to manage by risking their health and/or receiving transfers.  Plus, much of the government response hasn’t dealt with the underlying issues of inequality and the profound effects of increased technology adoption and the digitalization of the labor market.

For one, the costs of digital exclusion have increased. Access to digital platforms allows for new entrepreneurial opportunities as well as new employment opportunities for workers and/or  opportunities to supply additional hours of work as to supplement their families’ income. But lack of access can be inequality enhancing, leaving out the poorer households and the more geographically remote regions.

Governments need to invest in digital infrastructure to provide reliable and affordable access to the more than 244 million people in LAC that have no internet access.

Policymakers must also consider the protections, rules and regulations that will govern the digital labor market. This policy debate is not even settled in advanced economies. For example, in some countries, the debate is centered around classifying certain types of gig workers as employees or independent contractors.

And policymakers need to balance the flexibility and job-creating potential of the digital labor market with the need to protect workers and expand the coverage of social safety nets. 

There are no easy and simple answers. But there is an opportunity to come out of this crisis with a new digital economy that incorporates more workers into the formal sector and expands the social safety net to vulnerable households.