Evidence suggests that the Fourth Industrial Revolution is not as far advanced in the UK as in other OECD countries or in the European Union. However, that trajectory could be set to change. Over recent years, the UK Government has introduced considerable investment in this area, from the AI Sector Deal to the Made Smarter Programme enhancing use of new technologies in manufacturing and the establishment of a new Robotics Growth Partnership
As part of the Fourth Industrial Revolution, the automation of physical tasks alongside the development of algorithms that can monitor, learn and in some cases decide on a course of action, is expected to increase. This is likely to have a differential impact within the labour market, where lower skilled jobs in some sectors are displaced, while higher skilled jobs in other sectors are enhanced. This will likely play out differently across different places, depending on their sectoral base, leaving some workers facing higher risks of unemployment.
These changes in the use of technology come at a time when a series of factors have been affecting our working lives. Comparatively short-term but significant economic shocks including leaving the European Union and COVID-19 are set to affect the sectors facing the greatest challenges through the Fourth Industrial Revolution. Alongside this, heightened job insecurity faced by some groups of workers over recent years will mean there is a need for proactive and targeted support to mitigate the risks of displacement and support workers to manage periods of transition.
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What are the main challenges that DWP faces as a result of the “Fourth Industrial Revolution”? What do we know about the likely impact on the labour market?
1.1 Recent years have seen a growing focus on the potential disruption that new technological advances could create across the economy. In particular, those interested in what is often termed the ‘Fourth Industrial Revolution’, have focussed on innovations that increasingly connect physical activities and digital technologies to drive enhanced productivity. For example, through the development of things like 3-D printing, which can lead to personalised mass-production, or advances in biotech that lead to better targeted medicine for fast-mutating viruses, such as through CRISPR gene editing.
1.2 Such technological advances are anticipated to bring a range of benefits to the UK economy, including boosting growth and productivity. But they will also have huge implications for the future of work as a whole – in terms of the kinds of jobs that will be available in the future, the skills that will be required to undertake them and the nature of workplaces themselves.
1.3 However, while other countries have significantly increased the use of automated processes, AI and digital technology, progress in the UK has been relatively slow. The UK lags behind EU countries, with an average of 91 robots installed per 10,000 employees, compared with 106 robots on average in the EU, and over 360 in Germany. The proportion of jobs at high risk of automation in the UK has decreased slightly over the last decade; from 8.1% to 7.4%, whereas the number of jobs at low or medium risk of automation has increased.
1.4 There are several potential explanations for this. Countries such as France and Germany are thought to be better prepared for technological change in terms of skills, infrastructure and the ability to share information between different functional areas within an organisation. Over 90% of all UK businesses are SMEs, many of which require additional support to invest in and adopt advanced technologies given the human and monetary resource constraints they face. Even in Germany, the frontrunner of Industry 4.0 in Europe, SMEs have proven to be a bottleneck in supply chains. In addition, the BEIS Committee reported that government support and investment in automation has been limited, calling for tax incentives and a Robotics Strategy to stimulate investment.
1.5 However, that trajectory could be set to change. Over recent years, the UK Government has introduced considerable investment in this area, from the AI Sector Deal to the Made Smarter Programme enhancing use of new technologies in manufacturing and the establishment of a new Robotics Growth Partnership.
1.6 The current crisis surrounding COVID-19, together with the impact of Brexit, will both have significant implications for the sectors where the need for technological development and increased productivity is greatest.
2.1 A significant element of the Fourth Industrial Revolution is an increase in the automation of physical tasks alongside the development of algorithms that can monitor, learn and in some cases decide on a course of action.
2.2 There are varying ways in which automation could impact jobs across sectors. Early evidence suggests that some sectors will be more significantly impacted, in particular:
2.3 For instance, in transportation and logistics, we see increasing use of blockchain, self-driving vehicles and drones, which increase efficiency, but at the same time decreases the sector’s reliance on human labour, which can eventually lead to job displacement. Conversely, in the medical sector, we often see more labour enhancing solutions. For example, collaborative medical robots can support surgeons during difficult procedures, increasing safety and enhancing both the patient and the worker experience.
2.4 Overall, as with industrial transitions of the past, those jobs that have a high degree of routine and easily standardisable tasks are likely to be the most vulnerable to displacement by automation. For example, just as we saw a significant loss of many low-skilled and middle-skilled occupations in the manufacturing sectors across the EU and UK since the 1980s, research suggests that the North West and the East Midlands, both home to a large number of manufacturing businesses, are particularly vulnerable to job displacement. This is supported by recent analysis from the ONS, which highlights areas including Boston, Rutland and West Lancashire as being at particular risk of automation.
2.5 This means job displacement will very likely play out differently between places depending on their sectoral base, leading to particular local employment challenges. Sectors form strong regional or local clusters and as such make up an important part of the overall local economic ecosystem. When sectors and jobs are disrupted, some places will struggle more than others to support a given number of unemployed or displaced workers. In addition, restructuring in one sector will likely see knock on effects on other sectors in the same locality, for example through changes in consumer spending. Those who become unemployed or feel uncertain about their financial future are more likely to engage in precautionary saving and delay the acquisition of durable and non-durable goods.
2.6 In addition, evidence from Germany suggests that the Fourth Industrial Revolution could increase insecurity for those in low skilled jobs in non-standard employment, such as part-time, agency work, and zero-hour contracts. This could further increase the barriers that many engaged in such roles face to entering secure, standard forms of employment in the future. This is particularly true for lower skilled workers, who are already losing out in terms of access to career progression and training at work.
2.7 Notably, there are a range of personal, labour market and situational factors which together compound and increase the job and income insecurity that workers are likely to be exposed to. For example, analysis from the ONS has found that part-time workers, younger workers and women are at greatest risk of being displaced through automation .
2.8 Alongside the displacement of many jobs, it is important to recognise that others could be enhanced by increased automation, with more routine aspects becoming automated, which in turn could free up resource for greater strategic or value enhancing activities. While researchers believe higher skilled jobs are too creative or cognitive to disappear, others note that increasing capacity for pattern recognition and problem solving through algorithms may change types of work that people in higher skilled roles do.
2.9 For example, evidence suggests that modernisation in professional services firms, such as law and accountancy, will increasingly see administrative and other tasks relegated to technological solutions. As tasks change, there will be an increasing need for interdisciplinary collaboration across teams and across an increasingly interconnected supply chain, highlighting the need for social and communication skills. In this context, there will be a particular need to invest in re- or upskilling and providing lifelong learning for current workers.
2.10 The Fourth Industrial Revolution presents new opportunities for the UK economy, with new jobs being created and some workers experiencing enhanced working conditions as a result. However, for others, the risk of job displacement is growing, and the skills needed to deliver work in the future may be very different from the training and development opportunities currently available to them. This suggests the need for strategic planning from the DWP to identify individuals at risk and support them to manage this transition period.
3.1 Although it remains fraught with uncertainty, the COVID-19 crisis may accelerate the uptake of Fourth Industrial Revolution technologies. For example, the lockdown in March and April significantly boosted online sales, as its share of all retail sales grew from 19% to 33% between January and May this year, which may accelerate the further uptake of technology in retail. Sectors where a greater proportion of processes are already automated may prove to be more resilient to the current crisis, both better prepared to manage unpredicted surges in demand, and more able to manage the risk of infection among staff.
3.2 Previous Work Foundation research also found that increased use of digital technology among businesses would facilitate more effective work organisation processes, and more scope for flexible and remote working, both of which have become increasingly important since the outbreak of COVID-19.
3.3 At this early stage, forecasts about the scale and nature of the economic recession we are entering vary widely; early predictions of a v-shaped recovery are now being challenged, and the Bank of England predicts that we will soon face the worst crisis for 300 years. While the economy is gradually re-opening, the possibility of localised lockdowns in future may yet have further economic impacts at a regional and national level.
3.4 This context of heightened economic volatility will shape the degree to which businesses feel able to engage with the Fourth Industrial Revolution over the months ahead. The imperative facing many businesses to improve their productivity and streamline their operations in order to ease cashflow challenges has grown substantially. Businesses may feel that their only way of surviving the crisis is to fundamentally restructure their operations, pursuing automated solutions wherever possible.
3.5 Conversely, it is possible that faced with an uncertain post-COVID market, businesses will choose to delay potentially costly innovation and restructuring, particularly as there is reason to believe they will be able to draw on surplus workers from struggling sectors which will be shedding labour.
3.6 Considering the scale and long-lasting nature of the disruption caused by COVID-19, the Department should closely monitor shifts in behaviour and investment across sectors over the months ahead, and consider how it can better forecast changes in take-up of new technology within different sectors, and the potential resulting impacts on jobs.
4.1 Although the scale and timeframe of the impacts of the Fourth Industrial Revolution on the labour market are hard to predict, we expect it will:
4.2 Last year, in their report on automation and the future of work, the Business Energy and Industrial Strategy Committee stated that “the lack of planning and action in this area is worrying” and recommended that the Government develops targeted support for individuals at risk of job loss through automation. As the Department responsible for employment support programmes and Universal Credit, and a member of the National Retraining Partnership, the DWP should be at the forefront of this, developing employment support programmes and a social security system designed to support people to transition through a period of heightened economic uncertainty and facilitate progress towards the Government’s ambitions of making the UK a global leader in technology .
4.3 Given these factors, we recommend:
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