Digitization is already turning the labor market upside down. What might the general situation look like for people, companies, and politicians if this trend keeps stepping up its pace in Germany? Labor market experts and experts from the digital economy have outlined six potential scenarios.
When it comes to the question of how digitization will change the labor market in Germany, optimists and pessimists dominate the public debate. One side expects the elimination of ever more jobs due to robots and algorithms, while the other side regards “Industry 4.0” as the next major engine of growth and employment.
How the German labor market might develop between these two extremes was the subject of a study jointly conducted by stiftung neue verantwortung and the Bertelsmann Stiftung. A group of 24 technology and labor experts developed six scenarios that draw a very nuanced picture of the impact of digitization, ranging from Germany as a globally successful exporter of digital industrial goods which grants citizens an unconditional basic income, to a country with few job opportunities outside of the strongly interconnected major cities, all the way to a labor market offering sufficient work but where everyone is on his or her own.
Digitization, a major construction site
“All scenarios clearly show one thing: Labor 4.0 will become the next major political construction site of digitization in Germany,” says Dr. Juliane Landmann, the study’s project manager. More flexibility for people in performing their job, faster changes in skill requirements, and a potential drop in demand for labor necessitate a rethinking process in key areas of the social security systems and the labor market. “The pressure to change on employees, employers, and the welfare state will mount considerably – in line with the degree of success with which German industry is going to handle the transformation toward a software- and service-intensive economy,” Landmann explains.
Politics should carefully examine the potential changes in the labor market to avoid surprises. Increasingly digitized and interconnected production processes or platform-like business models such as Airbnb or Uber will not remain isolated phenomena but impact ever larger shares of the working population.
“However, either/or thinking which claims either that digitization will destroy a vast number of jobs or that it will be the engine of new, attractive employment conditions is not helpful,” says Dr. Stefan Heumann, who is in charge of the project study. “If we want to shape the technological transformation in Germany politically, we must examine a number of potential scenarios in between these extremes.”
Recognizing political challenges
The scenarios were developed for planning departments of ministries and parties, for union organizations, and for company managers. In a process of strategic forecasting – or foresight –labor market and technology experts developed six different scenarios over the course of twelve months. The point was not to predict the future, but to present an array of conceivable scenarios for a labor market impacted by digitization. It was the objective of this method to recognize challenges concerning actions which politics has to take and which are indicated in all six scenarios. Government, unions, and businesses should examine these issues in good time, independent of conventional limits of competence and responsibility.
This is a cooperation project with the stiftung neue verantwortung. Contact person for concept development and organization at the stiftung neue verantwortung is Dr. Stefan Heumann.
An overview of the scenarios:
Industry 4.0 is the new success story of the old engineering nation. Engine builders and automobile manufacturers have mastered the digital transformation and are generating growth. Many jobs have been lost as a result of the advanced automation and connectivity in production, but the welfare state is able to offset social hardships due to a shortage of jobs by granting an unconditional basic income.
The competitiveness of industry has declined as a consequence of digitization. On the other hand, data processing in the service sector – above all, by the banking and insurance industry – ensures economic growth in Germany. Data protection is hardly an issue any longer among the population. Revenue per employee is high, even though only few specialists are required. Opportunities on the labor market are good for highly qualified knowledge workers who have the necessary skills for a data-intensive economy and take care of their own training and development. The burden on the social security systems are great due to a lack of jobs for low-qualified workers and the growing number of baby boomers who are sent into early retirement.
Germany has a highly advanced digital infrastructure throughout. Society regards the intensive connectivity at the workplace and in everyday life as an opportunity to enjoy more freedom and leisure time. Work has been organized into projects and platforms. New business models and lines of business have been established. The labor market has become largely deregulated. There is only a modicum of social security, but the German economy continues to be competitive thanks to its old fortes and new competencies.
Germany is split – into economically high-performing cities and rural areas with only few jobs and a poorly developed digital infrastructure. The place of residence is a crucial factor in determining one’s professional outlook. The economic strength is focused on metropolitan areas which compete against one another in the global market. The regional upheavals are widening the gap between the poor and the rich – also because Germany imports or copies Old Economy technology.
With their education infrastructure and regional economic policies, the federal states were able to exert a crucial impact on the digital transformation of the economy. They are now fiercely competing for mobile, highly skilled freelancers. There are winners and losers: some states have been left behind and now offer considerably worse living conditions. By contrast, the digital pioneers attract foreign investors and have adjustable education systems. The strong divide between the regions has resulted in dwindling solidarity and makes it ever more difficult to reach agreements at a national level.
The way digital technologies are handled has become the crucial criterion for competitiveness. Neither industry nor politics and regulation have been able to keep up with the technological change. Automotive and mechanical engineering have been pushed aside by competitors at an international level, and those in the service sector on whom digital hopes had been pinned have been bought by foreign corporations. The ageing society is skeptical about technology. There are a large number of job seekers and young immigrants, but because of their qualification they cannot fill the economically paralyzing skilled labor shortage. Unemployment is high and the pay level low. The social system is largely funded through employee and employer contributions.