3 Effects of Technological Change on the Labour Market

This chapter discusses the changes that the labour market has been undergoing since the 1980s. There is evidence from research that wage inequality has greatly increased in developed countries. In the 1980s, wage growth was determined by employees’ educational attainment: the higher their skills were, the higher wage increment they could expect. That changed from the early 1990s, when wages not only increased significantly for high-skilled employees, but also for those with the lowest level of skills, who tend to provide personal services (such as drivers, cleaners, beauticians). The wage level middle-skilled employees, who are mostly skilled workers employed in factories, fell short of the earnings of other employees. An analysis of the presence of such employees shows that not only are their wages lower, their share within employment is also lower. While a number of factors can be identified as underlying this phenomenon, such as globalisation and changing labour market institutions, this chapter discusses the effect that the spread of information and communication technologies (ICT) has on labour market polarisation. The development of computing had a major influence on the methods of communication and the development of robotics, as a result of which increasingly affordable industrial robots became more cost-efficient in carrying out the tasks of skilled workers. This caused labour demand for such workers to decrease. Conversely, the skills of high-skilled employees complement the new technology, which makes them more productive and increases demand for their work. This mechanism increased the wages of higher-skilled employees, despite the fact that in the meantime the expansion of higher education had also resulted in a significant increase in the supply of such employees. The wage increase in the lower segment of the wage distribution stems from the increased demand for the output of the service sector and thus for employees working in services, fuelled by the income growth of high-skilled workers. However, this employee segment does not only include low-skilled employees: this is where skilled workers who have been made redundant are also forced to look for jobs, which puts downward pressure on wages. Occupational rearrangements can also be observed in the Hungarian labour market. Between 1994 and 2000, the share of low-skilled and middle-skilled employees increased, which can be explained by the fact that the appearance of large multinational corporations on the Hungarian market boosted demand for skilled workers. Conversely, wages increased linearly with educational attainment: the higher an employee’s completed level of schooling, the higher wage increment they could expect. This trend changed at the beginning of the 21st century. As in many other countries, the labour market became polarised, i.e. both low and high-skilled employees saw their shares increase at the expense of middle-skilled employees. However, wages did not become polarised. Between 2000 and 2015, the wages of low-skilled employees rose at a faster rate than those of higher-skilled employees, for two possible reasons. One is the significant increase in the minimum wage during the period. The other is the expansion in higher education, which moderated the wages of high-skilled employees despite the rising demand for them. This chapter discusses the changes that will be brought about by more rapid technological development in the years to come. Research findings suggest that the developments previously seen in production will be transferred to the services market. Robotisation will evolve to a level where robots will be capable of carrying out not only mechanical and repetitive tasks, but also more complex ones (see, for instance, the spread of driverless cars). The spread of ICT is a fact, but the government may mitigate the negative developments evolving in the labour market. The most important task is effective support for SME innovation, along with the transformation and extension of the educational system. The largest possible number of people should learn and do so extensively, i.e. there should be growth in both the ratio of secondary school graduates and the number of participants in higher education, and in the number of participants in life-long learning. It is also important to improve the quality of education so that it equips employees with skills that make them flexible and thereby able to switch professions when needed.