Categories of AI
Impact of digitalisation and automation on labour market
This update examines the changes occurring in the digital working environment. It is based on a Global Employment Institute report (lead author Gerlind Wisskirchen) entitled "Artificial Intelligence and Robotics and Their Impact on the Workplace". It illustrates the associated legal challenges for companies and potential solutions with regard to HR matters.
Modern information technology and the daily use of the Internet have strongly influenced the world of work in the 21st century. Intelligent algorithms simplify everyday tasks, and it is impossible to imagine how most steps of a procedure could be managed without them. Further, the use of artificial intelligence (AI) and robotics is accelerating. Thus, the question arises as to what the future world of work will look like and how long it will take for this to happen. Mass unemployment, mass poverty and social distortion may be a possible scenario for the new world of work.(1) Even if intelligent systems and algorithms play an increasingly central role in the new world of work, no jobs will be lost abruptly as a consequence of digitalisation. Rather, a gradual transition will take place, which has already commenced and differs from industry to industry and from company to company.(2)
Big data analyses and intelligent algorithms are also increasingly replacing or supporting humans in the service sector. In the industry sector, automation and the use of production robots will lead to considerable savings with regard to the cost of labour and can release workers from hard and dangerous, repetitive and monotonous work. While in the European automotive industry one working hour in production costs more than €40, the costs for using a robot range from €5 to €8 an hour.(3) A production robot is thus only slightly cheaper than a worker in China.(4)
Robots and intelligent algorithms cannot become ill, have children or go on strike, and are not entitled to annual leave; therefore, for many companies it is worthwhile investing in robots and intelligent software. An autonomous system does not depend on external factors and works reliably and constantly; it can also work in danger zones and overnight.(5)
The following definitions are of use in this area:
- Deep learning – machine learning based on a set of algorithms that attempt to model high-level abstractions in data.
- Gig economy – independent contractors looking for individual tasks that companies advertise on an online platform (eg, Amazon Mechanical Turk).
- Robotisation – production robots replacing employees because of advanced technology (they work more precisely than humans, eg, three-dimensional printers).
- Autonomous driving – vehicles have the power for self-governance using sensors and navigation without human input. Taxi and truck drivers are no longer necessary. The same applies to stock managers and postal carriers (eg, delivery drones).
- Dematerialisation – thanks to automatic data recording and data processing, traditional office activities are no longer necessary (eg, accounting or lawyer assistants).
Impact of digitalisation and automation on labour market
According to recent studies, about 47% of total US employment is at risk,(6) while around 70% of total employment in Thailand or India is at risk.(7) Low-wage countries such as China, India and Bangladesh are still benefiting from their surplus of low-skilled workers, and western companies have outsourced their production and some services to these countries. In most developing countries, the implementation of (partly) autonomous systems is unlikely to be worthwhile at present for economic reasons, since the labour costs are not much higher than the costs for acquisition, development and maintenance of the necessary equipment.(8) On the other hand, companies also located in low-wage countries must invest in relevant IT systems in order to improve their productivity and attractiveness and remain competitive in the long run.
Eventually, however, these companies will decide to produce in their countries of origin using production robots and only a few workers. In this case, the surplus of low-skilled workers will turn into a curse for developing countries. The question is how to integrate the large number of unskilled production workers into a structurally difficult labour market that depends on the demand of foreign countries. Another problem is that there are no comparable social security systems in place in most developing countries. Possible mass unemployment could lead to humanitarian catastrophes and a wave of migration.
Due to the lack of financial investments in many developing countries, digitalisation will initially be strongly focused on developed countries and Southeast Asia. For example, more than 80% of the robots sold each year are used in Japan, South Korea, the United States and Germany.(9)
New job structures
According to a survey by the Pew Research Centre, 65% of Americans expect that a robot or an intelligent algorithm will be doing their job within 50 years.(10) Individual jobs will disappear partly or completely, and new types of job will come into being, especially in the service sector. That the service sector will be affected can particularly be seen in the insurance and financial branches, where intelligent algorithms are replacing human employees by automatically carrying out traditional back-office tasks, answering client questions via chatbots and presenting financial planning or insurance policies.(11)
A typical example of a new type of job created in recent years is crowdworking. Freelancers represent the typical worker of 'Industry 4.0' because they work at any time and in any place. Thanks to the Internet, international borders and time differences also no longer play a role. Owing to the digitalisation and internationalisation of the online platforms on which crowdworkers offer their services, the choice of applicable law is usually uncertain. More precisely, the challenges are how to define 'crowdworking', how to establish working conditions for compensation and how to determine which tax regime, social security and welfare rules apply.(12)
It is certain that both blue and white collar sectors will be affected to the same extent. In the medium-wage sector, routine jobs will be eliminated. Up to one-third of the jobs that require a bachelor's degree may be replaced by a machine or intelligent software in the coming years. At the same time, it is expected that new jobs will be created in the service sector, ranging from data analysts to software programmers.
The role of humans within the world of work is changing. Employee organisations have realised that new challenges are in store for employees from all professional and social classes because of robotics and the computerisation of the workplace. Trade unions will pay particular attention that no 'lost generation' is left behind and that there are no mass dismissals caused by the introduction of AI. Unions will advocate further training, advanced training and retraining of employees.(13)
Trade unions will remain the main player when it comes to fighting for employees' rights and they will expand their constituency by also representing the increasing number of freelancers. Finally, legislators will have to introduce new forms of employee representation structures to avoid their slow decline caused by a decrease in trade union memberships and fewer employees in a company, due to which the required thresholds for works councils can no longer be reached.
Outsourcing employment and creating new internal structures
Companies will focus on their core competencies and will outsource other activities in a cost-effective manner.(14) It is a global trend that 'Work 4.0' will take place outside traditional employment structures, with a rise in self-employment.(15) Even in European countries, the so-called platform economy is becoming more and more common. And larger companies use external workers instead of hiring new employees. Some highly qualified young employees enjoy their independence and will focus their work on the development of creative solutions for a changing client base. The demand for social security is no longer as high, but freedom with regard to working time, the place of work and the choice of clients is more important to so-called 'Generation Y'.
Professional connections between companies, clients, competitors and external providers involve some risks with regard to business secrets, especially if companies create open innovation models or use 'prosumers' (who consume and produce media) to develop their products. Particularly in big companies, hierarchy levels will be eliminated and smaller organisational units will be necessary. An automatic supply chain connection between the company's systems and the systems of its external providers will be the basis for success in the digital world.
Distinction between employee and independent contractor
Classic employment can be detrimental to the business owing to the high wage costs in European countries.(16) An employee is primarily characterised by the fact that he or she is subject to the authority of the employer to issue instructions regarding the job assignment. The borders between the employee's professional life and private life become blurred. If the place of work, in addition to working time, becomes more flexible, and if employees are granted more powers to work independently, it becomes harder to distinguish between an employee and an external freelance worker or a worker provided by a third-party company.(17)
Liability and safety risks
The introduction of intelligent algorithms and more independent production robots will create new risks for employees and employers. At the moment, a spatial separation between robotic and human workers characterises production facilities. In the future world of work, human workers will have to collaborate with robots and intelligent algorithms. Work will be characterised by the use of connected technical wearables (eg, data glasses or fitness trackers). In the production sector, risk analyses will be carried out in advance.
In addition, software faults can come into consideration as potential safety hazards relating to autonomous systems and assistant robots. Recently, the European Parliament voted for a resolution concerning the introduction of legal standards for robots and intelligent algorithms (eg, electronic person) and compulsory insurance to compensate for damages caused by the systems.(18)
Self-employed contractors are not released from liability. If an independent contractor destroys the principal's property while working for the principal, he or she must pay full damages, whereas the employee's liability is limited in most cases.
In the future, employees and employers will agree on the flexible management of working hours. The breakdown of the boundaries for working hours also makes it possible to implement working life time models that are beneficial to the 'work-life balance'. In most European countries, the maximum working hours or rest periods are exceeded in everyday practice. National and European lawmakers should create frameworks offering more flexibility and less strict regulations to avoid this legal uncertainty (eg, daily rest periods).
Some (older) alternative working-time models will become common, especially for the younger generation. Examples are home office, job sharing, on-call work, zero-hour contracts, employee-sharing, sabbaticals or reduced working time models for older employees. However, there are individual legal risks concerning the contractual design of every alternative working time model. In most cases, negotiations with employee representatives will be necessary.
The breakdown of boundaries in terms of the place of work and working hours makes it difficult for employers to check how many hours employees have actually worked. There is no factor linking the time/wage system, which makes this system unattractive for employees and employers alike since, in general, employees' motivation is enhanced by more performance-related payments. In the future, elements of performance-linked payment – or alternatives such as stock options, annual bonuses or company pensions – will thus be used increasingly with regard to non-executive employees.
The central issue regarding performance-related remuneration structures is not the type of agreement, but how to define 'performance-related'. A combination of an individual team target (turnover or a 'soft' target) and the turnover achieved by the company or group is possible.
Data privacy and big data
For big data analyses, data is anonymised and exists in an unstructured form. Thus, in most countries big data analyses do not violate applicable law. For companies, data is not only an asset worth protecting, but at the same time it is merchandise, and has been called the "oil of the future".(19) Nevertheless, the EU General Data Protection Regulation (applicable as of May 2018) prohibits collecting personal data without a permissive rule in all European countries. US data privacy protection laws are not based on the general assumption that data is confidential, but provide for data confidentiality in individual cases (eg, with regard to health insurance and the protection of minors). In addition, at least in the European Union, the introduction of many technical aids (eg, production robots, wearables, intelligent algorithms and employees' own devices) is not possible without the consent of employee representatives.
One certainty is that both blue and white collar sectors will be affected to the same degree.(20) A high level of unemployment in some sectors will be unavoidable, even if the major share of jobs will shift to a different area of work – mainly to the service sector, where new service models will be created. Finally, AI will result in growth and prosperity: employees will also benefit from flexible solutions concerning working time and the place of work caused by the introduction of AI.
The digitalisation (and automation) of services is a global phenomenon affecting a far-reaching and diversified field of advisory services in general, and labour and employment law in particular. Ideally, future laws should take the technological developments and the increased need for flexibility into account. AI is creating a gap between existing legislation and the new laws necessary for an emerging workplace reality.(21)
For further information on this topic please contact Gerlind Wisskirchen or Jan Schwindling at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email ([email protected] or [email protected]). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
(2) Brzeski/Burk, "Die Roboter kommen, Folgen der Automatisierung für den deutschen Arbeitsmarkt", 2015.
(4) "Kollege Roboter," Fokus No 38/2015 of October 19 2015, p69.
(6) Frey/Osborne, "The Future of Employment: How Susceptible Are Jobs to Computerisation," 2013, p1.
(7) "Automat trifft Armut", Handelsblatt News am Abend, July 15; No 135, p6.
(10) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p3.
(12) "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law, September 2016, p31.
(13) https://innovation-gute-arbeit.verdi.de/++file++540998f5ba949b358400004e/download/138.1411_digit_arbeit_RZ3_web.pdf S.25.
(14) "Understanding the Future of Work", International Organisation of Employers Brief, July 6 2016, p7.
(15) "Automation and Independent Work in a Digital Economy", OECD Policy Brief on the Future of Work, May 2016, p3.
(16) "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law, September 2016, p27.
(17) "The On-Demand Economy and the impact on employment law", International Bar Association Employment & Industrial Relations Law, September 2016, p26.
(20) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p5.