Global Compact International Yearbook 2016

By Prof. Dr. Harald Hagemann
Industry 4.0
How does
Affect Growth
and Employment?
With the digitilization and global linking of production
– the “fourth Industrial Revolution” – the
specter of unemployment in the technology sector
has entered central stage again. In its special report on June 25,
2016, on Artificial Intelligence, The Economist proclaimed “The
return of the machinery question,” which first had been posed
in serious economic literature by David Ricardo in 1821. Since
then, a controversy between labor-displacement pessimism
and compensation optimism has run through the economic
literature as well as public policy debates.
Although this controversy gained steam every time greater technological
dynamism led to higher unemployment, Schumpeter
pronounced this controversy “dead and buried.” However, the
current debate, which led authors such as Brynjolfsson and
McAfee to proclaim the “second machine age,” contradicts the
author who stated that “creative destruction” is the essential
fact of capitalism.
Schumpeter’s term of creative destruction indicates well the
double-sided nature of technological change, which, on the
one hand, destroys old jobs and firms and leads to an erosion
of old qualifications and shrinking sectors, but, on the other
hand, stimulates the creation of new jobs, firms, and the rise
of new sectors. This raises three important questions for the
economy as a whole:
1. Do the compensation effects balance, or even dominate,
the displacement effects?
2. Do the new technologies require higher or lower skill levels
than the old ones?
3. How do the new technologies influence the distribution of
income? In particular, do new labor-saving technologies
contribute to higher levels of inequality regarding income
and wealth distribution?
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Global Compact International Yearbook 2016