Firms’ digital innovation in the pandemic: how have workers been affected? 07.02.2022

DAL BLOG ECONOMIC OBSERVATORY.

Covid-19 has accelerated digitisation in businesses and changes in working practices. Effective training and skills policies will be needed to support continued innovation in firms, while also building workers' resilience in times of economic transition.

The pandemic has had a major impact on businesses and their employees. Social distancing requirements, shifting patterns of demand and continued uncertainty have brought changes in working practices and the introduction of new processes, products and services, many of which are likely to stick. Key examples include increased working from home and online sales. The adoption of new digital technologies has been central to these changes.

In the context of the broader debate about the effects of technological change on employment and jobs (see, for example, Acemoglu and Restrepo, 2019) a key question relates to how Covid-19-induced technology adoption has and will affect workers.

Within firms, the introduction of new digital technologies or automated processes might have labour-saving effects - meaning that fewer workers are needed - where some routine tasks can be performed more efficiently by new technologies. The risks of 'forced automation' on low-wage workers were highlighted early on in the pandemic (Autor and Reynolds, 2020) and have been studied empirically in the context of the United States (Ding and Molina, 2020).

But at the same time, new technologies alter the nature of work, create new tasks and change the demand for skills, and can complement (certain types of) labour. For instance, the adoption of marketing automation technologies powered by artificial intelligence (AI) makes it possible for businesses to leverage data at scale and raises the demand for skills associated with data analytics.

A survey of recent studies on the effects of automation on labour demand finds more empirical support for a positive impact on employment overall at the firm level (Aghion et al, 2022). Automating firms can become more productive and grow, generating new jobs (potentially at the expense of their competitors, though relationships at the industry level are also positive).

The Centre for Economic Performance (CEP) and the Confederation of British Industry (CBI) have conducted two bespoke business surveys, the first in July 2020 and the second a year later, to generate timely data on the extent, nature and effects of technology adoption in response to the crisis.

The second survey included a series of questions that sought to shed light on how technology adoption since the onset of the pandemic has affected the workforce. The rise of working from home and the associated increased flexibility have clearly been enabled by the widespread adoption of remote working technologies such as Zoom or Microsoft Teams. But this work set out to explore how effects on workers vary according to the types of technology introduced, or the characteristics of firms doing the adopting.

How has Covid-19 affected technology adoption in businesses?

As set out in a previous Economics Observatory article, the effects of a crisis on technology adoption are theoretically ambiguous (Valero and Van Reenen, 2021). But the evidence to date suggests that the pandemic has accelerated technology adoption in firms, in part due to the nature of the crisis (requirements for social distancing) and the readiness of digital technologies that allowed firms and workers to adapt quickly in sectors where this is feasible.

Three months into the crisis, the first CEP-CBI survey found that over 60% of businesses had adopted new digital technologies (Riom and Valero, 2020). This compared with 13% engaging in 'process innovation' - defined as making 'significant changes in the way that goods or services are produced or provided' - over the three years to December 2018 (UK Innovation Survey). Other studies at that time also pointed to increased digitisation (Be the Business, 2020; ERC, 2020; CBI, 2020).

The second CEP-CBI survey, covering an additional 12 months, reaffirmed the strong innovation response among UK businesses. Three-quarters of firms adopted digital technologies over this timeframe (see Figure 1). Over half (55%) had adopted new digital capabilities and nearly 70% had adopted new management practices. In addition, over 60% of firms had introduced new products and services.