Digital technology can help people to remain productive despite disruptions to daily life. However, this is only possible when people are able to access and use the technology that is available to them. Here, Professor Bart van Ark from The Productivity Institute warns of the dangers of a K-shaped recovery and lists the steps that policymakers can take to address inequalities in the digital space.

• During the COVID-19 pandemic, digital technology helped people to remain productive during lockdown periods.
• Existing inequalities can be reinforced when people do not have the skills or ability to access the digital world of work.
• Business executives, policymakers, education leaders and workers need to work together to address the sources of inequality to ensure that the COVID-19 recovery is inclusive.

Digital technology has helped us cope with the COVID-19 pandemic. But it is essential that the productivity gains from digital technology adoption become less divisive, and more inclusive. Better access to the sources of productivity, inclusive productivity measures, and coordinated and evidence-based policymaking are key to making digital technology benefit all.

An unequal aftermath of the pandemic

Along with the vaccination rollout and the search for a safe exit from restrictions in mobility, in early 2021, global attention is beginning to turn to the economic and social aftermath of the pandemic. A key concern is that COVID-19 is exacerbating pre-crisis inequalities. The virus has not only been much more dangerous for the elderly and those with underlying health conditions; it has also put those living in socially and economically deprived areas, ethnic minority groups, and those in service sector occupations that require in-person interactions, at the greatest risk – health-wise, economically, and socially. While the initial effects on income distribution will largely depend on the unwinding of the temporary income and business support measures, there are likely to be lasting effects on especially younger people experiencing the scarring effects of lost education and an erosion in skills because of weaker job prospects and slower upward economic and social mobility.

The power of digital transformation

One silver lining of the crisis has been the increased adoption of technologies, especially digital goods and services. More than one third of the UK workforce worked from home from mid-October to mid-November 2020, obviously with the help of digital technology. Some schools adapted quickly to online learning, and digital technology helped sustain some non-COVID-19 health services through video consultations. Online spending helped some companies to ramp up their digital provision of goods and services, and many doubled down on digital transformation in an attempt to strengthen supply chain resilience. These factors have almost certainly supported productivity in the short term, which after a fall in the first half of 2020, has seen a decent recovery since.

Widening digital inequalities

The acceleration in digital transformation has also laid bare some of the societal divisions in terms of access to, and benefits from, the digital economy. For example, schooling or working from home becomes hard when bandwidth is low or there are not enough digital devices in the home. Inadequate working spaces or difficulties in providing parents with support for home schooling are often linked to existing social and economic inequalities. Online consumption works for those with credit or debit cards, but not for those who largely live on cash or have no means to safely access and store their information. And while simple digital technologies, such as videoconferencing have been widely adopted by most SMEs, it is harder for them than for large firms to implement online marketing and sales or complex digital strategies.

The impact of digital access and the skills divide was already visible before the pandemic, widening the gap between the most and least productive firms, and feeding through into increasing wage inequality. The risk is that as we find our way out of the crisis, the short-term productivity gains from adopting digital technologies will not reverse the pre-crisis trend. Even worse, the recent acceleration in digital transformation may exacerbate the societal divisions in terms of access to, and benefits from, the digital economy.

The distribution of the productivity benefits may fuel a K-shaped recovery, making sectors, firms, and people with the most resources at hand do even better, whereas others stay behind. New digital technologies may only exacerbate these effects by putting occupations with tasks that can be easily automated most at risk. While those jobs were originally typically in the middle-income range, the emergence of robotics and AI is starting to squeeze out manual tasks concentrated in lower-income jobs such as retail and warehousing – in fact, exactly the kind of jobs put at risk by the lockdowns.

Rethinking productivity

It is essential that the productivity gains from digital technology adoption become less divisive, and more inclusive. Productivity may be more often thought of as related to efficiency gains rather than tackling inequalities. But there is another side to the productivity story. Productivity raises the returns on digital investments and can free up the resources for firms to expand and sustain new innovations. To trigger this virtuous investment-productivity cycle, we need a more inclusive approach to productivity.

To strengthen the link between digital technology and inclusive productivity requires progress on three fronts:

• Broader access to the sources of productivity growth. Better access to broadband and digital devices provides the technical means for productivity to advance. But to make use of technologies, people need to be able to improve their digital skills, inside and outside the workplace. Inside the firm, better management competencies and innovation practices can leverage the skills of employees. An emphasis on diversity and inclusion to drive innovation will also empower individuals in the organisation to make full use of digital capabilities. Collaboration between businesses, government, schools and colleges at local and regional level will help further create a high-trust and dynamic environment, and spread the benefits from adopting and using digital technology to other firms and the community as a whole.
• New measures of inclusive productivity. We need to consider the impact of digital technology on GDP, productivity and wellbeing, rethinking current measures of output and inputs. More informative measures of output should capture quality improvements in digital products and services, including better functionality, improved access, and the benefits of free content. Inclusive input measures will not only count how many hours people work, but also how better skills contribute, and what people provide in terms of personal data in exchange for free content.
• Coordinated and evidence-based policies. For productivity to drive inclusive growth we need an integrated set of institutions and policies across many players. Co-ordination is needed across policy domains, including education, digital, fiscal, innovation, housing, infrastructure and structural policy areas as well as between national, regional and local entities. Inclusive productivity requires a long-term focus and should not be hindered by policy-churn. Policies, therefore, need to be properly monitored, evaluated and compared on their effects.

Coming out of the pandemic, the choice is between a recovery for all or leaving more people further behind. A concerted effort by business executives, policymakers, education leaders and workers in making productivity more inclusive, can make the difference.

This article was originally published in On Digital Inequalities, a collection of thought leadership pieces on how to address the inequalities we are seeing in the digital space, published by Policy@Manchester.

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