No trickle-down algorithmic profits

At the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China in October, 2020, decisions were made to develop the digital economy, advance digital industrialization and industrial digitization.

This is required by China being in a new stage of development. But the focus on innovation-driven and high-quality development is aligned with the goal of providing better lives for all. The digital economy therefore must be people-centered, and this should be the focus of research and decision-making to ensure the sound development of the digital economy.

With that in mind, some issues related to the digital economy merit attention.

First, the digital economy is bound to accelerate the automation trend. In theory, new and better jobs will be created during digital industrialization and industrial digitization, but workers displaced by technology are often not those who have the skills required for these new types of jobs. It is an unavoidable challenge in both theory and practice to align employability with the job opportunities created by the digital economy.

Second, the digital economy cannot solve the problem of monopolies by itself. The new technology revolution is making the tech companies bigger, market entry barriers steeper and information asymmetry worse, creating winner-take-all situations in which the winners contain and stifle competition, and recklessly abuse the digital information of consumers. It is thus necessary to prevent and break monopolies and ensure the digital economy embraces competition, innovation and the protection of consumer rights and interests.

Third, the digital economy is naturally prone to creating digital divides. For example, there is an opportunity gap between large companies and micro, small and medium-sized businesses in utilizing digital technologies. There are also digital technology accessibility gaps between high- and low-income groups and between people in different age brackets. In addition, there is also a mismatch between the skills of frontline operators and the digital system in public service institutions or businesses as they go more and more digital.

Fourth, the digital economy makes it harder to protect workers' rights and interests. The digital economy itself is the application of new technologies, which not only creates jobs that put higher requirements on human capital but also many unskilled jobs suitable for flexible employment, making the labor market more informal. Informal employees are less likely to have social security such as a basic pension, and medical, unemployment and workplace injury insurances.

It is essential to reject the notion that there will be a "trickle-down effect". Solutions to worker protection and ensuring that the fruits of the digital economy are shared by all must be built into the development of the digital economy. As we encourage new business models based on new technologies, strengthening regulation is equally important to facilitate the healthy growth of the digital economy by ensuring that it is people-oriented.

It is thus the responsibility of the government to increase job creation and worker protection. Therefore, an updated version of employment-first policy is needed to resolve the conflicts between the aggregate quantity, quality and structure of employment.

First, public employment services must be more efficient and lower the natural unemployment rate. Full employment doesn't mean zero unemployment. Instead, it allows for natural unemployment caused by structural and frictional factors. This structural and frictional unemployment is characterized by the mismatch between supply and demand in terms of the labor quantity and the skillsets of workers.

Therefore, public employment services and public-private partnership employment services are needed to provide efficient and targeted services such as training and recruitment, so as to better match supply and demand in terms of the number of jobs, skills, timing and locations.

Second, the digital economy is creating new forms of employment and the social security system needs to adapt to these changes. Since the reform of the household registration system is yet to be completed, China still has urban-rural dichotomy in the social security system, which does not cover migrant workers engaged in flexible employment and new types of jobs. The social security system is still struggling to adapt to new employment patterns. Expediting household registration reform centered on legitimizing the residence of migrant workers is undoubtedly one of the solutions. It is also necessary to explore a new social security model with universal coverage for those who find it difficult to access social security as the nature of employment continues to change.

Third, new forms of labor market institutions need to be explored. The allocation of labor resources is no exception to the market economy. However, unlike other factors of production, the factor of labor is people and that means it is impossible to allocate based purely on market supply and demand signals. It has been proved by countries that workers' wages, employment and social security benefits and working conditions are jointly determined by the labor market institutions, including labor contracts, collective bargaining and minimum wages. While the digital economy might change how these work, it will not reduce the need for the institutions.

The author is chief expert of the National High-end Think Tank at the Chinese Academy of Social Sciences and member of the Chinese Academy of Social Sciences. The views do not necessarily reflect those of China Daily.