By Maria Monica Wihardja, Visiting Fellow at the ISEAS-Yusof Ishak Institute and an Adjunct Assistant Professor at the National University of Singapore
Meeting a long-time high school friend, Naomi (not real name), in Tokyo, took me on a nostalgic journey as we reminisced about the past and envisioned our future. Naomi shared her plans to open a café with her husband, but then confided that she worried about her future as a professional translator. AI has become increasingly accurate at language translation, and the job her mother passed down to her is on the verge of redundancy.
Naomi’s story is not unique. From translators to call center attendants, and from factory workers to sales clerks, many jobs are becoming obsolete. While this change may not happen overnight, it’s a gradual shift, much like Daniel Susskind’s argument in A World Without Work. One notable moment was when AlphaGo, a computer Go program developed by DeepMind, beat the world’s best Go player in 2016, signalling a leap in AI’s capabilities.
We are still far from achieving Artificial General Intelligence, a technology that replicates the workings of the human brain. However, today’s machine-learning algorithms—derived from the mathematical work of ninth-century scholar Abdallah Muhammad ibn Mūsā Al-Khwārizmī—are performing tasks requiring human-like intelligence.
Concerns about technological advancements displacing workers aren’t new. If horses could have protested the combustion engine, they would have. When the sewing machine was invented in 1831 by a French tailor, an angry crowd of tailors nearly killed him for fear of losing their jobs. Similarly, New York’s lamplighters went on strike in April 1907 when they realised that Thomas Edison’s light bulb would render their 500-year-old profession obsolete.
Historical Parallels of Technological Anxiety
The question of whether anxiety over job displacement by AI is misplaced remains open. Most technologies—from the combustion engine to sewing machines and electricity—create both winners and losers, regardless of whether the net impact on employment and productivity is positive or negative.
Even in advanced economies like Japan, highly skilled professionals such as translators may find it difficult to keep pace with new technological demands. This challenge is even more pronounced in developing economies with lower levels of human capital, such as many Southeast Asian middle-income countries.
While AI adoption is still in its early stages in Southeast Asia’s middle-income countries, the digital transformation and digital investment from the early 2000s to the late 2010s have already had varying impacts on different types of workers.
Indonesia’s Case Study: Impacts of Digital Transformation on Labour
The policy study, using Indonesia as a case study, shows that workers with advantages—such as higher skills and better education—benefit more from digital transformation and investment than low- and mid-skilled, less-educated workers. However, even high-skilled workers can be negatively affected in some cases.
The same study also finds that market concentration may work differently in the networked economy compared with the traditional economy in terms of its impact on wages and employment, necessitating a different approach to competition policy in networked industries.
Channels of Impact
The study identifies three main channels through which digital transformation and investment in digital sectors affect workers:
- Skill-biased technological change: This refers to the increasing skill premium—the wage gap between skilled and unskilled workers—because digital transformation boosts the productivity of higher-educated workers more than that of less-educated workers.
- Routine-biased technological change: This phenomenon, often referred to as job polarisation or the “hollowing out” of middle-skilled jobs, disproportionately affects workers performing routine tasks, leaving middle-skilled workers most impacted.
- Skill-intensive investment: This type of investment favors workers with in-demand specialised or general skills, amplifying the advantages for already skilled workers.
The study highlights the risk of exacerbating existing inequalities as digital technology becomes more accessible, affordable, and advanced, potentially leaving some people behind — a challenge that may not be unique to Indonesia. Despite this risk, liberalising digital investment is often a pro-competitive and pro-employment policy in many developing countries. Digital transformation can help these nations leapfrog certain development stages if the right measures and safeguards are in place.
Several studies have shown that in countries at earlier stages of industrialisation and lower levels of automation, employment gains from productivity growth driven by digital transformation — including labor-augmenting technologies and even automation — can offset job losses from displacement, leading to a net increase in employment.
Government policies should, therefore, avoid stifling investment or innovation in emerging digital sectors. Instead, as emphasised by the study, Southeast Asian developing countries can learn from Indonesia by focusing on complementary policies to mitigate the risks of digital transformation (see Table below).
Complementary Policies to Ensure an Inclusive Digital Transformation in Indonesia
|
Policy |
Actions |
|
Education, including technical and vocational training |
Improve educational outcomes (enrollment and |
|
Active labor market policies |
Constantly review and adjust labor market |
|
Internet infrastructure |
Improve internet access and quality, and reduce |
|
Trade and investment |
Lower barriers to importing essential equipment |
|
Competition (especially in networked industries) |
Use existing economic frameworks (e.g., Regional Comprehensive Economic Partnership, ASEAN |
ASEAN = Association of Southeast Asian Nations, FDI = foreign direct investment, EU = European Union.
Source: Wihardja et al (2024)
Learning from Regional and Global Examples
Southeast Asian developing countries could improve education outcomes (both enrollment and quality) and facilitate learning, especially by giving a second chance for adult workers with low levels of education. Southeast Asian nations could look to Japan and Singapore for successful examples of educational and labour market reforms. Japan’s 2019 labour law reforms addressed outdated practices and prepared future generations for the digital
economy. Singapore’s SkillsFuture initiative, focused on reskilling, serves as another valuable model for its neighbors.
Countries must continuously update their labor market policies to accommodate rapid
changes in job nature due to digital technologies. This may involve redefining employment
and introducing innovative policies that cushion income shocks, reward new skills, and reduce skill mismatches. More progressive approaches could include initiatives like Conditional or Universal Basic Income, labor-favorable tax systems, the emergence of new forms of organised labor, and “leisure policies” that help individuals engage in purposeful activities.
To maximise the benefits of digital transformation, Southeast Asian developing countries
should improve the availability, accessibility, and quality of internet connections. This will
enable workers and students to participate more meaningfully in digital learning and training. Strategies could include reducing internet prices through cost-sharing arrangements among firms and implementing a unified licensing system for all internet services, enhancing overall connectivity.
Many Southeast Asian countries still impose high restrictions on Foreign Direct Investment
(FDI) in digital sectors and their supporting industries. Reducing these restrictions, including those related to the movement of skilled foreign workers (e.g., ICT specialists), could promote greater investment. Additionally, policies encouraging technology spillovers—such as fostering links between local and foreign firms and advocating for firm-based training—could ensure that domestic companies and workers benefit from increased FDI.
Southeast Asian developing countries should amend their competition policies to address the ‘winners take all’ phenomenon and concentrated market dynamics in the network economy. This reform would create a more level playing field for both large and small companies. The UNCTAD (2021) outlines best practices in competition policy for digital markets, while the European Union’s Digital Markets Act provides a potential model for fostering competition in Southeast Asian digital sectors.
In summary, the impacts of digital transformation—whether through the internet, automation, AI, or future emerging technologies—must be closely monitored, and public policymaking should be data- and evidence-based. Unfortunately, there are no shortcuts to evaluating the externalities—both positive and negative—caused by digital transformation.
About the writer
Maria Monica Wihardja is a Visiting Fellow at ISEAS Yusof Ishak Institute.
The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.
