Automation in the business process outsourcing sector: Will it be labor-displacing or labor-complementing?

Automation was once limited to very routine and clearly-defined tasks because computers cannot think for themselves. But around the world, technology is already “encroaching to the human domain”, performing duties once impossible for machines (Brynjolfsson and McAfee, 2011). For instance, healthcare, paralegal services, law enforcement, and driving were industries once thought to be least susceptible to automation because of the cognitive process involved (Frey & Osborne, 2013). However, due to advances in artificial intelligence, big data, internet of things, and related technologies, computing power has broadened significantly, leading to an increased role in virtually every field. Without a doubt, capital-intensive growth through automation is the future.

Labor displacement in the BPO sector

This poses a particular problem in the business process outsourcing (BPO) sector which provides contact center services, information technology development, and other offshorable services to firms overseas where wages are expensive. Given the relative abundance of workers in the Philippines and their low cost, BPO firms have thrived on labor-intensive technology, employing over 1 million people in their operations (Tullao, 2017; Yu et al., 2017). However, the majority of the tasks currently performed by Filipino workers such as inbound and outbound calling can now be done through text-to-speech, language recognition, and AI-powered communications. Does this mean that millions of automatable job positions will now be displaced?

Many people have recently expressed such fear about the labor-displacing power of automation, especially in the affected fields like the BPO sector, but this sentiment is not new. Keynes (1963) previously predicted the rise of widespread technological unemployment as a result of machines taking over tasks previously assigned to laborers, making the corresponding skills significantly less relevant in the workforce. When all employees have are the skills that have already been successfully automated, they essentially become worthless; hence, they are given lower wages or are even fired.

Aspects of labor complementation

Although automation may cause job displacement, there are three ways it can complement labor.

First, automation improves labor productivity. Instead of completely replacing workers, machines take on the more tedious parts of work, including those which may be overly repetitive, exhausting, or even dangerous. Meanwhile, workers are allowed to focus on tasks that computers have difficulty performing such as those requiring problem-solving skills and creativity (Autor, 2015). For instance, in the case of BPO technical support services, computer-powered algorithms may be able to resolve common customer issues while the more complicated or unusual ones can be left to human experts. The presence of specialization between man and machine actually increases labor productivity, leading to “higher returns to labor” (Yu et al., 2017).

Second, automation offers new employment opportunities. New job titles which have never existed before are now in high demand because of the widespread digitalization, especially in the maintenance and management of the newly implemented technologies. This means that while there may be less customer service representatives and transcriptionists in BPO companies in the future, there will likewise be more data scientists and cryptographers. Based on Arntz, Gregory, and Zierahn’s (2017) study, historical data has shown that the gains in new jobs created outweigh those that were lost. Bowen (1966) put it succinctly, “technology eliminates jobs, not work”.

Third, automation provides incentives for human capital development. In this age of advancement, one can never be complacent in the skills he or she already has, particularly if these have already been automated or are predicted to be automated in the near future. For call center agents, English and communication skills can no longer be their only assets. Workers are now impelled to exert their comparative advantage over machines by pursuing higher education and  focusing on the development of non-automatable skills that involve high-level critical thinking and analysis such as leadership, entrepreneurship, and innovation (Brynjolfsson & McAfee, 2016). Without the imminent reality of automation, workers would not feel the urge to expand beyond their current skill set and capacity.

Conclusion

Automation is expected to rise exponentially in the next years because of unprecedented technological breakthroughs, and this is bound to affect not only the business process outsourcing sector but also the entire Philippines as a labor-rich country. However, competing against automation is the incorrect response. Computers are more efficient, less costly, and often more reliable in performing many routine tasks, and they will only get better as technology progresses. Despite this, it has been established that automation actually complements labor instead of replacing it. Therefore, instead of fighting against the rise of the machines, workers should instead strive to invest in skill development and education which would, in turn, allow them to exploit the productivity improvements and employment opportunities automation will create.

References

Arntz, M., Gregory, T., & Zierahn, U. (2017). Revisiting the risk of automation. Economics Letters, 159, 157-160.

Autor, D. H. (2015). Why are there still so many jobs? The history and future of workplace automation. Journal of Economic Perspectives, 29(3), 3-30.

Bowen, H. R. (1966). Report of the National Commission on Technology, Automation, and Economic Progress. Washington: U.S. Government Printing Office.

Brynjolfsson, E. & McAfee, A. (2011). Race against the machine: How the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. Digital Frontier Press.

Brynjolfsson, E. & McAfee, A. (2016). The second machine age: Work, progress, and prosperity in a time of brilliant technologies. New York, NY: W. W. Norton & Company.

Frey, C. B. & Osborne, M. A. (2013). The future of employment: How susceptible are jobs to computerization? Retrieved from https://www.oxfordmartin.ox.ac.uk/

Keynes, J. M. (1933). Economic possibilities for our grandchildren (1930). In Essays in persuasion.

Leontief, W. W. (1983). National perspective: The definition of problem and opportunity. The Long-term Impact of Technology on Employment and Unemployment: A National Academy of Engineering Symposium.

Tullao, T. S. (2017). Elements of economics (2nd ed.). Quezon City: Phoenix Publishing House.

Yu, K. D., Cororaton, C., Ilao, J., Cheng, C., Aviso, K., Cayamanda, C.,… Tan, R. (2017). Artificial intelligence and its potential adverse impacts on the Philippine economy. Policy Brief: Studies on Current Economic and Business Issues, 7(2).