Labor Productivity

FIGURE 3.15 Retail Services Exhibit a Positive Association between Website Use and Labor Productivity

Share of retail firms using a website in relation to labor productivity, by country, 2016

Value added per worker (US$) 90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0 20 40

60 Share of businesses with a website (%) 80 100

Sources: Calculations based on ILOSTAT, https://ilostat.ilo.org/; United Nations National Accounts, https://unstats.un.org/unsd /snaama/; World Bank Enterprise Surveys. Note: Website data are for most recent available year (2013 onward).

Similarly, in Colombia, computerizing import procedures increased imports and accelerated the growth of firms most exposed to the new procedures. Although the empirical evidence on these impacts is limited, the use of new digital technologies in transportation and logistics services could reduce shipping and customs processing times by an estimated 16–28 percent (World Bank 2020).

Efficiency Gains from Scaling Up Based on Increasing Intangible Capital This ability to scale production in a single establishment has been limited among the low-skill services that are less traded because there was typically little value in consolidating many restaurants or retail outlets in the same location. Yet, as described in chapter 2, there is a long history of retail “chains,” especially in the United States, that typically scaled up through multiple establishments across different locations.30

The diffusion of ICT and associated intangible capital such as management practices and branding has further enabled firms in retail and food services, for instance, to replicate the same production process in multiple locations near consumers (Hsieh and Rossi-Handberg 2020). This standardization of production over many establishments is well illustrated by restaurant chains. Gawande (2012) cites the Cheesecake Factory, which has invested in information and communication technologies and

management practices that determine the optimal staffing, daily food purchases for each restaurant, and a well-oiled process for introducing new menu items. Based on 1977–2010 data from the United States, Hsieh and Rossi-Hansberg (2020) suggest that top retail and wholesale firms have indeed become more efficient over time, as reflected in their increased industry market shares.31

Furthermore, much like tech companies among global innovator services, digital platform companies in the low-skill services sectors derive scale from valuable intangible assets based on network effects. Take food delivery services, for example. As more restaurants join a digital platform, the variety of choice increases, attracting more customers. And the more customers who join, the greater the value to restaurants of benefiting from the platform’s brand because they are likely to get more orders. Among logistics and delivery services, the top “unicorn” firms—private start-up companies valued at US$1 billion or more—are DoorDash (a US-based food delivery platform), followed by Go-Jek (an Indonesia-based on-demand multiservice platform).

Examples in other services subsectors include Jumia, an e-commerce platform that is the first technology unicorn operating in Africa. Jumia serves 14 countries on the continent and has over 4 million customers, including in food delivery services. The unicorns with the highest valuation in the auto and transportation industry are ridesharing companies, such as DiDi in China, Grab in Singapore, and Ola Cabs in India. In the travel industry, the unicorn with the highest valuation is, not surprisingly, the US-based Airbnb. Traveloka, an Indonesian company that facilitates airline ticketing and hotel booking services, is fourth on this list of travel unicorns (CBInsights 2020).32

Implications for Jobs and Inclusion The use of ICT has not displaced labor in the services sector. Analyzing firm-level data from a large cross-section of countries across regions, Cusolito and Peña (2020) and Cusolito et al. (2020) find that adoption of websites and email is positively correlated with changes in the number of both skilled and unskilled workers across firms in wholesale trade, retail trade, and hotels and restaurants. For email adoption, they find this positive correlation to be biased in favor of skilled workers in both manufacturing and these low-skill services subsectors. However, the positive association between the use of websites and jobs is relatively stronger for unskilled workers in low-skill services’ firms but not in manufacturing.

The scaling-up based on ICT-related intangible capital has also not replaced labor. Evidence from the United States shows that total employment has risen substantially, even in increasingly concentrated industries such as wholesale and retail (Hsieh and Rossi-Hansberg 2020). This rising intangible capital has also not increased the demand for skills among the users of these technologies. For example, Uber drivers do not need map-reading skills because the app does it for them. They also do not need numeracy skills because all payments are by credit card on the platform. With restaurant chains,

data analytics helps predict meals, how to tweak menu offerings, and how to speed up customer turnaround, but it does not change the skill requirements for cooks or wait staff. This is good news for inclusion.

Furthermore, there is a host of new gig-economy workers in ridesharing, retail delivery, and food delivery whereby work obtained through digital platforms is executed in person. Back-of-the-envelope calculations estimate that there are 250,000 such gig workers in Africa, 30 million across Asian LMICs, and 2 million in Latin America (Heeks 2017). In a survey of such gig-economy workers across Southeast Asia and Sub-Saharan Africa, most of the respondents reported that it was their primary occupation and an important source of income for their households (Wood et al. 2019).

In the United States, establishments without paid employees in the ground passenger transportation sector grew by almost 250 percent from 2010 to 2016. That there were almost no Uber drivers in 2012 and 465,000 Uber drivers in 2015 suggests that job creation in the sector can indeed be attributed to online platforms (Abraham et al. 2019). Similarly, Airbnb is estimated to have supported more than 45,000 jobs across three destinations in Indonesia in 2016 (Ollivaud and Haxton 2019).

Digital platforms also enable market entry because they disproportionally benefit smaller firms and service providers by reducing verification costs.33 Rating systems that signal product quality on these platforms further enhance buyers’ trust in unfamiliar suppliers (Goldfarb and Tucker 2019).

As a result, digital platforms increase market competition as well. For example, Airbnb provides an alternative to hotels in the hospitality industry, while Uber can reduce the demand for incumbent taxi services. It is therefore possible that competition from these new entrants may reduce wages or displace labor among incumbent service providers.34 Based on firm-level data from the United States and nine European countries,35 Rivares et al. (2019) find that sharing-economy platforms such as Uber and Airbnb are associated with a decline in employment and wages among incumbent service providers. Similarly, the rise of digital platforms in travel-related industries coincided with a decline in the number of physical travel agencies in the United States from an estimated 25,975 establishments in 2000 to 14,797 in 2016, and a concomitant fall in employment from 183,143 to 108,985 (Lopez-Cordova 2020), with smaller firms being the most adversely affected (Lieber and Syverson 2012).

Ultimately, the entry of new service providers via digital platforms will increase overall employment if they create more jobs than those lost with the exit of incumbents. For example, e-commerce created 400,000 jobs, while retail jobs in brick-andmortar firms declined by 140,000 between 2007 and 2017 in the United States (Mandel 2017). It is also important to note that market competition that spurs entry and reallocates resources from less- to more-productive service providers will provide better and more jobs in the long run.

Yet there are concerns about the quality of gig-economy jobs in retail, accommodation, and transportation services in terms of wages and nonwage benefits. In the United States, Uber divers earn much higher wages than taxi drivers (Hall and Kreuger 2018), and workers who provide personal services through digital platforms earn higher wages than their nonplatform counterparts (Sundarajan 2016). Similarly, in Cali, Colombia, ridesharing-platform workers typically earn more than double the minimum wage (Paredes and Reilly 2018).

However, these gig-economy jobs are also characterized by unstable contractual arrangements, no guaranteed minimum wage, a lack of employment-linked social security, and a lack of training opportunities (De Stefano 2016; Huws et al. 2017; Schwellnus et al. 2019). Once these benefits are considered, Friedman (2014) argues, gig workers’ median wages in the United States are significantly lower than those of workers with traditional contracts. Notably, however, the nonpecuniary benefits among workers in retail, accommodation and food, and transportation services in LMICs were not high even before gig-economy work, owing to a large informal sector.

Skill-Intensive Social Services

Among the skill-intensive social services, the increasing opportunities for scale in telemedicine and e-learning have reduced the need for proximity between buyers and sellers. These opportunities are reflected in the cross-border exports of health and education services from high-income countries, which increased consistently between 2005 and 2017 (figure 3.16, panel a).

Telemedicine largely relates to remote medical diagnosis and testing that is enabled by telecommunications technology. Telepresence has also enabled expert surgeons to mentor other surgeons in surgery procedures from a distance via cameras and microphones (Wall and Marescaux 2013). Telesurgery that uses wireless networking and robotic technology can also enable surgeons to operate on distant patients (Choi, Oskouian, and Tubbs 2018). However, high costs, questions about the stability and security of internet networks, and a host of legal and regulatory issues pose challenges for the wider take-up of telesurgery anytime soon (Avgousti et al. 2016).

Similar trends can be seen in education, with the proliferation of e-learning platforms and massive open online courses (MOOCs) addressing a variety of educational needs, from those of primary school students to the furtherance of postgraduate degrees and diplomas. These platforms have emerged across the world, and Byju’s (an online learning app, headquartered in India) is the top unicorn firm among education services globally. Furthermore, online distance-learning programs from many leading universities increasingly present cheaper and more flexible alternatives for students worldwide who, because of financial constraints or other reasons, cannot travel abroad to pursue higher education. The increasing possibilities for the remote provision of education services has been highlighted during the COVID-19 pandemic.