![]() While digital technologies offer large productivity payoffs, they create new challenges for firms as production processes, sources of competitive advantage, and market structures shift. The digital economy must be broadened to disseminate new technologies and opportunities to smaller firms and wider segments of the labor force.įirms, workers, and policymakers face many questions. They must be more responsive to change to fully capture potential gains in productivity and economic growth and address rising inequality as technological disruptions create winners and losers.Īs technology reshapes markets and alters growth and distributional dynamics, policies must ensure that markets remain inclusive and support wide access to the new opportunities for firms and workers. To realize the promise of today’s smart machines, policies need to be smarter too. One important reason for these outcomes is that policies and institutions have been slow to adjust to the unfolding transformations. ![]() With the new technologies favoring capital, winner-take-all business outcomes, and higher-level skills, the distribution of both capital and labor income has tended to become more unequal, and income has been shifting from labor to capital. Increasing automation of low- to middle-skill tasks has shifted labor demand toward higher-level skills, hurting wages and jobs at the lower end of the skill spectrum. While productivity growth in these firms has been strong, it has stagnated or slowed in other firms, depressing aggregate productivity growth. Many are being left behind, across industries and firms, the workforce, and different segments of society.įirms at the technological frontier have broken away from the rest, acquiring dominance in increasingly concentrated markets and capturing the lion’s share of the returns from the new technologies. Across economies, there is uneven participation in the new opportunities created by digital transformation. To realize the promise of today’s smart machines, policies need to be smarter too.Īt the same time, income inequality and related disparities have increased, particularly in advanced economies, stoking social discontent and political ferment. Consequently, economic growth has trended lower. Indeed, aggregate productivity growth has slowed in the past couple of decades in many economies. While digital technologies have dazzled with the brilliance and prowess of their applications, they have so far not fully delivered the expected dividend in higher productivity growth. They create new avenues and opportunities for a more prosperous future. ![]() Digital transformation: Promise and pitfalls A recently published book, “ Shifting Paradigms: Growth, Finance, Jobs, and Inequality in the Digital Economy,” examines the implications of the unfolding digital metamorphosis for economies and public policy agendas.
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