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  • Writer's pictureRio Bagus

Industry 4.0 and Labor Market

GDP is slowing all over the world and the main driver is that productivity has been declining for 20 years. As we know, in the classic economic theory, productivity is driven by two important factors; better machines and better performing workers; which account only 14% of total productivity. [1] This staggering fact led us to the 4th industrial revolution, where robotic arms and connected devices alongside with AI are shaping the future of our industry. The emergence of latest industrial revolution in Indonesia will create massive growth, reaching USD 121.4 billion by 2025 and a quarter of it comes from manufacturing. [2] See exhibit 1.

Source: Based on McKinsey Global Institute Study “Unlocking the potential of the Internet of Things,” Team analysis adjusting figures for Indonesian context

On the other hand, the advancement of latest technology will change the nature of work, some jobs will be disappeared by undertaking repetitive & manual tasks and some will be created for those whose skills complement the new tech. As sensors and robots become cheaper combined with advanced technology like AI, the employment is at stake.

The Government’s Dilemma

Early April, Indonesian Ministry of Industry held Industrial Summit 2018 and launched Making Indonesia 4.0 roadmap on how industry can harness technology for growth and job creation. Mr. Jokowi gave an optimistic speech on how 4th industrial revolution will create more jobs, while McKinsey stated that 800 million jobs worldwide or around 51% share of jobs in Indonesia will be lost due to automation. It’s quite contradictory especially when Mr. Jokowi took a picture with robotic arm during the summit.

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Automation will undoubtedly increase productivity and raise efficiency, whereas the unemployment rate will also become an issue. It’s hard to tell whether Governments plan to adopt autonomous robots in a massive scale or not. However, automation is already on Government’s agenda and ready or not it will likely to happen in the near future.

Let me do the simple math for you and here’s the equation:

The growing use of robots between 1993 and 2007 on manufacturing was associated with a reduction in the numbers of hours worked by low and middle-skilled workers, whereas high skilled workers were not affected.[3]

The second equation is, around 51% of blue-collar workers in manufacturing (e.g. machine operators, assemblers) are under-qualified and become one of the reason for weaker labor productivity growth and slower transition to higher value activities. [4]

In other word, more than 4.6 million low-skilled labors are at stake of potentially losing their jobs. [5]

I am a strong believer that technology is there to escalate the process, not to replace human. Implementing industrial revolution 4.0 isn’t about the whole adoption of the idea, merely it’s about what works and what doesn’t. For me, advanced robotic is a big no FOR NOW in such low skilled labor-intensive environment. Instead of replacing people with machines and robots, Indonesia should be using the technology to boost worker’s skills and performance.

For instance, with the help of automatic generated report from the IIoT and big data technology will increase the transparency of human’s performance and manufacturing events that enable manufacturing company to constantly improve the processes on factory floor and their root-causes problems more effectively.

Another example is Aerosud, suppliers of Airbus and Boeing, that makes use of robotic welding where robots and people work side by side to achieve higher quality and more volume than can be achieved by humans working alone.

Adoption of technology has caused disruption in the labor market in the short-term and implementing simple but powerful technology such as IoT, simple AI, and simple robotics will do the work. Thus, Governments can focus on helping those who are negatively affected from technology and building infrastructure before completely unlock the full potential of 4th Industrial Revolution.

In the long run, advanced robotics and AI will play a significant role in manufacturing industry yet it is important for workers to upgrade their skills constantly to stay competitive.


[1] Robert Solow’s model of economic growth, a Nobel Prize winner.

[2] McKinsey (2017)

[3] Graetz and Michaels (2015). The speed of automoation and its effect on manufacturing employment in OECD countries.

[4] BPS (2015)


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