Digitization is the process of converting analogue information into digital form so that it can be processed, stored, and transmitted by computers. How digitalization appears in the workplace depends on the industry sector. Digital exposure refers to the way people are exposed to digital technologies, which includes digital platforms, digital tools, digital technology, digital usage, and digital skills in their jobs.
Although digitization is necessary for growth in the economy, there are valid concerns about what will happen to workers in a digitized economy. Acemoglu and Restrepo (2017) provide evidence justifying workers’ concerns. While digitization replaces routine-task jobs, it may also encourage entrepreneurship. Digitization makes it possible for entrepreneurship to be open, have more opportunities, and be more productive. Digitization can both replace jobs that have been taken over by machines and also help create new employment opportunities.
Even though digitization affects older people more, the “push” and “pull” effects could still help them with entrepreneurship. Older workers are at a disadvantage when it comes to finding new employment because they are seen as out of date or lacking in the skills needed to look for a job. Zhang (2008) argues that less physical constraints on economic activities and more reliance on knowledge and information could help “pull” older workers into entrepreneurship. The self-employment rate is usually higher among older workers than younger workers because older workers are more likely to have the experience and resources needed to start their own businesses.
Not only is digital exposure a concept related to the environment and space, but entrepreneurship is also related to geography. This study falls under this category and includes spatial influences. We use multilevel mixed-effects logistic models to take into account both spatial and temporal dependencies across different metropolitan areas. Metropolitan areas reflect local transportation, commuting, and demand patterns. We also take local unemployment rate variations into account to capture local labor market conditions. We also account for whether an area is in a central city or not, to more accurately reflect economic spatial patterns. Even though jobs have been moving to the suburbs and “edge cities” have been growing, central city areas have always been economic highlights. Local labor markets and central city locations affect our ability to get jobs in the occupations we choose.
This study explores the impact that digital exposure has on entrepreneurship, and whether this effect is different for different age groups. The study controls for other factors that could affect entrepreneurship, such as local labour market conditions and social capital. It contributes to the literature on digitation and entrepreneurship by (1) identifying the age modification effects on the digitization–entrepreneurship dynamics, (2) extending occupational choice literature to propensities for opportunity (versus necessity) and full-time (versus part-time) entrepreneurs, (3) adopting a digital exposure measure to capture digital ecosystem effects, instead of just digital skills, and (4) integrating digitization’s labour replacement and facilitation effects. This study used Current Population Survey data from the last 132 months to test four hypotheses. The study found that (1) workers with low- and high- digital exposure are more likely to become entrepreneurs than peers with medium digital exposure, mirroring digitization’s “push” and “pull” mechanisms on entrepreneurship; (2) age increasingly strengthens digitization’s “pull” mechanism to be entrepreneurs (versus employees) and opportunity (versus necessity) entrepreneurs; (3) high digital exposure has a weak marginal potential to increase workers’ odds to be part-time (versus full-time) entrepreneurs. The study also notes the importance of location.
The study emphasizes the importance of lifelong learning and digital exposure for workers, not just digital skills, to reduce their replacement risk and for workers who want to be entrepreneurs later in life. The fact that many older workers who have been exposed to digital technology are starting their own businesses challenges the stereotype that older workers are not technologically savvy or that they only become entrepreneurs out of necessity. The study recommends that policy makers help create an environment that is conducive to entrepreneurship, particularly for older workers who have little experience with digital technology. It also suggests that there may be a shift in the way work is done, with more people engaging in part-time entrepreneurship as digital technology becomes more prevalent.
Digitation and entrepreneurship
To digitize something is to change it from analog form into digital form so that it can be processed by a computer. Frey and Osborne (2017) and Fossen and Sorgner (2018) both address the impacts of digitization on the likelihood of starting a business. Sussan and Acs (2017) looked at starting new ventures within a “digital ecosystem.”
Since the creation of personal computers, entrepreneurship has been facilitated by digitization, which has created new opportunities that are open, affordable, and creative. The openness of digital technology has made it possible for anyone to contribute to the process, regardless of their experience or expertise. The scope of what can be contributed has also been expanded, making it possible to create and share digital content in a variety of formats. Digital technologies are making businesses more visible, offering communication channels that are more efficient for marketing, sales, financing, human resources, and social networking. They also make it easier and cheaper to get market research information, and give businesses access to financing through crowdfunding. The affordances of digitalization include reducing search, communication, and monitoring costs, lowering barriers to funding, marketing, sales and distribution, and allowing for rapid and seamless information sharing. Digital technologies produce unprompted change by blending or recombining potentially unrelated and uncoordinated entities. For example, digitization has resulted in new entrepreneurial opportunities in the form of the shared economy and digital entrepreneurship. This propels the facilitating “pull” effect for becoming entrepreneur. The “pull” effect can be valuable for older workers by posting fewer physical constraints in the digital and knowledge-based world.
Digitization is causing many workers to lose their jobs, which is forcing them to become entrepreneurs. However, this also puts many entrepreneur jobs at risk. This text is discussing a study done by Frey and Osborne in 2017. The study found that 47% of jobs in the US are at a high risk of being replaced by machines in the next decade. Other studies have largely confirmed this result, though the average risk of automation varies across countries.
Self Employed in the Digital Age
If you haven’t experienced it already, these changes will have a big impact on your personal finances in the future. In the digital economy, it will be advantageous for workers to think and act as if they were self-employed, especially when it comes to personal finance. Some people may need to change their way of thinking and develop different financial habits.
Fluctuating Income, Multiple Sources
The most important thing to remember is that your job and income could change in the future. You are less likely to remain in one industry and with one employer than to have multiple employers and receive multiple paychecks.
Instead of a traditional 9-5 work day, work is more likely to be a series of long-term, temporary assignments, or “gigs” with several employers. There may be periods of unemployment or self-employment. The new economic landscape may cause workers to have long periods of uncertainty as they struggle to find their footing. Kai-Fu Lee, CEO with Sinovation and author of the book AI Superpowers: China, Silicon Valley and the New World Order, stated in an August 27, 2019 article that up to 50% of jobs could be replaced by AI in 15-years:
He wrote that many people in a variety of occupations will face a major disruption in their work, similar to what farmers experienced during the Industrial Revolution. The rate at which AI is replacing jobs is increasing, and it will eventually have an impact on both those with and without a lot of education.
Workers in the future will more likely experience more changes in employment, and they will also encounter different types of payments. The government would like companies to employ as many people as possible because their income taxes would be withheld by the employer. However, “just-in-time,” low-overhead pressures of the Information economy make it more beneficial for companies to limit full-time employees and out-source or contract labor.
The introduction of AI technologies could mean the end of regular paychecks for many people.
With businesses downsizing during COVID-19, more employers are cutting full-time hours and relying on part-time workers. The company is strategically hiring more part-time employees to avoid having to offer full-time benefits. By using AI, companies can increase productivity and improve workplace efficiency. AI can be used for tasks like texting and emailing customers, tracking customer orders and deliveries, and data analysis.
If you frequently change jobs and don’t receive W-2 compensation, you will have irregular cash flow, which is a characteristic of self-employment. To be successfully self-employed, you need to have strategies to manage the times when work is slow and you still need to pay your bills.
Portable, Personal Benefits Packages
The cost of providing benefits for holdover Industrial and Information Age jobs has increased significantly, especially for health care. Now, employers usually require employees to pay part of the costs. Instead of providing benefits to all employees, some employers choose to only offer them to a smaller number of employees. This means that part-time workers are not eligible for the same benefits as full-time workers. In the past, employment benefits were provided by the employer, but now that we are in the Digital Age, workers are responsible for their own benefits.
If offered, group disability and life insurance protection may be an inexpensive way to obtain income protection, although these options are usually limited to active employees – if you terminate employment, you can’t take the coverage with you (you may be able to convert life coverage to an individual policy, and yet the costs are no longer at group rates). If your employer doesn’t offer health insurance or you’re not healthy enough to qualify for it, you’re out of luck. This arrangement becomes more problematic as you age.
In the long run, it may be better to get a policy that you own and that will stay with you, especially for disability and life insurance. With these types of insurance, the premiums and coverage on an individual policy can be guaranteed to stay the same. Additionally, if healthy individuals obtain permanent coverage at a young age, they may be able to save money in the long run by using a cash value policy that gives dividends from a mutual insurance company.
Your Own Financial Management Systems
Employers are regulated in terms of taxes and withholding for the employees on their payrolls. This means that the employer is responsible for paying the employer’s share of FICA and Medicare taxes, as well as withholding income tax from employee paychecks. However, when workers are paid under 1099 conditions, the responsibility for these taxes falls on the worker, not the employer. More and more platforms are helping people become self-employed.
There are lots of websites which advertise online jobs, such as Indeed, Upwork, Fiverr, Flexjobs, and Freelancer. Although freelancing can be a stepping stone or platform to starting your own business, it comes at a cost. If you file 1099’s, you may have to make quarterly estimated tax payments at the state and federal levels, which increases the possibility that you will have to pay taxes. Even though you may get a W-2 for online employment, you could still be considered a “non-statutory employee,” or “independent contractor.” In that case, the employer would not be responsible for managing your withholding requirements.
This means your tax return will require more than a 1040-EZ form. If you don’t have someone managing your withholding requirements, you might feel overwhelmed by taxes and like you owe more than you do. It is advisable to maintain records of both expenses that may be eligible for a tax deduction, as well as income earned.
You Might Be Self-Employed. However, You Don’t Have to Do Everything Yourself
A successful self-employed individual understands the necessity of a team of financial experts. When business owners wanted to find someone to do their financial bookkeeping, insurance policy design, savings oversight, and tax return preparation, it was part of the cost of doing business. This hasn’t changed. If you are self-employed, you will most likely benefit from professional help.
Due to the digital age, access to expert services and technologies has expanded. Computers used to take up a lot of space in corporate offices, so only big businesses could afford to use them. A computer, a smartphone, or a tablet can all bring external expertise right to your email inbox. The technology today is much better than what was available in the 1970s.
Some people choose to hold onto the past and preserve the status quo. While politicians try to keep or create more jobs, the general trend is to use more artificial intelligence, machine learning, and other advanced technologies to meet customer demand. It’s a completely different paradigm.
While self-employment has always come with its challenges, those who are specialized in their field face unique obstacles. However, there are also new and improved ways to overcome these challenges.
Here’s a simple checklist. As a self-employed individual, how well have you…
- Made allowances for fluctuations in cash flow?
- Established management systems?
- Protected your human life value?
- Saved for emergencies and opportunities?
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor, media buyer, faithful Red Sox Fan.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here, or get a hold of him on Facebook or Twitter.
