Question

Explain the impacts of Industrial Revolution 4.0 (IR 4.0) on the equilibrium levels of employment and wage rate using labor market diagram.

Answer 1

The 4th Industrial Revolution is largely driven by four specific technological developments: high-speed mobile Internet, AI and automation, the use of big data analytics, and cloud technology.

Naturally, automation is expected to reduce labour demand of firms keeping other factors constant.

Theoretically, this leads to a leftward shift in the labour demand curve

Eo is the orignal equilibrium, where labour demand and labor supply intersect.

After the leftward shift in labour demand curve, new equilibrium is achieved at E1.

Hence, *real wage rate falls and employment also falls.*

However, this theoretical model predicts such a result, assuming other factors remain constant, however in a real world scenario labour might improve their skills and hence will have different effect on the market equilibrium.

Hope the answer helped you :)