How is business innovation shaping skills demand in South Africa?

Digitalization, the Fourth Industrial Revolution (4IR) and the Just Energy Transition (JET) are among the main policy drivers shaping innovation in the South African business sector. Scholars have long characterized the relationship between innovation and skills demand in terms of skills-biased technological change, as part of which the introduction of new technologies requires and, indeed, favors workers with more advanced skills. However, the impacts of digitalization, the 4IR and JET have also given rise to some technological alarmism, as labor and civil society role-players express legitimate concerns about the displacement of skilled and unskilled labor by firms adopting advanced and emerging technologies. In the South African labor market, which is characterized by high unemployment and large inequalities in skills levels and attainment despite a number of interventions, there is both a skills mismatch and a significant risk of polarization undermining the achievement of national goals. In this context, reliable evidence is vital. This review of the available evidence, spanning a 30-year period from 1994 to 2024, finds that, for high skilled labor, there is rising demand for digital, green and soft skills. By contrast, for unskilled labor, there is evidence of displacement risks. Upskilling and reskilling initiatives, the evidence suggests, are critical to navigating these shifts in the labor market, while hiring new employees plays a more limited role in redressing labor imbalances due to talent shortages. The research also points to the need for closer alignment between the education and industrial sectors in establishing and implementing upskilling and reskilling investments in response to innovation – an alignment which may be promoted by government as an intermediary. The findings also indicate a need for further research covering a greater variety of sectors and professions, and for a greater focus on artificial intelligence (AI), the JET and gender in analyzing the relationship between innovation and skills demand.