People have long feared that machines are coming for our jobs. Throughout the Industrial Revolution there were periodic panics about the impact of automation on work, going back to the so-called Luddites, - textile workers who in the 1810s smashed the new machines that were threatening their jobs.
Automation anxieties have understandably accelerated in recent years, as our increasingly smart machines are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans. But on balance, such fears appear to be unfounded, noted the World Bank in a comprehensive recent report on The Changing Nature of Work. Our problem is not that there won’t be enough work in the future. Our key problem is that, in many countries, the workforce isn’t prepared for our fast unfolding future.
In a recent article in Foreign Affairs, World Bank Group President Jim Yong Kim warned that the world is facing a Human Capital Gap. “Governments in pursuit of economic growth love to invest in physical capital - new roads, beautiful bridges, gleaming airports, and other infrastructure. But they are typically far less interested in investing in human capital, which is the sum total of a population’s health, skills, knowledge, experience, and habits. That’s a mistake, because neglecting investments in human capital can dramatically weaken a country’s competitiveness in a rapidly changing world, one in which economies need ever-increasing amounts of talent to sustain growth.”
The World Bank report discussed five such changes:
While the idea of robots replacing workers is striking a nerve, the threat to jobs from technology is exaggerated - and history has repeatedly taught this lesson.
“We know that robots are taking over thousands of routine tasks and will eliminate many low-skill jobs in advanced economies and developing countries. At the same time, technology is creating opportunities, paving the way for new and altered jobs, increasing productivity, and improving the delivery of public services.”
Several recent studies agree with the World Bank’s assessment. A December, 2017 report by McKinsey examined the work that’s likely to be displaced by automation through 2030, as well as the jobs that are likely to be created over the same period, - based on data from 46 countries comprising almost 90 percent of global GDP.
McKinsey’s overall conclusion was that a growing technology-based economy will create a significant number of new occupations, - as has been the case in the past, - which will more than offset declines in occupations displaced by automation. However, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”
Technology is reshaping the skills needed for work. Workers need to be good at complex problem-solving, teamwork and adaptability.
“The demand for less advanced skills that can be replaced by technology is declining. At the same time, the demand for advanced cognitive skills, sociobehavioral skills, and skill combinations associated with greater adaptability is rising. Already evident in developed countries, this pattern is starting to emerge in some developing countries as well.”
Automation has been most successful when applied to routine tasks, that is, tasks or processes that follow precise, well understood procedures that can be well described by a set of rules. The occupations most susceptible to automation have included blue-collar physical activities such as manufacturing and other forms of production, as well as white-collar, information-based activities like accounting, record keeping, and many kinds of administrative tasks. As a result, these occupations have experienced the biggest declines in employment opportunities and earnings.
On the other hand, labor markets have been increasingly rewarding jobs requiring social skills, that is, interpersonal skills that facilitate interactions and communications with others. Automating the more routine parts of such job will increase the productivity and quality of workers, by complementing their skills with machines and computers, as well as enabling them to focus on those aspect of the job that most need their attention.
In his 2017 article, The Growing Importance of Social Skills in the Labor Market, Harvard professor David Deming showed that since 1980, jobs requiring high levels of social interaction enjoyed most of the employment growth across the whole wage spectrum, and that employment and wage growth have been particularly strong in jobs that require both high cognitive and high social skills. Social skills reduce coordination costs, allowing workers to specialize and work together more efficiently.
Digital technologies are blurring the boundaries of firms, as evident in the rise of platform marketplaces. The rise of digital platform firms means that technological effects reach more people faster than ever before.
“Using digital technologies, entrepreneurs are creating global platform–based businesses that differ from the traditional production process in which inputs are provided at one end and output delivered at the other. Platform companies often generate value by creating a network effect that connects customers, producers, and providers, while facilitating interactions in a multisided model.”
For the past two centuries, the industrial economy has been driven by supply-side economies of scale. Because of the massive fixed costs of physical assets, firms achieving higher volumes have a lower cost of doing business, which allows them to reduce costs and further increase volumes. Market power is thus achieved by controlling resources, increasing efficiency and fending off competition.
In the digital economy, on the other hand, the driving force is demand-side economies of scale. In the 1990s, the explosive growth of the Internet ushered the advent of digital platforms which connected large numbers of PC users to a wide variety of web sites and online applications. Platforms have grown even more dramatically over the past decade, with billions of users now connecting via smart mobile devices to all kinds of cloud-based applications and services. Technology advances have been bringing the power of digital platforms to an increasing number of companies and industries, reducing their dependence on physical assets and enabling them to scale up faster and at lower costs.
In many developing countries a large number of workers remain in low-productivity jobs, often in informal sector firms whose access to technology is poor.
“Indeed, the share of informal workers is as high as 90 percent in some emerging economies. Overall, about two-thirds of the labor force in these economies is informal. Informality has remained remarkably stable notwithstanding economic growth or the changing nature of work.”
Technology, in particular social media, affects the perception of rising inequality in many countries.
“People have always aspired toward a higher quality of life and participation in the economic growth they see around them…. Where aspirations are linked to opportunities, the conditions are ripe for inclusive, sustainable economic growth. But if there is inequality of opportunity or a mismatch between available jobs and skills, frustration can lead to migration or societal fragmentation.”
What can governments do?
The World Bank report suggests three major areas where governments should act:
Invest in human capital. Human capital is the most significant investment that governments, - as well as firms and communities, - should make to develop the necessary skills for the digital economy. Given the growing importance of social skills, - which are generally acquired in our early years, - early childhood education is particularly important. Post-secondary education, - including trade and vocational schools, undergraduate, graduate and professional programs, and online courses, - is another important priority to acquire the skills demanded by labor markets. Finally, lifelong learning must be emphasized, to help workers keep up with the demands of a fast changing technology-based economy.
Enhance social protection and coverage. Social programs and health insurance should be adapted to the changing nature of work. The days of staying in one job, or with one company, for many years are waning. In the gig and more informal economies, workers will have multiple jobs over the course of their careers. Universal social protection and coverage, - that’s not depended on a formal job, - will help ease such work transitions.
Upgrade taxation systems. Many governments will need to upgrade their tax systems to raise the additional resources to invest in human capital development and enhance social protection and inclusion.
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