Technology, jobs, and the future of work

Here is a brief excerpt from an article written by James Manyika for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Automation, digital platforms, and other innovations are changing the fundamental nature of work. Understanding these shifts can help policy makers, business leaders, and workers move forward.

The world of work is in a state of flux, which is causing considerable anxiety—and with good reason. There is growing polarization of labor-market opportunities between high- and low-skill jobs, unemployment and underemployment especially among young people, stagnating incomes for a large proportion of households, and income inequality. Migration and its effects on jobs has become a sensitive political issue in many advanced economies. And from Mumbai to Manchester, public debate rages about the future of work and whether there will be enough jobs to gainfully employ everyone.

What will automation change?

Experts in academia and industry discuss the digital future of work with McKinsey partners, in the first video of this four-part series.

The development of automation enabled by technologies including robotics and artificial intelligence brings the promise of higher productivity (and with productivity, economic growth), increased efficiencies, safety, and convenience. But these technologies also raise difficult questions about the broader impact of automation on jobs, skills, wages, and the nature of work itself.

Many activities that workers carry out today have the potential to be automated. At the same time, job-matching sites such as LinkedIn and Monster are changing and expanding the way individuals look for work and companies identify and recruit talent. Independent workers are increasingly choosing to offer their services on digital platforms including Upwork, Uber, and Etsy and, in the process, challenging conventional ideas about how and where work is undertaken.

For policy makers, business leaders, and workers themselves, these shifts create considerable uncertainty, alongside the potential benefits. This briefing note aims to provide a fact base on the multiple trends and forces buffeting the world of work drawing on recent research by the McKinsey Global Institute and others.

Table of contents

o Developments in employment, income, and skills
o How automation and technology are affecting work
o The challenges of digitization—and possible solutions

[The following material focuses on the first major area.

Developments in employment, income, and skills

Challenges in labor markets are growing, household incomes in advanced economies have been stagnating, and there are increasing skill gaps among workers.

Labor markets are under strain, and talent is underutilized

Unemployment and underemployment are high around the world. In the United States and the 15 core European Union countries (EU-15), there are 285 million adults who are not in the labor force—and at least 100 million of them would like to work more. Some 30 to 45 percent of the working-age population around the world is underutilized—that is, unemployed, inactive, or underemployed. This translates into some 850 million people in the United States, the United Kingdom, Germany, Japan, Brazil, China, and India alone. Most attention is paid to the unemployed portion of this number, and not enough to the underemployed and the inactive portions, which make up the majority of untapped human potential.

Almost 75 million youth are officially unemployed. Women represent one of the largest pools of untapped labor: globally, 655 million fewer women are economically active than men. In a “best-in-region” scenario in which all countries match the rate of improvement in gender gaps (in labor force participation, hours worked, and sector mix of employment) of the best-performing country in their region, $12 trillion more of annual GDP would be realized in 2025, equivalent in size to the current GDP of Japan, Germany, and the United Kingdom combined. [See Exhibit 1]

Household incomes in advanced economies have stagnated or fallen, fueling public disgruntlement

The vast majority of people derive incomes from jobs. In the United States, Western Europe, and across advanced economies, market incomes (from wages and capital) stagnated or fell for about two-thirds of households in 2005–14, a period marked by deep recession and slow recovery after the 2008 financial crisis. This was the first time incomes stopped advancing on such a scale since the stagflation era of the 1970s, and it may have helped stir popular opposition to globalization. The recession was a leading cause of the abrupt end to income advancement, but other longer-run factors also contributed, including a decline in the share of national income that is paid to workers, the so-called wage share. This has fallen across advanced economies despite rising productivity, suggesting a decoupling between productivity and incomes.

The decline is due in part to the growth of corporate profits as a share of national income, rising capital returns to technology investments, lower returns to labor from increased trade, rising rent incomes from home ownership, and increased depreciation on capital. Policy makers in the affected countries took action during the downturn to compensate for the income squeeze, in the former of lower taxes and higher transfers, but these were largely one-off measures to buoy disposable income in response to the recession, and not sustainable.

Globalization has brought numerous benefits, including lifting millions of people in emerging economies into the consuming class. But it also has had an impact in some sectors like manufacturing in advanced economies, with some jobs moving offshore. Better support could have been provided to help affected workers build new skills and transition into new sectors or occupations.

A survey we conducted in France, the United Kingdom, and the United States showed a significant proportion of those whose incomes stagnated are worried about their children’s economic prospects—a sharp departure after many decades in which it was an article of faith that every generation would enjoy higher living standards than their parents. Middle-income households have been the most affected, and young and less educated people are especially vulnerable. Across all age groups, medium- and low-skill workers have done worse than those with a college education. Many blame governments, global institutions, corporations, and establishment “elites” around the world, and the principles of free trade and open borders are under attack.

Skills, jobs, and locations do not always match, limiting income-earning opportunities for many

Educational systems have not kept pace with the changing nature of work, resulting in many employers saying they cannot find enough workers with the skills they need. In a McKinsey survey of young people and employers in nine countries, 40 percent of employers said lack of skills was the main reason for entry-level job vacancies. Sixty percent said that new graduates were not adequately prepared for the world of work. There were gaps in technical skills such as STEM subject degrees but also in soft skills such as communication, teamwork, and punctuality. Conversely, even those in work may not be realizing their potential. In a recent global survey of job seekers conducted by LinkedIn, 37 percent of respondents said their current job does not fully utilize their skills or provide enough challenge.

Some of the mismatching is locational: where there is demand for work, there may not be available and qualified workers to be found. This geographic mismatch can be seen across regions within countries, and between countries.

Cross-border migration fills some skill gaps but can create tensions

Cross-border migration has been a natural consequence of a world in which people do not find attractive work opportunities in their country of origin, at a time when other economies are not adequately filling their skills gaps. Migration boosts global productivity, but its consequences are often feared by native workers, who face labor market disconnects and a lack of well-paid jobs.

In 2015, approximately 247 million people lived in a country not of their birth—a number that has almost tripled in the past 50 years. Most have gravitated to places where they believe they will find better jobs. More than 90 percent have moved voluntarily, and about half have moved from developing to developed countries. In the period 2000 to 2014, migration has provided about 40 percent of labor force growth in Canada, Spain, the United Kingdom, and the United States. [See Exhibit 2]

Migrants made an absolute contribution to global output of roughly $6.7 trillion, or 9.4 percent of global GDP in 2015. However, migrant workers, on average, earn wages that are 20 to 30 percent lower than those of comparable native-born workers. More effective integration approaches could lay the groundwork for economic gains of up to $1 trillion globally, benefiting both economies and individuals.

In the context of challenging labor market conditions, popular sentiment has moved against immigration. Surveys conducted by MGI suggest that a significant proportion of middle- and low-income groups in advanced economies who are experiencing flat or falling real incomes are pessimistic about the future and likely to hold particularly negative views about immigrants.

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Here is a direct link to the complete article.

James Manyika is director of the McKinsey Global Institute and a senior partner in McKinsey’s San Francisco office. MGI partners Michael Chui, Anu Madgavkar, and Susan Lund contributed to this briefing note.

 

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