The Changing Nature of Work

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The Changing Nature of Work World Development Report 2019 THE CHANGING NATURE OF WORK Working Draft July 6, 2018 Table of Contents Overview ......................................................................................................................................... 1 What is Changing in the World of Work .................................................................................... 5 What Can Governments Do?....................................................................................................... 9 This Study’s Running Order ..................................................................................................... 12 Chapter 1: The Changing Nature of Work .................................................................................... 16 Technology Generates Jobs ....................................................................................................... 18 How Work is Changing ............................................................................................................. 20 A Simple Model of Changing Work ......................................................................................... 24 Chapter 2: Building Human Capital ............................................................................................. 30 Why Government is Needed ..................................................................................................... 32 Why Governments Often Fail and Why Measurement Helps ................................................... 34 The Human Capital Project ....................................................................................................... 35 What Comes Next ..................................................................................................................... 41 Chapter 3: Lifelong Learning........................................................................................................ 44 Learning in Early Childhood ..................................................................................................... 48 Tertiary Education ..................................................................................................................... 51 Adult Learning Outside Jobs ..................................................................................................... 56 Chapter 4: Returns to Work .......................................................................................................... 62 Informality ................................................................................................................................. 64 Working Women ....................................................................................................................... 66 Working in Agriculture ............................................................................................................. 69 Chapter 5: Strengthening Social Protection and Labor Policies ................................................... 72 Social Assistance ....................................................................................................................... 73 Social Insurance ........................................................................................................................ 80 Labor Regulation ....................................................................................................................... 82 Chapter 6: The Changing Nature of Firms ................................................................................... 88 Superstar Firms ......................................................................................................................... 89 Competitive Markets ................................................................................................................. 93 Tax Avoidance .......................................................................................................................... 96 Chapter 7: Ideas for Social Inclusion .......................................................................................... 100 A New “New Deal”? ............................................................................................................... 101 Possible Elements of a New Social Contract .......................................................................... 103 Financing Social Inclusion ...................................................................................................... 106 Bibliography ............................................................................................................................... 120 Overview 1. There has never been a time when Mankind was not afraid of the consequences of its talent for innovation. This is especially the case for economists with a professional interest in the future of work. Karl Marx worried that “machinery does not just act as a superior competitor to the worker, always on the point of making him superfluous. It is the most powerful weapon for suppressing strikes.” 1 Economist John Maynard Keynes warned in 1931 of widespread unemployment due to technology.2 Yet innovation has transformed our living standards. Life expectancy has increased, basic healthcare and education are widespread, average incomes have gone up for most people. The world is better connected, aspirations have risen and citizens’ voices are more likely to be heard. 2. Three quarters of the citizens of the European Union, the world’s lifestyle superpower, believe that technology benefits the workplace, according to a recent survey. Two thirds said it will improve society and improve their quality of life even further (figure 0.1). Figure 0.1. Technology improves the European economy, society, and quality of life Source: Authors’ calculations based on Special Eurobarometer 460 “Attitudes towards the impact of digitization and automation on daily life,” Question 1, European Commission 2017. 3. And yet, concerns about the future seem more acute today than ever. In advanced economies, there is anxiety about the sweeping impact of technology on employment. There is a widely-shared view that rising inequality, compounded by the advent of the gig economy, is encouraging a race to the bottom in working conditions. 4. We find that this troubling scenario is, on balance, unfounded. It is true that in some advanced economies and middle-income countries manufacturing jobs are being lost to automation. Workers involved in routine tasks that are “codifiable” are most vulnerable to replacement. However, technology provides opportunities to create new jobs, increase productivity, and deliver effective public services. 1 5. Is this time any different? Technological progress always impacts factors of production, production processes, as well as the demand and supply for goods or services. Nevertheless, compared to previous major technological innovations such as electricity or the assembly line, some peculiarities of the current wave of technological progress are notable. 6. For one, technology is shifting the mix of skills required to succeed in the labor market. The demand for advanced, problem-solving and interpersonal skills increases – and, conversely, decreases for less advanced skills - as routine jobs become automated. This pattern is evident in developed countries, and it is beginning to emerge in developing countries. 7. Today’s digital transformation allows platforms to scale very quickly, blurring the boundaries of firms and challenging traditional production patterns. Platforms evolve fast from start-up to global force, often with few employees and tangible assets. This new industrial organization poses policy questions in the fields of privacy, competition and taxation. Governments’ ability to raise revenues is curtailed by the virtual nature of productive assets. 8. The rise of platform marketplaces allows the impacts of technology to reach more people quickly than ever before. Individuals and firms need little more than a broadband connection in order to trade goods and services on online platforms. This brings economic opportunity to millions of people who do not live in industrialized countries or even industrial areas. At the same, however, this means that the changing demand for skills also reaches those people. As automation raises the premium on high order cognitive skills in advanced economies, it does the same in emerging economies. 9. Investing in human capital is the priority in order to secure opportunity worldwide. Three types of skills are increasingly important in labor markets: advanced cognitive skills (such as complex problem-solving), socio-behavioral skills (like team work), and skill-combinations that are predictive of adaptability (e.g., reasoning, self-efficacy). Building these skills requires strong human capital foundations and lifelong learning. 10. Human capital foundations, created in early childhood, become more important. Yet, governments in developing countries do not prioritize early childhood development. Human capital outcomes in basic schooling are also sub-optimal. The human capital index highlights the link between health and education investments with the productivity of future workers. Climbing from the 25th to the 75th percentile on the index brings an additional 1.4 percentage annual growth rate for 50 years. 11. Creating more quality jobs is also important to take advantage of the human capital accumulated and seize the benefits of technological change. In many developing countries large shares of workers remain in low-productivity
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