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Draft Version 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?....................................................................................................... 8 This Study’s Running Order ..................................................................................................... 10 References ................................................................................................................................. 15 Chapter 1: The Changing Nature of Work .................................................................................... 16 Technology Generates Jobs ....................................................................................................... 17 How Work is Changing ............................................................................................................. 20 A Simple Model of Changing Work ......................................................................................... 25 References ................................................................................................................................. 32 Chapter 2: The Changing Nature of Firms ................................................................................... 34 Superstar Firms ......................................................................................................................... 35 Competitive Markets ................................................................................................................. 39 Tax Avoidance .......................................................................................................................... 41 References ................................................................................................................................. 45 Chapter 3: Building Human Capital ............................................................................................. 46 Why Government is Needed ..................................................................................................... 48 Why Governments Often Fail and Why Measurement Helps ................................................... 50 The Human Capital Project ....................................................................................................... 51 What Comes Next ..................................................................................................................... 57 References ................................................................................................................................. 60 Chapter 4: Lifelong Learning........................................................................................................ 63 Learning in Early Childhood ..................................................................................................... 67 Tertiary Education ..................................................................................................................... 70 Adult Learning Outside Jobs ..................................................................................................... 75 References ................................................................................................................................. 81 Chapter 5: Returns to Work .......................................................................................................... 84 Informality ................................................................................................................................. 86 Working Women ....................................................................................................................... 88 Working in Agriculture ............................................................................................................. 91 References ................................................................................................................................. 95 Chapter 6: Strengthening Social Protection and Labor Policies ................................................... 97 Social Assistance ....................................................................................................................... 98 Social Insurance ...................................................................................................................... 104 Labor Regulation ..................................................................................................................... 106 References ............................................................................................................................... 111 Chapter 7: Ideas for Social Inclusion .......................................................................................... 113 A New “New Deal”? ............................................................................................................... 114 Possible Elements of a New Social Contract .......................................................................... 116 Financing Social Inclusion ...................................................................................................... 118 References ............................................................................................................................... 126 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 John Maynard Keynes warned in 1931 of widespread unemployment due to technology,2 but 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. Through innovation, technology generates new sectors or tasks. The forces of automation and innovation will shape employment in the future. 1 5. Compared to previous major technological innovations such as electricity or the assembly line, some features of the current wave of technological progress are notable. Today’s digital transformation allows firms to scale quickly, blurring the boundaries of firms and challenging traditional production patterns. New business models—digital platform firms—evolve rapidly from local start-ups to global behemoths, often with few employees and tangible assets(figure 0.2). 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. Figure 0.2. Recent technological advances accelerate firm growth Source: Authors’ calculation based on Walmart Annual Reports, Statista.com, IKEA.com, NetEase.com. 6. 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 to trade goods and services on online platforms. This “scale without mass” brings economic opportunity to millions of people who do not live in industrialized countries or even industrial areas. This means that the changing demand for skills also reaches these same people. Automation raises the premium on high-order cognitive skills in advanced and emerging economies. 7. Investing in human capital is the priority to make the most of this evolving economic opportunity. 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
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