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The Impact of Automation on Canada's Labour Market

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The Impact of Automation on Canada's Labour Market Institut C.D. HOWE Institute commentary NO. 472 Future Shock? The Impact of Automation on Canada’s Labour Market Doomsday scenarios abound about massive job loss due to automation. But the future is much less bleak for workers in Canada. Matthias Oschinski and Rosalie Wyonch The Institute’s Commitment to Quality About The C.D. Howe Institute publications undergo rigorous external review Authors by academics and independent experts drawn from the public and private sectors. The Institute’s peer review ensures the quality, integrity Matthias Oschinski and objectivity of its policy research. The Institute will not publish any is Manager, Economics study that, in its view, fails to meet these standards. Practice, at PricewaterhouseCoopers, The Institute requires that its authors publicly disclose any actual or Canada. potential conflicts of interest of which they are aware. Rosalie Wyonch In its mission to educate and foster debate on essential public policy is Policy Analyst, at the issues, the C.D. Howe Institute provides nonpartisan policy advice C.D. Howe Institute. to interested parties on a non-exclusive basis. The Institute will not endorse any political party, elected official, candidate for elected office, or interest group. As a registered Canadian charity, the C.D. Howe Institute as a matter of course accepts donations from individuals, private and public organizations, charitable foundations and others, by way of general and project support. The Institute will not accept any donation that stipulates a predetermined result or policy stance or otherwise inhibits its independence, or that of its staff and authors, in pursuing scholarly activities or disseminating research results. HOW .D E I Commentary No. 472 C N T S U T I T March 2017 T I U T S Human Capital Policy T E N I E s e s s u e q n i t t i i l a o l p Daniel Schwanen P s ol le i r cy u I s n es Vice President, Research tel bl lig nsa ence spe | Conseils indi $12.00 isbn 978-1-987983-22-7 issn 0824-8001 (print); issn 1703-0765 (online) The Study In Brief Throughout history, technological change has helped lift people out of squalor and poverty, raised standards of living and improved well-being. Technological change, however, can also be disruptive – rendering specific occupations and skills obsolete, unsettling economic structures and contributing to unemployment and economic uncertainty. Innovation is a driving factor of productivity and economic growth, but increasing productivity means that fewer people are needed to produce the same amount of goods. The increasing pace of technological change has led some to speculate that, in the digital era, technology might destroy old jobs faster than new ones are created. Job losses can occur, however, only if innovation outstrips growth in demand for new products and services. As well, the potential for automation does not necessarily translate into actual automation: the decision to automate depends on factors such as firm size, competitive pressure and the cost of a machine versus the cost of human labour. This Commentary assesses the impact of technological change on Canada’s labour market over the past 30 years and highlights its implications for the near future. If the past is any guide, a continuation of gradual changes can be expected in the demand for skills in the labour force. This is a natural market reaction to technological change. There is unlikely to be a drastic shift in employment due to automation in the near future, although some industries and types of occupations will be more disrupted than others. Here, public policy could both encourage automation and prepare the workforce for the transition. Key findings are as follows: • It is very unlikely that employment in occupations highly susceptible to automation (35 percent of Canada’s employment) will be completely replaced by smart machines over the next few years. • Canadian employment is concentrated in industries that have a low risk of automation, with industries where less than a quarter of the jobs are susceptible to automation accounting for 27.5 percent of total employment (4.9 million jobs). Industries where more than three-quarters of the jobs are at high risk of automation account for only 1.7 percent of employment (310,000 jobs). This implies that Canada’s diversified economy and labour force are well positioned to adapt to rapid technological change. • Occupations high in abstract, complex-decision-making skills with a strong focus on creativity, critical thinking and interpersonal social skills have a relatively low risk of being automated. An increase in demand for these skills is likely over the near and medium term. • As the rate of technological progress increases and digitization permeates different occupations and industries, technical job-specific skills might become obsolete relatively quickly. This indicates a need to increase opportunities for continuous education and lifelong learning. Educational institutions such as colleges, technical schools and apprenticeship programs likely will have an expanded role over the lifecycle of employment as people learn to adapt to changing conditions. C.D. Howe Institute Commentary© is a periodic analysis of, and commentary on, current public policy issues. Barry Norris and James Fleming edited the manuscript; Yang Zhao prepared it for publication. As with all Institute publications, the views expressed here are those of the authors and do not necessarily reflect the opinions of the Institute’s members or Board of Directors. Quotation with appropriate credit is permissible. To order this publication please contact: the C.D. Howe Institute, 67 Yonge St., Suite 300, Toronto, Ontario M5E 1J8. The full text of this publication is also available on the Institute’s website at www.cdhowe.org. 2 Technological change has been the hallmark of economic progress throughout human history. With the invention of the steam engine, humanity set in motion the Industrial Revolution that put it on a path of economic development unprecedented in history. Technological progress has helped to lift people to replace the automated ones (for definitions of out of squalor and poverty, raised standards of occupation, task and skill and the differences among living and improved well-being. In many instances, them for the purposes of this Commentary, see however, technological change has also been Box 1). disruptive, rendering specific occupations and Another branch of economic policy debate skills obsolete, unsettling economic structures and argues that Canada faces an imminent shortage of contributing to unemployment and economic the skills it needs to adopt new technologies and uncertainty. remain globally competitive. The reasoning is that The conventional view – based on the an aging workforce and competition from abroad experiences of past periods of industrial change to recruit and retain talent are contributing to a – is that technological progress and innovation shortage of skilled individuals in the labour market. are desirable, as they contribute to increased It is not clear that Canada suffers from a broad- productivity, which, in turn, translates into higher based shortage of skilled labour: labour shortages incomes through economic growth (Miller and might exist in specific sectors and occupations, but Atkinson 2013). With technology, production they are not necessarily more common now than in requires fewer workers, who can then be employed the past (Massé, Roy and Gingras 1998). elsewhere, causing the total level of production in This Commentary assesses the impact of the economy to increase. technological change on Canada’s labour market Recent developments in automation, however, over the past 30 years and highlights implications characterized by machine-to-machine communication for the near future. Recent publications have made and increased digitization, have some economists rather startling claims that large portions of the worried. In their view, the digital era could herald a population face unemployment in the years to time when technology destroys old jobs faster than come, both in Canada and the United States new ones can be created (Krugman 2013; Levy and (see Brynjolfsson and McAfee 2014; Frey Murnane 2004; Sirkin, Zinser and Hohner 2011). and Osborne 2013; and Lamb 2016). This As Cowen (2013) puts it, “increasingly, machines are claim, however, is somewhat alarmist. Taking providing not only the brawn but the brains, too.” the immediate past into account, we expect a The extension of technology into new domains is continuation of gradual changes in the demand increasing uncertainty about which occupations might for skills in the labour force – a natural market exist in the future and what jobs will be created reaction to technological change. A drastic shift The views expressed in this publication are the authors’ own and do not necessarily represent the views of PwC Canada. The authors would like to thank Jane Li for her assistance at the outset of this research. We also extend thanks to David Gray, Andrew Heisz, Peter Howitt, Lara Speirs, Arthur Sweetman, CPA Canada, Polytechnics Canada, Colin Busby, Daniel Schwanen and anonymous reviewers for their insightful comments. The authors retain responsibility for any errors and the views expressed. 3 Commentary 472 Box 1: Skills, Tasks and Occupations: A Glossary Skill: an ability, whether learned or inherent, that facilitates the learning, acquisition and application of knowledge. Certain skills require learned procedures; others are abstract. Skills that can be acquired through learned procedure are easier to automate, as human procedures can be translated into computational ones. Task: the application of skill and knowledge to complete a goal. If a task requires only skills that are procedural, the task is routine. If a task requires skills that are abstract, the task is non-routine, as the procedure varies in some abstract way to complete the goal. Occupation: a set of tasks that can be performed either by a human or by technology or (in almost all cases) a combination of both.
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