Adjusting to the changing nature of work also requires rethinking the social contract.
2019 – World Development Report
At a time when the global economy is growing and the poverty rate is the lowest in recorded history, it would be easy to become complacent and overlook looming challenges. One of the most critical is the future of work, the subject of the 2019 World Development Report. “Machines are coming to take our jobs” has been a concern for hundreds of years—at least since the industrialization of weaving in the early 18th century, which raised productivity and also fears that thousands of workers would be thrown out on the streets. Innovation and technological progress have caused disruption, but they have created more prosperity than they have destroyed. Yet today, we are riding a new wave of uncertainty as the pace of innovation continues to accelerate and technology affects every part of our lives.
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. When we consider the scope of the challenge to prepare for the future of work, it is important to understand that many children currently in primary school will work in jobs as adults that do not even exist today.
That is why this Report emphasizes the primacy of human capital in meeting a challenge that, by its very definition, resists simple and prescriptive solutions. Many jobs today, and many more in the near future, will require specific skills—a combination of technological know-how, problem-solving, and critical thinking as well as soft skills such as perseverance, collaboration, and empathy. The days of staying in one job, or with one company, for decades are waning. In the gig economy, workers will likely have many gigs over the course of their careers, which means they will have to be lifelong learners.
Innovation will continue to accelerate, but developing countries will need to take rapid action to ensure they can compete in the economy of the future. They will have to invest in their people with a farce sense of urgency especially in health and education, which are the building blocks of human capital to harness the benefits of technology and to blunt its worst disruptions. But right now too many countries are not making these critical investments.
Our Human Capital Project aims to fi that. This study unveils our new Human Capital Index, which measures the consequences of neglecting
investments in human capital in terms of the lost productivity of the next generation of workers. In countries with the lowest human capital investments today, our analysis suggests that the workforce of the future will only be one-third to one-half as productive as it could be if people enjoyed full health and received a high-quality education.
Adjusting to the changing nature of work also requires rethinking the social contract. We need new ways to invest in people and to protect them, regardless of their employment status. Yet four out of fie people in developing countries have never known what it means to live with social protection.
With 2 billion people already working in the informal sector unprotected by stable wage employment, social safety nets, or the benefits of education? new working patterns are adding to a dilemma that predates the latest innovations.
This Report challenges governments to take better care of their citizens and calls for a universal, guaranteed minimum level of social protection. It can be done with the right reforms, such as ending unhelpful subsidies; improving labor market regulations; and, globally, overhauling taxation policies. Investing in human capital is not just a concern for ministers of health and education; it should also be a top priority for heads of state and ministers of fiancé. The Human Capital Project will put the evidence squarely in front of those decision makers, and the index will make it hard to ignore.
The 2019 World Development Report is unique in its transparency. For the first time since the World Bank began publishing the WDR in 1978, we made an updated draft publicly available, online each week, throughout the writing process. For over seven months, it has benefited from thousands of comments and ideas from development practitioners, government officials, scholars, and readers from all over the world. I hope many of you will have already read the Report. Over 400,000 downloads later (and counting), I am pleased to present it to you in its final form.
There has never been a time when mankind was not afraid of where its talent for innovation might lead. In the 19th century, Karl Marx worried that “machinery does not just act as a superior competitor to the worker, always on the point of making him super flouts. It is the most powerful weapon for suppressing strikes.”1 John Maynard Keynes warned in 1930 of widespread unemployment arising from technology. And yet innovation has transformed living standards. Life expectancy has gone up; basic health care and education are widespread; and most people have seen their incomes rise.
Three-quarters of the citizens of the European Union, the world’s lifestyle superpower, believe that the workplace benefits from technology, according to a recent Eurobarometer survey. Two-thirds said technology will benefit society and improve their quality of life even further.
Despite this optimism, concerns about the future remain. People living in advanced economies are anxious about the sweeping impact of technology on employment. They hold a view that rising inequality, compounded by the advent of the gig economy (in which organizations contract with independent workers for short-term engagements), is encouraging a race to the bottom in working conditions.
This troubling scenario, however, is on balance unfounded. It is true that in some advanced economies and middle-income countries manufacturing jobs are being lost to automation. Workers undertaking routine tasks that are “codifible” are the most vulnerable to replacement. And yet technology provides opportunities to create new jobs, increase productivity, and deliver effective public services. Through innovation, technology generates new sectors and new tasks.
Some features of the current wave of technological progress are notable. Digital technologies allow firms to scale up or down quickly, blurring the boundaries of firms and challenging traditional production patterns. New business models—digital platform firms—are evolving from local start-ups to global behemoths, often with few employees or tangible assets. This new industrial organization poses policy questions in the areas of privacy, competition, and taxation. The ability of governments to raise revenues is curtailed by the virtual nature of productive assets.
The rise of platform marketplaces allows the effects of technology to reach more people more quickly than ever before. Individuals and firms need only 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. The changing demand for skills reaches the same people. Automation raises the premium on high-order cognitive skills in advanced and emerging economies.
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 such as teamwork, and skill combinations that are predictive of adaptability such as reasoning and self-efficacy. Building these skills requires strong human capital foundations and lifelong learning.
The foundations of human capital, created in early childhood, have thus become more important. Yet governments in developing countries do not give priority to early childhood development, and the human capital outcomes of basic schooling are suboptimal.
The World Bank’s new human capital index, presented in this study for the first time, highlights the link between investments in health and education and the productivity of future workers. For example, climbing from the 25th to the 75th percentile on the index brings an additional 1.4 percent annual growth over 50 years.
Creating formal jobs is the fist-best policy, consistent with the International Labour Organization’s decent work agenda, to seize the benefits of technological change. In many developing countries, most workers remain in low-productivity employment, often in the informal sector with little access to technology. Lack of quality private sector jobs leaves talented young people with few pathways to wage employment. High-skill university graduates currently make up almost 30 percent of the unemployed pool of labor in the Middle East and North Africa. Better adult learning opportunities enable those who have left school to reskill according to changing labor market demands.
Investments in infrastructure are also needed. Most obvious are investments in affordable access to the Internet for people in developing countries who remain unconnected. Equally important are more investments in the road, port, and municipal infrastructure on which firms, governments, and individuals rely to exploit technologies to their full potential.
Adjusting to the next wave of jobs requires social protection. Eight in 10 people in developing countries receive no social assistance, and 6 in 10 work informally without insurance. Even in advanced economies, the payroll-based insurance model is increasingly challenged by working arrangements outside standard employment contracts. What are some new ways of protecting people? A societal minimum that provides support independent of employment is one option. This model, which would include mandated and voluntary social insurance, could reach many more people.
Social protection can be strengthened by expanding overall coverage that prioritizes the neediest people in society. Placing community health workers on the government’s payroll is a step in the right direction. A universal basic income is another possibility, but it is untested and fiscally prohibitive for emerging economies. Enhanced social assistance and insurance systems would reduce the burden of risk management on labor regulation. As people become better protected through such systems, labor regulation could, where appropriate, be made more balanced to facilitate movement between jobs.
For societies to benefit from the potential that technology offers, they would need a new social contract centered on larger investments in human capital and progressively provided universal social protection.
However, social inclusion requires fiscal space, and many developing countries lack the fiancés because of inadequate tax bases, large informal sectors, and inefficient administration.
And yet there is plenty of room for improvement through, for example, better collection of property taxes in urban municipalities or the introduction of excise taxes on sugar or tobacco. The latter would have direct health benefits as well. Levying indirect taxes, reforming subsidies, and reducing tax avoidance by global corporations, especially among the new platform companies, are other possible sources of financing. In fact, the traditional structure of the global tax order provides opportunities for multinational corporations to engage in base erosion and profit shifting—that is, some firms allocate more profits to affiliates located in zero- or low-tax countries no matter how little business is conducted there. By some estimates, on average, 50 percent of the total foreign income of multinationals is reported in jurisdictions with an effective tax rate of less than 5 percent.
Emerging economies are in the middle of a technological shift that is bringing change to the nature of work. Whatever the future holds, investment in human capital is a no-regrets policy that prepares people for the challenges ahead.