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THE CHANGING NATURE OF WORK.

Karel Capek, the Czech writer who invented the word "robot" in 1920, used the Slavic-language word for work, robota, to make it clear what these machines would be used for. Over the last century, machines have replaced workers in many tasks. On balance, however, technology has created more jobs than it has displaced. Technological progress has transformed living standards. Life expectancy has gone up; basic health care and education are widespread; and most people have seen their incomes rise. And yet, fears of robot-induced unemployment have dominated the discussion over the future of work. The World Development Report 2019 finds that on balance, such concerns appear to be unfounded.

As technology advances, firms adopt new methods of production, markets expand, and societies evolve. Firms rely on new technologies to better use capital, overcome information barriers, outsource, and innovate. New technologies allow for more efficient management of the operations of firms: firms hire workers in one location to produce parts, in another location to assemble, and in a third location to sell. Meanwhile, the net result is consumers enjoy a wider range of products at lower prices.

The future of work will be driven by the competing forces of automation and innovation, the other "AI." Technological progress enables firms to automate, replacing labor with machines in production, and to innovate, expanding the number of sectors, tasks, and products. The pace of innovation will determine whether new jobs or tasks emerge to counterbalance the decline of old, routine-based jobs. Recent evidence for Europe suggests that while technology replaces some workers, overall it raises labor demand. Overall, technological advances are attributed to replacing routine work, and these advances created an estimated more than 23 million jobs across Europe from 1999 to 2016. (2)

As technology creates jobs, it disrupts the demand for skills. Occupations involving non-cognitive, routine tasks are most susceptible to automation and demand for those skills is declining. (3) Evidence across low- to high-income countries suggests that jobs are increasingly defined by more cognitive, analytical tasks, as well as sociobehavioral skills such as relationship management. For the most part, automation has lagged behind in replicating these skills to compete with workers. Since 2001, the share of jobs in occupations that are intensive in nonroutine cognitive and sociobehavioral skills has increased from 19 to 23 percent in emerging economies and from 33 to 41 percent in advanced economies. (4) Simultaneously, demand is growing for transferable higher-order cognitive skills including logic, critical thinking, complex problem solving, and reasoning.

Despite the opportunities technology offers, its effects are not manifesting equally across the globe. Workers in some sectors have greatly benefitted from technological progress, whereas those in others have been displaced and must adapt. The greatest challenge for emerging economies, irrespective of technological progress, continues to be persistent informality. Informal employment remains greater than 70 percent in Sub-Saharan Africa, 60 percent in South Asia, and more than 50 percent in Latin America. (5)

This changing nature of work requires a new social contract centered around both robust investments in human capital and universal social protection. Investing in human capital and lifelong learning is the priority to make the most of this evolving economic opportunity. Enhanced social protection, regardless of the form of labor contract, must be taken into consideration. Social inclusion for all workers is important, regardless of how or where they work. To fund human capital investments, governments must reconsider their fiscal policies and priorities. Many developing countries lack financial capacity due to inadequate tax bases, large informal sectors, and inefficient administrative practices.

The Changing Nature of Work

Technology has driven a fundamental shift in the nature of firms

Historically, firms have operated within distinctive boundaries. Free trade agreements and improved infrastructure have reduced the cost of cross-border trade, allowing transactions to occur wherever costs are lower. (6) With new technologies reducing communication costs, firms are less vertically integrated, which enables managers to outsource more tasks to the market.

Digital technology enables firms to innovate and quickly scale, challenging traditional production patterns and blurring boundaries. New business models, including digital-platform firms, evolve rapidly from local startups to become global behemoths, often with few employees and tangible assets, or "scale without mass." (7) Moreover, some companies are even creating new markets. For example, JD.com, China's second-largest e-commerce company, has more than 170,000 online merchants on its platform, many in rural areas. This creates jobs. The rise of digital-platform marketplaces allows the impact of technology to reach more people, faster, than ever before. This capacity brought economic opportunity to millions who live outside of industrialized countries or industrial areas in the developing world.

Large firms driving economic growth is not new. These firms increase aggregate productivity through upgrading internal capabilities to become more efficient, thus driving out unproductive competitors. These firms are at the forefront of adopting new technologies and achieve economies of scale that benefit the consumers with goods and services at lower prices. Of the world's companies, 10 percent are estimated to generate 80 percent of all profits. However, the advent of digital platforms has changed how this phenomenon unfolds. The digital economy has enabled firms to grow at a greater rate than those 20 years ago. Digital platforms are replacing brick-and-mortar malls, connecting shoppers with different brand stores, creating efficiencies for brands, and generating revenue for platform owners. (8) Additionally, data gathered through platforms are leveraged to improve firm efficiency, at times in markets other than those from which the data were collected in the first place.

While the rise of large firms produces many benefits, there is also much to consider with caution. Notably, digital markets provide new opportunities for firms to stifle their competition, and the risk of market concentration increases in a world with few large firms. U.S. economist Sherwin Rosen, who introduced the concept of superstar firms in 1981, predicted that technology would allow firms to expand markets or crowd out the competition more easily. In many markets, this prediction has proven to be true. Technology has allowed some companies to rise quickly, while preventing others from rising at all. In the digital economy, network effects often benefit early adopters of technology, facilitating the emergence of monopolies.

Globally integrated firms, particularly in the digital economy, create new challenges for taxation. It is increasingly difficult to determine where value is created when businesses create value by combining networks of users, ideas, and production across borders. Taking advantage of international value creation, firms are better able to divert profits to lower tax jurisdictions. Meanwhile, countries could take unilateral steps by extending value-added tax regimes or creating new taxes for the digital economy. Yet, it is difficult to collect taxes on intangible assets, notably user data.

Technology is shaping jobs and changing the skills being rewarded in the labor-market

Robot density per worker in 2018 is the highest in Germany, Korea, and Singapore. In all of these countries, despite the high prevalence of robots, the employment rate remains high. (9) Technology generates employment in a variety of direct and indirect ways. Improvements in transcontinental communications technologies, coupled with the fall in transportation costs, have expanded global value chains toward East Asia, creating jobs in new markets. In China, rural micro "e-tailers" began to emerge in 2009 on Taobao.com Marketplace. Owned by Alibaba, it is one of the largest online retail platforms in China. These clusters of "Taobao Villages" spread fast, from just three in 2009 to 2,118 across 28 provinces in 2017.

Technology also creates jobs through online work or through the gig economy. More widespread access to digital infrastructure--via laptops, tablets, and smartphones--provides an enabling environment in which on-demand services can thrive. The nature of work in the gig economy ranges from grocery delivery and driving services to more sophisticated tasks including accounting, editing, and music production. Bangladesh contributes 15 percent to the global online labor pool with more than 650,000 freelance workers in the gig economy.

Despite the opportunities created by technology, some workers are replaced during the adoption of new advancements. Workers involved in routine tasks that are "codifiable" are the most vulnerable. More than two-thirds of robots are employed in the automotive, electrical/electronics, and metal and machinery industries. With robots representing cheaper alternatives to existing manufacturing processes, firms become more amenable to relocating production closer to consumer markets. For example, in 2017, 3-D printing technologies enabled the German company Adidas to establish two "speed factories" for shoe production: one in Ansbach, Germany, and the other in Atlanta in the United States, eliminating more than 1,000 jobs in Vietnam.

As technology replaces mainly routine, non-cognitive work, it is changing the skills being rewarded in the labor market. The premium is rising for skills that cannot be replaced by robots-specifically, technology is disrupting the demand for three types of skills in the workplace. First, the demand for nonroutine cognitive and sociobehavioral skills appears to be rising in both advanced and emerging economies. Second, the demand for routine job-specific skills is declining. And, third, payoffs to combinations of different skill types--indicative of adaptability--appear to be increasing. Creating a skilled workforce for the future of work rests on countries meeting the demand for these skills.

Technology is also changing how people work and the terms under which they work. Replacing the once standard long-term contracts, digital technologies are moving toward more short-term work contracts, often via online work platforms that eliminate many of the geographical barriers previously associated with certain tasks. These so-called "gigs" make certain kinds of work more accessible on a more flexible basis, yet such work typically comes without traditional social protections. The best estimate for the size of the gig economy is that less than 0.5 percent of the active labor force participates in it globally, with less than 0.3 percent in developing countries. The emergence of the gig economy and the increasing prevalence of short-term work is blurring the divide between formal and informal work. Labor markets are becoming more fluid in advanced economies, while informality is persisting in emerging economies.

How Governments Can Respond to the Changing Nature of Work

The most significant investments that people, firms, and governments can make with respect to the changing nature of work and firms are in human capital. A basic level of human capital, such as literacy and numeracy, is needed for economic survival. The growing role of technology in life and business means that all types of jobs--including low-skill ones--require more advanced cognitive skills. Individuals with stronger human capital gain higher economic returns from new technologies. Firms with a higher share of educated workers do better at innovating.

Yet, governments often do not prioritize human-capital investments. One reason is the lack of political incentives. Few data are publicly available on whether health and education systems are generating human capital. This gap hinders the design of effective solutions, pursuit of improvement, and the ability of citizens to hold their governments accountable. The World Bank's Human Capital Project is designed to address the shortcomings of political incentives and provide the impetus for investing in human capital. The project has three components: a global benchmark in the Human Capital Index (HCI); a program of measurement and research to inform policy action; and a program of support for country strategies to accelerate investment in human capital. (10)

HCI, presented in the World Development Report for the first time, highlights the link between investments in health and education and the productivity of future workers. The index is measured in terms of the amount of human capital that a child born in 2018 can expect to attain by the end of secondary school. HCI has three components: (1) a measure of whether children survive from birth to the school age of five years old; (2) a measure of expected years of quality-adjusted school, which combines information on the quantity and quality of education; and (3) two broad measures of health: stunting rates and adult survival rates. (11) The components of HCI are aggregated by first transforming the data into measures of respective contributions to worker productivity relative to a benchmark corresponding to a complete education and full health. (12) The aggregated index then measures the amount of human capital that the average child born in 2018 expects to achieve (Figure 1). (13)

Because HCI is measured in terms of the productivity of the next generation of workers relative to the benchmark of complete education and full health, the units of the index have a natural interpretation: a value of x for a country means that the productivity as a future worker of a child born in a given year in that country is only a fraction x of what it could be under the benchmark. Due to the units of measure, the index can be connected in a straightforward fashion to scenarios for future per capita income and growth.

Lifelong learning alongside formal schooling

A country's ability to cope with the demand for changing job skills depends on how quickly the supply of skills shifts. Education systems, however, tend to resist change. Therefore, a significant part of the readjustment in the supply of skills must occur outside of compulsory education and formal jobs. Skills development for the changing nature of work is a matter of lifelong learning. Early childhood learning, tertiary education, and adult learning sought outside the workplace are increasingly important in meeting the skills that will be sought by future labor markets.

Early childhood development

The most effective way to acquire the skills demanded by the changing nature of work is to start early. The architecture of the brain forms from the prenatal period to age five. Thus, this stage is important for developing cognitive and sociobehavioral skills. During this period, the brain's ability to learn from experience is at its highest level.

Moreover, learning is cumulative: skills acquired at an earlier stage facilitate skills formation in subsequent stages. As such, the returns to early investments are the highest of those made over the life span, and the advantages conferred by these investments grow over time. An additional dollar invested in quality early childhood programs yields a return of US$6-$17. (14) In Jamaica, early stimulation for infants and toddlers increased their future earnings by 25 percent--equivalent to that of adults who grew up in wealthier households. (15) In Guatemala, an early childhood development nutrition program for poor families significantly increased the wages for these children in adulthood. (16) By contrast, poor-quality early childhood development programs are associated with disappointing results in children's language development, cognitive skills, and sociability. A study of preschools in a Nairobi slum in Kenya revealed, despite high participation rates, the curriculum and pedagogical approach were not age appropriate. In the program, three- to six-year-olds had to follow academic-oriented instruction and even sit for exams. (17)

Early childhood investments are an important way to improve equality of opportunity, yet these investments are underprovided and underutilized. This is especially the case for poor, disadvantaged children, often in rural areas. In low-and middle-income countries, approximately 47 percent of the wealthiest families have access to early education programs. On the contrary, for the poorest families this number is 20 percent. (18) Children from poor families are the least likely to attend early childhood development programs.

Tertiary education

Integrated, technology-driven economies are increasingly valuing tertiary education (defined as any education beyond the high-school level, including trade schools and college). The global average private return to tertiary education is 16 percent.

The changing nature of work makes tertiary education more attractive in three ways: technological integration, lifelong learning, and attractive innovation. First, technology and integration have increased the demand for higher-order general cognitive skills such as complex problem-solving, critical thinking, and advanced communication. These skills are transferable across jobs but cannot be acquired through schooling alone. The rising demand for these skills has enhanced the wage premiums of tertiary graduates, while reducing the demand for less educated workers. Second, tertiary education increases the demand for lifelong learning. Workers are expected to have multiple careers, not just multiple jobs, over their lifetime. Tertiary education, with its wide array of course offerings and flexible delivery models, such as online learning and open universities, meets this growing demand. Third, tertiary education, especially universities, becomes more attractive by serving as a platform for innovation. The relevance of tertiary education systems for the future of work depends on how well they deliver on these three fronts.

In addition, skills acquisition is increasingly a continuum. Flexibility is increased by ensuring that when students open the door to one pathway, the doors to others do not close irrevocably. For example, when first undertaking tertiary education most students must choose between general education and vocational training. Tertiary education systems should also guarantee a minimum threshold of transferable high-order cognitive skills, which are the best inoculation against job uncertainty. One approach is to incorporate more general education in tertiary programs. For example, an additional year of general education was added in 2012 to undergraduate programs in Hong Kong SAR, China, focusing on problem-solving and critical thinking. The Faculty of Architecture and Environmental Design at the College of Science and Technology-University of Rwanda has promoted learning strategies that include open-ended assessments, feedback opportunities, and a progressive curriculum that balances academic challenges with student support. These approaches have improved the critical-thinking skills of students.

Technology-enabled platforms are making tertiary education more available, especially for those with historically low access. The five largest distance-learning programs are based in lower- or middle-income countries. India is the second-largest consumer of massive open online courses (MOOCs). Xuetang X, China's biggest MOOC and blended learning portal, was serving 10 million students in 2018. In Brazil, Veduca launched the world's first open online master's in business administration program in 2013 and was offering over 5,000 courses in 2018. MOOCs, while providing a promising way of delivering flexible, personalized education to a large population, face the challenge of ensuring quality.

Adult learning

As the nature of work changes, workers are caught in the crosshairs of ongoing disruptions in the need for skills. Globally, some 260 million people ages 15-24 are both out of school and work. As economies adjust to provide the human capital for the next generation, adult learning can supply workers who are not in school or in jobs with new or updated skills. However, this approach has shown more promise in theory than practice. Often, poor design plagues progress. Adult learning can be improved in three ways: more systematic diagnoses of the specific constraints adults face; customized pedagogies for the adult brain; and flexible delivery models that are compatible with adult lifestyles.

Adults face significant stress, which compromises their mental capacity and is not always factored into program design. Adults also face specific socioeconomic constraints. Adult learners have high opportunity costs considering lost income and time with their children due to programs often having inflexible and intensive schedules. Furthermore, adult brains learn differently, which is not always factored into program design. An adult brain's ability to learn is significantly dependent on how much it is used. Adult learning programs have a better chance of success if lessons are integrated into everyday life. In Niger, students who received instruction via their mobile phones as part of an adult education program achieved reading and math scores that were significantly higher than those who did not. (20)

Flexible adult learning programs allow adults to learn at their convenience. In a voucher program for vocational training in Kenya, nearly 50 percent of women cited proximity to a training center as a determining factor in choosing a course. (21) In addition, studies show that adult learning programs are more successful when they are explicitly linked to employment opportunities, such as apprenticeships or internships. Colombia's Jovenes en Accion (Youth in Action) program combines classroom instruction with on-the-job training at private companies. The probability of formal employment and earnings rose in the short term and has been sustained in the long run.

Expand social protection beyond the formal sector

Uncertain labor markets call for strengthening social protection. But many workers are still exempt from basic social assistance and insurance. In low-income countries, of those in the poorest quintile, only 18 percent are covered by social assistance and 2 percent by social insurance. The corresponding rates increase to 77 and 28 percent in upper-middle income settings. Considering these figures and the changing nature of work, the Bismarckian model of social protection, which prevails in most countries, may no longer be appropriate. Three main components of social protection can manage labor market disruptions in the changing nature of work: a guaranteed minimum social assistance, expanded social insurance, and labor market regulation.

Social assistance

A social minimum would consist of a set of social assistance programs that provide financial support to a large share of the population, or even all of it. Social assistance works on many levels. Empirical studies have shown that cash transfers are spent on food, healthcare, education, and other desirable goods. Transfers are associated with improvements in the human capital of current and future generations. A systematic review of 56 cash-transfer programs found significant advances in school enrollment rates, test scores, cognitive development, food security, and use of health facilities. (22) Social assistance programs also affect household assets and livelihoods. Evaluations in Africa found that, on average, livestock ownership increased by 34 percent and ownership of durable goods by 10 percent. (23)

Despite its positive impacts, social assistance frequently fails to reach those who need it most. In advanced economies, social assistance faces the challenge of low uptake among eligible beneficiaries. In the European Union, only about 60 percent of social benefits are claimed. (24) In developing countries, welfare distribution may contrast with sharp, somewhat arbitrary, measures of poverty or eligibility criteria. For example, in some middle-income countries, people living on US$6 a day, or just above the poverty line, face a 40 percent probability of falling back into poverty. (25) Poverty is often dynamic: in Africa, a third of the population is persistently poor, while another third moves in and out of poverty. (26)

These facts suggest the need for broader and more permanent coverage than most social assistance programs provide. Although more universal approaches are desirable, the specific shape of this social minimum faces technical, budgetary, and political challenges. Universal approaches typically reduce or eliminate hurdles around program fragmentation, eligibility determination, and social tensions, but they require significant additional resources. Expanding social assistance should proceed at the same pace as the mobilization of required resources.

A universal basic income (UBI) is one expansion option. This tool enshrines the notion of building a guaranteed social minimum through a single program with three design features. First, the program is aimed at every individual, independent of income or employment status. Second, participants do not have to fulfill any conditions or reciprocal co-responsibilities. Third, assistance is provided in the form of cash instead of in-kind transfers and services.

Despite its appeal, little is known about how UBI works in practice. Only one country, Mongolia, utilized the initiative covering its entire population. In this case, UBI lasted only two years (2010-12) before being dismantled due to the collapse of mineral prices. The Islamic Republic of Iran had a similar program for one year: in 2011 energy subsidies were replaced by cash transfers to 96 percent of the population.

The fiscal implications of UBI could be significant. New analysis of four European countries suggests that the additional cost of UBI varies significantly: 13.8 percent of GDP in Finland, 10.1 percent in France, 8.9 percent in the United Kingdom, and 3.3 percent in Italy. Simulations from developing countries also suggest significant additional spending: a UBI set at 25 percent of median income would cost about 3.8 percent of GDP. By comparison, low- and middle-income countries spend, on average, 1.5 percent of GDP on social assistance.

Social insurance

Social insurance that does not fully depend on formal wage employment would complement social assistance. The Bismarckian social insurance model of earnings-based contributions is premised on steady wage employment, clear definitions of employers and employees, and a fixed point of retirement. It relies on levying a dedicated tax on wages. In rich countries, this policy option was effective in increasing coverage as workers were steadily absorbed into factories, then into jobs in formal services firms. Yet, this contributory approach is not a good fit for developing countries, where formal and stable employment are not common. Indeed, because eligibility is based on making mandatory contributions, this form of social insurance excludes informal workers, who account for more than two-thirds of the workforce in developing countries and one in ten in India and many countries in Sub-Saharan Africa. Rethinking this model should be a priority.

A reformed system must ensure that low-income workers have access to effective risk management tools. The right combination of instruments, subsidized for the poorest, is required to cover losses from livelihood disruptions, sickness, disability, and untimely death. Instruments that support stable consumption patterns, or are consumption smoothing, are important. A comprehensive insurance package would include: first, guaranteed minimum insurance with subsidized coverage against impoverishing losses; second, a mandated savings and insurance plan (to allow for consumption smoothing); and third, voluntary savings options to allow people to contribute more if desired. Elements of this model already exist in many countries.

This approach can, along with a guaranteed minimum income, reduce the size and pure-tax element of mandated contributions. The significant extension of the rural pension scheme in China is one example. Currently, around 360 million rural and urban informal workers are contributing to the scheme. Some 150 million older people are receiving payments. (27) Similarly, Costa Rica's government covers part of the pension contribution for the self-employed. Thailand provides the same for informal sector workers who choose to join a special pension scheme aimed at low-income workers. Subsidies could be offered to everyone or just to the poor, or they could be gradually reduced as income grows. Turkey's health insurance system does the latter.

Labor regulation

Once workers are better protected through social assistance and insurance, labor regulation could, where appropriate, be made more flexible. More restrictive approaches to labor regulation often fit poorly with many developing countries' labor markets. Designed with industrial-era economies in mind, labor regulations often fail to protect most workers when informality is the norm and work is often out of reach of the authorities.

On the contrary, if regulations are too strict and exclude many workers--especially young and low-skilled workers--firms may find it difficult to adjust the composition of their workforces, an important condition for adopting new technologies and increasing productivity. (28) In addition, strict labor regulations, specifically those with burdensome dismissal procedures, are negatively associated with the adoption of productivity-enhancing technology. (29) Thus the technology-intensive sectors are smaller in countries with stricter employment protection regulations. (30) More stringent regulations are also associated with lower entry and exit of firms--especially small firms--in industries in which labor moves more frequently between jobs. (31)

To address this challenge, policy makers must rethink labor regulations. Italy's recent reforms have been associated with the creation of more permanent jobs. Aiming for a balance of security--through enhanced social assistance and insurance--and flexibility is vital. Increasing flexibility for firms goes hand-in-hand with stronger social protection, intermediation and job-search assistance programs, and arrangements for strengthening the agency of workers. Beyond basic regulations, protections could be provided to all working people no matter how they engage in the labor market as part of a comprehensive approach to social protection and labor institutions. This would be a shift away from protecting some jobs to protecting all people.

Firms could be given more flexibility in managing their human resources contingent on laws mandating proper notice, the presence of an adequate system of income protection, and efficient mechanisms to punish discrimination. When the rules applied to firms' hiring and dismissal decisions are too onerous, they create structural rigidities that carry higher social costs in the face of disruption. For example, in 32 countries, an employer needs the approval of a third party even for individual redundancies. The provision of financial protection to workers whose livelihood has been disrupted is also ripe for reconsideration. Severance pay is an ineffective instrument for income protection because it pools risk at the firm or industry level, where shocks and losses are correlated. Employees also face a high risk of not receiving payments. Placing greater reliance on unemployment benefits organized nationally would position workers with more reliable options.

Scrutiny of industrial-era employment protections should be accompanied by an assessment of rigid--possibly outdated--laws on work arrangements. Some new forms of work blur the distinction between being an employee and being a "dependent" self-employed--for example, is a Yandex.Taxi driver in Moscow a Yandex.Taxi employee? Labor codes should define more clearly what it means to be an employee in current labor markets to ensure the basic set of protections just discussed. This goes hand-in-hand with better enforcement of labor laws and mechanisms to expand workers' voices. Digital technologies, including the use of social media, can assist with both tasks.

Increasing fiscal space

Investments in human capital, basic social protection (including community health workers in some developing countries), and productive opportunities for youth are likely to have fiscal costs of 6 to 8 percent of GDP. The share of tax revenue in low-income countries is half that of high-income countries. How will governments raise the additional resources needed to invest in human capital and advance social inclusion?

Most of the required fiscal resources are likely to come from improved capacity in tax administration and policy changes, particularly to value-added taxes and through an expansion of the tax base. Sub-Saharan African countries could raise, on average, 3 to 5 percent of GDP in additional revenues through reforms that improve the efficiency of the current tax systems. Closing tax exemptions and converging toward a uniform tax rate in value-added tax could raise further revenues. In Costa Rica and Uruguay, such revenues could amount to more than 3 percent of GDP.

Other taxes and savings could also contribute to the financing of human capital. The Kingdom of Saudi Arabia adopted an excise tax in 2017: 50 percent on soft drinks and 100 percent on energy drinks and tobacco products. It is estimated that nationally efficient carbon pricing policies would raise more than 6 percent of GDP in China, the Islamic Republic of Iran, the Kingdom of Saudi Arabia, and Russia. (33) Taxes on immovable property could raise an additional 3 percent of GDP in middle-income countries and 1 percent in poor countries. (34)

Age-old tax avoidance and evasion schemes by firms and individuals need to be tackled as well. By some estimates, approximately 50 percent of the total foreign income of multinationals is reported in jurisdictions with an effective tax rate of less than 5 percent. (35) As a result, estimates suggest that governments worldwide may miss out on US$100-$240 billion in annual revenue, which is equivalent to 4 to 10 percent of global corporate income tax revenue. The increasingly digital nature of business only creates more opportunities for tax avoidance. Generating revenue from new kinds of assets, such as user data, makes it increasingly unclear how or where value is created for taxation.

Conclusion

Preparing people to seize the potential that technological progress brings, and thus enabling them to work alongside new technologies, is the challenge. The relative demand for skills is changing. The rise of platform marketplaces means that the effects of technology reach more people more quickly than ever before. The most effective way to meet the skills demand in future labor markets is to invest in people's knowledge, skills, and health: people's human capital.

The politics of some of the reforms are complex because of the potential trade-offs between, for example, investments in the current generation of workers against those in future generations. However, technology-driven changes in production structures increase the cost of inaction on human capital. Adjusting to the next wave of jobs requires social protection. A solid guaranteed social minimum and strengthened social insurance, complemented by reforms in labor market rules in some emerging economies, would achieve this goal. Public spending must become more efficient and additional sources of revenue have to be identified to enhance social inclusion.

Simeon Djankov is director of the World Development Report 2019, and he was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. Prior to his cabinet appointment, Djankov was chief economist at the World Bank. He is the founder of the World Bank's Doing Business project. He is author of Inside the Euro Crisis: An Eyewitness Account (2014) and principal author of the World Development Report 2002. He is also coeditor of The Great Rebirth: Lessons from the Victory of Capitalism over Communism (2014) and Europe's Growth Challenge (2017). He obtained his doctorate in economics in 1997 from the University of Michigan at Ann Arbor.

Federica Saliola is director of the World Development Report 2019, and she was a manager at the World Bank. Under her intellectual leadership, nine World Bank global reports have been published, including Enabling the Business of Agriculture (2015, 2016, and 2017), Benchmarking Public Procurement (2015, 2016, and 2017) and Procuring Infrastructure PPPs (2015, 2017, and 2018. She has also contributed to a number of reports, including Golden Growth: Restoring the Luster of the European Economic Model (2012) and the jobs Study: Assessing Private Sector Contributions to Job Creation and Poverty Reduction (2013). She holds a doctorate in economics and a laurea in political science from the University of Rome, la Sapienza.

NOTES

(1) Official website for the World Development Report 2019: http://www.vvorldbank.org/en/publication/wdr2019.

(2) Ibid.

(3) David H. Autor and David Dorn, "The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market," American Economic Review 103, no. 5 (2013), 1553-97.

(4) The World Bank Group, World Development Report 2016: Digital Dividends, (Washington, DC: The World Bank Group, 2016).

(5) Official website for the World Development Report 2019: http://www.worldbank.org/en/publication/wdr2019.

(6) Simeon Djankov, Caroline L. Freund, and Cong S. Pham, 2010, "Trading on Time," Review of Economics and Statistics 92, no. 1 (2010), 166-73.

(7) Erik Brynjolfsson et al., "Scale without Mass: Business Process Replication and Industry Dynamics" (Research Paper No. 07-016, Harvard Business School Technology and Operations Management Unit, Cambridge, MA: 2008).

(8) Official website for the World Development Report 2019: http://www.worldbank.org/en/publication/wdr2019.

(9) Ibid.

(10) Aart Kraay, "Methodology for a World Bank Human Capital Index" (Policy Research Working Paper 8593, The World Bank Group, Washington, DC: 2018).

(11) Ibid.

(12) This approach follows the development accounting literature. See Francesco Caselli, "Accounting for Cross-Country Income Differences," Phillipe Aghion and Steven N. Darlauf, eds., Handbook of Economic Growth 1A (Amsterdam: Elsevier, 2005), 679-741; David N. Weil, "Accounting for the Effect of Health on Economic Growth," Quarterly Journal of Economics 122, no. 3 (2007), 1265-1306.

(13) The data, which have been made publicly available at http://www.worldbank.org/en/publication/human-capital, can be disaggregated bv gender for most countries so that differences in the prospects of boys versus girls can be observed.

(14) Nina Rosas and Shwetlena Sabarwal, "Can You Work It? Evidence on the Productive Potential of Public Works from a Youth Employment Program in Sierra Leone" (Policy Research Working Paper 7580, The World Bank Group, Washington, DC: 2016).

(15) Sarah Jane Baird, Craig T. Mcintosh, and Berk Ozler, "When the Money Runs Out: Do Cash Transfers Have Sustained Effects on Human Capital Accumulation?" (Policy Research Working Paper 7901, The World Bank Group, Washington, DC: 2016).

(16) Celine Ferre and Iffath Sharif, "Can Conditional Cash Transfers Improve Education and Nutrition Outcomes for Poor Children in Bangladesh? Evidence from a Pilot Project" (Policy Research Working Paper 7077, The World Bank Group, Washington, DC: 2014).

(17) Stephen Knack and Philip Keefer, "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," Quarterly Journal of Economics 112, no. 4 (1997), 1251-88.

(18) Robert Jensen, "The (Perceived) Returns to Education and the Demand for Schooling," Quarterly Journal of Economics 125, no. 2 (2010), 515-48.

(19) George Psacharopoulos and Harry Antony Patrinos, "Returns to Investment in Education: A Decennial Review of the Global Literature" (Policy Research Working Paper 8402, The World Bank Group, Washington, DC: 2018).

(20) Jenny C. Aker, Christopher Ksoll, and Travis J. Lybbert, "Can Mobile Phones Improve Learning? Evidence from a Field Experiment in Niger," American Economic Journal: Applied Economics 4, no. 4 (2012), 94-120.

(21) Joan Hamory Hicks et al., "Vocational Education Voucher Delivery and Labor Market Returns: A Randomized Evaluation among Kenyan Youth" (Report for Spanish Impact Evaluation Fund, Phase II, The World Bank Group, Washington, DC: 2011).

(22) Fransesca Bastagli et al., Cash Transfers: What Does the Evidence Say? A Rigorous Review of Programme Impact and of the Role of Design and Implementation Features (London: Overseas Development Institute, 2016).

(23) Laura Ralston, Colin Andrews, and Allan Hsiao, "The Impacts of Safety Nets in Africa: What Are We Learning?" (Policy Research Working Paper 8255, The World Bank Group, Washington, DC: 2017).

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Author:Djankov, Simeon; Saliola, Federica
Publication:Journal of International Affairs
Date:Sep 22, 2018
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