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THE FUTURE OF WORK: ADVANCING LABOR MARKET RESILIENCE.

The Organization for Economic Cooperation and Development (OECD) analyzes the impact that digital transformation will have on jobs and skills and the challenges that automation, robots, or artificial intelligence pose to workforces. The Journal of International Affairs spoke to Stefano Scarpetta, the Director of OECD's Directorate of Employment, Labor, and Social Affairs, about evidence on the scope and depth of changes, and necessary policy adaptations.

Journal of International Affairs (JIA); Mr. Scarpetta, as the Director of OECD's Directorate for Employment, Labor, and Social Affairs, how do you see each of those interrelated policy areas developing in the context of rapid technological and demographic change?

Stefano Scarpetta (SS): We are seeing that our economies are undergoing a number of deep and rapid transformations, related to interrelated megatrends: globalization, demographic change, and digital transformation, as well as climate change. These can lead to imbalances. There are projections about how economies will evolve. Some degree of speculation is needed here, since there is a lot of uncertainty about the depth and pace of that digital transformation. To enable individuals and communities to fully grasp the many opportunities that these transformations will bring, while allowing them to address the main challenges, we need a whole-of-government approach that combines skill, labor, and social policies exploiting synergies and addressing possible trade-offs. We also need to bring social partners and other key stakeholders on board. Governments by themselves cannot provide a satisfactory response. We need more and better-targeted policies, including for employers, unions, and a more informed civil society.

There is a tendency to think about the Future of Work as something that is still to come, while in fact the transformations brought about by the megatrends have been happening for quite some time with very visible effects in the labor market. One important observation is that at least so far there is no evidence in the data of what John Maynard Keynes called technological unemployment, (1) either in the EU or any other OECD country. (i) Employment rates--the share of people of working age with a job--are back to the pre-crisis levels or above in most OECD countries. Still, we have to look beyond the aggregate numbers as we observe deep changes in the composition of employment. In most OECD countries and some emerging economies, we observe a polarization of the labor market, meaning that employment is concentrating in high-skilled non-routine jobs, as well as low-skilled non-routine jobs. This is leading to a hollowing out of the middle-skilled, routine jobs. Moreover, since the global financial crisis, wages have stagnated in many countries, including in those countries with a strong and long recovery. Wage stagnation has been fairly widespread if we exclude those at the top, leading to a further rise in wage inequality.

JIA: The ongoing wave of technological disruption, a megatrend, has profound implications for the Future of Work. There is disagreement over the extent to which jobs will disappear because of digitalization. What are the jobs of the future and how will the terms of employment differ?

SS: There is a lot of uncertainty about the impact of artificial intelligence (AI), machine learning, and the Internet of Things on our lives and jobs. Some well-known studies predict a rather gloomy future. For example, the 2013 and updated 2017 study by Carl Benedikt Frey and Michael Osborne, (2) suggest that up to 47 percent of jobs in the U.S. labor market could completely disappear due to automation in the next 15 to 20 years. Our analysis, however, suggests that once we focus on tasks performed in different jobs and not on occupations as such, the number of jobs at risk of full automation is rather around 14 percent in the OECD on average. However, we also stress that there could be another 30 percent of jobs undergoing major transformations. These jobs will probably survive, but workers will be asked to perform different tasks, to complement those that will be performed by algorithms, AI, and machine learning. Low-skilled workers hold many of the jobs at risk of automation or major transformations and thus the future may well bring with it more inequality in the labor market.

In my view, the central question is thus not so much whether there will be jobs for everyone, but rather what type of jobs will be available for the low-skilled and other disadvantaged groups and whether there will be more inequality as a result of fast technological change. The most significant gaps will persist or even expand between those who can access new high-tech job opportunities with high salaries and career prospects, and others--those with intermediate or low skills--risk sliding into low-paid, low-career jobs.

The challenge lies in the need to train new workers, including those who are already in the labor market. Education, training and retraining programs play a pivotal role in helping individuals and companies navigate these rapid and deep changes. We may not know the names of the jobs of the future, but we can guess that many of them will involve solid foundation skills as well as digital and socio-emotional skills.

We need responsive education policies to equip young people and current workers with the rights skills and the ability and access to continue learning and development during the rest of their working lives. At the same time, there is a growing need to help workers to re-skill and up-skill themselves during their working life. The 20th century approach whereby learning is front-loaded during the formal education period, assuming people will use their human capital as is during their working life, is largely obsolete. We need to equip people with the motivation and ability to learn and upgrade their skills continuously.

In many developing and emerging economies, but also some OECD countries, the highly skilled have a high exposure to training and retraining of skills, but the middle- and low-skilled much less so. We have to make sure that lifelong learning, meaning the possibility for workers to continue to adapt their skills, serves everybody, including the low-skilled, because they are the ones most at risk of losing their jobs due to automation. There are huge differences across countries in terms of per capita spending for this adaptation. The key is to make their expenditure more effective.

JIA. Digitization and the business models that it enables present important challenges to international taxation and national tax systems. Among other issues, this has implications for social protection systems, education, and social welfare. How do you think about tax revenue in an age of automation and the platform economy?

SS: International cooperation is key, and the OECD is working among others in the context of the G20 on digital taxes. A very important initiative in the framework of the G-20, the Base Erosion and Profit Shifting (BEPS) Project, (3) seeking to close gaps in international taxation for companies that allegedly avoid taxation or reduce tax burdens in their home country by engaging in tax inversion or by migrating intangible assets to lower-tax jurisdictions. Specifically, it looks at how business models and the creation of value added in highly digitized economies are evolving, and the nexus with the allocation of taxing rights between different jurisdictions. Many of the heavily digitized companies are multinational companies, operating in many different countries. Since taxation tends to be different across countries, there is an incentive for them to choose the jurisdiction with the lowest tax rate.

Platform companies and platform jobs are quite heterogeneous. It is important to differentiate between at least two types of platforms: 1) location-independent, web-based platforms that provide digital services via online platforms and 2) platforms where worker and clients are matched digitally and the payment is conducted digitally but work is performed on location, for example Uber and delivery services. The latter is a more traditional job, and relatively straightforward in terms of taxing. It is theoretically not very difficult to find ways to ensure that companies pay their fair share of taxes and that workers receive transfers to obtain at least basic social protection. Jobs related to the other kind of platform, for example crowd work, are much more complicated to regulate and tax, since the digital service is provided through digital means in one country, the consumer is in another country and the company is located again in another country. There are several options to ensure that companies contribute to their workers' social protection. For example, benefits can be untied from contributions, non-standard workers can be offered voluntary coverage, or they can be directly incorporated in the standard scheme. Finding solutions that protect workers equally across countries requires international cooperation.

JIA: Some high-income countries seem relatively well prepared for the changes ahead, with tripartite cooperation between government, employers, and unions, while others are likely to struggle because of limited resources and/or technical capacity to address technological change. How should policymakers strengthen the resilience and adaptability of labor markets?

SS: Resilience and adaptability are two key features of a well-performing labor market. Through the global financial crisis, we saw some labor markets perform better than others because their institutional and policy settings were able to adapt to changing business cycle conditions. In some countries, including the US and Canada, for example, the duration of unemployment benefits was lengthened during the crisis to provide better support to jobseekers. In others, including Denmark and Switzerland, resources for employment services were scaled up almost in proportion with the increase in the number of unemployed to maintain the quality of the services at the time when job vacancies were more limited. And many OECD countries introduced or scaled up temporary working time schemes to allow companies to reduce working time instead of dismissing workers as a response to the sharp decline in demand with at least partial compensation for the workers affected in terms of their monthly earnings.

Social dialogue and cooperation between government and social partners, employers and unions can play an important role in promoting resilience and supporting the adaptation process. We are facing a situation where more workers will be independent, meaning that rather than having a standard form of employment or a standard relationship with a single employer or location, they will have a job tied to a virtual platform or service. The traditional social protection mechanism common in most OECD countries, which is based on the model of a single, stable, full-time employment relationship, will have to be re-thought and adapted to provide a minimum level of protection to workers independent of their job or employer.

Moreover, most people in the future will also have more than one job at a time, or be changing from one job to another with higher frequency. This also necessitates an adaptation of the social protection and contribution system, such as ensuring the portability of benefit entitlements from one job to another.

While the digital transformation could potentially benefit everyone and all countries, the adoption of new technologies and novel means of production associated with the digital transformation may apply differently across countries. There is no technologically determined path, which would dictate that a technology will necessarily be put in practice in production processes to maximize its potential. For developing and emerging economies, the policy adaptation to these rapid and deep changes is going to be challenging. But in some areas, they can leapfrog advanced economies, learn from them, and move to the new generation of policy and institutions without having to adapt an often complex and well-rooted system that also involves a lot of vested interest.

There is a risk that automation will increase inequalities within countries and across workers. At the same time, it could also be a driver of a reduction in inequalities across countries. Developing and emerging economies could benefit from some of the innovation brought about by the digital transformation. Some digital tools can help better connect public services with workers in different sectors. That is what we are observing in many developing economies, from the provision of entitlements to access to services. Digital transformation can be a factor that, for example, could enable governments to be more effective in providing support to workers in informal sectors. This is not to say that we should not incentivize individuals to join the formal economy. But we can also provide those who remain stuck in the informal sector with basic services which, in turn, can help them to seek formal sector jobs in addition to improving their living standards.

NOTES

(1) John Maynard Keynes, "Economic Possibilities for Our Grandchildren," (1930) and "Essays in Persuasion," (1933).

(2) Carl Benedikt Frey and Michael A. Osborne, "The Future of Employment: How Susceptible are Jobs to Computerization?," (University of Oxford: 2013).

(3) OECD Official Website, Base erosion and profit shifting, http://www.oecd.org/tax/beps/.

An Interview with Stefano Scarpetta

(i) There are 36 OECD member countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania. Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
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Author:Scarpetta, Stefano
Publication:Journal of International Affairs
Article Type:Interview
Date:Sep 22, 2018
Words:2182
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