The Pain of the Fourth Industrial Revolution

A recent publication by the World Economic Forum (WEF) looks at the "Fourth Industrial Revolution" and how it will impact the global job market.  The ideas presented in this paper are particularly critical given that one part of the Federal Reserve's dual mandate is to ensure maximum employment, an issue that will become increasingly difficult during the next recession if the WEF's projections are correct.  

As technology advances, the work tasks performed by humans is rapidly shifting; if managed well, these technological advances could lead to a new period of good jobs, higher productivity and a higher quality of living but, if managed poorly, could lead to greater income inequality, a wider gap in job skills and higher unemployment.  Over the time horizon covered by the WEF report (2018 to 2022), the authors of the report indicate that many existing jobs will be augmented with technology, particularly in data processing, information searching and jobs that require reasoning and decision-making.  

The authors of the report focussed on the results from a broad survey of academia, international organization, professional service firms and the heads of Human Resources departments at major organizations.  The questions focussed on three aspects:

1.) mapping the workplace transformations already underway

2.) documenting shifting work tasks and the resulting changes in skills requirements that are anticipated for a workplace in 2022.

3.) understanding priorities that companies have set to reskill and retrain employees.

Here is a cross section of employees represented by the companies in the survey:

Obviously, a massive change in workplace automation technology will require a substantial investment; one estimate suggests that up to $8 trillion will be required over the next ten to twenty years.  The WEF survey found that, depending on the specific technology, up to 85 percent of respondents planned to expand their adoption of higher technology by 2022 as shown here:

Interestingly, 23 percent of companies expect that they will adopt relatively uncommon technologies like humanoid robots by 2022.

The increasing adoption of technology will have a significant impact on the jobs landscape by 2022.  Across all industries, the currently emerging professions will increase its share of total employment from 16 percent to 27 percent whereas the employment share of declining roles is set to decrease from 31 percent to 21 percent, meaning that, in quantitative terms, the structural decline in certain job types will be balanced by the structural increase in new professions.  While that is somewhat reassuring, you can be certain that the workers in the declining jobs will likely not have the skills required to fill the jobs in the emerging professions. 

Here is a table showing the jobs that are likely to remain stable, are new or are redundant in all industries of the job marketplace of 2022:

From the list, it is quite apparent that the redundant jobs are often in the service sector or in jobs that require less formal education meaning that it is highly unlikely that the same employee that finds themselves redundant will be able to take on the job duties of a new technologically driven job (i.e. a door-to-door salesperson is highly unlikely to be a robotics engineer or a petroleum engineer) since the training required is very, very specific to that job. 

Here is a table showing how the demand for certain job skills is expected to change over the next five years:

Here is a quote about this the job skills issue from the paper:

"Proficiency in new technologies is only one part of the 2022 skills equation, however, as ‘human’ skills such as creativity, originality and initiative, critical thinking, persuasion, and negotiation will likewise retain or increase their value, as will attention to detail, resilience, flexibility and complex problem-solving. Emotional intelligence, leadership and social influence as well as service orientation also see an outsized increase in demand relative to their current prominence."

In today's job market, nearly two-thirds of jobs entail at least 30 percent of tasks that could be automated with current technology.  Out to the mid-2030's, it is projected that fully automatable maul tasks will rise from less than 5 percent today to nearly 40 percent and the share of automatable tasks involving social skills will rise from less than 5 percent today to about 15 percent over the same timeframe.

Let's close with this graphic which shows how the ratio of human-machine working hours is projected to change over the period between 2018 and 2022:

On average, employers expect that machines and algorithms will increase their contribution to specific tasks by 57 percent over the next five years.  On the upside, what really excites employers is the estimate that labour-augmenting automation technology could lead to average labour productivity increase of 30 percent compared to 2015 across all sectors of the economy.  More for less!

As we can see from this fascinating analysis, we are on the cusp of major changes to the global job market, thanks to technology.   With only 33 percent of companies stating that they would prioritize the retraining of employees who were seen to be at high risk of losing their jobs to technology compared to 54 percent of companies stating that they intend to target training for employees that are already in key roles, it is quite clear that the Fourth Industrial Revolution is going to be an extremely painful transition for millions of workers.  Additionally, it is also going to make the task of the world's central banks far more difficult the next time that their imaginative services are required to lift the global economy out of a recession/depression.