by Klaus Schwab
Second, the fourth industrial revolution will greatly increase our ability to address negative externalities and, in the process, to boost potential economic growth. Take carbon emissions, a major negative externality, as an example. Until recently, green investing was only attractive when heavily subsidized by governments. This is less and less the case. Rapid technological advances in renewable energy, fuel efficiency and energy storage not only make investments in these fields increasingly profitable, boosting GDP growth, but they also contribute to mitigating climate change, one of the major global challenges of our time.
Third, as I discuss in the next section, businesses, governments and civil society leaders with whom I interact all tell me that they are struggling to transform their organizations to realize fully the efficiencies that digital capabilities deliver. We are still at the beginning of the fourth industrial revolution, and it will require entirely new economic and organizational structures to grasp its full value.
Indeed, my view is that the competitiveness rules of the fourth industrial revolution economy are different from previous periods. To remain competitive, both companies and countries must be at the frontier of innovation in all its forms, which means that strategies which primarily focus on reducing costs will be less effective than those which are based on offering products and services in more innovative ways. As we see today, established companies are being put under extreme pressure by emerging disruptors and innovators from other industries and countries. The same could be said for countries that do not recognize the need to focus on building their innovation ecosystems accordingly.
To sum up, I believe that the combination of structural factors (over-indebtedness and ageing societies) and systemic ones (the introduction of the platform and on-demand economies, the increasing relevance of decreasing marginal costs, etc.) will force us to rewrite our economic textbooks. The fourth industrial revolution has the potential both to increase economic growth and to alleviate some of the major global challenges we collectively face. We need, however, to also recognize and manage the negative impacts it can have, particularly with regard to inequality, employment and labour markets.
3.1.2 Employment
Despite the potential positive impact of technology on economic growth, it is nonetheless essential to address its possible negative impact, at least in the short term, on the labour market. Fears about the impact of technology on jobs are not new. In 1931, the economist John Maynard Keynes famously warned about widespread technological unemployment “due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour”.22 This proved to be wrong but what if this time it were true? Over the past few years, the debate has been reignited by evidence of computers substituting for a number of jobs, most notably bookkeepers, cashiers and telephone operators.
The reasons why the new technology revolution will provoke more upheaval than the previous industrial revolutions are those already mentioned in the introduction: speed (everything is happening at a much faster pace than ever before), breadth and depth (so many radical changes are occurring simultaneously), and the complete transformation of entire systems.
In light of these driving factors, there is one certainty: New technologies will dramatically change the nature of work across all industries and occupations. The fundamental uncertainty has to do with the extent to which automation will substitute for labour. How long will this take and how far will it go?
To get a grasp on this, we have to understand the two competing effects that technology exercises on employment. First, there is a destruction effect as technology-fuelled disruption and automation substitute capital for labour, forcing workers to become unemployed or to reallocate their skills elsewhere. Second, this destruction effect is accompanied by a capitalization effect in which the demand for new goods and services increases and leads to the creation of new occupations, businesses and even industries.
As human beings, we have an amazing ability for adaptation and ingenuity. But the key here is the timing and extent to which the capitalization effect supersedes the destruction effect, and how quickly the substitution will take.
There are roughly two opposing camps when it comes to the impact of emerging technologies on the labour market: those who believe in a happy ending – in which workers displaced by technology will find new jobs, and where technology will unleash a new era of prosperity; and those who believe it will lead to a progressive social and political Armageddon by creating technological unemployment on a massive scale. History shows that the outcome is likely to be somewhere in the middle. The question is: What should we do to foster more positive outcomes and help those caught in the transition?
It has always been the case that technological innovation destroys some jobs, which it replaces in turn with new ones in a different activity and possibly in another place. Take agriculture as an example. In the US, people working on the land consisted of 90% of the workforce at the beginning of the 19th century, but today, this accounts for less than 2%. This dramatic downsizing took place relatively smoothly, with minimal social disruption or endemic unemployment.
The app economy provides an example of a new job ecosystem. It only began in 2008 when Steve Jobs, the founder of Apple, let outside developers create applications for the iPhone. By mid-2015, the global app economy was expected to generate over $100 billion in revenues, surpassing the film industry, which has been in existence for over a century.
The techno-optimists ask: If we extrapolate from the past, why should it be different this time? They acknowledge that technology can be disruptive but claim that it always ends up improving productivity and increasing wealth, leading in turn to greater demand for goods and services and new types of jobs to satisfy it. The substance of the argument goes as follows: Human needs and desires are infinite so the process of supplying them should also be infinite. Barring the normal recessions and occasional depressions, there will always be work for everybody.
What evidence supports this and what does it tell us about what lies ahead? The early signs point to a wave of labour-substitutive innovation across multiple industries and job categories which will likely happen in the coming decades.
Labour substitution
Many different categories of work, particularly those that involve mechanically repetitive and precise manual labour, have already been automated. Many others will follow, as computing power continues to grow exponentially. Sooner than most anticipate, the work of professions as different as lawyers, financial analysts, doctors, journalists, accountants, insurance underwriters or librarians may be partly or completely automated.
So far, the evidence is this: The fourth industrial revolution seems to be creating fewer jobs in new industries than previous revolutions. According to an estimate from the Oxford Martin Programme on Technology and Employment, only 0.5% of the US workforce is employed in industries that did not exist at the turn of the century, a far lower percentage than the approximately 8% of new jobs created in new industries during the 1980s and the 4.5% of new jobs created during the 1990s. This is corroborated by a recent US Economic Census, which sheds some interesting light on the relationship between technology and unemployment. It shows that innovations in information and other disruptive technologies tend to raise productivity by replacing existing workers, rather than creating new products needing more labour to produce them.
Two researchers from the Oxford Martin School, economist Carl Benedikt Frey and machine learning expert Michael Osborne, have quantified the potential effect of technological innovation on unemployment by ranking 702 different professions according to their probability of being automated, from the least susceptible to the risk of automation (“0” corresponding to no risk at all) to those that are the most susceptible to the risk (“1” corresponding to a certain risk of the job being replaced by a computer of some sort).23 In Table 2 below, I highlight certain professions that are most likely to be automated, and those le
ast likely.
This research concludes that about 47% of total employment in the US is at risk, perhaps over the next decade or two, characterized by a much broader scope of job destruction at a much faster pace than labour market shifts experienced in previous industrial revolutions. In addition, the trend is towards greater polarization in the labour market. Employment will grow in high-income cognitive and creative jobs and low-income manual occupations, but it will greatly diminish for middle-income routine and repetitive jobs.
Table 2: Examples of professions most and least prone to automation
Source: Carl Benedikt Frey and Michael Osborne, University of Oxford, 2013
It is interesting to note that it is not only the increasing abilities of algorithms, robots and other forms of non-human assets that are driving this substitution. Michael Osborne observes that a critical enabling factor for automation is the fact that companies have worked hard to define better and simplify jobs in recent years as part of their efforts to outsource, off-shore and allow them to be performed as “digital work” (such as via Amazon’s Mechanical Turk, or MTurk, service, a crowdsourcing internet marketplace). This job simplification means that algorithms are better able to replace humans. This job simplification means that algorithms are better able to replace humans. Discrete, well-defined tasks lead to better monitoring and more high-quality data around the task, thereby creating a better base from which algorithms can be designed to do the work.
In thinking about the automation and the phenomenon of substitution, we should resist the temptation to engage in polarized thinking about the impact of technology on employment and the future of work. As Frey and Osborne’s work shows, it is almost inevitable that the fourth industrial revolution will have a major impact on labour markets and workplaces around the world. But this does not mean that we face a man-versus-machine dilemma. In fact, in the vast majority of cases, the fusion of digital, physical and biological technologies driving the current changes will serve to enhance human labour and cognition, meaning that leaders need to prepare workforces and develop education models to work with, and alongside, increasingly capable, connected and intelligent machines.
Impact on skills
In the foreseeable future, low-risk jobs in terms of automation will be those that require social and creative skills; in particular, decision-making under uncertainty and the development of novel ideas.
This, however, may not last. Consider one of the most creative professions – writing – and the advent of automated narrative generation. Sophisticated algorithms can create narratives in any style appropriate to a particular audience. The content is so human-sounding that a recent quiz by The New York Times showed that when reading two similar pieces, it is impossible to tell which one has been written by a human writer and which one is the product of a robot. The technology is progressing so fast that Kristian Hammond, co-founder of Narrative Science, a company specializing in automated narrative generation, forecasts that by the mid-2020s, 90% of news could be generated by an algorithm, most of it without any kind of human intervention (apart from the design of the algorithm, of course).24
In such a rapidly evolving working environment, the ability to anticipate future employment trends and needs in terms of the knowledge and skills required to adapt becomes even more critical for all stakeholders. These trends vary by industry and geography, and so it is important to understand the industry and country-specific outcomes of the fourth industrial revolution.
In the Forum’s Future of Jobs Report, we asked the chief human resources officers of today’s largest employers in 10 industries and 15 economies to imagine the impact on employment, jobs and skills up to the year 2020. As Figure 1 shows, survey respondents believe that complex problem solving, social and systems skills will be far more in demand in 2020 when compared to physical abilities or content skills. The report finds that the next five years are a critical period of transition: the overall employment outlook is flat but there is significant job churn within industries and skill churn within most occupations. While wages and work-life balance are expected to improve slightly for most occupations, job security is expected to worsen in half of the industries surveyed. It is also clear that women and men will be affected differently, potentially exacerbating gender inequality (see Box A: Gender Gaps and the Fourth Industrial Revolution).
Figure 1: Skills Demand in 2020
Source: Future of Jobs Report, World Economic Forum
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Box A: Gender Gaps and the Fourth Industrial Revolution
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The 10th edition of the World Economic Forum’s Global Gender Gap Report 2015 revealed two worrying trends. First, at the current pace of progress, it will take another 118 years before economic gender parity is achieved around the world. Second, progress towards parity is remarkably slow, and possibly stalling.
In light of this, it is critical to consider the impact of the fourth industrial revolution on the gender gap. How will the accelerating pace of change in technologies that span the physical, digital and biological worlds affect the role that women are able to play in the economy, politics and society?
An important question to consider is whether female-dominated or male-dominated professions are more susceptible to automation. The Forum’s Future of Jobs report indicates that significant job losses are likely to span both types. While there has tended to be more unemployment due to automation in sectors in which men dominate such as manufacturing, construction and installation, the increasing capabilities of artificial intelligence and the ability to digitize tasks in service industries indicate that a wide range of jobs are at risk, from positions at call centres in emerging markets (the source of livelihoods for large numbers of young female workers who are the first in their families to work) to retail and administrative roles in developed economies (a key employer for lower-middle class women).
Losing a job has negative effects in many circumstances, but the cumulative effect of significant losses across whole job categories that have traditionally given women access to the labour market is a critical concern. Specifically, it will put at risk single-income households headed by low-skilled women, depress total earnings in two-income families, and widen the already-troubling gender gap around the world.
But what about new roles and job categories? What new opportunities could exist for women in a labour market transformed by the fourth industrial revolution? While it is difficult to map the competencies and skills expected in industries not yet created, we can reasonably assume that demand will increase for skills that enable workers to design, build and work alongside technological systems, or in areas that fill the gaps left by these technological innovations.
Because men still tend to dominate computer science, mathematical and engineering professions, increased demand for specialized technical skills may exacerbate gender inequalities. Yet demand may grow for roles that machines cannot fulfil and which rely on intrinsically human traits and capabilities such as empathy and compassion. Women are prevalent in many such occupations including psychologists, therapists, coaches, event planners, nurses and other providers of healthcare.
A key issue here is the relative return on time and effort for roles requiring different technical capabilities, as there is a risk that personal services and other currently female-dominated job categories will remain undervalued. If so, the fourth industrial revolution may lead to further divergence between men’s roles and women’s. This would be a negative outcome of the fourth industrial revolution, as it would increase both inequality overall and the gender gap, making it more difficult for women to leverage their talents in the workforce of the future. It would also put at risk the value created by increased diversity and the gains that we know organizations can make from the enhanced creativity and efficiency of having gender-balanced teams at all levels. Many of the traits and capabilities traditionally associated with women and female professions will be much more needed in the era of the fourth industr
ial revolution.
While we cannot predict the different impact on men and women that the fourth industrial revolution will have, we should take the opportunity of a transforming economy to redesign labour policies and business practices to ensure that both men and women are empowered to their full extent.
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In tomorrow’s world, many new positions and professions will emerge, driven not only by the fourth industrial revolution, but also by non-technological factors such as demographic pressures, geopolitical shifts and new social and cultural norms. Today, we cannot foresee exactly what these will be but I am convinced that talent, more than capital, will represent the critical production factor. For this reason, scarcity of a skilled workforce rather the availability of capital is more likely to be the crippling limit to innovation, competiveness and growth.
This may give rise to a job market increasingly segregated into low-skill/low-pay and high-skill/high-pay segments, or as author and Silicon Valley software entrepreneur Martin Ford predicts,25 a hollowing out of the entire base of the job skills pyramid, leading in turn to growing inequality and an increase in social tensions unless we prepare for these changes today.
Such pressures will also force us to reconsider what we mean by “high skill” in the context of the fourth industrial revolution. Traditional definitions of skilled labour rely on the presence of advanced or specialised education and a set of defined capabilities within a profession or domain of expertise. Given the increasing rate of change of technologies, the fourth industrial revolution will demand and place more emphasis on the ability of workers to adapt continuously and learn new skills and approaches within a variety of contexts.