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TECHNOLOGY, JOBS, AND

THE FUTURE OF WORK


BRIEFING NOTE
PREPARED FOR THE DECEMBER 2016 FORTUNE VATICAN FORUM
UPDATED MAY 2017

The world of work is in a state of flux, which is causing to 45percent of the working-age population around the
considerable anxietyand with good reason. There world is underutilizedthat is, unemployed, inactive, or
is growing polarization of labor-market opportunities underemployed. This translates into some 850million
between high- and low-skill jobs, unemployment and people in the United States, the United Kingdom,
underemployment especially among young people, and Germany, Japan, Brazil, China, and India alone. Most
stagnating incomes for a large proportion of households attention is paid to the unemployed portion of this
and income inequality. Migration and its effects on jobs number, and not enough to the underemployed and the
has become a sensitive political issue in many advanced inactive portions, which make up the majority of untapped
economies. And from Mumbai to Manchester, public human potential.
debate rages about the future of work, and whether there
will be enough jobs to gainfully employ everyone. Almost 75million youth are officially unemployed. Women
represent one of the largest pools of untapped labor:
The development of automation enabled by technologies globally, 655million fewer women are economically
including robotics and artificial intelligence brings the active than men. In a best-in-region scenario in which all
promise of higher productivity (and with productivity, countries match the rate of improvement in gender gaps
economic growth), increased efficiencies, safety, and (in labor force participation, hours worked, and sector mix
convenience, but these technologies also raise difficult of employment) of the best-performing country in their
questions about the broader impact of automation on region, $12trillion more of annual GDP would be realized
jobs, skills, wages, and the nature of work itself. Many in 2025, equivalent in size to the current GDP of Japan,
activities that workers carry out today have the potential to Germany, and the United Kingdom combined.
be automated. At the same time, job matching sites such
as LinkedIn and Monster are changing and expanding Household incomes in advanced economies have
the way individuals look for work and companies identify stagnated or fallen, fueling public disgruntlement
and recruit talent. Independent workers are increasingly The vast majority of people derive incomes from jobs. In
choosing to offer their services on digital platforms the United States, Western Europe, and across advanced
including Upwork, Uber, and Etsy and, in the process, economies, market incomes (from wages and capital)
challenging conventional ideas about how and where stagnated or fell for about two-thirds of households
work is undertaken. in 200514, a period marked by deep recession and
slow recovery after the 2008 financial crisis. This was
For policy makers, business leaders, and workers the first time incomes stopped advancing on such a
themselves, these shifts create considerable uncertainty, scale since the stagflation era of the 1970s, and it may
alongside the potential benefits. This briefing note aims have helped stir popular opposition to globalization.
to provide a fact base on the multiple trends and forces The recession was a leading cause of the abrupt end to
buffeting the world of work, drawing from recent research income advancement, but other longer-run factors also
by the McKinsey Global Institute. contributed, including a decline in the share of national
income that is paid to workers, the so-called wage share.
Labor markets are under strain, and This has fallen across advanced economies despite
talent is underutilized rising productivity, suggesting a decoupling between
Unemployment and underemployment are high productivity and incomes. The decline is due in part to the
around the world. In the United States and the 15 core growth of corporate profits as a share of national income,
European Union countries (EU-15), there are 285million rising capital returns to technology investments, lower
adults who are not in the labor forceand at least returns to labor from increased trade, rising rent incomes
100million of them would like to work more. Some 30 from home ownership, and increased depreciation on
capital. Policy makers in the affected countries took gaps. Migration boosts global productivity, but its
action during the downturn to compensate for the income consequences are often feared by native workers,
squeeze, in the form of lower taxes and higher transfers, who face labor market disconnects and a lack of well-
but these were largely one-off measures to buoy paid jobs.
disposable income in response to the recession, and
not sustainable. In 2015, approximately 247million people lived in a
country not of their birtha number that has almost
Although globalization has brought numerous benefits, tripled in the past 50years. Most have gravitated to
including lifting millions of people in emerging economies places where they believe they will find better jobs. More
into the consuming class, it has had an impact on than 90percent have moved voluntarily, and about half
employment in some sectors, like manufacturing, where have moved from developing to developed countries. In
some jobs have moved offshore. Better support could the period 2000 to 2014, migration has provided about
have been provided to help affected workers build new 40percent of labor force growth in the Canada, Spain, the
skills and transition into new sectors or occupations. United Kingdom, and the United States.

A survey we conducted in France, the United Kingdom, Migrants made an absolute contribution to global output
and the United States showed a significant proportion of roughly $6.7trillion, or 9.4percent of global GDP in
of those whose incomes stagnated are worried about 2015. However, migrant workers, on average, earn wages
their childrens economic prospectsa sharp departure that are 20 to 30percent lower than those of comparable
after many decades in which it was an article of faith that native-born workers. More effective integration
every generation would enjoy higher living standards than approaches could lay the groundwork for economic gains
their parents. Middle-income households have been the of up to $1trillion globally, benefiting both economies
most affected, and young and less educated people are and individuals.
especially vulnerable. Across all age groups, medium-
and low-skill workers have done worse than those with In the context of challenging labor market conditions,
a college education. Many blame governments, global popular sentiment has moved against immigration.
institutions, corporations, and establishment elites Surveys conducted by MGI suggest that a significant
around the world, and the principles of free trade and proportion of middle- and low-income groups in
open borders are under attack. advanced economies who are experiencing flat or falling
real incomes are pessimistic about the future and likely to
Skills, jobs, and locations do not always match, hold particularly negative views about immigrants.
limiting income-earning opportunities for many
Educational systems have not kept pace with the Many activities that workers carry out today
changing nature of work, resulting in many employers have the potential to be automated
saying they cannot find enough workers with the skills Technological change has reshaped the workplace
they need. In a McKinsey survey of young people and continually over the past two centuries since the Industrial
employers in nine countries, 40percent of employers Revolution, but the speed with which automation
said lack of skills was the main reason for entry-level job technologies are developing today, and the scale at
vacancies. Sixtypercent said that new graduates were which they could disrupt the world of work, are largely
not adequately prepared for the world of work. There without precedent.
were gaps in technical skills such as STEM subject MGI research on the automation potential of the global
degrees, but also soft skills such as communication, economy, focusing on 46 countries representing about
team work, and punctuality. Conversely, even those in 80percent of the global workforce, has examined more
work may not be realizing their potential. In a recent global than 2,000 work activities and quantified the technical
survey of job seekers conducted by LinkedIn, 37percent feasibility of automating each of them. The proportion
of respondents said their current job does not fully utilize of occupations that can be fully automated using
their skills or provide enough challenge. currently demonstrated technology is actually small, less
Some of the mismatching is locational: where there than 5percent. An additional important finding is that
is demand for work, it does not always match where even if whole occupations are not automated, partial
available and qualified workers are to be found. This automation (where only some activities that make up
geographic mismatch can be seen across regions within an occupation are automated) will impact almost all
countries, and between countries. occupations to a greater or less degree, not just factory
workers and clerks, but landscape gardeners and dental
Cross-border migration fills some skill gaps lab technicians, fashion designers, insurance sales
but can create tensions representatives, and also CEOs. We find that about
Cross-border migration has been a natural consequence 60percent of all occupations have at least 30percent
of a world in which people do not find attractive work of activities that are technically automatable, based on
opportunities in their country of origin, at a time when currently demonstrated technologies. This means that
other economies are not adequately filling their skills most occupations will change, and more people will have

2 McKinsey Global Institute Technology, jobs, and the future of work


to work with technology. Highly skilled workers working adults use these platforms to work a few hours per week,
with technology will benefit. While low-skilled workers the economic impact would be significant.
working with technology will be able to achieve more
in terms of output and productivity, these workers may With their powerful search capabilities and sophisticated
experience wage pressure, given the potentially larger screening algorithms, online talent platforms can also
supply of similarly low-skilled workers unless demand speed the hiring process and cut the time individuals
for the occupation grows more than the expansion in spend searching between jobs, reducing unemployment.
labor supply. By aggregating data on candidates and job openings
across entire countries or regions, they may address
On a global scale, we calculate that the adaptation of some geographic mismatches and enable matches that
currently demonstrated automation technologies could otherwise would not have come about.
affect 50percent of the world economy, or 1.2billion
employees and $14.6trillion in wages. Just four Finally, online talent platforms help put the right people in
countriesChina, India, Japan, and the United States the right jobs, thereby increasing their productivity along
account for just over half of these totals. There are sizable with their job satisfaction. They can draw people who
differences in automation potential between countries, are engaged in informal work into formal employment,
based mainly on the structure of their economies, the especially in emerging economies. Both of these effects
relative level of wages, and the size and dynamics of could increase output per worker, raising global GDP.
the workforce. Digitally-enabled independent work is on the rise
As machines evolve and acquire more advanced While independent work is nothing new (and self-
performance capabilities that match or exceed human employment is still the predominant form of work in
capabilities, the adoption of automation will pick up. emerging economies), the digital enablement of it is. MGI
However, the technical feasibility to automate does not research finds that 20 to 30percent of the working age
automatically translate into the deployment of automation population in the United States and the European Union
in the workplace and the automation of jobs. Technical is engaged in independent work. Just over half of these
potential is only the first of several elements that must be workers supplement their income and have traditional
considered. A second element is the cost of developing jobs, or are students, retirees, or caregivers. While
and deploying both the hardware and the software 70percent choose this type of work, 30percent use it out
for automation. The supply-and-demand dynamics of of necessity because they cannot find a traditional job at
labor are a third factor: if workers with sufficient skill all, or one that meets their income and flexibility needs.
levels for a given occupation are in abundant supply and The proportion of independent work that is conducted
significantly less expensive than automation, this could on digital platforms, while only about 15percent of
slow the rate of adoption. A fourth to be considered are independent work overall, is growing rapidly, driven by
the benefits of automation beyond labor substitution the scale, efficiency, and ease of use for workers and
including higher levels of output, better quality, fewer customers that these platforms enable. Such platforms
errors, and capabilities that surpass human ability. Finally, include Uber, Etsy, Didi, and others. While those who
regulatory and social issues, such as the degree to which pursue independent work (digitally enabled or not) out of
machines are acceptable in any particular setting, must preference are generally satisfied; those who pursue it out
also be weighed. It is for these various reasons that go of necessity are unsatisfied with the income variability and
beyond purely technical feasibility of automation that our the lack of benefits typically associated with traditional
estimates for whole-job automation are lower than other work. Policy makers and innovators will need to grapple
estimates. Our scenarios suggest that it may take at least with solutions to these challenges.
two decades before automation reaches 50percent of Not to be forgotten: technology creates new jobs
all of todays work activities, taking into account regions and income possibilities
where wages are relatively low. Even while technologies replace some jobs, they are
Technology can help labor markets: digital talent creating new work in industries that most of us cannot
platforms improve matching between workers even imagine, and new ways to generate income. One
and jobs third of new jobs created in the United States in the past
Digital talent platforms have the potential to improve 25years were types that did not exist, or barely existed, in
matching workers and jobs, creating transparency and areas including IT development, hardware manufacturing,
efficiency in labor markets, and potentially raising GDP. app creation, and IT systems management. The net
They can raise labor participation and working hours; impact of new technologies on employment can be
evidence from around the world suggests that some strongly positive. A 2011 study by McKinseys Paris office
people would work more hours if they could. A US survey, found that the Internet had destroyed 500,000 jobs in
for example, reports that three-quarters of stay-at- France in the previous 15yearsbut at the same time
home mothers would be likely to work if they had flexible had created 1.2million others, a net addition of 700,000,
options. Even if a small fraction of inactive youth and or 2.4 jobs created for every job destroyed. The growing

McKinsey Global Institute Technology, jobs, and the future of work 3


role of big data in the economy and business will create Clearly, we are still in the early stages of how sectors
a significant need for statisticians and data analysts; we and companies use digital technologies, and there is
estimate a shortfall of up to 250,000 data scientists in the considerable unevenness. From country to country, too,
United States alone in a decade. there are significant divergences. Overall, for example,
we estimate that the United States has captured only
Digital technology also can enable new forms of 18percent of its potential from digital technologies,
entrepreneurial activity. Workers in small businesses while Europe has captured only 12percent. Emerging
and self-employed occupations can benefit from economies are even further behind, with countries in the
higher income earning opportunities. A new category Middle East and Brazil capturing less than 10percent of
of knowledge-enabled jobs will become possible as their digital potential.
machines embed intelligence and knowledge that less-
skilled workers can access with a little training. In India, More than half the worlds population is still
for example, Google is rolling out the Internet Saathi offline, limiting the potential to benefit from digital
(Friends of the Internet) program in which rural women are Rapid technology adoption can unlock huge economic
trained to use the Internet, and then become local agents value, even as it implies major need for retraining and
who provide services in their villages through internet- redeployment of labor. In India, for example, digital
enabled devices. The services include working as local technologies provide the foundation for many innovations
distributors for telecom products (phones, SIM cards, and that could contribute $550billion to $1trillion of economic
data packs), field data collectors for research agencies, impact per year in 2025. However, the value of digitization
financial services agents, and paratechnicians who help that is captured depends on how many people and
local people access government schemes and benefits business have access to it.
through an internet-based device.
More than fourbillion people, or over half of the worlds
We are only starting to capture the opportunities population is still offline. About 75percent of this offline
from digitizing economies at the sector and population is concentrated in 20countries including
company level Bangladesh, Ethiopia, Nigeria, Pakistan, and Tanzania,
Digital technologies are creating major new opportunities and is disproportionately rural, low income, elderly,
for workers and companies, in both advanced and illiterate, and female. The value of connecting these
developing economies, but there are significant people is significant, and as they enter the global digital
variations within and across countries and sectors. Our economy, the world of work will transform in fundamental
use of the term digitization (and our measurement of ways and at an unprecedented pace. Access to the
it), encompasses: (1) digitization of assets, including technology alone is not enough; even in countries
infrastructure, connected machines, data, data platforms, where a large majority of the population has access,
etc., (2) digitization of operations, including processes, the literacy and skills needed to capture digital gains are
payments, and business models, customer and supply sometimes limited.
chain interactions, and (3) digitization of the workforce,
including worker use of digital tools, digitally-skilled How to positively affect the future of work:
workers, and new digital jobs and roles. In measuring solution spaces
each of these various aspects of digitization, we find The disruption to the world of work that digital
relatively large disparities even among big companies. technologies are likely to entail could pose significant
Based on these measures, a few sectors are highly challenges to both policy makers and business leaders,
digitized, for example financial services, media, and the as well as workers. There are several solution spaces
tech sector itself. These tend to be among the highest to consider:
productivity growth and wage growth sectors. Many Evolve education systems and learning for a changed
others are much less digitized, including health care, workplace. Policy makers working with education
education, and even retail. These tend to be the largest providers (traditional and non-traditional) could do
share of the economy in terms of GDP, and also the more to improve basic STEM skills through the school
lowest productivity sectors. Similarly, companies are systems, and put a new emphasis on creativity as well
digitizing unevenly. Companies that are digital leaders as critical and systems thinking, and foster adaptive
in their sectors have faster revenue growth and higher and life-long learning.
productivity than their less-digitized peers. Their
profits and margins can increase three times as fast, A role for the private sector to drive training.
and workers within these companies enjoy double the Companies face gaps in skills they need in a more
wage growth. Digitization will continue to change how technology-enabled workplace, and can benefit
companies organize work, as well as the mix of work in from playing a more active role in education and
any given sector. All this will require ongoing adaptation training, including providing better information
and transition by workers in terms of skills, activities, about needs to learners and the education and
companies, and even the sectors they work in. training ecosystem, and providing better learning
opportunities themselves.

4 McKinsey Global Institute Technology, jobs, and the future of work


Create incentives for private-sector investment to treat
human capital like other capital. Through tax benefits References and further reading
and other incentives, policy makers can encourage McKinsey Global Institute research reports
companies to invest in human capital, including are available on www.mckinsey.com/mgi.
job creation, learning and capability building, and For this briefing note, we have drawn on the
wage growth. following reports.

Public-private partnerships to stimulate investment Indias technology opportunity: Transforming lives,


in enabling infrastructure. The lack of digital empowering people, December 2014.
infrastructure is holding back the digital benefits in A labor market that works: Connecting talent with
many economies, both developing and developed; opportunity in the digital age, June 2015.
public-private partnerships could help address
market failures. The power of parity: How advancing womens
equality can add $12trillion to global growth,
Rethink incomes. If automation (full or partial) does September 2015.
result in a significant reduction in employment and/
Digital America: A tale of the haves and the
or greater pressure on wages, some ideas such as
havemores, December 2015.
universal basic income, conditional transfers, and
adapted social safety nets could be considered Independent work: Choice, necessity, and the gig
and tested. economy, October 2016.

Rethink transition support and safety nets for workers People on the move: Global migrations impact and
affected. As work evolves at higher rates of change opportunity, December 2016.
between sectors, locations, activities, and skill A future that works: Automation, employment, and
requirements, many workers will need assistance productivity, January 2017.
adjusting. Many best practice approaches to transition
safety nets are available, and should be adopted and McKinsey & Company, Offline and falling behind:
adapted, and new approaches considered and tested. Barriers to Internet adoption, October 2014.
McKinsey Quarterly, The four fundamentals of
Embrace technology-enabled solutionsincluding
automation, November 2015.
richer information signalsfor the labor market that
improve matching and access and bridge the skills McKinsey Quarterly, Where machines could
gaps. Policy makers will need to address issues such replace robots, and where they cantyet,
as benefits and variability that these digital platforms July 2016.
can raise. Other reading
Accelerate the creation of jobs in general through Autor, David, Why are there still so many jobs?
stimulating investment and job creation in businesses, The history and future of workplace automation,
and accelerate creation of digital jobs in particular, Journal of Economic Perspectives, Summer 2015.
and digitally-enabled opportunities to earn income, Autor, David, David Dorn, and Gordon Hanson,
including through new forms of entrepreneurship. Untangling trade and technology: Evidence
from local labor markets, The Economic Journal,
Innovate how humans work alongside machines.
May 2015.
Greater interaction will raise productivity, but require
different and often higher skills, new technology Brynjolffson, Erik and Andrew McAfee, The second
interfaces, different wage models in some cases, machine age: Work, progress, and prosperity in a
and different types of investments by businesses and time of brilliant technologies, WW Norton, 2014.
workers to acquire skills. Furman, Jason, Is this time different? The
Capture the productivity benefits of technology to opportunities and challenges of artificial
create the economic growth, surpluses, and demand intelligence, remarks at AI conference in New
for work that create room for creative solutions and York, July 7, 2016.
ultimately benefit all. Milanovic, Branko, Global inequality: A new
approach for the age of globalization, Harvard
University Press, 2016.
Author JamesManyika is director of the McKinsey Global Sundararajan, Arun, The sharing economy: The
Institute and a senior partner at McKinsey & Company, end of employment and the rise of crowd-based
based in San Francisco. MGI partners MichaelChui, capitalism, MIT Press, 2016.
AnuMadgavkar, and SusanLund contributed to this
briefing note.

McKinsey Global Institute Technology, jobs, and the future of work 5