Delivered 13-08-2018, Kingston, Canada
Ladies and gentlemen, it is my pleasure to be with you in Canada. I was here last month to present the OECD’s Economic Survey of Canada – and let me tell you that Canada scores highly on well-being measures and does well compared to other OECD countries on personal security, health, environmental quality, social connections, education and skills.
Canada is also taking steps to address inequalities, and income inequality is close to the OECD mean.
Growing inequality is a large part of what I wanted to discuss with you today, in the context of digitalization and the future world of work.
Upsides of the digital revolution
The digital revolution is transforming our world. How we work, how we connect, how we live has changed dramatically.
And it has changed fast: it took over 45 years for electricity to be used by 25% of the US population; 35 years for the telephone; 16 years for the computer, and only 4 years for smartphones. Facebook also took 4 years to reach 100 million people.
Almost half of the world’s population is now connected to networks, compared to just 4% twenty years ago. Things go viral and diffuse faster than in the past.
We are always connected via our smartphones, and they have become part of our lives: across the OECD, over half of 15 years olds say they feel bad if they are not connected to the Internet – in France, Sweden and Portugal, it is over 80%.
This is also an era of vastly reduced transaction costs, which enables applications ranging from Google maps to ride-sharing services like Uber. This change in transaction costs has been transformative and will have far-reaching consequences on our societies, our economies and our labour markets.
The increased flexibility in everyday work life and the ability to facilitate access to jobs through platforms can improve well-being, for example by offering people a better work/life balance, enabling different working hours or remote working.
This also helps promote inclusion, as it helps groups often excluded from the labour market, such as people with disabilities, migrants or new parents.
Downsides of the digital revolution
However, the digital transformation presents important challenges for workers, firms and policy-makers. Specifically, this is happening at a time when inequalities globally are increasing. The OECD has been leading work on this through our Inclusive Growth Initiative. In many OECD countries income inequality is at its highest level for the past three decades: the average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.
There is a risk that, if not handled carefully, digitalisation in the labour market could exacerbate these inequalities.
Let me start with automation. Based on current trends, the OECD predicts that 14% of jobs in OECD countries are at a high risk of being automated.
For Canada, that number is slightly lower, at 10%.
And many more jobs across the OECD – an estimated additional 32% – will see considerable change in task composition.
Jobs will not disappear, but they will be replaced with new ones that will be quite different, and will require different skills. For example, big data architects, cloud service or digital marketing specialists did not exist until recently; we cannot imagine what future jobs will look like.
Automation threatens low-skill and routine jobs more than high-skills ones. Among workers with a lower secondary degree, 40% are in jobs with a high risk of automation – compared to only 5% among workers with a tertiary degree.
This therefore means that groups that are already at a disadvantage are at higher risk of being left behind. Young people are also at higher risk, as entry-level jobs are often more likely to be automated than senior-level jobs, which could make it harder for young people to get onto the career ladder.
Workers will need to be re-skilled or re-trained if their jobs are automated.
But it isn’t just automation that is of concern. The way firms are operating is also changing, which has wide implications on the world of work. And to understand the Future of Work, you need to understand the Future of the Firm. New technology and the big players in the platform economy are often concentrated. Only 250 firms globally generate 70% of R&D and patents, and 44% of trademarks. Most of the world’s top R&D investors are located in the US, UK, Germany, China and Japan. These countries also hold the top AI patents – although countries like Korea and India are fast catching up.
The rise of online platforms is also concentrated: of the top 15 internet market capitalization leaders in 2017, nine were US companies.
The rest were Chinese. These front-runners have mastered the new opportunities and know-how and are able to scale without mass; they have no high fixed costs, few tangible assets, such as buildings and employees, and low marginal costs. Look at WhatsApp – founded only 9 years ago, it has 1 billion users, and was bought by Facebook in 2014 for 19 billion dollars. It has only 60 employees.
The larger the platforms get, amassing ever-greater networks, the more value they accumulate. Indeed, much of their valuation depends on the data generated by their users. Firms that can amass large quantities of data, harness and exploit it, can use it to their competitive advantage.
Rolls Royce, for example, has studded its turbines for jet engines with sensors that provide real-time information on the performance of the engine and how best to maintain it when it lands. The ownership of this Big Data and what it is used for is fast-becoming an important policy question.
As these front-runner platforms and firms harness the data they collect, they are pulling away from the rest, accumulating advantages, and destabilizing entire markets as more traditional firms cannot compete with the lower transaction costs. They can also offer higher wages to attract better skills, have better access to capital and technology, and operate globally.
A performance gap is widening between more productive and less productive firms, which is also driven by the stagnating productivity of laggard firms. Those falling behind have limited capabilities, lack of incentives and uneven access to innovation throughout the economy.
These structural changes in our economies may leave many people, regions, industries behind. It is important to ensure those people can also take advantage of new technologies and that they are also able to participate in the development of these technologies.
The “winner-takes-all” dynamics also has implications for competition policy. If we want globalisation to work for everyone, then we need to ensure that competition is fair in a well-functioning market.
Plus, given the global nature of these online platforms, cross-border issues around different regulatory frameworks come into play, which requires international cooperation to ensure fair competition rules. We just saw in June, the landmark case where the EU slapped a 4.34 billion euro fine on Google because of dominance of its search engine on mobile phones.
How this all plays out depends on us. With the right policies, we can shape the future of work in ways that promotes inclusive growth. To do so, we need a multi-faceted approach.
First, we need to get skills right. Workers will need well-rounded technical, professional and social-emotional skills.
This starts with providing high quality education from early childhood so that all children, especially those from disadvantaged families, have a strong foundation of knowledge and skills.
Children will need to adapt to flexible thinking, working in teams and – importantly – learn to have self-esteem and self-confidence. Investing in affordable and high-quality early childhood education and care is an area that governments should prioritise.
This is a major finding in the OECD’s new Framework for Policy Action on Inclusive Growth, which found that a focus on early years has a powerful effect in overcoming socio-economic differences in education outcomes.
We also need to invest in more lifelong learning, ensuring people have opportunities to re-skill and up-skill throughout their working lives. This is especially important for people with low skills: less than 20% of low-skilled workers in the OECD have received job-relevant training in the past year, when the average is around 40% for all workers.
This is especially important for women, with new evidence based on the OECD Survey of Adult Skills pointing to a gap between men and women in their levels of advanced numeracy, management and self-organisation skills, which are most in demand in digital-intensive sectors.
Women are also more likely to be employed in industries that are of higher risk of automation, for example in retail, residential care or food and drink services.
Women are systematically under-represented in the ICT sector, and are 20% less likely to hold a senior leadership position in the mobile communication industry. There are 250 million fewer women online than men. Start-ups and venture capital investment also point to socio-cultural gender bias in equity financing, as today, 90% of innovative start-ups seeking venture capital investments were founded by men. Women-owned start-ups receive 23% less funding and are 30% less likely to be acquired or to issue an initial public offering – compared to men-owned businesses.
However, if given the chance, digital tools can help women “leapfrog”, as I said before, digital platforms offer women more flexible working arrangements, and women who perform more ICT-intensive tasks in their jobs receive a 12% higher pay increase than men, which could help close the gender pay gap.
It is important to encourage females into STEM subjects, whether through school programmes, mentoring, gender-neutral text books or adopting laws and regulations that include gender-related provisions in digital economy policies. In México, the OECD launched an initiative with the Ministry of Education, called “NiñasSTEM pueden”, where school girls are connected to women who are successful in STEM fields, to act as role models. Sarah Box from the OECD will elaborate on gender and digital tomorrow.
Secondly, we have to adapt our labour market and social protection policies. Already a substantial number of workers are in non-standard work: 1 in 6 workers in OECD countries is self-employed and 1 in 8 has a temporary contract. This has important implications for social protection. For example, only 6 out of 28 countries in the EU insure the self-employed in the same way that they insure regular employees. Access to social protection for these non-standard workers should be strengthened, and rights to social protection and training should follow the worker, not the job.
Social dialogue will also be important to prepare for the Future of Work, particularly in anticipating change and finding solutions that promote job quality and productivity growth.
Third, governments should encourage better diffusion of technology and innovation from leading to lagging firms, through incentives to make investments in R&D, new digital equipment and organisational know-how to help lagging firms catch-up with industry leaders.
Fourth, governments need to consider the implications of the platform economy on competition and regulation. Digital transformation is changing the world faster than many rules and regulations have evolved.
In some cases, the digital transformation requires changes to legislation, which might have been drafted long before some products or services existed. Governments may need to periodically review their regulatory frameworks to ensure they remain relevant to the increasingly digitalized world. There will also need to be a balance between regulation being flexible enough to allow businesses to grow, while also ensuring the security of the consumer, private data, etc. The flow of data also gives rise to cross-border issues.
This whole-of-government approach to the Future of Work is reflected in the G20 and G7 Presidencies, which the OECD is actively supporting.
Just last month, Finance Ministers endorsed a menu of policy options for the Future of Work, which will help countries harness the potential of technological change for inclusive growth. The G7 has also emphasised the importance of sharing the benefits of innovation through a whole-of-government strategy, and the need for effective domestic policies and multilateral cooperation on competition, digital security, privacy and data protection.
Ladies and gentlemen, there’s no question that the future is digital, and that that will have enormous changes to the way we live. In order to manage that, governments, firms, policy-makers will have to prepare now in order to manage this change to the benefit of inclusive human advancement.
Let me just leave you with my view: we should ensure that we use technology for our own benefit and use it to serve us as humans, rather than allow the pace of technology to carry us away and merely adapt to where it is taking us.
Explanation: jobs in the Republic of Korea, for instance, are at higher risk of automation than in Canada. The main reason for this is that Korea has different industry and occupational structure than Canada. Over 30% of Korean jobs are in manufacturing, while this is the case with only 22% of Canadian jobs (Handel 2012). However, within the same industries, Korean jobs are organised in a way that makes them less susceptible to automation. Korea might be ahead of Canada in automating routine jobs or it might be combining social and creative tasks together with routine tasks more frequently than Canada.
 Digital Economy Outlook, OECD 2017
 Going Digital in a Multilateral World, OECD, 2018
 OECD (2018), Policy Brief: Putting faces to the jobs at risk of automation, http://www.oecd.org/els/emp/future-of-work/Automation-policy-brief-2018.pdf
 OECD (2018 forthcoming), “Bridging the Digital Gender Divide: Include, Upskill, Innovate”, OECD, Paris.
 Empowering Women in the Digital Age: Where Do We Stand? OECD, 2018