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Commentary

The big tradeoff in the world of labor

12:04 AM May 04, 2015

MANY PEOPLE dream of becoming less chained to their workplace. Their vision is to become freer in managing their various tasks throughout the day. They especially want to be able to better blend work and leisure. Others dream of no longer having to do monotonous, highly repetitive tasks.

That world is getting ever closer to becoming reality. Even so, instead of feeling freed from past shackles, there is great nervousness all around. The questions anxiously raised now are: Will we run out of work? More specifically, will there be a job for me in the future?

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Remarkably, these worries actually unite much of the world, developed and developing. After all, this is a time when the focus even in China’s manufacturing sector is on installing massive amounts of industrial robots. Part of the reason is that the size of China’s labor force—long the source of existential worries in the Western world about assembly jobs being shipped to China—has peaked.

If anyone needed a wake-up call about how much the world as we know it is changing, consider this: China betting its future on robots is certainly about the starkest signal imaginable.

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Labor market pressures are also felt elsewhere. In India, soon to be the world’s most populous nation, over 10 million new jobs are needed each year—just to find employment for new labor market entrants.

And worldwide, university graduates— whether in “rich” or developing countries—find that their academic degree alone is no guarantee for getting a job.

Meanwhile, robots don’t threaten just assembly-line jobs in the manufacturing sector.

So-called service robots and computerization are bound to take a toll on a range of occupations—from airline pilots and truck drivers to surgeons and cooks.

Even the military, long a source of steady employment for young men across all skills levels, from frontline ground troops to fighter pilots, is changing. It has begun to rely much more on robots, from unmanned fighter vehicles and aircraft to cyber-defenses and bomb defusing rovers.

At present, there is much techno-hype and much techno-phobia when it comes to robots and automation. And we still need to work out many practicalities on either side of that divide. For example, there are sweeping visions of a world of autonomous, driverless cars.

If you have ever been stuck in traffic for hours or travelled long distances, that sounds like a great idea. Until you read reports that, freed from the steering wheel and a strict forward orientation inside the car, drivers and passengers may experience motion sickness. Or until you hear about the vexingly complex implications for the insurance industry.

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But creating more flexibility, and potentially value, for customers and drivers alike does not yet herald a world of new wealth. Some of the smartest thinkers in the field—and long-time techno-optimists—now worry that the basic promise of creating “more wealth with less labor” does have a negative impact on employment.

The best evidence we have collected so far points to negative employment effect for low-skilled and also some middle-skilled workers. However, Oxford University researchers forecast that, within 20 years, as many as half of all jobs could be affected. This includes job categories that are widely considered to require high skill levels. To guide policymaking, we will clearly need to track these developments carefully.

Change is always unnerving. And while the precise shape of the future is uncertain, we know about some key shifts. Lifelong employment by one firm and even formal employment contracts will become rarer than they were over the past three quarters of a century (at least in developed countries).

More “informality” in work arrangements—long considered a phenomenon mostly affecting developing countries—is also taking hold in developed countries. It is, in fact, becoming a great leveler globally.

A future marked by less formal work relationships undoes a core feature that many people in rich countries have taken for granted. This trend also runs counter to what many people in developing economies are very much striving for.

The net effect of this global trend is that, on balance, the risks associated with work are transferred more to individuals. That is no news whatsoever to many societies and the overwhelming part of the world population, especially in the developing world. There are places that rarely ever had any dependable labor protections or social safety nets to begin with.

Here then is the key conundrum: To a considerable degree, the “new economy” gives people what they have asked for. There are fewer hierarchies, more flexibility and more goal orientation. The ability to act in a more entrepreneurial fashion is in demand, as is a compensation model based on results, not just on time put in.

The positives and negatives of the changing workforce and workplace will need to be balanced carefully and smartly. We should be confident in tackling that task. After all, the world’s economies have grappled with far larger changes—and the social stresses and disruptions they have brought—in the past.

One need only look back a century and a quarter ago to find extensive public fretting—from literature and philosophy to political speeches—about what the advent of widespread industrialization, mechanization and electrification might mean for society.

The transformations of past eras—particularly the move of many millions of people from the fields to the cities—were indeed earth-shaking. But the result was dramatically improved standards of living and wider prosperity. And society adjusted to a “new normal” and life became better than it had been for the millions living on the brink of famine.

Klaus F. Zimmermann is director of the Institute for the Study of Labor (IZA) and editor in chief of IZA World of Labor.

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