automation in the digital economy drives those in the middle to polar ends of the wage scale

In the Steven Spielberg 2001 classic movie “AI,” workforce robots in the distant future fall into one of two classes: low-value, routine automatons and uniquely innovative artificial beings possessing rare skills. He might not have realized it, but Spielberg’s movie foreshadowed what is unfolding in the global labor market today.

In the world of work, societies have transformed from agrarian in nature to industrial to service in relatively short periods of time. The pace of innovation in the past 50 years has accelerated, completely changing how we work and live. Along the way, employers and workers have been forced to adapt their expectations, creating a highly complex relationship with each other. As a result, supply and demand for skills is constantly shifting, producing scarcity in some sectors and overabundance in others.

How will these dynamics shape the future of the global labor market? It’s tempting to say that economies everywhere will continue to shift from manufacturing to services but recent research suggests that it’s much more complicated than that. In fact, a phenomenon known as job polarization is creating winners and losers in the market, resulting in significant ripples in the global economy. I suspect job polarization is indeed behind much of the current political upheavals around the world as affected workers find themselves thrust into unknown and sometimes uncomfortable territories.

a disappearing middle

According to our 2016 edition of Flexibility@work report, an annual study on flexible labor and employment in OECD countries, job polarization is occurring in most industries and markets. It is essentially the shifting of mid-level salaried roles to the polar ends of the pay scales. In other words, as jobs in the middle disappear, they are replaced by more high- and low-salary roles. As you can imagine, this transitional force is causing a lot concern among workers and policy makers around the world.

Why is this happening? A popular belief is that as economies shift away from manufacturing, positions such as machine operators and line workers are replaced by lower-paying roles. This idea of categorizing employment as manufacturing or non-manufacturing is too simplistic; the actual dynamics of today’s labor market are more complicated. In fact, polarization is occurring across sectors, indicating something much bigger at play here. It’s not about the industries but rather the nature of work. 

Digital innovation has made winners out of those who can best perform high-skill, non-routine work such as engineering, software development and other valued services. At the same time, demand for low-skill, non-routine workers is also growing, leading to the creation of more low-wage roles. Data reported in our flexibility@work report, which was conducted by researchers at the University of Utrecht and the University Leuven, found that for every high-tech position produced, between 2.5 and 4.4 additional jobs are created in that area.

For those in the middle — performing low-tech, routine tasks — there is a clear danger of becoming obsolete due to offshoring and automation, which increasingly is displacing large segments of the workforce. According to the World Economic Forum, a fourth industrial revolution led by digital transformation could lead to the loss of 5.1 million jobs from 2015-2020. A recent Staffing Industry Analysts (SIA) study concluded that 63% of temp agency jobs in the U.S. are at a high risk of automation over the next 20 years.

Although politicians globally have been quick to point fingers at immigration for the declining middle class, they’ve been relatively quiet on the impact of information and communication technology (ICT), which has played a bigger role in the polarization effect. As the Flexibility@work research points out, how a particular sector interact with technology is a better indicator of the degree of polarization occurring in that industry. 

reskilling an urgency

So as polarization continues in the workforce, how should employers and policy makers address the growing income and skills gap? The most obvious answer is to reskill workers who have been and are being displaced by the wider adoption of ICT resources. Workers will need to learn the skills more relevant to digital transformation. This requires public and private sector investment, working collaboratively to identify those at risk and helping them become better equipped for the digital economy. Not only will this address political discontent but it will also help companies minimize talent scarcity.

Just as important, the public conversation needs to shift from one of problems to one of solutions. The environment in many markets today is highly charged, leading to finger-pointing at the wrong culprit. Immigration is often the scapegoat for societal ills, but the important thing to remember is that talent mobility is crucial for growth. Furthermore, with some many industrialized economies facing an aging workforce and limited population growth, the only way for them to sustain their economy is with workers from abroad.

As policy makers face growing anger among their electorate, they need to better explain what’s happening to their economies, employment and, ultimately, people’s lives. By focusing on the real dynamics taking place, political leader will be able to better focus on policy changes that will truly enrich those lives.