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GOING DIGITAL IMPLICATIONS FOR PRODUCTIVITY AND JOBS Research Institute for Economy, Trade and Industry, Tokyo, 7 March 2018 dirk.pilat@oecd.org

Outline 1. The Digital Transformation 2. OECD Going Digital Project The project 3. Some preliminary insights on productivity 4. Jobs and skills 5. Some conclusions 2

1. We are in a new phase of the digital transformation, Quarterly shipping trends of smartphones, 2010-13 Millions Smartphones Other mobile phones 350 300 250 200 150 100 50 0 2013 NBC News, St Peter s Square: http://instagram.com/p/w2fcksr9-e/ and OECD Broadband Portal 3

with a wide range of new digital technologies emerging Big data Cloud computing Internet of Things Blockchain Artificial intelligence 3D printing 4

, that provide opportunities for all parts of the economy Public Admin. Health Retail Agriculture Transportation Science & Education Manufacturing 5

2. Digitalisation has been on the OECD s agenda for some time e.g. Ministerial Conference in Cancun, June 2016 6

But we need a more strategic and pro-active approach to digitalisation Critical thresholds have been crossed Shift from an economic focus to socio-economic; all sectors of the economy are now affected Huge potential for better services and better lives But realisation that digitally induced change will be disruptive for many people, firms and sectors. In many countries, a gap between Technology (4.0), and Policy (1.5 or 2.0) 7

OECD Going Digital Project, Horizontal initiative across the OECD (involving all key policy areas), mandated by Ministers, to: 1. Understand the digital transformation and its impacts on the economy and society; 2. Provide policy makers with the tools needed to develop a pro-active, whole-of-government policy response; 3. Help overcome the gap between technology and policy development. 8

based on an integrated policy framework 9

, work across the OECD focused on the main policy questions Over 80 projects, including more than 70 reports and 15 workshops Projects reflect the range of policy domains participating in the project, e.g.: Transport Energy Competition Tax Labour & Skills And many others Digital Economy 10

and in-depth work on some key policy questions Jobs, skills and the nature of work Productivity, competition & market openness Well-being & inclusion Measurement 11

3. Productivity growth has slowed down in much of the world Annualised growth of labour productivity (output per person employed) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1990-2000 2000-2007 2007-2016 Source: OECD estimations based on Conference Board, Total Economy Database, Regional Aggregates, May 2017. 12

The slowdown has ignited a spirited debate T-Pessimists: Gordon Cowen Thiel T-Optimists: Brynjolfsson McAfee Mokyr Jovanovic 13

Despite the slowdown, the most productive firms still manage rapid productivity growth The productivity gap between the globally most productive firms and other firms has widened Note: Frontier firms is the average labour productivity (value added per worker) of the 100 or 5% globally most productive firms in each two-digit industry. Non-frontier firms is the average of all firms, except the 5% globally most productive firms. Source: OECD preliminary results based on Andrews, D., C. Criscuolo and P. Gal (2016), Mind the Gap: Productivity Divergence between the Global Frontier and Laggard Firms, OECD Productivity Working Papers, forthcoming; Orbis database of Bureau van Dijk. 14

While most firms are connected, but few make effective use of advanced ICT Diffusion of selected ICT tools and activities in enterprises, OECD countries, 2010 and 2016 As a percentage of enterprises in each employment size class % 100 Japan Average Highest country Lowest country 80 60 40 20 0 2010 2016 2010 2016 2010 2015 2010 2015 2010 2016 2010 2016 2010 2015 2010 2016 2009 2014 Broadband E-purchases ERP CRM Cloud computing E-sales Supply chain mngt. (ADE) Big data RFID Source: OECD Science, Technology and Industry Scoreboard 2017, StatLink: http://dx.doi.org/10.1787/888933619600 15 15

and SMEs are lagging, even in technologies well suited to them Enterprises using cloud computing services, by firm size, 2016 As a percentage of enterprises in each employment size class % All enterprises 10-49 50-249 250+ 100 80 60 40 20 0 Source: OECD Digital Economy Outlook 2017, StatLink: http://dx.doi.org/10.1787/888933585495 16

There are also still large differences in digital intensity by industry Taxonomy of sectors by quartile of digital intensity, 2013-15 Bottom 2nd quartile 3rd quartile Top quartile Not available Software ICT tangible Intermediate Intermediate Online sales ICT Robot use investment investment ICT goods ICT services revenue specialists Agric ulture -1.2-1.1-1.0-0.7-0.8-0.4 Mining -1.1-1.1 0.1-0.4-0.7-0.3 Food products -0.5-0.7-0.8-0.5-0.1 2.6-0.3 Chemicals -0.6-0.6-0.5-0.3-0.5 0.6 0.0 Pharmaceuticals -0.7-0.7-0.5-0.3-0.5 0.6 0.0 Basic metals -0.4-0.6-0.3-0.4 0.3-0.2-0.3 Computers and electronics 0.0-0.8 0.2 0.8 0.0 0.9 Electrical equipment -0.2-0.6-0.2 0.8 0.6-0.1 Machinery -0.1-0.2-0.3-0.1 0.6-0.2 Transport equipment -0.4-0.6-0.1 3.3 1.8 0.0 Electricity, gas and steam -0.8-0.6-0.8-0.3-0.8-0.2-0.1 Construction -0.6-0.1 0.2-0.6-0.8-1.6-0.4 Wholesale and retail 0.6 0.4 0.0-0.1 0.2-0.3 Transport services -0.7-0.6-0.8-0.4 1.3-0.3 Hotels and food services -0.6 0.0-0.8-0.5-0.2-0.4 Publishing and broadcasting 1.5 1.3-0.3 0.0-0.3-0.2 Telecommunications 0.9 3.4 3.5 0.9 1.0 0.0 IT services 2.5 2.2 1.1 5.4-0.9 5.7 Finance and insurance 2.9 1.5-0.6 0.9 0.3 Real estate -0.9-0.8-1.2-0.7-1.4-0.3 Law and accountancy services 1.8 1.2 0.5 0.4-1.3-0.2 Public admin and defense -0.5-0.7 0.1 0.3 0.0 Education -0.4-0.4-0.8-0.3-0.2 Health services -0.6 0.1 0.2-0.5-0.3 Source: OECD, OECD Science, Technology and Industry Scoreboard 2017, OECD Publishing, Paris. 17

Some thoughts on the future of productivity The diffusion of advanced digital technologies (e.g. big data, robotics, AI) in OECD countries is still underway it will take time, especially for SMEs, and for certain sectors. It s never just about technology diffusion changes in organisations, business models, worker s skills and processes will take even more time. The impacts of digital technologies will also require much structural change within industries, as digitally-intensive firms grow and less digitally-intensive firms decline. Policy can help, e.g. by fostering investment and technology diffusion, strengthening skills, facilitating structural change, and ensuring sound competition. 18

4. Jobs: The 3 mega-trends '000 of units 600 500 400 300 200 100 Technology is changing the workplace Estimated worldwide annual supply of industrial robots Populations are ageing Old-age dependency ratio 65+/(15-64) OECD average 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 The world has become more integrated Share of business sector jobs sustained by consumers in foreign 50% markets 40% 30% 20% 10% 0% 2015 2050 19

Labour markets are changing Jobs are at risk of automation New forms of work are emerging Significant change High risk Labour markets are polarising Inequality is rising 6 4 Percentage point change in share of total employment (OECD average), 1995 to 2015 7x Richest 10% v. poorest 10% 9x 2 0-2 -4-6 -8 High skill Middle skill Low skill 25 years ago Now 20

New OECD estimates suggest that the risk of automation is (likely) smaller than thought SHARE OF JOBS AT SIGNIFICANT RISK (50-70%) AND OF HIGH RISK (>70%) OF AUTOMATION, BY COUNTRY, % 70 60 50 40 30 20 10 0 Source: OECD, forthcoming. 21

and history suggests new jobs will emerge too, complementary to digital technologies Source: Wall Street Journal, Workers, fear not the Apocalypse, 5 September 2017 22

But there is a polarisation in skill demands Job polarisation in major OECD economies, 2002-14 Percentage points changes in employment shares by occupation p.p 12 9 6 3 0-3 -6-9 -12 5.4 European Union 3.4 High Medium - non routine -8.9 Medium - routine 0.1 Low p.p 12 9 6 3 0-3 -6-9 -12 0.9 Japan 2.7 High Medium - non routine -4.5 Medium - routine 1.0 Low p.p 12 9 6 3 0-3 -6-9 -12 7.2 United States -0.7 High Medium - non routine -9.5 Medium - routine 3.0 Low Source: OECD estimates based on EU-LFS, Japanese Labour Force Survey, BLS Current Population Survey. 23

and new skills that will be needed, Individuals who judge their computer skills to be sufficient if they were to apply for a new job within a year, 2013 (as a percentage of all individuals) % 90 All Individuals Individuals with high formal education Individuals with no or low formal education 80 70 60 50 40 30 20 10 0 Source: OECD Measuring the Digital Economy: A New Perspective, 2014, http://dx.doi.org/10.1787/888933148354. 24

as too few have the skills for a technologyrich environment % 40 Workers using office productivity software at work every day As a percentage of total population All users Of which users with insufficient ICT skills 30 20 10 0 Source: OECD Digital Economy Outlook 2017, StatLink: http://dx.doi.org/10.1787/888933585951 25

In the era of AI, the risk of automation is highest for low-skilled low-paid workers Highest risk in routine jobs with low skill and education requirement BUT low risk applies to a broad range from professionals to social workers Automation mostly affects manufacturing industry and agriculture BUT some service sectors are highly automatable too. The risk of automation falls monotonically with hourly wages The risk of automation also falls with educational attainment No evidence of polarisation or rising risk at the high end: automation risk declines with skills, education and hourly wages Young people are the most at risk of automation, followed by older workers, with disappearing student jobs and entry positions. 26

Older workers face a particular challenge Share of 25-34 and 55-64 year-olds performing at Level 2 or 3 in Problem Solving in Technology-Rich Environments, 2012 Source: OECD (2015e), Survey of Adult Skills (PIAAC) (2015). 27

There may also be gender differences in the impact of automation The average risk of automation varies by industry, with gender impacts 20 industries with the greatest number of jobs at risk (29 OECD countries/regions) Source: OECD Secretariat calculations based on the Survey of Adult Skills (PIAAC, 2012, 2015) and Arntz et al. (2016). 28

Not all workers have the foundations to easily continue learning The proportion of low performers in literacy and/or numeracy, workers % In both literacy and numeracy In literacy only In numeracy only 70 60 50 40 30 20 10 Many workers 0 lacking ICT skills Few high-skilled workers Source: OECD calculations based on the Survey of Adult Skills (PIAAC) (2012 and 2015), www.oecd.org/skills/piaac/publicdataandanalysis. 29

and those most in need often receive the least training Percent of working population participating in job-related education and training during the last year by level of proficiency in literacy 80 Below level 1 Level 1 Level 2 Level 3 Level 4/5 60 40 20 0 United States England/N. Ireland (UK) Canada Australia Estonia Japan Germany Spain Italy Source: OECD (2013), OECD Skills Outlook 2013: First Results from the Survey of Adult Skills, OECD Publishing. 30

DIGITALISATION ALSO CHANGES THE NATURE OF JOBS 65 55 45 35 25 15 Share of non-routine employment and ICT task intensity, 2012 or 2015 Correlation of average industry values in manufacturing Non-routine employment (%) 75 TUR LTU SVK EST GRC Manufacturing industries CHL KOR JPN AUT BEL FRA CAN USA AUS CZE IRL ITA DEU SWE SVN POL ESP 30 35 40 45 50 55 60 65 70 Economies where workers use ICT more intensively at work are also characterised by a higher share of non-routine jobs. These jobs entail the performance of relatively more complex tasks that cannot be easily codified or sequenced Source: OECD Science, Technology and Industry Scoreboard 2017, StatLink: http://dx.doi.org/10.1787/888933617586 ISR NZL SGP FIN GBR NLD DNK NOR β = 1.32*** ICT task intensity 31

Key issues for policy Skills. Lifelong learning: from rhetoric to reality. Regulation. Balancing flexibility with security. Social protection. Repairing or replacing the safety net? Social dialogue. Rebuilding or reinventing? 32

5. Next on the Going Digital Project Interim report for OECD Ministerial (30-31 May) under development Wide range of stand-alone policy reports being prepared, e.g. on jobs, productivity, wellbeing, Final synthesis report at the end of the project high-level closing conference planned for 11-12 March 2019 Range of flagship reports that will focus on digitalisation and impacts on jobs and skills, e.g. 2019 OECD Employment Outlook and 2019 Skills Outlook Beyond the book: Roundtables and national discussions with policy makers and stakeholders to help countries develop more pro-active national digital strategies Work towards a Going Digital toolkit that will provide tools and good policy practices for the digital age OECD national reviews of digital transformation to come pilot reviews underway in Sweden and Colombia 33 33

Thank you Contact: dirk.pilat@oecd.org Twitter: @OECDinnovation; @PilatSTI OECD Going Digital website: http://www.oecd.org/going-digital Sign up to our newsletter: www.oecd.org/sti/news.htm 34 34