A government blueprint to adapt the ecosystem to the future of work

In the coming years, automation will have a substantial economic and social impact on countries around the world—and governments will by no means be passive observers. This report seeks to provide government leaders and policy makers with the foundation to harness the potential of automation while mitigating its adverse effects.

Automation can be a positive disruption that improves everyone’s lives

Automation has the potential to alter nearly every facet of work and daily life. Indeed, automation, digital, and artificial intelligence (AI) technologies are already essential to our professional and civic lives. The McKinsey Global Institute identified the adoption of digital technologies as the biggest factor in future economic growth1Solving the productivity puzzle,” McKinsey Global Institute, February 2018; “Can long-term global growth be saved?,” McKinsey Global Institute, January 2015; and “Testing the resilience of Europe’s inclusive growth model,” McKinsey Global Institute, December 2018.: it will likely account for about 60 percent of potential productivity growth by 2030. AI alone is expected to yield an additional 1.2 percent in productivity growth per year from 2017 to 2030.

Promoting the adoption of automation is critical because many countries will need to more than double their productivity growth to simply sustain historic economic growth rates. In this context, the productivity boost from automation is necessary to avoid the negative consequences of stagnating economies, such as lower income growth, increasing inequality, and difficulty for corporations and households to repay loans.

Three challenges stand in the way of this opportunity

While automation has the potential to boost economic growth, it poses some key challenges to the nature of work. The public senses this shift. In a recent survey of 100,000 citizens in 29 countries, we found that job security was the number-one economic priority for the future. Our analysis has identified three challenges associated with automation.

Shifting skill requirements. The path toward sustained prosperity requires a growing number of talented individuals to enable a broad adoption of digital and AI technologies as well as a broad-based workforce capable of operating in a more automated and digital environment. Without addressing this skill demand, technology adoption could slow, and people with obsolete skills could exit the labor force.

The adoption of digital and AI technologies will also require most workers to upskill or reskill. Up to 14 percent of people globally may need to change occupations by 2030, a figure that could climb to more than 30 percent in more advanced economies with a faster pace of automation. However, reskilling is hard to do well at scale, and efforts to date have produced mixed outcomes.

Rising inequality. The trend of increasing inequality within countries has been visible for decades now. Most studies on the impact of further automation and AI on inequality expect increased polarization. And if income growth is concentrated among high earners with a very low marginal propensity to consume, aggregate demand could stagnate and drag down both business investments and job creation, resulting in a period of secular stagnation.

Backlash against technology. Concerns over shrinking job security and growing inequality have already led some governments to take measures to slow the pace of automation. Scaling back investment incentives and hindering the rise of platform-based business models exemplify this trend. But hostility toward automation would significantly impede productivity and prosperity growth.

Governments have an opportunity to enable the adoption of technology and automation while ensuring everyone benefits.

A blueprint for governments to manage the transition to automation

Since automation will have seismic impact on society and the economy, governments have an important role to play in four areas: developing a national technology-adoption strategy, reforming the human-capital development system, strengthening social protection systems to ensure universal benefits from automation, and convening and mobilizing all stakeholders to play their part in the future of work transition (exhibit).

A blueprint can help governments achieve a smooth Future of work transition.

Defining a national strategy to enable technology adoption. Most technology-driven productivity growth is linked to digital technologies, with several applications enabled by AI. It is unsurprising that many governments have created digital economy strategies, AI country strategies, or both. In developing such strategies, governments can consider policies to encourage existing businesses in conventional industries to adopt digital and AI technologies and ecosystem players to seek out new growth areas. In addition, governments can support the development and improvement of next-generation digital and AI technologies.

Six catalysts can accelerate impact: ample incentives; thriving innovation ecosystems; AI and digital talent; a balanced regulatory environment; digital infrastructure, including data collection and sharing; and supportive government institutions and councils.

Reforming the human-capital development system. Workers can expect their jobs to constantly change because of automation, and many might have to switch occupations several times in their working lives. This pattern means education will progressively be a lifelong endeavor, requiring significant redevelopment of human capital. Regardless of whether a country’s education providers are primarily private or public, governments are responsible for designing and coordinating the transition, and many have embarked on paths to reform.

Governments, especially those in Northern Europe, have increased access to high-quality early childhood education, as this is the best time to nurture mind-sets and metaskills. Primary and secondary education systems are rethinking their curricula as well as the roles of teachers while capturing opportunities for personalized learning. In addition, governments could manage the urgent, ongoing reform of postsecondary education and adult learning by establishing employer partnerships, offering employers incentives to provide on-the-job training, and financing citizens’ lifelong learning. Last, to improve educational and labor outcomes, governments can use data and analytics to measure progress, shift toward outcome-based funding, and reinforce the midcareer training ecosystem.

Future of work

Future of Work

Rethinking social protection systems. Reforms to social protection systems would have to achieve several overarching objectives, such as closing the gap between the growth in productivity and the median wage, increasing the portability of social protection benefits (both between jobs and between forms of employment), and providing more support to those not benefitting from automation.

While it is necessary to balance workers’ skills with employers’ needs, closing the skills gap is insufficient on its own to grow real median wages and protect independent and displaced workers. One of the challenges of social protection reforms is that they occupy the very fine line between economic and political or ideological reform. Governments have been adopting and sometimes experimenting with multiple strategies with the objectives of helping wages grow along with productivity, extending protection to nonstandard employment, and offering greater protection for low-income workers and those who are unemployed.

Convening and mobilizing society on a future of work road map. Several governments are bringing multiple stakeholders together, creating a dialogue with the aim of understanding the future of work and obtaining alignment on how to move forward. Denmark and Singapore have been at the forefront of these efforts. Multipartite national debates are even more important, considering that the future of work will have a different impact depending on national, cultural, and economic circumstances.

However, simply convening stakeholders will not be enough. A key challenge to governments will be the coordination among multiple ministries, often with different agendas, each of which sees only one side of the future of work polygon. To gain a shared understanding of automation, some governments have opted for cross-ministry institutional arrangements, with an oversight or operational capacity—or sometimes even both.

The coming technologies will bring major discord in areas such as work, economies, and societal well-being. This report provides an overall blueprint with examples of how some governments are creating opportunities, minimizing social disruptions, and propelling their nations forward.

Download the full report on which this article is based, A government blueprint to adapt the ecosystem to automation and the Future of Work (PDF-897KB).

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