Human capital development strategy

Kostas Mavromaras

Future of Employment and Skills Research Centre, University of Adelaide

Christopher Findlay

Australian National University and University of Adelaide

Presentation to the 3rd International Conference on Trade 2019 THE CHANGING GLOBAL TRADE ENVIRONMENT: RESPONSES AND STRATEGIES”.

Wednesday, 4 September 2019, Jakarta.

Purpose

Future of Employment and Skills Research Centre, The University of Adelaide Slide 2

To discuss a new human capital development strategy.

Why? Both trade and technology are driving important changes in labour markets.

Adjusting to those changes will be challenging.

Trade and the wage premium

The University of Adelaide Slide 3

The wage premium is the ration of skilled to unskilled wages.

This ratio has been rising in many countries.

Is trade a driver, is this expected?

Yes and No.

• Expected in developed countries, relatively well endowed with skilled labour (greater integration drives up the premium)

• But not expected in developing countries, relatively well endowed with unskilled labour.

Yet it is observed – in developed countries – and in some developing countries.

• Inequality more generally is worsening.

• In Indonesia – a fall then a rise in the premium

Explanation - developed

The University of Adelaide Slide 4

Attention goes to technological change.

Capital goods have become much cheaper so there is an incentive to deepen the use of capital.

But the new capital when put in place shifts the demand for labour to skilled workers.

• Routine jobs have become absorbed into the capital goods.

This technology is mobile – FDI, capital goods, people with skills (and students)

A technology shock sits on top of the trade effect in developed countries

• Reinforcing the trade effect

Explanation – developing

The University of Adelaide Slide 5

In developing countries it works in the opposite direction to the trade effect, offsetting it, and apparently more so in some countries.

But another question is why can’t producers in developing countries get away from this effect

• eg using more labour intensive techniques and continuing to compete.

One explanation is a GVC effect

• Labour intensive methods can’t meet the quality expectations of GVCs

• eg the precision required.

Trade vs technology

The University of Adelaide Slide 6

There are various studies of outcomes in labour markets in developed and developing countries

• various authors try to work out the relative importance of trade and technology.

They both matter

• both directly.

• Also jointly

• since trade embodies the technology and because of the GVC effect.

They are difficult to separate.

Blaming trade

The University of Adelaide Slide 7

Despite the argument that they both matter, trade (sometimes) get blamed for the inequality effects.

Why is that? Possibly because

- Some action is possible with respect to trade

- Technology is ‘good’

- The nature of the China shock not appreciated

- Also the technology + work story is not so widely studied.

Other types of adjustment

The University of Adelaide Slide 8

This story assumes that labour markets work quickly and the adjustment is taken up in prices, that is, relative wages.

However:

• there is likely to be friction as people search for new jobs.

• and the new jobs are different to the old jobs in this environment, so that search takes longer.

The outcome is unemployment and a mismatch of jobs to workers.

The response to a mismatch can be a fall in productivity.

So, a mix of a price response and a quantity mismatch is possible.

How serious is the latter?

Future of Work: The Views of the PECC 2018 – 2019

Survey Respondents

Future of Employment and Skills Research Centre, The University of Adelaide Slide 9

Our key interest is the emerging mismatch of skills in supply and demand.

SOTR 2018 – 2019 background information

o The survey covered the whole of the Asia-Pacific policy community

o The survey samples those whose views influence policymaking in the region, falling into three main categories: Government; Business; Non-government: (Research community/civil society/media).

o The presentation is aggregated by sub-regions – Northeast Asia, North America; Oceania; Pacific South America; Southeast Asia.

o Percentages reported refer to the percentage of respondents (n=529) with a specific response. Also the survey asks for expectations of change by 2030, mostly in broad categories. Hence percentages of change should be interpreted accordingly: they are long-term perceptions by an influential but non-representative sample.

o Every year the PECC survey focuses on a specific topic of regional interest. In 2018 - 2019 the focus was on the future of work, in view of technological change.

Expectations

of change by

sector

The impact of new technologies differs by sector

Advanced and emerging economies respondents replied in a similar manner

Future of Employment and Skills Research Centre, The University of Adelaide Slide 10

Figure 2.1: Impact of New Technologies on Jobs in Different Sectors of the Economy

Declining occupations

Future of Employment and Skills Research Centre, The University of Adelaide Slide 11

o Clerical Support Workers

o Personal services and sales workers (shopping sales assistant, waiters)

o Handicraft and Printing Workers

o Food Processing, Woodworking, Garment and Other Craft and Related Trades Workers (butchers, tailors)

o Plant and Machine Operators and Assemblers (including train engine drivers, car and other transport drivers, trucks, mobile and fixed plant operators, ship deck crews)

o Cleaners and Helpers

o Laborers in Mining, Construction, Manufacturing and Transport

o Food Preparation Assistants & Agricultural, Forestry and Fishery Laborers

o Street and Related Sales and Services Workers

Growing occupations

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o Science and Engineering Professionals

o Health Professionals (doctors, nurses, dentists)

o Information and Communications Technology Professionals

o Science and Engineering Associate Professionals

o Health Associate Professionals (eg medical and pharmaceutical technicians)

o Information and Communications Technicians

o Elderly care (Aged Care) workers

o Protective Services Workers (police, firemen, security guards)

Technological change and skills mismatch

by occupation

Future of Employment and Skills Research Centre, The University of Adelaide Slide 13

These results by sector generally match the results of studies which rank jobs (and then sectors) by the risk of replacement, according to the degree to which jobs are routine.

Critical skills shortages and surpluses

Future of Employment and Skills Research Centre, The University of Adelaide Slide 14

In an environment of intense change it is wise to look at alternative (more generic) definitions of skills (over and above those embedded in occupational classifications). The PECC SOTR combined the top 10 lists from the World Economic Forum 2016 and 2017…

Critical thinking Complex problem solving

Cognitive flexibility Judgement and decision making

Creativity Emotional intelligence

Active listening Negotiation

People management Coordinating with others

Quality control Service orientation

… and the PECC survey asked if there will be enough of these skills available to accommodate the expected needs by new technologies?

Critical skill shortages and surpluses

Future of Employment and Skills Research Centre, The University of Adelaide Slide 15

Will it be easy/difficult to hire by 2030? (EASY – DIFF); The answer is clearly problematic…

Figure 2.7: Critical skills shortages and surpluses

Source: PECC Survey on the State of the Region 2018

Managing change and displacement

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Three sets of national institutions are important for managing change, not just one.

o Education and training

o To build the new skills for the new jobs

o To handle the speed and depth of change and the different models of delivery

o Labour markets

o Ability to match

o Flexibility

o Social policy (incl. security)

o There will be those who will not make it

o Equity and the ethics of change

How prepared are national institutions in your economy?

How prepared are institutions for the change?

(Education/training; Labour markets; Social security)

Future of Employment and Skills Research Centre, The University of Adelaide Slide 17

% Not Prepared % Prepared

Figure 2.8: How prepared are system for

change? (Emerging Economies)

Figure 2.9: How prepared are system for

change? (Advanced Economies)

Are we faced with a Crisis?

Future of Employment and Skills Research Centre, The University of Adelaide Slide 18

o Digitalization and automation are changing many economic and social parameters and doing so very quickly – it does look like being a smooth transition.

o We keep discovering the unintended consequences of current technology.

o Even more uncertainty surrounds the outcomes of technologies that have not been designed as yet…

Core national institutions: tools for change

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o Education and training

o Labour markets

o Social policy (incl. security)

Education and Trade

The University of Adelaide Slide 20

In addition to national investment, there is scope to use international cooperation to support the strategy linked to education institutions.

Economies in the region share these issues so there is value in sharing experience in the design of the responses.

But also there are gains from trade in all its modes, including foreign investment in the education sector.

It adds capacity, but also it brings methods of education relevant to the building of skills important for the response to the challenges of technological change.

Education is often poorly committed in trade agreements – an important part of a national framework on education and skills is an open approach to trade and investment in this sector.

Crisis or Opportunity? The case of the

platform economy

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o What is a crisis for some may be an opportunity for others: take the platform economy as one example:

o The platform economy presents challenges in many advanced economies, e.g. with formal and secure employment being converted into gig work.

o In contrast the platform economy presents new opportunities for emerging economies, by providing pathways to reduce informal activityby increasing (social and economic) connectivity as the formal economy is helped to grow, by improving the position of youth and women.

Thus what may be a challenge for some advanced economies, can be an opportunity for emerging economies.

Value of an integrated approach

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o In practice, each of the three core national institutions is an integral part of the policy chain disrupted by technology.

o An integrated approach will allow fixing problems and weaknesses in a cost effective and balanced way.

o Our response will only be as strong as the weakest link of the policy chain.

Our proposal? Start the road to the 4th industrial revolution with a new human capital development strategy, based on a framework linking education/skills, work and social care, designed in the context of a digital and open economy.

Acknowledgements

The contents of this talk are informed by a project on the future of work,

supported by the Pacific Economic Cooperation Council (PECC), Google, and the

University of Adelaide. We thank Ed Pedrosa (PECC) and Tony Macri (Google)

for their support and inspiration and many valuable conversations.

Thanks go to the participants of the PECC annual conference (Singapore May

2018), the PIDS Annual conference participants and the DFAT staff (Manila Sept

2018) for their valuable comments.

All errors and opinions are ours.

Future of Employment and Skills Research Centre, The University of AdelaideSlide 23

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