March 2019:

Automation and the Future of Work

Digitization and automation will displace some workers, create new jobs, and encourage reskilling in industries like retail, logistics, manufacturing, and construction.

Automation’s impact on the job market has been and will continue to be significant, to say the least. Forrester Research calls automation central to the next phase of digital transformation, because it’s driving value in terms of faster product delivery, better product quality and higher dependability, and more personalization and convenience. Alongside all the excitement about automation and the future of work, however, is fear about job displacement and, occasionally, a bit of fear-mongering as well. Certainly, the rhetoric surrounding automation can be a bit harsh—e.g., Robots will do your job better, faster, and for less money!

A 2017 Fast Company article entitled “Bet You Didn’t See This Coming: 10 Jobs That Will Be Replaced By Robots” said the “specter of automation” looms for jobs ranging from insurance underwriters and financial analysts to construction workers, farmers, journalists, and even movie stars.

Those in manufacturing and the legal field, as well as accountants, bank tellers, taxi drivers, and many others have read about how robots and AI (artificial intelligence) might someday snatch away their livelihoods. In truth, automation will displace some human workers, but it will benefit human workers too. For instance, applying automation and other technologies could allow people to stay in the workplace longer, if they so choose.

Forrester takes a cautious and balanced approach to its predictions related to automation and the future of work. Its research suggests 10% of jobs will be lost to automation, but 3% will be created. In the 21st century, automation, the IoT (Internet of Things), and technology in general will shift how work is done and even what types of work needs to be done, but this won’t be the first-time technological innovation has done so. As economists often preach, technological progress has two effects on employment—the displacement effect and the productivity effect. So, while automation taketh away, it also giveth.

A key implication of digitization, automation, and AI in the next several decades will be the need to reskill and retrain workers, especially those midcareer individuals in industries likely to be most impacted by automation. In industries such as retail, logistics, manufacturing, and construction, companies should start considering now how the age of automation and various skills gaps will shift the future of work in their industries.

Transcription

02.19.19 | Episode 602

Technology Is Evolutionary

Peggy and Tom Wheeler, visiting fellow, Brookings Institute, and book author, From Gutenberg to Google, The History of Our Future, talk about how technology is evolutionary.

Shifts in Occupational Utilization

For the decade between 2016 and 2026, the U.S. BLS (Bureau of Labor Statistics) predicts continued slow labor force growth and moderate economic growth. Automation will be an important force affecting occupational utilization, but it’s one of several forces. “Automation is just one factor that will affect the future demand for workers across industries and occupations,” say Francisco Velez and Teri Morisi, economists for the BLS Division of Occupational Employment Projections. “Other factors that are projected to affect occupational demand include changes in business practices, organizational restructuring, offshoring, and outsourcing.”

Just how big of a factor will automation be? Cristian deRitis, deputy chief economist for Moody’s Analytics, says it depends. “First, we need to consider the time horizon,” deRitis says. “The impact of new technologies tends to be overstated in the short term and understated in the long term. This time will be no different, as it takes time for both employers and employees to adapt to new technologies. Employers need to change their processes and business models. Employees often need training or new skills to fully leverage new technologies. Once we reach a tipping point, then adoption will spread quickly and more broadly than anticipated.

Second, we need to consider the impact of technology in combination with other trends in the economy, such as demographics and globalization. With lower birth rates and an aging population, automation may actually allow individuals to remain in the labor force rather than being forced out prematurely due to technology. We already see some evidence of this in Japan where robots complement workers and exoskeletons allow workers to perform physical labor for longer.”

Although automation will cause shifts in the demand for workers and the skills demanded, deRitis makes a point to say the effects will not be purely substitutional. “The big fear is that automation will replace all existing jobs,” he explains. “These same fears arose with the inventions of the steam engine, the internal combustion engine, the telephone, and the personal computer. If previous technology cycles are any indication, automation will complement human workers and create more jobs than it replaces in the long run. The pace of change may be different this time, but, ultimately, entrepreneurs will find ways to combine human skills with automation to create new products and services.”

What types of jobs will be created to replace those lost to automation? New jobs may emphasize uniquely human skills, such as creativity, problem solving, adaptability, and judgment and may include occupations in the realms of healthcare as societies age, energy in order to address climate challenges, and technology and infrastructure. “Automation can replace routine, repeatable tasks but has a hard time dealing with new or unique situations,” says deRitis. “Demand for individuals with technology-producing skills like computer programming, machine learning, AI development, 3D printing, nanotechnology, genetic engineering, etc., will remain high.”

6 of 10 current occupations have more than 30% of activities that are technically automatable.

Source: Bureau of Labor Statistics

McKinsey Global Institute likens the expected shift in occupational utilization due to automation in the 21st century to the historical shift out of agriculture to manufacturing in the early 20th century in North America. Perhaps unique to this century’s expected shift is the speed at which the workforce will need to transition to keep up with the digitization of industries. In other words, what took place over the course of many decades before may happen more quickly this time around.

Workforce transitions may include changing educational requirements for jobs, new demanded skill sets for jobs, or the need for workers to switch occupations altogether. Expanding on this last category, McKinsey’s research suggests 75-375 million people may need to switch occupational categories by 2030 thanks to the rapid adoption of automation. For those who stay in their fields, the priority will be reskilling or retraining to adapt to new conditions.

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Industry Drilldowns

Reskilling the workforce comes in two flavors—short term and long term. Consider a scenario in which a self-checkout machine replaces a cashier at a grocery store. The cashier will need to develop new skills to adapt to shifting demands in the labor force. “The time investment in this reskilling may be short in duration and represent a tangential shift in job duties,” deRitis says. “Continuing the example, the displaced cashier may learn to use the store’s inventory-management system to keep store shelves stocked while minimizing losses.”

In the long run, the entire workforce will need to be reskilled in order to adapt to broader shifts in labor demand. “Younger individuals will need to develop a different set of skills than their predecessors,” deRitis adds. “This will take time and evolve as the shape of automation evolves. Just as the move from farms to factories led to an expansion of high school graduation rates, continued automation will push the younger population to learn a different set of skills than those of their parents or grandparents.”

Panera Bread presents a valuable case study in the retail and food-service sector. The company launched its Panera 2.0 program in 2014, which included Fast Lane Kiosks—kiosks offering customers the ability to order digitally instead of by talking to a cashier.

The restaurant chain now employs fewer cashiers per restaurant, but it has beefed up its table service and delivery options instead. The result has been speeding up service and reducing opportunities for human error by automating the order input process. Several fast-food chains are now also implementing self-serve kiosks with plans to reskill cashiers to other areas of operations.

Predictably, industries with highly repeatable processes are most susceptible to job displacement due to automation. For instance, automation is taking hold in logistics, dramatically improving operations and drastically reducing the workforce requirements for running a warehouse. It’s also making an impact where processes are complicated and prone to human error. In fleet management, automation can help fleet managers keep track of fleet vehicles more effectively and efficiently than human workers, even if all of a human worker’s time is dedicated to the monumental task. In these sectors and others, employees must take on new roles that can’t be done by robots or automation software.

2.69M jobs open from retirements
1.96M new jobs due to natural growth.

Source: BLS Data, OEM (Oxford Economics Model), Deloitte and Manufacturing Institute skills research initiative

2.4M (53 out of 100) open positions lie vacant due to a skills shortage in the U.S. manufacturing industry.

Source: Deloitte, 2018 Global Human Capital Trends, March 28, 2018.

Manufacturing is basically the poster child for job displacement thanks to automation. “Automation impacts many industries, but manufacturing may be most impacted as robots and other machines replace some of the work typically done by workers,” says BLS’s Velez and Morisi. In fact, BLS’s research predicts a loss of 736,000 wage and salary jobs in manufacturing between 2016 and 2026, most likely due to automation. Those workers who remain will need to adapt—quickly. The change is happening so quickly that the industry is suffering from a skills shortage or “skills gap”.

A 2018 study from Deloitte and The Manufacturing Institute suggests most manufacturers believe the No.1 cause of the skills shortage in their industry is a shifting skill set due to the introduction of new advanced technology and automation. Manufacturing executives that participated in Deloitte’s survey stated the top five skill sets that will likely increase in the next three years are technology/computer skills, digital skills, programming skills for robots and automation, working with tools and technology, and critical thinking skills. In order to avoid worsening the skills gap in manufacturing as the aforementioned skills become more critical, manufacturers must start looking for ways to upskill and reskill their workers now.

Construction is also facing a skills gap, but in this case, it’s mostly due to baby boomer retirement. In response, construction firms are increasingly looking to adopt technologies and techniques that can help them do more with less. The rise of modular construction techniques for higher-end and multi-family projects is one example of how this trend is playing out. Automation is playing a role here too, just in a different way; instead of adding to the skills gap, for the most part, it’s helping the industry narrow the gap.

A growing number of US manufacturers are finding new ways to facilitate the human-machine integration

New workforce
architectures

0%
Redesigning work around automation

Retraining
people

0%
Retraining team for AI/robotics

Reorganization to
leverage technology

0%
Integrating big data into planning and decision-making
For the full results from this chart, see Deloitte report here.
Source: Deloitte, 2018 Global Human Capital Trends, March 28, 2018.

Steve Glenn, CEO of Plant Prefab, a manufacturer of custom single and multi-family homes, says if you look beyond U.S. borders to countries like Japan and Germany, prefabrication is highly automated, and this has major implications for construction costs. “(Japan and Germany) are both areas where labor rates have historically been much higher than ours, so I think the impact is dramatic there as a result,” Glenn says. “Construction costs in the U.S. have dramatically increased over the last decade/decade and a half—land costs, labor rates, material costs—so I think automation can have a very big impact here as well.”

Prefabrication allows construction companies to build offsite, often allowing them to build faster, for instance, by building components in parallel and avoiding weather delays typical on traditional job sites. Glenn says automation in prefab construction and in general will reduce the need for human workers in some roles, but it will simultaneously offer opportunities for human workers in other roles. “Until there are robots that can do everything, including the work that happens onsite, there will be lots of (human) workers involved,” he says. “To the extent that there’s more work going on, that should increase opportunities for people with skills, not decrease it.”

Technology can certainly play a role in solving skills gap-related problems, for instance, by allowing older workers to stay in the workforce longer while younger workers catch up, or by codifying older workers’ knowledge and skills into algorithms and facilitating the transfer of knowledge. “To the extent that younger workers shun certain occupations, the economic incentive to automate those occupations will only increase,” explains Moody’s Analytics’ deRitis. “For example, there is a concern among some homebuilders that many younger workers don’t want to work in construction. As a result, we are likely to see an increasing number of homes built with modular sections that can be built in factories leveraging automation and assembled onsite with a minimal amount of human labor.”

The fact that many industries are dealing with skills shortages and gaps in addition to adjusting to automation and other technology innovation underscores the difficulty in making firm economic predictions. However, the idea that automation is having and will continue to have far-reaching consequences in current and future job markets across industries and occupations is well accepted. Naturally, some industries will feel the effects of automation more than others, but economists, technologists, and futurists all seem to agree that automation technology will affect every existing industry in one way or another. And, while this reality is often wrapped in rhetoric that induces fear and shock, it’s important to spread the message that automation will bring many more possibilities to the table. In the process of eliminating some jobs, this technology will create unforeseen opportunities and, potentially, entirely new industries that will spawn even more opportunities. In the meantime, companies must prioritize reskilling, upskilling, and/or retraining to get existing workforces ready for their organizations’ future needs.

February 26, 2019

Sam George, director of Azure IoT, Microsoft, joins Peggy once again, this time to talk open source. He shares that one of the fundamental truths of the IoT (Internet of Things) is that it will transform virtually every market and business segment on the planet. Further, he says that open source is foundational for the IoT. He also talks security, standards, edge computing, digital twins, and more.

Guest Contributors