Automation is shifting demand for skills

Late in 2017, Alexandra Heath, Head of the Economic Analysis Branch, Reserve Bank of Australia (RBA), spoke at the Victorian Career Advisors conference on Skills for the Modern Workforce. Her address considered how demand for skills has changed over time, and that change seems to be accelerating with the emergence of robotics and artificial intelligence. Well not so fast, says Heath.

We’ve had substantial shifts in demand for skills for a long time. She presents data that shows employment in industry sectors since 1900. In that year agriculture accounted for about 25 per cent of the Australian workforce, as it did in the early 1930s. The long decline set in and today it employs about 3-4 per cent of the workforce.

Services sector jobs are an increasing share of the labour market

Where demand for skills has accelerated is in the services sector of the economy, and that steady increase has been on since 1900. Back then, the services sector employed about 43 per cent of Australians, and today it’s close to 80 per cent. Heath explains most employment growth since the 1990s has come from ‘non-routine cognitive’ jobs, and to a lesser extent from ‘non-routine manual’ jobs.

Heath said:

‘…non-routine cognitive jobs [are] found across the economy in a range sectors including healthcare, education and professional business services, such as IT and consulting. Over the past decade or so, non-routine manual jobs have also made a significant contribution to employment growth. This trend has been particularly apparent in the health care sector and has been much more important for female employment than male employment.’

The change is global

These changes are global rather than local, though the local impacts differ depending on how jobs in a nation or region are distributed across the skills profile. At about the same time Heath was talking to Victorian careers advisors, consulting firm McKinsey and Company released Jobs lost, jobs gained: Workforce transitions in a time of automation (full report, 160 pages; summary, 28 pages).

For a range of countries, McKinsey’s makes studied estimates on the percentage of work activities automation will displace from 2016 to 2030. Just under a quarter of all Australian jobs will cease to be – similar to most developed economies

Increased emphasis on retraining the existing workforce

It seems strange then that McKinsey also found, despite these shifts, most developed countries (members of the Organization for Economic Cooperation and Development) now spend less on worker training than they did 20 years, including Australia.

One reason spending less on training seems strange is that while jobs will disappear, new jobs will replace them.

In 2016, another global consulting firm, BCG, investigated how quickly the private sector was adopting ‘new digital industrial technologies that are collectively known as Industry 4.0.’ BCG surveyed more than 600 managers and executives in German and US companies. About 40% of German companies and 35% of US companies regarded lack of qualified employees as a major (‘big’ or ‘very big’) challenge.

As McKinsey puts it:

‘Midcareer retraining will become ever more important as the skill mix needed for a successful career changes… Business can take a lead in some areas, including with on-the-job training and providing opportunities to workers to upgrade their skills, both through in-house training and partnerships with education providers.’