THE CHANGING NATURE OF WORK.

• Author: Djankov, Simeon

Karel Capek, the Czech writer who invented the word "robot" in 1920, used the Slavic-language word for work, robota, to make it clear what these machines would be used for. Over the last century, machines have replaced workers in many tasks. On balance, however, technology has created more jobs than it has displaced. Technological progress has transformed living standards. Life expectancy has gone up; basic health care and education are widespread; and most people have seen their incomes rise. And yet, fears of robot-induced unemployment have dominated the discussion over the future of work. The World Development Report 2019 finds that on balance, such concerns appear to be unfounded.

As technology advances, firms adopt new methods of production, markets expand, and societies evolve. Firms rely on new technologies to better use capital, overcome information barriers, outsource, and innovate. New technologies allow for more efficient management of the operations of firms: firms hire workers in one location to produce parts, in another location to assemble, and in a third location to sell. Meanwhile, the net result is consumers enjoy a wider range of products at lower prices.

The future of work will be driven by the competing forces of automation and innovation, the other "AI." Technological progress enables firms to automate, replacing labor with machines in production, and to innovate, expanding the number of sectors, tasks, and products. The pace of innovation will determine whether new jobs or tasks emerge to counterbalance the decline of old, routine-based jobs. Recent evidence for Europe suggests that while technology replaces some workers, overall it raises labor demand. Overall, technological advances are attributed to replacing routine work, and these advances created an estimated more than 23 million jobs across Europe from 1999 to 2016. (2)

As technology creates jobs, it disrupts the demand for skills. Occupations involving non-cognitive, routine tasks are most susceptible to automation and demand for those skills is declining. (3) Evidence across low- to high-income countries suggests that jobs are increasingly defined by more cognitive, analytical tasks, as well as sociobehavioral skills such as relationship management. For the most part, automation has lagged behind in replicating these skills to compete with workers. Since 2001, the share of jobs in occupations that are intensive in nonroutine cognitive and sociobehavioral skills has increased from 19 to 23 percent in emerging economies and from 33 to 41 percent in advanced economies. (4) Simultaneously, demand is growing for transferable higher-order cognitive skills including logic, critical thinking, complex problem solving, and reasoning.

Despite the opportunities technology offers, its effects are not manifesting equally across the globe. Workers in some sectors have greatly benefitted from technological progress, whereas those in others have been displaced and must adapt. The greatest challenge for emerging economies, irrespective of technological progress, continues to be persistent informality. Informal employment remains greater than 70 percent in Sub-Saharan Africa, 60 percent in South Asia, and more than 50 percent in Latin America. (5)

This changing nature of work requires a new social contract centered around both robust investments in human capital and universal social protection. Investing in human capital and lifelong learning is the priority to make the most of this evolving economic opportunity. Enhanced social protection, regardless of the form of labor contract, must be taken into consideration. Social inclusion for all workers is important, regardless of how or where they work. To fund human capital investments, governments must reconsider their fiscal policies and priorities. Many developing countries lack financial capacity due to inadequate tax bases, large informal sectors, and inefficient administrative practices.

The Changing Nature of Work

Technology has driven a fundamental shift in the nature of firms

Historically, firms have operated within distinctive boundaries. Free trade agreements and improved infrastructure have reduced the cost of cross-border trade, allowing transactions to occur wherever costs are lower. (6) With new technologies reducing communication costs, firms are less vertically integrated, which enables managers to outsource more tasks to the market.

Digital technology enables firms to innovate and quickly scale, challenging traditional production patterns and blurring boundaries. New business models, including digital-platform firms, evolve rapidly from local startups to become global behemoths, often with few employees and tangible assets, or "scale without mass." (7) Moreover, some companies are even creating new markets. For example, JD.com, China's second-largest e-commerce company, has more than 170,000 online merchants on its platform, many in rural areas. This creates jobs. The rise of digital-platform marketplaces allows the impact of technology to reach more people, faster, than ever before. This capacity brought economic opportunity to millions who live outside of industrialized countries or industrial areas in the developing world.

Large firms driving economic growth is not new. These firms increase aggregate productivity through upgrading internal capabilities to become more efficient, thus driving out unproductive competitors. These firms are at the forefront of adopting new technologies and achieve economies of scale that benefit the consumers with goods and services at lower prices. Of the world's companies, 10 percent are estimated to generate 80 percent of all profits. However, the advent of digital platforms has changed how this phenomenon unfolds. The digital economy has enabled firms to grow at a greater rate than those 20 years ago. Digital platforms are replacing brick-and-mortar malls, connecting shoppers with different brand stores, creating efficiencies for brands, and generating revenue for platform owners. (8) Additionally, data gathered through platforms are leveraged to improve firm efficiency, at times in markets other than those from which the data were collected in the first place.

While the rise of large firms produces many benefits, there is also much to consider with caution. Notably, digital markets provide new opportunities for firms to stifle their competition, and the risk of market concentration increases in a world with few large firms. U.S. economist Sherwin Rosen, who introduced the concept of superstar firms in 1981, predicted that technology would allow firms to expand markets or crowd out the competition more easily. In many markets, this prediction has proven to be true. Technology has allowed some companies to rise quickly, while preventing others from rising at all. In the digital economy, network effects often benefit early adopters of technology, facilitating the emergence of monopolies.

Globally integrated firms, particularly in the digital economy, create new challenges for taxation. It is increasingly difficult to determine where value is created when businesses create value by combining networks of users, ideas, and production across borders. Taking advantage of international value creation, firms are better able to divert profits to lower tax jurisdictions. Meanwhile, countries could take unilateral steps by extending value-added tax regimes or creating new taxes for the digital economy. Yet, it is difficult to collect taxes on intangible assets, notably user data.

Technology is shaping jobs and changing the skills being rewarded in the labor-market

Robot density per worker in 2018 is the highest in Germany, Korea, and Singapore. In all of these countries, despite the high prevalence of robots, the employment rate remains high. (9) Technology generates employment in a variety of direct and indirect ways. Improvements in transcontinental communications technologies, coupled with the fall in transportation costs, have expanded global value chains toward East Asia, creating jobs in new markets. In China, rural micro "e-tailers" began to emerge in 2009 on Taobao.com Marketplace. Owned by Alibaba, it is one of the largest online retail platforms in China. These clusters of "Taobao Villages" spread fast, from just three in 2009 to 2,118 across 28 provinces in 2017.

Technology also creates jobs through online work or through the gig economy. More widespread access to digital infrastructure--via laptops, tablets, and smartphones--provides an enabling environment in which on-demand services can thrive. The nature of work in the gig economy ranges from grocery delivery and driving services to more sophisticated tasks including accounting, editing, and music production. Bangladesh contributes 15 percent to the global online labor pool with more than 650,000 freelance workers in the gig economy.

Despite the opportunities created by technology, some workers are replaced during the adoption of new advancements. Workers involved in routine tasks that are "codifiable" are the most...