Technological change and increased longevity are not a good mix for pension funds and regulators need to act. Charlotte Moore looks at the options.
“Some commentators suggest this disruption will break our current job-creation economic model and a universal basic income will need to be introduced.”Tim Page, TUC
Economists agree globalisation has, on the whole, benefitted developed and developing nations. But this trend has had a negative impact on specific regions and particular groups of workers.
While society has seen globalisation improve the overall quality of life, certain regions, such as the rust belt of the US, saw their jobs disappear overseas and found it difficult to adapt to the changing economic environment.
Governments neglected the disproportionately negative impact of globalisation on certain populations and did not develop policies which would have helped to mitigate these effects.
Policy makers need to learn the lessons of globalisation quickly as we are on the cusp of two other trends which have the potential to cause much greater disruption: technological change and increased longevity.
Tim Page, senior industrial policy officer at TUC, says: “There is a very real risk of governments repeating the same mistakes as they did under globalisation but with more significant consequences.” It’s easy to dismiss the impact of the next wave of technological disruption as we have already survived three major economic revolutions – industrial, electrification and automation.
Page says: “In each occasion more jobs were created than were lost.” The new jobs created, however, required a different skillset, he adds.
Calum Cooper, head of trustee consulting at Hymans Robertson, says: “Those who lost their jobs from the agricultural revolution found work in factories and those who were replaced by automation moved into the service sector.”
Laurent Clavel, head of macroeconomic research at AXA Investment Managers, agrees: “With each innovation there was an increase in productivity and economic growth was higher after this disruption.”
There are concerns, however, that this will not be the case with the introduction of artificial intelligence and the growth in robotics. Page says: “Some commentators suggest this disruption will break our current job-creation economic model and a universal basic income will need to be introduced.”
Cooper says: “The question is whether those people who carrying out jobs which use repeatable processes can be re-skilled to work in a more creative manner.” It’s not clear that enough jobs can be created in these higher value areas to offset the number of jobs which will be lost, he adds.
The Frey and Osborne study of automation in 2013 predicted that 47% of US jobs were at high risk of automation within a decade or two. Page says: “While this is at the extreme end of negative projection, even more modest estimates suggest a significant proportion of the population will be affected.” This technological advance might cause many to lose their jobs but there will additional economic growth through heightened productivity. Cooper says: “Western democracies will become richer and there will be a challenge to distribute this wealth in a way that is both fair and sustainable.”
Divisions in societies could become more extreme – there could be far greater income wealth inequality. Page says: “Society could also be divided between those working ever longer hours and those not working at all.”
It’s likely these changes will have a greater impact on older rather than younger workers. Page says: “If workers lose their jobs at a later stage in life, it might be more difficult for them to re-skill and find new work.”
Keeping the state pension age at the current level could be one solution. “As robotics and artificial intelligence should boost economic productivity, there should be sufficient tax revenues to make this affordable,” adds Page.
But governments will need to tread carefully. Cooper says: “Setters of tax policy will need to be aware that if their tax regimes are too punitive, capital will move to a region with a more benign environment.”
Policy makers will also have to allocate more resources to ensuring the majority of those who lose their jobs can re-skill. Page says: “The best solution to the challenges presented by digitisation will be education.
“Those who are least likely to see their jobs at risk from automation are those with cognitive and problem-solving skills,” he adds. Governments will need to ensure a wider range of the population can develop these skills.
Cooper says: “There are three broad areas which will be immune from the impact of digitisation.” These are jobs which require social and emotional intelligence, unstructured dexterity as well as technological and artistic creativity.