The future of the labour market

25 May 2017 | Markets and Economy


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Global Macro Matters: Job seekers of the future may need entirely different skills from those of today. What are the career prospects for the millennial generation and their children? This discussion features Joe Davis, PhD, Vanguard global chief economist, Roger Aliaga-Díaz, PhD, Vanguard chief economist, Americas, and Jonathan Lemco, PhD, Vanguard senior investment analyst.

Lara de la Iglesia (moderator): Hi, I'm Lara de la Iglesia. Technological innovation is constantly changing the way we work. That means job seekers of the future might need an entirely different skill set to be successful.

To discuss what the labour force of the future might look like, I'm here today with three of Vanguard's top economists: Roger Aliaga-Díaz, Joe Davis and Jonathan Lemco. Thank you guys for being here.

Jonathan, I'm going to start with a question for you. It's certainly on my mind. What might the future look like for the average millennial worker, or let me take that two steps further, someone from "Generation Z" or the "Alpha Generation," which happens to be the children of millennials.

Jonathan Lemco (Vanguard senior investment analyst): Well, it's amazing to think about Generation Z, if that's what we're going to call it. But be that as it may, I think what we are going to see for all of these generations is a work environment in which change will be constant and where they will have to continue to upgrade their education throughout their working lives.

Technology is so powerful a force, and it promotes enough competition as well that the workers now and the workers of the future will continue to have to adapt to change. And I think we've been seeing these trends now for some time, certainly since the dot-com revolution, but it is moving at a pace that is extraordinary.

Social scientists teach us that the typical graduate today can expect to have seven distinct employers from the time of graduation to the time of retirement. And that's a median – some will be more, some will be less. But what that means is that this isn't so much as job hopping, it means that requirements change, that technology changes, and you have to adapt, that the economy changes. So, innovation will be a constant as well. We must be adaptable. And that's the most obvious scenario, I think, for the workforce.

Lara de la Iglesia: And movement too, right? So, that might not be seven jobs in the same state or country.

Jonathan Lemco: No, it implies labour mobility, it implies that we have to move from one state to another state; maybe move internationally. Whatever it is, just enjoy what you're doing and recognize that tomorrow it could be different and that your task may be somewhat different as well.

Joe Davis (Vanguard global chief economist): And even the analysis that we did, just over the past decade, we looked at all the detailed occupations. To Jonathan's point, 20% of a person's time, 20% has radically changed just over the past decade across all – on average across all professions. So, take one day out of five – that whole day's time is spent on a different type of task than it was before. It may be less time collecting information, less time processing it, more time analysing it.

Think of things like that and so, I know that's true in our work, right? And so, that probably has other implications for things, everything from lifelong learning to even how one thinks about education going forward. So, these are important what we call "megatrends" that we've been spending time on. But it's not going to slow down.

Lara de la Iglesia: Joe, let me ask you a question. So, technology should boost labour productivity growth, right, and real wages. But despite the technological revolution that we're currently in, we're not seeing that. We're seeing stagnant productivity growth and wages. Why is that?

Joe Davis: Well, there's a notion from some really well-respected economists that believe that not only are we in stagnation now, we are headed for what some call "secular stagnation". We will not see material improvements for average wage growth. We don't believe that's the trend. In fact, we believe it's misdiagnosed. It's not stagnation of what we were currently entering into. It's one of disruption.

Now, that does not mean that we will not – we do not and we'll not continue to have pockets where real wage growth is marginal, whether it's certain industries, certain – certainly certain households, it's certain parts of the country, or any national or regional economy.

And that's because those that may be in the crosshairs of technological change and automation through machines. But in aggregate, we are seeing more often than not, despite those sources of pain, more often than not, strong gains actually increasingly of labour productivity and wages. It's not as widespread as we would like. But we are seeing that. We see that across various industries.

Typically, they have one shared characteristic, and they are occupations that are focused on tasks where the machine as an asset; [they] are not competing against the machine. As one professor in the industry said, "You want to race with the machines, you don't want to race against them."

So, think of tasks that are uniquely human where the machines – computer, a robot, whatever it is – that form of technology makes you more productive. We will continue to see that, so you think of things, everything, and there's various fields that have this. So, we'll continue to see that, which is why 80% of the world economy is at or near full employment.

Lara de la Iglesia: So, given that we're all parents, what do we tell our children then? Jonathan, you alluded to this a little bit, but what guidance can you give to them about the labour market that they're likely going to encounter?

Roger Aliaga-Díaz (Vanguard chief economist, Americas): Yeah, I'm optimistic, perhaps too optimistic, but I think when I see my children that they have been born with technology. They live there. It's part of them. So I'm sure they will be able to understand and to without perhaps knowing all the backgrounds, what are the activities in which they can actually contribute, which is certainly, activities in which they are not going to be trying to compete with technology but in which they're going to try to leverage technology. But a specialist in uniquely human tasks, say it's very broadly defined. But I'm thinking that there will be able to make the right choices.

Joe Davis: And I'm thinking, I'm not an educator but interested in education for my children as well, obviously. Follow your heart. If possible, try to help solve some of the world's problems in any small way. It is this fallacy of stagnation that there's a finite amount of work. Look at the challenges we have in the world, right? There's a lot of good things going on in the world, but there's a lot of challenges.

Lara de la Iglesia: Opportunity to solve them, jobs to do that, right?

Joe Davis: Opportunities to solve for. So there's more work to be done, a vast amount of more work to be done.

Lara de la Iglesia: Great. Thank you very much.

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