The future of work

The future of work From the rise of robots to lifelong learning, discover the global trends impacting your career

The walled world of work Why unemployment among millennials is a massive waste of resources Millennials and work <i>Why youth unemployment is a massive waste of resources</i> From the print edition, January 18th 2016 CRISTINA FONSECA CAUGHT pneumonia a week before her final exams. “I thought I would die,” she recalls. When she recovered, she reassessed her priorities. As a star computer scientist, she had lots of job offers, but she turned them all down. “I realised that I didn’t want to spend my life doing anything that was not really worthwhile.” She decided to start her own business. After a year of false starts she co-founded a company called Talkdesk, which helps other firms set up call centres. By using its software, clients can have one up and running in five minutes, she claims. Ms Fonseca’s success helps explain why some people are optimistic about the millennial generation in the workplace. At 28, she is providing a completely new service in support of another service that did not exist until quite recently. She lives in Portugal but does business all over the globe. She sounds very much like several other young entrepreneurs your correspondent met while researching this report, such as a Russian who set up a virtual talent agency for models (castweek.ru); an Asian-American electric cellist who teaches people how to make new sounds using a laptop (danaleong.com); and a Nigerian starting a new publishing house for African romantic novelists (ankarapress.com). Elite youth today are multilingual, global-minded and digitally native; few can remember life before the internet or imagine how anyone coped without it. The best-known of them changed the world before they turned 30, including Facebook’s Mark Zuckerberg, Google’s Sergey Brin and Larry Page, and Instagram’s Kevin Systrom. The global economy works well for such people. Digital startups require far less capital than, say, building a factory, and a brilliant piece of software can be distributed to millions at minimal cost. So today’s whippersnappers of great wealth have made their money much faster than the Rockefellers and Carnegies of old. Elite youth today are multilingual, global-minded and digitally native The Economist But the world of work has been less kind to other young folk. Florence Moreau, a young architect in Paris, had the double misfortune to leave university in 2009, when the world economy was on its knees; and to be French. “I really need a full-time, permanent job,” she says. Under France’s 3,800-page labour code, workers on permanent contracts receive generous benefits and are extremely hard to get rid of. So French firms have all but stopped hiring permanent staff: four-fifths of new employees are on short-term contracts. Ms Moreau has had eight jobs, none lasting for longer than 16 months. With a small child at home, she has to keep looking for the next one. “It’s tiring,” she sighs. One employer suggested that she should become an “entrepreneur”, doing the same job as before but as a contractor, so that the firm could keep her on indefinitely without incurring heavy ancillary costs. She refused. Insiders v outsiders Youth unemployment in France (using the ILO definition of youth as 15-24-year-olds) is 25% and has been scandalously high for three decades. Occasionally the government tinkers with labour rules, but voters have little appetite for serious reform. Ms Moreau rejects the idea that insiders enjoy too many legal protections, and that this is why outsiders find it so hard to break in. She blames exploitative employers, and doubts that any government, left or right, will fix the problem. Youth unemployment in France is 25% and has been scandalously high for three decades The Economist Rigid labour rules are tougher on young workers than older ones. People without much experience find it harder to demonstrate that they are worth employing. And when companies know they cannot easily get rid of duds, they become reluctant to hire anyone at all. This is especially true when the economy is not growing fast and they have to bear the huge fixed cost of all the older permanent employees they took on in easier times. France is not alone in having such problems. In the euro area, Greece, Spain and Italy all have rules that coddle insiders and discourage outsiders. Their youth unemployment rates are, respectively, 48%, 48% and 40%. Developing countries, too, often have rigid labour markets. Brazilian employees typically cost their employers their salary all over again in legally mandated benefits and taxes. South Africa mixes European-style labour protections with extreme racial preferences. Firms must favour black job applicants even if they are unqualified, so long as they have the “capacity to acquire, within a reasonable time, the ability to do the job”. Some 16% of young Brazilians and a stunning 63% of young South Africans are unemployed. Globally, average youth unemployment is 13% compared with the adult rate of 4.5%. Young people are also more likely than older ones to be in temporary, ill-paid or insecure jobs. Joblessness matters for several reasons. First, it is miserable for those concerned. Second, it is a waste of human potential. Time spent e-mailing CVs or lying dejected on the sofa is time not spent fixing boilers, laying cables or building a business. Third, it is fiscally ruinous. If the young cannot get a foot on the career ladder, it is hard to see how in time they will be able to support the swelling number of pensioners. Fourth, joblessness can become self-perpetuating. The longer people are out of work, the more their skills and their self-confidence atrophy, the less appealing they look to potential employers and the more likely they are to give up and subsist on the dole. This “scarring” effect is worse if you are jobless when young, perhaps because that is when work habits become ingrained. Thomas Mroz of the University of North Carolina, Chapel Hill, and Tim Savage of Welch Consulting found that someone who is jobless for a mere six months at the age of 22 will earn 8% less at 23 than he otherwise would have done. Paul Gregg and Emma Tominey of the University of Bristol found that men who were jobless in their youth earn 13–21% less at age 42. And David Bell of the University of Stirling and David Blanchflower of Dartmouth College found that people who were unemployed in their early 20s are less happy than expected even at the age of 50. Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist The Economist “The first ten years are essential. They shape careers in the long term,” says Stefano Scarpetta of the OECD, a think-tank for mostly rich countries. This is when people develop the soft skills that they do not pick up at school, such as conscientiousness, punctuality and teamwork. Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist, estimates the World Bank. Some 90% of new jobs are created by the private sector. The best thing for job creation is economic growth, so policies that promote growth are particularly good for the young. Removing regulatory barriers can also boost job creation. Mr Scarpetta applauds recent attempts in Spain, Italy and Portugal to make labour rules a bit more flexible, but argues that such laws should generally be much simpler. For example, it would be better to scrap the stark distinction between temporary and permanent contracts and have only one basic type of contract in which benefits and job security accumulate gradually. Denmark shows how a labour market can be flexible and still give workers a sense of security. Under its “flexicurity” system companies can hire and fire easily. Unemployed workers are supported by the state, which helps them with retraining and finding new jobs. Trade unions often favour a minimum wage. This can help those who already have jobs, but if it is set too high it can crowd out those with the fewest skills and the least experience, who tend to be young. It makes more sense to subsidise wages through a negative income tax, thus swelling take-home pay for the lowliest workers without making them more expensive for the employer. But this costs taxpayers money, so many governments prefer to raise the legal minimum wage, passing the cost on to others. America’s Democratic Party is pushing to double the federal minimum wage, to $15 an hour—a certain job-killer. Putting the tyke into tycoon Making it easier for young people to start their own business is essential, too. They may be full of energy and open to new ideas, but the firms they create are typically less successful than those launched by older entrepreneurs. The young find it harder to raise capital because they generally have a weaker credit history and less collateral. They usually also know less about the industry they are seeking to enter and have fewer contacts than their older peers. A survey by the Global Entrepreneurship Monitor found that businesses run by entrepreneurs over the age of 35 were 1.7 times as likely to have survived for more than 42 months as those run by 25-34-year-olds. As economies grow more sophisticated, demand for cognitive skills will keep rising The Economist Young sub-Saharan Africans show the greatest enthusiasm for starting their own business: 52% say they would like to, compared with only 19% in rich Western countries. This is partly because many have little choice. There are fewer good jobs available in poor countries, and in the absence of a welfare state few people can afford to do nothing. Bamaiyi Guche, a Nigerian 17-year-old, is a typical example of a poor-country entrepreneur. He goes to school from 8 to 12 every morning, then spends the afternoon in the blazing sun selling small water sachets to other poor people without running water in their homes. He makes $1 a day, half of which goes on his school fees. He wants to be a doctor one day. Some youngsters from well-off families forge careers as “social entrepreneurs”, seeking new ways to do good. Keren Wong, for example, recognises that she was “born into privilege”. (Her parents were prosperous enough to support her at Cornell University.) A Chinese-American, she now runs a non-profit called BEAM which connects teachers in rural Chinese schools so they can swap ideas for teaching more effectively. Alas, there is a huge mismatch everywhere between the skills that many young people can offer and the ones that employers need. Ms Fonseca says she cannot find the right talent for Talkdesk. “I need very good engineers, very good designers and people who speak very good English. But there aren’t enough of them,” she says. As economies grow more sophisticated, demand for cognitive skills will keep rising. The world’s schools are not even close to meeting it.

The world is going to university But is it worth it? The world is going to university <i>But is it worth it?</i> From the print edition, March 26th 2015 “AFTER God had carried us safe to New England, and we had builded our houses, provided necessaries for our livelihood, reared convenient places for God’s worship and settled Civil Government, one of the next things we longed for and looked for was to advance learning and perpetuate it to posterity.” So ran the first university fundraising brochure, sent from Harvard College to England in 1643 to drum up cash. America’s early and lasting enthusiasm for higher education has given it the biggest and best-funded system in the world. Hardly surprising, then, that other countries are emulating its model as they send ever more of their school-leavers to get a university education. But, as our special report argues, just as America’s system is spreading, there are growing concerns about whether it is really worth the vast sums spent on it. University enrolment is growing faster even than demand for that ultimate consumer good, the car The Economist The modern research university, a marriage of the Oxbridge college and the German research institute, was invented in America, and has become the gold standard for the world. Mass higher education started in America in the 19th century, spread to Europe and East Asia in the 20th and is now happening pretty much everywhere except sub-Saharan Africa. The global tertiary-enrolment ratio—the share of the student-age population at university—went up from 14% to 32% in the two decades to 2012; in that time, the number of countries with a ratio of more than half rose from five to 54. University enrolment is growing faster even than demand for that ultimate consumer good, the car. The hunger for degrees is understandable: these days they are a requirement for a decent job and an entry ticket to the middle class. There are, broadly, two ways of satisfying this huge demand. One is the continental European approach of state funding and provision, in which most institutions have equal resources and status. The second is the more market-based American model, of mixed private-public funding and provision, with brilliant, well-funded institutions at the top and poorer ones at the bottom. The world is moving in the American direction. More universities in more countries are charging students tuition fees. And as politicians realise that the “knowledge economy” requires top-flight research, public resources are being focused on a few privileged institutions and the competition to create world-class universities is intensifying. In some ways, that is excellent. The best universities are responsible for many of the discoveries that have made the world a safer, richer and more interesting place. But costs are rising. OECD countries spend 1.6% of GDP on higher education, compared with 1.3% in 2000. If the American model continues to spread, that share will rise further. America spends 2.7% of its GDP on higher education. OECD countries spend 1.6% of GDP on higher education, compared with 1.3% in 2000 The Economist If America were getting its money’s worth from higher education, that would be fine. On the research side, it probably is. In 2014, 19 of the 20 universities in the world that produced the most highly cited research papers were American. But on the educational side, the picture is less clear. American graduates score poorly in international numeracy and literacy rankings, and are slipping. In a recent study of academic achievement, 45% of American students made no gains in their first two years of university. Meanwhile, tuition fees have nearly doubled, in real terms, in 20 years. Student debt, at nearly $1.2 trillion, has surpassed credit-card debt and car loans. None of this means that going to university is a bad investment for a student. A bachelor’s degree in America still yields, on average, a 15% return. But it is less clear whether the growing investment in tertiary education makes sense for society as a whole. If graduates earn more than non-graduates because their studies have made them more productive, then university education will boost economic growth and society should want more of it. Yet poor student scores suggest otherwise. So, too, does the testimony of employers. A recent study of recruitment by professional-services firms found that they took graduates from the most prestigious universities not because of what the candidates might have learned but because of those institutions’ tough selection procedures. In short, students could be paying vast sums merely to go through a very elaborate sorting mechanism. If America’s universities are indeed poor value for money, why might that be? The main reason is that the market for higher education, like that for health care, does not work well. The government rewards universities for research, so that is what professors concentrate on. Students are looking for a degree from an institution that will impress employers; employers are interested primarily in the selectivity of the institution a candidate has attended. Since the value of a degree from a selective institution depends on its scarcity, good universities have little incentive to produce more graduates. And, in the absence of a clear measure of educational output, price becomes a proxy for quality. By charging more, good universities gain both revenue and prestige. What’s it worth? More information would make the higher-education market work better. Common tests, which students would sit alongside their final exams, could provide a comparable measure of universities’ educational performance. Students would have a better idea of what was taught well where, and employers of how much job candidates had learned. Resources would flow towards universities that were providing value for money and away from those that were not. Institutions would have an incentive to improve teaching and use technology to cut costs. Online courses, which have so far failed to realise their promise of revolutionising higher education, would begin to make a bigger impact. The government would have a better idea of whether society should be investing more or less in higher education. Sceptics argue that university education is too complex to be measured in this way. Certainly, testing 22-year-olds is harder than testing 12-year-olds. Yet many disciplines contain a core of material that all graduates in that subject should know. More generally, universities should be able to show that they have taught their students to think critically. Some governments and institutions are trying to shed light on educational outcomes The Economist Some governments and institutions are trying to shed light on educational outcomes. A few American state-university systems already administer a common test to graduates. Testing is spreading in Latin America. Most important, the OECD, whose PISA assessments of secondary education gave governments a jolt, is also having a go. It wants to test subject-knowledge and reasoning ability, starting with economics and engineering, and marking institutions as well as countries. Asian governments are keen, partly because they believe that a measure of the quality of their universities will help them in the market for international students; rich countries, which have more to lose and less to gain, are not. Without funding and participation from them, the effort will remain grounded. Governments need to get behind these efforts. America’s market-based system of well-funded, highly differentiated universities can be of huge benefit to society if students learn the right stuff. If not, a great deal of money will be wasted.

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White-collar blues Increased longevity means that lifetime employment in Japan isn’t lasting the distance In Japan, a new kind of business school is retraining jaded salarymen <i>Increased longevity means that lifetime employment isn’t lasting the distance</i> From the print edition, December 24th 2016 THE Institute of Social Human Capital in Tokyo is an unusual sort of business-training school. Those who attend it (two-thirds are men) have mostly quit or taken redundancy packages from big Japanese firms, and are trying to start again. Shedding the habits of a lifetime begins by breaking down barriers: former salarymen laugh nervously as they share a bento-box lunch with strangers, blindfolded (the idea is that they must use their other four senses to communicate). The way to prepare them for a second career is to get them interacting as individuals, not as corporate workers or business partners, says Matsuhiko Ozawa, a director of the Institute, which specialises in this sort of course. In a country that sets great store by formal introductions, the students have not even exchanged business cards. Names, titles and personal information are banned (the ex-salarymen use made-up names) to avoid reproducing the old office hierarchies that exist outside the classroom. “We start from scratch and help these people find themselves again,” says Mr Ozawa. For years, the salarymen rode a career escalator that rewarded them less for skills than for loyalty and doggedly hard work. Though often attributed to centuries-old Japanese traditions of duty, the salaryman system was a post-1945 creation, says Naohiro Yashiro, a former adviser on economic policy to Shinzo Abe, the prime minister. During the post-war boom years, firms took on workforces of permanent employees, who were hired for life. All that was needed to get paid more was to grow older. In return, the employers’ extravagant demands had to be met. Salarymen could not refuse a transfer—often at a few days’ notice—to a subsidiary hundreds of miles from home. Children grew up largely without fathers. Work, rather than family, was the main supplier of emotional support. Full-time Japanese employees still clock 400 more hours per year than their counterparts in Germany or France, according to Kazuya Ogura, a labour specialist at Waseda University in Tokyo. Many firms are now offering permanent employees generous packages to leave early The Economist The salaryman remains stubbornly dug in across most industries. Mr Abe has promised as part of his growth-boosting reforms to give more rights to those at the bottom of the hierarchy—part-time and temporary workers with much lower pay—but has stopped short of radical steps, such as legislation to make firms give equal pay for equal work. Even so, for many, lifetime employment is ending earlier than it used to, because lots of companies cannot afford such workers all the way to retirement. Many are surplus to requirements in declining industries such as consumer electronics, and can be hard to retrain. The system worked well when people lived until around 70, says Mr Ozawa, but many firms are now offering permanent employees generous packages to leave early. Many more leave voluntarily. Hiroyuki Ito, a student at the Institute, stepped off the salaryman escalator at the age of 45, after 23 years at his firm. He quit because the work was boring. “You don’t get to take risk or have adventure,” he says. He now attends the Tokyo school—there are several like it in Japan—and hopes for a second career as a teacher. The retraining takes time. Ex-salarymen usually come twice a week for five months to shed their old mindset. After decades of monotonous overwork, that must seem like the twinkling of an eye.

Wage war Who are the main economic losers from low-skilled immigration? Wage war <i>Who are the main economic losers from low-skilled immigration?</i> From the print edition, August 27th 2016 ILLEGAL immigration from Mexico is not quite a century old. A law of 1917 was the first to regulate the southern border. Stricter controls gradually followed all through the 20th century, often during the low points of a recurring cycle of sentiment towards immigrants. Economic booms have lured workers across the Rio Grande, encouraged by American firms. Downturns have led to demonisation of “wetbacks”. The 1930s and 1950s both saw indiscriminate mass-deportations; in 1976 President Gerald Ford wondered how best to “get rid of those six to eight million aliens who are interfering with our economic prosperity”. The latest bout of Trumpian immigrant-bashing fits the mould in one respect: it comes on the heels of an economic downturn. But it is also strange, because the undocumented population levelled off after 2007. In 2015 there were just 188,000 apprehensions of Mexicans at the border, down from 1.6m in 2000 (see chart). This is partly because the recession reduced the magnetism of America’s labour market. But it also reflects a much more secure border—the number of border agents quintupled between 1992 and 2010—and changing demography in Mexico, where the birth rate has been falling since the early 1970s. Nonetheless, undocumented immigrants still constitute 5% of America’s labour force. Distinguishing their impact from that of other immigrants is hard, because they are tricky to identify. Instead, researchers typically just rely on nationality. There is almost no way for low-skilled Mexicans who lack American relatives to migrate north legally. As a result, Mexicans make up about half of all illegal immigrants, but only a fifth of all legal ones. Mexicans tend to be less educated than other immigrants. In 2014 nearly 60% had less than a high-school education, compared with less than 20% of immigrants from other countries, according to the Pew Research Centre, a think-tank. Undocumented migrants are more likely than legal ones to work in unskilled occupations like services and construction. Undocumented migrants are more likely than legal ones to work in unskilled occupations like services and construction The Economist There is a vigorous—and sometimes ill-tempered—debate among academics about the impact of low-skilled migration, both legal and illegal, on wages. Most recently this has centred on a dispute between two economists, David Card at the University of California, Berkeley, and George Borjas, at Harvard University, over the effect of an unexpected surge in Cuban migrants to Miami in 1980 (the so-called “Mariel boatlift”). In 1990 Mr Card found this influx had no effect on the wages of low-skilled workers in Miami; Mr Borjas has now revisited the analysis, and claims that wages of high-school dropouts in fact fell substantially. This dispute, however, is only part of a much broader debate. Most other research finds that immigrant flows harm at least some workers, as economic theory usually predicts they should when immigration changes the balance of skills in an economy. The debate is over precisely who suffers, and how much. The findings depend on two factors. The first is how to define unskilled workers. Mr Card and others like to include both high-school graduates and dropouts. In 2014, there were 64m such workers aged between 25 and 64 in America. Mr Borjas prefers to treat high-school dropouts separately in his research, so that the lowest-skilled migrants compete with fewer existing workers: 20m, at last count. The second factor is whether, among those with similar education, migrants and native workers are substitutes or complements for each other. In 2011 a study by Gianmarco Ottaviano and Giovanni Peri, two economists, found that immigrants seem to compete mostly with other immigrants, even when controlling for age and education. One possible explanation is that unskilled natives respond to an increase in migration by specialising in work that makes better use of their command of English. Messrs Ottaviano and Peri concluded that between 1990 and 2006 immigration had a small positive effect on the wages of unskilled American-born workers, but reduced the wages of previous generations of migrants by 6.7%. Mr Card says the “worst-case scenario” is that immigration has cut the wages of high-school dropouts by about 5% over 20 years, which, compared with the effect of technology and other trends, is not much. Mr Borjas says larger effects are possible. But everyone agrees that the more workers and new immigrants can substitute for each other, the more likely it is that immigration will change relative wages. If the workers most comparable to illegal Mexican immigrants are legal ones, they will be most likely to have seen their wages depressed by illegal migration. Any such effect would probably have been compounded by the fact that firms who hire undocumented workers off-the-books need not pay them the minimum wage or adhere to other regulations. One survey of low-wage workers in Chicago, Los Angeles and New York in 2008 found that 37% of undocumented workers had been paid less than the minimum wage, compared with 21% of legal migrant workers. Illegal migrants also may find it hard to move jobs, especially in states that require employers to check their papers. Their immobility could reduce their bargaining power. It certainly seems to stunt their wage growth. In 2009 Pew found that among those who had been in the country for less than ten years, legal migrants earned 18% more than illegal ones; among those with more than a decade under their belts, the gap was fully 42%. It is possible, though, that the wages of both these groups had still been dragged down relative to those of native workers. The flipside of low wages for illegal immigrants, though, is greater economic benefits for those who are not competing with them for work. A rare study of the effect of illegal immigrants specifically found that in Georgia, a one-percentage-point increase in undocumented workers in firms boosted wages by about 0.1%. One explanation is that such firms benefit from a richer mix of skills within their workforce. Another explanation is that they are sharing the spoils of the savings that stem from hiring workers on the black market. Were a President Trump to deport all illegal immigrants, the economy would suffer greatly. Just ask Arizona, where a crackdown on illegal immigrants in 2007 shrank the economy by 2%, according to a private analysis by Moody’s, a ratings agency, for the Wall Street Journal. The incomes of most workers would fall. Yet strangely enough, those best placed to benefit from a mass deportation would be those who had crossed the border legally. Those best placed to benefit from a mass deportation would be those who had crossed the border legally The Economist