The Future of Work is Automation: Opportunities and Risks

By: Shaivalini Shukla

Emerging technologies such as artificial intelligence and machine learning impact our productivity and the activities involved in our day to day work. The Brookfield Institute for Innovation and Entrepreneurship states that nearly 42 percent of the tasks our workforce performs are at a high risk of being automated in the next two decade. We need to rethink how to equip our labour force to transition to a new economy and how to skill the future of our workforce to capitalize on automation.

Automation complements the productivity of human capital in job profiles that value cognitive and non-routine skills which we can define as low-risk automation work. High-risk automation work includes routine-based activities that are administrative and service-oriented. While these jobs will not be ‘lost’ in the future, the benefits of automation will not reaped equally across the labour market. Individuals most vulnerable to poor labour market outcomes are usually in occupations with a high-risk of automation and will face further challenges in transitioning into Canada’s new economy.

I question how Canada can respond to the vulnerabilities in its workforce and ensure productivity gains by individuals and organizations are equitable.

Automation: An Opportunity or Threat?

Automation has two key effects on the workforce: (1) substitutes human capital for physical capital to improve overall efficiency in routine-orientated work, and (2) complements human capital by improving productivity in cognitive-orientated work.

Kathryn May, Accenture Fellow on the Future of Public Service, discusses that in past workforce transformations, people in a declining industry would transfer their skills to work in a similar industry. However, the impact of automation on the workforce is different from past workforce transformations; labour market outcomes are now driven by the demand for cognitive skills associated with a higher level of education.

Vulnerable workers are challenged by the transferability of their skills across industries. Routine-based skills associated with low- and middle-income jobs are in decline with high-income jobs associated with cognitive and non-routine skills are rising.

Occupations with a low-risk profile are expected to produce a net increase of 712,000 new jobs in the economy between 2014 to 2024. Creig Lamb, Policy Advisor at Brookfield Institution for Innovation and Entrepreneurship discusses how automation improves the productivity of low-risk automation workers by addressing bottlenecks in the workplace, lowering the firms’ costs and prices, which increases demand and a need for labour. The productivity gains from automation may spillover to improve standards of living.

Automation Deepens Inequality and Intensifies Skill Shortages

The benefits gained from increased productivity are not experienced equally due to job polarization driven by automation. Automation will deepen existing income inequalities by restructuring the type of tasks, activities, and skills valued in the labour market. Education level is a key factor in assessing the risk of automation of those most vulnerable to poor labour market outcomes. Occupations with a low-risk of automation demand a higher level of education associated with a higher average income compared to high-risk automation jobs. With the demand for low-risk automation job profiles expected to rise, the demand for higher education will lead to a skill shortage between those with higher and lower levels of education, leading to a loss in equal economic opportunity for vulnerable workers.

Low-risk occupations are correlated with higher wages rises, leading to a decline in middle-income and low-income job profiles, leading to an increased gap in earnings between high-wage and low-wage occupations. The C.D Howe Institute elaborates on this by summarising that as workers move toward higher paying low-automation risk jobs, income inequality rises due to a higher dispersion of wages in low-automation risk jobs.

Skill shortages is another factor. McKinsey Global Institute discusses the challenges in the transferability of skills from low-wage occupations associated with a high-risk of automation to high-wage occupations. As workers in high-risk automation job profiles are displaced, their ability to find employment in high-wage occupations is limited, leading to a surge in workers seeking employment in a ‘shrinking pool of low-wage work’ — driving wages down. Low wages are experienced by displaced low-wage workers seeking employment. However, wage increases only benefit firms that leverage automation as reflected in their profits and in their wages.

This poses a key challenge as the transition to high-wage occupations requires re-skilling a workforce with future-ready skills that are yet to be determined given the evolving nature of automation across industries and occupations.

Current Action

The Government of Canada committed to a three-year $298M investment in the Skills for Success Program to fund organizations and training providers in their development of transferrable skill programs. To target workers in sectors that include high-risk automation job profiles, the Sectoral Workforce Solutions Program supports organizations in training and reskilling workers to address workforce needs. The government has committed a $225 million investment over four years to The Future Skills Centre alongside The Future Skills Council to provide research and policy guidance on emerging trends to address skill shortages and the skills-to-jobs mismatch.

Policy Choices

Current policy options to address the impact of job polarization on vulnerable workers includes Employment Insurance, Canada Workers Benefit, and Low-Income Workers Tax Credit. While Employment Insurance only provides income support for unemployed workers, Canada Workers Benefit and the Low-Income Workers Tax Credit provides tax relief that can alleviate the financial burden of workers employed in high-risk automation jobs. To target the low-skill to high-skill transition, programs such as the Ontario Works Training Program covers skill training expenses which directly benefits workers in high-risk automation work seeking to re-skill, and can ease the transition to low-risk automation work.

Bottom Line

The options discussed provide stopgap support for low-wage workers and skill development opportunities. What is lacking are policies to control the one-sided economic benefits firms receive in profits and higher wages.

Policies will need to address firms in their use of automation and how they absorb the benefits of automation in their costs, prices, and wages to narrow the increasing gap in earnings. This can be addressed through direct price regulations by limiting price increases of low-risk automation firms or incentivizing high-risk automation work through wage subsidies, similar to the Canada Emergency Wage Subsidy, but this may only be a short-term option.

Automation is expected to transform the future of work by improving efficiency in specific skill-based tasks, this comes at the risk of leaving behind workers most vulnerable to poor labour market outcomes, limiting economic opportunity in future employment and income growth.