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A woman gathers wheat grains in bags from threshing machine as they harvest their wheat crop in Qaha, El-Kalubia governorate, northeast of Cairo, Egypt May 5, 2016. REUTERS/Amr Abdallah Dalsh - RTSECZS

The future of work in the developing world

2016 Brookings Blum Roundtable

On August 3-5, the Global Economy and Development Program at Brookings will host its 13th annual Brookings Blum Roundtable on Global Poverty in Aspen, Colorado. At this year’s event, titled “The future of work in the developing world,” Brookings experts and colleagues will discuss how the twin forces of technological change and globalization are reshaping the global economy. You can read the related briefs on the topics that will be highlighted at the roundtable below.

The digital revolution is rapidly changing the composition of the workforce across economies. In particular, a confluence of improvements in a wide range of related technological areas, including sensors, machine learning, automation and robotics, is making technology more labor-saving and potentially less job-creating. Throughout history, the arrival of revolutionary technologies—such as the railroad, the automobile, and the telephone—have created vast employment opportunities and delivered transformative improvements in living standards. However, these innovations also destroyed large numbers of existing jobs, necessitating extensive periods of retraining and adaptation. Indeed, a 2015 Harvard Business Review article noted that over the last 200 years technological change has often been associated with stagnant wages and rising inequality, at least for a time.

The threat of automation implies a race between education and technology. In most developing countries, education systems are not providing workers with the skills necessary to compete in today’s job markets. The growing mismatch between the demand and supply of skills holds back economic growth and undermines opportunity. At the same time, the returns to schooling are high in most developing countries, and growing skill premiums are evident in much of the world. Automation simultaneously results in deskilling and a need for new skills, and is changing what education will need to look like in the future.

Digital platforms are increasingly helping connect job seekers—from informal workers to highly skilled professionals—to suitable job opportunities. These platforms, which can aggregate vast amounts of data, accomplish three things. First, they make it easier to learn about available jobs and requirements; second, they reduce the cost of recruiting; and third, they allow individuals to market themselves to a wider audience. Looking forward, digital search platforms can deploy their data aggregation and analytic capacity to reduce labor market inefficiency, including by devising more relevant assessment criteria for specific jobs, educating job seekers on market conditions and demands, and supporting career advancement through credentials and employer endorsements.

One of the major economic and social achievements of the 20th century in developed countries was the establishment of employment protection and social insurance systems that provided income stability. Labor markets in the developing world are characterized by high informality, low union membership, and minimal social insurance coverage, which pose challenges to long-term socio-economic development. What is causing this divergence even while incomes are rising rapidly in developing countries? Several factors stand out: (i) the changing nature of manufacturing and the early transition to the service economy in developing countries; (ii) continued high growth of the labor force; and (iii) the adoption of complex, comprehensive systems ahead of the necessary administrative and governance capacities.

As the world has flattened, some forms of services have become easily traded across geographies, cultures, and cost structures. Many countries—most notably India and the Philippines— have accelerated their economic growth through thriving information technology (IT) and business process services exports. The outsourced1 market for global information technology and business process services is $660-690 billion in annual revenue. Of this market, approximately 20-25 percent is delivered as service exports from one country to another. In aggregate, the services exports market has been growing 10-15 percent per year for over a decade.

Creating new jobs and in particular “good jobs”—in other words, jobs in high productivity sectors and that offer decent working conditions—is one of the major challenges faced by low- and middle-income countries. According to the World Bank’s 2013 World Development Report on jobs, around 600 million jobs are needed across the globe over the next 15 years to keep employment rates at their current level. Governments, non-governmental organizations, and donors spend large amounts of money on targeted programs and broader policies to enhance employment creation and the creation of new firms. Because most employment in low- and middle-income countries is in micro, small, and medium enterprises (MSMEs), these firms are often targeted by such interventions.

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