Rapid technological advances are transforming the global workplace. But fears that automation will permanently destroy American jobs are misplaced, according to Joe Davis. Instead, the jobs that require “uniquely human” skills will proliferate, Davis said.
Davis was the keynote speaker at the Morningstar ETF conference in Chicago on September 6. He is a principal and Vanguard's global chief economist. He is also head of Vanguard Investment Strategy Group, whose research team is responsible for helping to oversee the firm's investment methodologies and asset allocation strategies for both institutional and individual investors. In addition, he is a member of the senior portfolio management team for Vanguard Fixed Income Group, which oversees more than $500 billion in assets under management.
Davis began by identifying three paradoxes that characterize the U.S. economy:
- Low inflation but full employment
- Low growth but high equity valuations – the “new normal” is news to the financial markets, Davis quipped
- Low volatility but uncertainty surrounding fiscal and monetary policies and ongoing geopolitical risks
Some view those paradoxes as isolated or unrelated, Davis said. But he claimed they are “touchstones of a larger force that will fundamentally alter the lives of millions of people on this planet.”
Indeed, he said, we are not in a period of stagnation, but in a period of disruption.
“Humans are remarkable at adapting to change,” he said. “Hugely disruptive technologies” will accelerate growth and create new jobs.
To understand this, Davis said we need to pivot from GDP and productivity as the dominant metrics of growth. Instead, we should focus on the standard of living.
Davis said that the standard of living has improved rapidly for Americans over the last five years. This can be seen, for example, in variety and quality food we eat and in the choices we have for education. Yet productivity growth has been zero and GDP growth has been meager over that period.
What will be the trend that will define our lifetime?
Davis said that a lot of attention is paid to monetary policy; yet it has been shown that it matters to market but does not affect economic growth. Likewise, demographics have a very weak relationship to inflation; Davis said that older societies are wealthier and more productive.
“If population and demographics mattered,” Davis said, “China and India would be the wealthiest nations.”
What explains improvements in the standard of living, he said, are education, human capital and technology.
Davis said we are at an inflexion point, a structural change in the nature of work – and it will be the trend that defines our lifetime.
Those changes can be seen in developments in artificial intelligence, driverless cars and robotics.
Yet, he said, technology experts are evenly divided about whether there will be more jobs in the next 10 years. The “techno-optimists” claim that automation produces jobs; but the “techno-pessimists” expect all routine jobs being “coded away” and millions of jobs lost.
Davis cited studies showing that by 2022, 47% of jobs in U.S. (70 million workers) will be automated away, and the numbers are 69% for India 77% for China.
He said that the biggest issue for the market is what the future of work will be.
Jobs do not get automated away; tasks do
Davis cited three false assumptions in most technology studies:
- Technology only threatens labor and never compliments it
- Jobs are made up of only one task
- The tasks within jobs don’t change over time
To understand the nature of work, you need to look at tasks, not jobs, according to Davis. His research has reduced work to 41 unique tasks. A task is a basic operations like moving, building, envisioning and managing.
Those tasks fall into three loose buckets: basic (like growing food), repetitive (such as manufacturing and getting email) and advanced (26 of the 41; these are uniquely human and cannot be automated away, like thinking creatively). Thinking creatively is the top job requirement for cooks, sales managers, tool and die makers, contractors and nurses. The other key requirements involve social skills – like managing and coaching).
Only 10% of labor is spent on basic tasks. Conversely, Davis said that 70% of professions have to think creatively.
Photography and desktop publishing have been the top-changing jobs in the last 15 years. Ironically, the job that has changed the least was being an economist.
“Every single occupation has seen an increase in uniquely human work,” Davis said, which explains why businesses are hiring.
Davis said that 50% of the computer and STEM-field jobs are concentrated in a limited number of locations like Cambridge, Silicon Valley and Raleigh Durham. But if you look more broadly at where tasks with highly uniquely human work is performed, then you find that 85% of counties are included.
Davis said that automation will reduce employment mostly outside of manufacturing. But those reductions will be dwarfed by new jobs that require uniquely human tasks, like creative intelligence, technological acumen and emotional intelligence.
Davis predicted four new paradoxes will arise:
- There will be more automation yet labor shortages. Robots will double but an aging population and a demand for uniquely human work will lead to labor shortages that could drive unemployment down to 2% by 2019
- There will be labor shortages yet low inflation. Wages may rise but the cost to produce everything will go down
- There will be low inflation yet higher real interest rates. Productivity will rise, which will drive up real rates.
- Higher real rates will be good news for investors, but will be accompanied by higher risk
Those paradoxes will present a new series of challenges, Davis said.
Read more articles by Robert Huebscher
Rapid technological advances are transforming the global workplace. But fears that automation will permanently destroy American jobs are misplaced, according to Joe Davis. Instead, the jobs that require “uniquely human” skills will proliferate, Davis said.
