A new journey for the Future of the Work

note: this is a synopsis of my lecture at the G-20Y summit held at Evian by the second week of October.

Covid-19 has been an unique experiment for how our society might evolve going forward. In particular, it provides an interesting case as to how digitization at scale within the enterprise might affect the way we work as social distancing imposed by the lockdown has led to a large increase in remote work through digital platforms .

The future of work is nevertheless impacted by multiple trends, among others a continued development of offshoring services, the deployment of smarter automation, or still, population aging. Those trends are affected by the covid 19 (covid19 led to a significant decrease in workforce participation and automation has accelerated its pace of diffusion, in many enteprises [1]), but also their interactions will shape the Future of Work.

1. KEY MESSAGE

The message in this lecture, is indeed that the collision of many trends will inevitably induce  a major Future of Work transformation. This transition in turn will not be successful without a significant upgrade of human resources, a fortiori for those innovative companies willing to exploit all trends to their own benefits. We observe that a few companies already get the journey right, but the in general, companies are at least 50% off of the necessary changes to lead to a vibrant future of work. 

2. FUTURE OF WORK

The recent past

Looking in the past, work has been the driver of our well-being. Work provided a salary for living and salary not consumed could be accumulated for saving, crafting enough wealth for educating the family, and later retirement. In turn, this has created the middle class, leading to a robust final demand for business opportunities .

Despite large fluctuations, the natural rate of unemployment had remain flat, meaning that the chance to work has been pretty much constant. Real wages were also tracking productivity growth. Barely 2% of people, in the years 1995-2005 did not witness real wage advancement in developed countries. Automation was already alive with the first deployment of robotics ; but those robots were mostly present in automotive assembly lines, and in a few countries such as Japan and Germany.

Since the turn of this century, clouds have emerged The middle class jobs started to get squeezed, with a bifurcation between high skill jobs, and low skills job. This led for the first time to a decoupling between labor productivity growth and average real wage increase in our economies. In fact, between 2005 and 2015, about 7 out of 10 workers did not have an advancement in real wage in developed countries.Equally telling, work stress had started to build up since the seventies, but raised faster than labor productivity growth in the recent decade. The closest coupling with productivity growth has become stress evolution, and not real wage, - clearly at the detriment of the employees.

A squeeze of middle class and the wrong coupling with labor productivity inevitably creates a social instability and a low trust inoto institutions, be public, or be private firms. . Economists such as Alesina or Rubini had already wanred us that social instability may derail the link between human capital and economic growth[2].

The current base line

Adding to this ambiant fragility , four components currently define the base line of the future of work and its evolution. The first element is aging, already limiting the supply of work in countries such as France, Germany, or still China.

The other three elements are automation, remote work and the rise of the gig economy. Automation is moving to softwarisation and smart robotics. The covid crisis has recently boosted remote work. The gig economy, through digitization of labor platforms is still small, but expanding quicklly, as illustrated by the growing portion of task makers on Mechanical Turk, or in drivers on Uber.

At current, smart automation diffusion into enteprise remains low. In contrast, 20-25% of the workforce is already working remotely in the US, and 1 out of 3 of workers operate as independent workforce. The ? firm-employee ? nexus is shrinking, from about 80% of the full time of work twenty years ago, to about 60% by now in the US.

Future of work trends and how the future may hold

The evolution of the all trends is likely to change the equilibrium between demand and supply of work. This equilibrium is difficult to predict as labor marekts are still relatively local and at the local level, the dynamics of firms, or the change in supply of work are important driver of the equilibrium. We however foresee that countries like India with a young population will have no choice to continue to expand its competitiveness to feed this human cohort, in contrast to countries like Germany that may face a workforce crunch. US is likely to see an imbalance, with excess supply due to a young growing population increase of second generation immigration.

But the most predictable effect at the collision of the various trends is the acceleration of the deconstruction of the traditional "firm-employee" model. We anticipate that the traditional model will further decline to only 40% in less than a decade (US), meaning that firms will need to create new forms of relationship with workers, beyond just the office employee work. This is driven by the followings mechanisms:

1. The rise of smart technologies, mostly driven by Artificial Intelligence is challengeing the task composition of jobs, and raiseing the profile of hybrid jobs that master both creative and cognitive tasks. In the meantime, those talents might want to work more as professional service, or remote, as their composite skills are in excess demand, and they can benefit from offering their services to multiple entreprises.

2. The Covid-19 demonstrates that telework will become an important aspect of the future of work, The stock market has made a strong signal regarding the future of work, both on the supply chain side, as well as for companies heavilty pivoting to telework and automatioon. As example, Zoom, a remote video communication tool used for remote working sessions, went from 10 million active users by December of last year before the pandemic, to have above 300 million users by 3,5 months later. In the same period, Zoom stock price more than doubled. The stock market also strated to discriminate heavily against companies and sectors with low resilience towards the Covid 19. A recent study revealed for example, that the stocks of the least resilient industries (such as Mining, or water transportation) generated CAPM adjusted returns up to 50% lower than the most resilient ones like Computer and Electronic products[3],[4].

Yet, a large part of telework has become outside of the classical control of the enterprise is biased towards higher skills, which stands for the largest leadership and talent pool of companies.

3. Finally, the gig economy has been growing, but is actually morphing towards an audience economy, where the best talents build their captive audience, with returns aking to the superstar economy, instead of being commoditized by large platforms. This resutls in talents being less dependent on one single firs, and talents playing a multi-home strategy that better maximizes their work.

3. A NEW HUMAN-CENTRIC JOURNEY

 HR mobility scale up

Along with the shrinkage of the usual employee-firm model, firms will have no choice but to scale their human resources strategy.

Our own simulation suggests that work mobility ( hiring, firing, etc) is today roughly 4 to 5% of the total workforce, This is set to more than double by the end of this decade, as a result of automation efficiency, new innovatinolevarging frontier technologies, upskilling, new platform models of relationship wih independent workforce, and new interaction models with remote work. (By the way, doubling is an average. Companies that quickly embrace those trends will be able to be much more competitive. As a result of their expansion and their speed to deliver on the future of work tends, human resources mobility will go up to 15% of the total workforce. On the other side of the spectrum, companies that resist trends, will lose markt share, will shrink even further on their tradtional model of ?firm=employees ? relationship).

The new HR core components

The size and speed of the HR transformation is driven by five factors. First, the mobilty challenge may not be possible without a digital HR transformation ; most training will be upgraded through online learning platforms as they offer cost efficient, agile, and scalable solutions.

Second, HR will have to expand its role beyond the boundary of the firm to poach and work into the full ecosystem of independent workforce, start ups, and gig economy talent providers. Third, HR must be a designer of the new work relationship with remote, so that trust, team connectivity and productivity remain secure. Fourth, HR may face a bifurcation between high talents working either remote or as independent service provider, and lower skills that may remain stuck inthe tradtional model of firms ; HR will have to build new bridge to secure more fludity among a more decentralized type of organization. Fiftth, and not the least, HR must develop a coaching culture. Coaching will ensure blended learning, will help workers through the multi)facet transtion of their work ( most jobs will have task shift, skill upflit, remote functions and outside the firm).

First-movers versus lagging HR practices

Even in the worse case of automation being fully deployed for efficient labor, the labor input will remain dominant in developed economies as economies have been pivoting towards services. Not only humans will outnumber robots, and will mostly work in synergy with them, but human capital is the differentiated factor for firms to gain a competitive advantage. 

We start to see various companies forcefully engage in this HR transformational journey, from SAP to Microsoft, but also Walmart, Shell, or Toyota. In general, however, a large portion of companies have yet to develop a comprehensive perspective on the future of work, let alone build a HR digital transformation, that if successful, can support the human-centric deployment of talents. The importance of human resources will increase, not decrease, in the future. Only companies which have understood this evolution and act upon it witha significant new upgrade and model of HR will build a bright future for themselves.

Are you one of them ?

[1] One example is Walmart which has been investing in cleaning robotics in its supermarkets in the US, in order to offer virus free environment.

[2] Alesina, A., ?zler, S., Roubini, N., & Swagel, P. (1996). Political instability and economic growth. Journal of Economic growth, 1 (2), 189-211.

[3] See Pagano, Wagner and Zechner, Disaster resilience and asset prices, Covid Economics, May 2020

[4] One additional argument that teleworking is here is to stay is that the deployment is closely correlated to the evolution of digitization. In Europe, digitallly advanced Nordic countries have already a much larger share of workers used to telework. The three most telework intensive countries are the Netherlands, then Finland, and Sweden for an average telework share of 35% of more than twice the average of Europe by 2019