2. Preparing for the jobs of the future

Automation will critically affect local labour markets and regions in industrial transition in specific ways

Job tasks have been automated for centuries, boosting productivity and giving rise to new jobs that provide employment and contribute to rising living standards. The introduction of steam power is a prominent early example of technology that saved labour on a massive scale. Historically, the changing nature of workplace skills, a requirement of technological progress, has led to fears of “technological unemployment” (Keynes, 1931). At the same time, technological innovation has always led to new jobs, while productivity growth from automation has been the most important driver of rising living standards (Autor and Salomons, 2018).

Yet, automation also poses challenges. First, technology can change labour markets very suddenly, while it may take considerable time to create new jobs and replace those lost to technological progress. Second, the skills profiles of jobs lost to automation and those required to replace the jobs lost might not be the same. The automation of jobs, therefore, can lead to a temporary (in principle) but potentially prolonged period of unemployment (OECD, 2018a).

Previous waves of technological breakthroughs have shown that automation does not spread evenly across territories. On the contrary, certain occupations and sectors are more exposed to automatable tasks than others and neither occupations nor sectors are evenly distributed within national borders. The OECD has shown that substantial in-country differences exist when considering the number of jobs at high risk of automation (OECD, 2018a). For instance, the share of workers in jobs with a risk of automation equal to or larger than 50% varies more than two-fold across regions in the OECD countries for which data is available. The share of jobs at risk of automation is as low as 28% in Helsinki and the surrounding region while reaching 70% in Western Slovakia (Figure 2.1).

Regions in industrial transition are likely to be part of those territories that are more, rather than less, affected by automation because they are often home to traditional manufacturing industries with a higher proportion of jobs that rely on routine tasks. This is likely to lead to more disruption than in other places.

The automation of existing jobs means that there is a potential for new jobs to be created and even more jobs will be changed. If managed well, these changes can lead to economic growth via contributions to productivity and higher value-added activities. However, as the jobs of the future will use different skills and may have higher educational requirements, workers may need to switch occupations and acquire new skills. Upskilling and retraining the existing workforce should be high on the agendas of policymakers in these regions in order to prepare workers for the future of work.

Figure 2.1. Risk of automation across European TL2 regions, 2016

Share of regional workers at risk of job automation higher than 50%

Notes: A job is considered to be at risk of automation if it has a 50% or higher probability of being automated. Estimates for the share of workers in jobs at risk of automation/significant likelihood of change are based on estimates that combine the risk of automation for individual tasks with the specific tasks performed in occupations and the distribution of occupations across regions (for the methodology see Nedelkoska and Quintini, 2018). Data that links tasks and occupations come from the OECD Survey of Adult Skills (Programme for the International Assessment of Adult Competencies, PIAAC) and have been regionalised in OECD, 2018a. For countries where PIAAC data and is not available, estimates are based on a weighted average for the occupation-specific risk of automation from the three most similar countries with available data. Similar countries and the weights for the average are based on an iterative matching procedure that considers the industrial, occupation and education structure of OECD countries and regions. See Box 3.1 in OECD (2019b) for further details.

Reference years and territorial level: Reference year 2016. Data from Norway corresponds to the year 2016. Large regions (Territorial Level 2 of the OECD Regional Statistics [Database]), except for Flanders (Belgium), for which sub regions are considered (corresponding to NUTS2 level of the European Classification), as well as for France (regions prior 2016 territorial reform).

Sources: OECD calculations based on Nedelkoska, L and G. Quintini (2018), “Automation, skills use and training”, https://doi.org/10.1787/2e2f4eea-en, and National Labour Force Surveys (2016). Published in OECD (2018a), Job Creation and Local Economic Development 2018: Preparing for the Future of Work, https://doi.org/10.1787/9789264305342-en.

Industrial transition may come with increased job polarisation

Jobs destroyed through automation disproportionately involve routine or repetitive tasks. By contrast, demand has increased for individuals with transversal skills such as making sense of new unstructured information, negotiating and striking deals or caring for others. What these tasks have in common is that they do not follow a precise set of rules and are more difficult to articulate and codify so that a computer can execute them. Because these tasks tend to be associated with either high-skilled or low-skilled occupations, automation is said to bring about a “hollowing-out” of middle-skilled jobs (Autor, 2015; Brynjolfsson and McAfee, 2014; OECD, 2016a).

Over the past two decades, middle-skill and middle-wage employment as a share of the workforce has declined in OECD countries. At the same time, workers who carry out non-routine tasks have increased their share of total employment. These jobs are either high-skilled (e.g. managerial positions) or low-skilled (e.g. basic services). Thus, both ends of the skill-distribution spectrum of jobs have increased while the middle has declined (Figure 2.2).

Figure 2.2. Changes in the share of jobs by skills level

Percentage point change in the share of total employment, 1995-2015

Note: High-skill occupations include jobs classified under the ISCO-88 major groups 1, 2, and 3. Middle-skill occupations include jobs classified under the ISCO-88 major groups 4, 7, and 8. Low-skill occupations include jobs classified under the ISCO-88 major groups 5 and 9. For more details refer to the OECD Employment Outlook 2017.

Source: OECD (2018a), Job Creation and Local Economic Development 2018: Preparing for the Future of Work, https://doi.org/10.1787/9789264305342-en.

Selecting a policy approach in the face of an ever more polarised labour market will require a nuanced response by policymakers in regions in industrial transition. Given the rapid pace of technological improvements, shifts in tasks undertaken by humans might occur quickly and even high-skilled workers need to become more flexible to cope with a situation in which tasks are being taken over by machines. Policymakers in affected regions also need to ensure that this does not lead to a situation in which a more polarised labour market leads to higher income inequality and a dual labour market, with one part of the population being significantly better off than the other. Ensuring that the employees in new jobs created have adequate social rights and employment protection is an important part of the story.

Non-standard work might become increasingly prevalent in some regions in industrial transition

Technological progress not only leads to automation, it also promotes the emergence of new forms of employment, including the growth of non-standard work, defined as temporary, part-time and self-employment (Eurofound, 2015). Non-standard work provides job opportunities for many individuals, thanks to greater flexibility. It helps match workers to jobs, integrate those who are marginalised in the labour market and, in certain cases, can offer a better work-life balance. Yet non-standard work can also reduce access to social protection and healthcare benefits. People in non-standard jobs often face lower levels of skills investment than standard employees; evidence shows that this category of jobs may sometimes be an opportunity of last resort rather than a worker’s choice. Non-standard work can create a dichotomy in the labour market between individuals with a stable career and those jumping from one non-standard job to the next, and has been rising in most OECD countries since 1985. There are, however, large regional differences within countries. For instance, in Greece, the share of non-standard work as part of total jobs grew by 7% in western Greece while declining by 11% in Epirus.

Focusing on temporary work only, the OECD has shown that the presence of a large pool of low-skilled workers (those with less than secondary education) is associated with a large share of temporary work (OECD, 2018a). This may be related to the lower prevalence of specific skills in low-skilled jobs, which facilitates substituting one worker for another. Furthermore, the regional rate of unemployment is strongly associated with the prevalence of temporary work in a given region. This is because regional labour markets with higher unemployment rates should see more competition for jobs, reducing the bargaining power of individual workers (OECD, 2018a).

OECD analysis at the regional level reveals a complex picture, with some regions contributing more than others to the rise of temporary work. The increase in the share of temporary work could be the consequence of an increasing number of jobs with temporary contracts but also a relatively smaller reduction of temporary contracts compared to permanent jobs. Some regions in industrial transition could experience an increase in non-standard work if traditional manufacturing sectors are restructuring or are ceasing activity. While some of the laid-off workers will be able to transition and upgrade jobs, others will seek alternative, potentially non-standard job routes. The probability of non-standard work will be higher for those workers who did not finish secondary school.

Getting skills development right drives successful transition

Regions in industrial transition are typically home to a large pool of high-skilled labour in traditional fields of industry. Although well trained for their current employment, these workers often possess a homogeneous knowledge base with a lack of future-oriented skills. However, embracing industrial modernisation and technological upgrading requires highly skilled employees, ones able to perform complex tasks that help drive firm competitiveness and productivity growth (OECD, 2016b). Skills development is, therefore, critical, particularly in the context of growing digitalisation and globalisation.

Skilled workers typically possess strong cognitive skills (e.g. numeracy, literacy and problem-solving) and management and communication skills. Information and communication technology (ICT) skills are particularly relevant for making use of emerging digital technologies, such as cloud computing, the Internet of Things or Big Data (OECD, 2017b). However, companies also need workers who not only have strong cognitive skills but also emotional and communication skills, and a readiness to learn (Grundke et al., 2017).

While regions in industrial transition tend to lack a sufficient number of highly-skilled workers for future-oriented and technology-rich environments, they are not the only ones. Across the OECD, two-thirds of adults are unsuitably skilled to participate in technology-rich environments. For workers without tertiary education, this changing environment leads to greater difficulty in finding employment given the higher demand for workers with technical expertise (OECD, 2017b).

Regions in industrial transition need to avoid falling into a “low-skills equilibrium”

If the skill supply does not match the type or level of skills that employers demand or if the supply is not aligned with how local employers use available skills, then skills mismatches arise. Skills mismatches and shortages have multiple sources. Often, students, workers, employers or training institutions lack information on the skills required in the short-, medium- and long-term, driving mismatches. In addition, co-ordination failures can occur, for example, when the firms are not able to adapt their processes to the available skills stock (OECD, 2016b).

Assessing the relationship between the levels of skills of the current workforce (the supply) and the level of skills needed for available jobs (the demand) can provide important information on the potential for local job creation. The OECD has developed a diagnostic tool that classifies subnational areas into four categories based on their relationship between the supply and demand of skills relative to other subnational areas within the same country. For example, when considering France and the United Kingdom, the supply and demand of skills within local economies varies greatly (Figure 2.3). In France, about one-third of all subregions were in a “high skills equilibrium”, with both a relatively high supply of and demand for skills. Another group of subregions were in a “low-skills trap”. Here, both the supply of skills and the demand for skills were relatively low; some of these subregions may find it hard to move to higher-skilled, higher-value-added products and services. The remaining subregions were in a position of imbalance, with a relatively high supply of skills and low demand for skills (skills surplus) or vice versa (skills deficit). In the UK, 45 subregions were in a “high skills equilibrium", with both a relatively high supply of and demand for skills. Another 45 subregions were in a “low-skills trap” (relatively low supply of and demand for skills) and the remaining subregions were in a position of imbalance, with a relatively high supply of skills and low demand for skills (skills surplus) or vice versa (skills deficit).

Figure 2.3. Combining skills supply and skills demand at the regional level in French (2012) and UK subregions (2013)

Source: OECD (2016c), Job Creation and Local Economic Development 2016, https://doi.org/10.1787/9789264261976-en.

The example highlights considerable variation in the supply and demand for skills at the regional level. Some areas are characterised by low-skilled, low-quality and poorly productive jobs. Such areas can fall into a “low-skills equilibrium”, where it does not pay for individuals to invest in building or upgrading their skills if they are not valued by local employers (OECD, 2016c). Local employers, in turn, have little incentive to move to higher-skilled production and services, knowing that the local workforce does not have the required skills level to fill these types of jobs. Retaining and attracting talent can be an additional challenge for areas faced with a low-skills trap. Because regions in industrial transition often have a lower than average skilled workforce and are home to traditional industries, they risk being trapped in a low-skills equilibrium.

Finding the right entry point to break this cycle is challenging. Structural adjustments to achieve national employment and productivity objectives will likely require an integrated approach to skills. In some cases, this can mean actively working with firms to help increase product development and marketing strategies, or providing training to workers in order to increase the intensity of the skills of local production processes, for example.

SMEs often lack soft skills for innovation

Employees of SMEs are more likely to face difficulties in adapting to a changing industrial and employment environment. This is often attributed to a lack of specific skills that are particularly relevant for increasing firm performance and innovation, including cognitive skills and soft skills, such as communication, creativity, problem-solving and interpersonal interaction.

Evidence suggests that employees in large firms are more likely to have innovation-related transversal skills than their counterparts in SMEs. Results from the OECD Survey of Adult Skills (PIAAC) show that workers in large firms have higher scores on management and communication skills than employees in small firms (Figure 2.4, Panel A). The survey also shows how skills related to readiness to learn and problem-solving are more concentred in larger firms rather than in SMEs, Panel B).

Figure 2.4. Smaller firms lack soft skills for innovation

Distribution of skills across countries by firm size and sector

Note: PIAAC tests the cognitive skills of adults on different dimensions (literacy, numeracy and problem-solving in technology-rich environments) as well as the type of tasks they frequently perform. PIAAC Round 1 was conducted in 2008-13 and Round 2 was conducted in 2012-16.

Source: Grundke, R. et al. (2017), "Skills and global value chains: A characterisation",  https://doi.org/10.1787/cdb5de9b-en, based on OECD PIAAC data.

Policy challenges for regions in industrial transition centre on how to best support skills development in SMEs, how to deliver training to local SMEs and how to attract talented individuals to local SMEs instead of large firms.

Upgrading skills is critical but how can it be done?

Regions undergoing a shift in their industrial base often face an increased skills shortage in new and emerging areas of activity. They are also confronted with decreasing employment of skilled workers in traditional occupations. This leads to a situation where more and better jobs with attractive remuneration and working conditions may be available but a lack of skilled employees results in a large number of unfilled vacancies. In order to fill these jobs, skilled workers from traditional occupations need to be retrained and upskilled in order to ensure that the labour force corresponds to the demanded skillset.

Across the OECD, only 41% of adults participate in formal or non-formal job-related training in a given year (OECD, 2019a). Moreover, the adults who are most vulnerable in the labour market, such as those with few qualifications, the long-term unemployed and those with skills at high risk of job automation are least likely to participate in training. Engaging those who do not participate in education or training is a fundamental task for regions in industrial transition in order to prepare their workforce to meet changing skills needs.

Many workers in regions in industrial transition and beyond want to take-up lifelong learning opportunities but face a variety of obstacles in doing so. One of the leading barriers to participation in training programmes is a lack of time, while paradoxically a lack of employer support is one of the least cited reasons (OECD, 2019a) (Figure 2.5).

Figure 2.5. Barriers to participation in training programmes in OECD countries

Reasons for non-participation (% of adults who wanted to participate but did not)

Note: Average of OECD countries participating in PIAAC.

Source: OECD 2019a, based on PIAAC data (2012, 2015).

A second challenge that regions in industrial transition face is the supply of the right training content to prepare for future skills needs. Good quality data on skills supply and demand often lacks at a regional level. In addition, local employer engagement can be low and it may also not always be clear how to involve key stakeholders. Questions arise such as “Should universities focus predominantly on world-class research or follow the demands of local employers?” and “Should regional governments play a stronger role skills training, for example in leadership and entrepreneurship?”. The answers are often not an “either/or” and so solutions are not mutually exclusive, but they may take time to be constructed and implemented.

Third, the margin for manoeuvre by regional governments is often limited when it comes to education or training policy. In many countries, changes in the educational system are a national-level responsibility. Thus, effective multi-level governance practices and frameworks are needed for regional and national governments to work together, including to identify, implement and support effective regionally led interventions in skills and education. Governments may also need to work more closely with the private sector to deliver appropriate training.

Fourth, ensuring adequate and sustainable financing for upskilling and retraining is often a challenge for regions in industrial transition that operate with tight budgetary constraints. As demand for training is likely to increase in the current context of megatrends (e.g. automation and digitalisation), additional financial resources will need to be devoted to adult learning in the near future.

Supplying the right skills for new and emerging activities

Although a certain level of skills shortages and mismatches is inevitable in a dynamic and constantly changing labour market, several policy instruments exist to reduce their incidence. These can include improved career guidance services, better co-ordination between the labour market and the education system, more offers for work-based training and addressing rigid wage-setting and employment protection legislation that prevents workers and firms from adjusting to mismatches (OECD, 2016b).

Supporting workers in transition

An important element in managing industrial transition is to help workers affected by lay-offs phase out of previously dominant industries and into new ones. New jobs might not appear where old jobs have been lost. If new jobs are created in distant regions, then workers are faced with a decision to leave their communities for employment, which can have potentially destabilising effects on family and community life. Some workers may refuse to move and decide to transition into unemployment. Using transition support to protect and support such workers to find new jobs without having to relocate is an important element of successfully managing industrial transition.

Policies aimed at improving the probability of finding jobs thanks to improved skillsets and helping make the match between the newly skilled and job vacancies can help regions in industrial transition support structural adjustments. Policy responses to temporary unemployment arising from transition include redesigning and strengthening local public employment services (PES) and providing workforce and management training for workers. Special attention needs to be paid to the integration of under-represented and disadvantaged groups, such as women, youth and older people, in the labour market (Table 2.2).

Investing in new and emerging sources of growth and employment

Tapping into new and emerging sources of growth and employment can help regions in industrial transition prevent being locked-in to old industries and create job opportunities that increase productivity, wages and ultimately prosperity. Public support entails investing in technology and ICT training provisions, and actively encouraging the private sector (especially SMEs) to invest in new technologies and business models. A range of policy instruments exist to support new growth and employment opportunities for regions in industrial transition (Table 2.3). These include support for firms to become more innovative, make better use of skills in the workplace and encourage knowledge exchange and co-operation (see also Chapters 3 and 4).

Creating adequate co-ordination and financing mechanisms

Redesigning education and skills systems to fit the new world of work is a complex task, requiring policies to pursue a variety of objectives and reach across different target groups. Responsibility for this lies with regional policymakers but also with national ministries and employment agencies and is often split across stakeholders. In this context, good co-ordination mechanisms are essential to ensure that policies reinforce rather than duplicate each other. This is true with respect to financing as well. Given the number of actors – from government, to private sector, academia and civil society, as well as workers – effective co-ordination is essential to administer separate budgets and be sensitive to different financial capacities. Creating and implementing effective co-ordination mechanisms and better encouraging firms and individuals to help finance training is key for regions in industrial transition to succeed in industrial modernisation (Table 2.5).

Engaging a broad range of local stakeholders in skills dialogue is important

Building stakeholder dialogue can help manage change processes through mutual learning and co-operation. In the context of preparing for the future of work, actively engaging with stakeholders can help regions in industrial transition identify future skills needs and upcoming new business activities in the region by bringing in the resources and expertise of local employers, training associations, universities, VET providers and civil society. Successful dialogue also increases local capacity to find solutions and the willingness of all actors to commit to a shared vision of future economic development. Successful skills dialogue among stakeholders requires that regional policymakers take an active leadership role. Policymakers must be able to convince local employers of the need for change, to be prepared for differences in opinion, and to allocate sufficient time, human and financial resources to build up contacts and generate trust among all parties involved.

Education and skills systems should be more inclusive

In a changing world of work, firms must have access to the skills necessary to stay competitive. For example, across the OECD, the participation in training by adults with low skill levels is 23 percentage points lower than among those with medium and higher skills. This has implications for regions in industrial transition. In the context of rising skill demands, failing to engage these workers in training could translate in constantly higher rates of long-term unemployment.

Taking an integrated approach to local job creation requires investment

New jobs are created when industries expand and new firms start up and grow. Encouraging skills is important for job creation in regions in industrial transition. However, skills and education policies need to be complemented with investments in innovation, technology and business development. In order for new jobs to be created, businesses need access to resources, including skilled people, business networks, finance and space to start up and grow. Policymakers must develop integrated approaches to addressing the future of work, approaches that maximise employment opportunities and help to tackle inequalities and social exclusion. This requires greater co-ordination between investment, innovation and labour market policies at a regional level.

Good governance mechanisms must be in place

Redesigning education and employment systems is challenging for regions in industrial transition. For example, responsibilities may split across different types of actors at different levels of government and industry. In this context, good co-ordination mechanisms are essential to ensure that policies reinforce rather than duplicate each other. Moreover, policies aiming to support the labour market in the face of industrial transition should be sufficiently adaptable to specific regional contexts since the challenges faced may vary significantly from one region to the next.