DECEMBER 2017JOBS LOST, JOBS GAINED: WORKFORCE TRANSITIONS IN A TIME OF AUTOMATION About MGICopyright © McKinsey & Company 2017Since its founding in 1990, the McKinsey Global Institute (MGI) has sought to develop a deeper understanding of the evolving global economy. As the business and economics research arm of McKinsey & Company, MGI aims to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions. The Lauder Institute at the University of Pennsylvania has ranked MGI the worlds number-one private-sector think tank in its Think Tank Index.MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our “micro-to-macro” methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGIs in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on six themes: productivity and growth, natural resources, labor markets, the evolution of global financial markets, the economic impact of technology and innovation, and urbanization. Recent reports have assessed the digital economy, the impact of AI and automation on employment, income inequality, the productivity puzzle, the economic benefits of tackling gender inequality, a new era of global competition, Chinese innovation, and digital and financial globalization. MGI is led by three McKinsey & Company senior partners: Jacques Bughin, Jonathan Woetzel, and James Manyika, who also serves as the chairman of MGI. Michael Chui, Susan Lund, Anu Madgavkar, Sree Ramaswamy, and Jaana Remes are MGI partners, and Jan Mischke and Jeongmin Seong are MGI senior fellows.Project teams are led by the MGI partners and a group of senior fellows, and include consultants from McKinsey offices around the world. These teams draw on McKinseys global network of partners and industry and management experts. Advice and input to MGI research are provided by the MGI Council, members of which are also involved in MGIs research. MGI council members are drawn from around the world and from various sectors and include Andrés Cadena, Sandrine Devillard, Richard Dobbs, Tarek Elmasry, Katy George, Rajat Gupta, Eric Hazan, Eric Labaye, Acha Leke, Scott Nyquist, Gary Pinkus, Sven Smit, Oliver Tonby, and Eckart Windhagen. In addition, leading economists, including Nobel laureates, act as research advisers to MGI research.The partners of McKinsey fund MGIs research; it is not commissioned by any business, government, or other institution. For further information about MGI and to download reports, please visit mckinsey/mgi.James Manyika | San Francisco Susan Lund | Washington, DC Michael Chui | San Francisco Jacques Bughin | Brussels Jonathan Woetzel | Shanghai Parul Batra | San Francisco Ryan Ko | Silicon Valley Saurabh Sanghvi | Silicon Valley DECEMBER 2017JOBS LOST, JOBS GAINED: WORKFORCE TRANSITIONS IN A TIME OF AUTOMATION PREFACE Automation is not a new phenomenon, and fears about its transformation of the workplace and effects on employment date back centuries, even before the Industrial Revolution in the 18th and 19th centuries. In the 1960s, US President Lyndon Johnson empaneled a “National Commission on Technology, Automation, and Economic Progress.” Among its conclusions was “the basic fact that technology destroys jobs, but not work.”* Fast forward and rapid recent advances in automation technologies, including artificial intelligence, autonomous systems, and robotics are now raising the fears anewand with new urgency. In our January 2017 report on automation, A future that works: Automation, employment, and productivity, we analyzed the automation potential of the global economy, the timelines over which the phenomenon could play out, and the powerful productivity boost that automation adoption could deliver. This report goes a step further by examining both the potential labor market disruptions from automation and some potential sources of new labor demand that will create jobs. We develop scenarios that seek to address some of the questions most often raised in the public debate. Will there be enough work in the future to maintain full employment, and if so what will that work be? Which occupations will thrive, and which ones will wither? What are the potential implications for skills and wages as machines perform some or the tasks that humans now do? The report is part of the McKinsey Global Institutes research program on the future of work, and is by no means the final word on this topic. The technology continues to evolve, as will our collective understanding of the economic implications. Indeed, we highlight some of the limitations of our analysis and scenarios, and areas for further research. The report builds on our previous research on labor markets, incomes, skills, and the expanding range of models of work, including the gig economy, as well as the potential impacts on the global economy of digitization, automation, robotics, and artificial intelligence. The research was led by James Manyika, chairman and director of the McKinsey Global Institute and McKinsey senior partner based in San Francisco; Susan Lund, an MGI partner based in Washington, DC; Michael Chui, an MGI partner in San Francisco; Jacques Bughin, MGI director and McKinsey senior partner based in Brussels; and Jonathan Woetzel, MGI director and McKinsey senior partner in Shanghai. Parul Batra, Ryan Ko, and Saurabh Sanghvi headed the research team at different times over the course of the project. The team comprised Julian Albert, Gurneet Singh Dandona, Nicholas Fletcher, Darien Lee, Nik Nayar, Sonia Vora, and Rachel Wong. We are deeply grateful to our academic advisers, who challenged our thinking and provided valuable feedback and guidance throughout the research. We thank Richard N. Cooper, Maurits C. Boas Professor of International Economics at Harvard University; Sir Christopher Pissarides, Nobel laureate and Regius Professor of Economics at the London School of Economics; Michael Spence, Nobel laureate and William R. Berkley Professor in Economics and Business at the NYU Stern School of Business; and Laura Tyson, Professor of Business Administration and Economics at the Haas School of Business, University of California, Berkeley. *Technology and the American economy: Report of the National Commission on Technology, Automation, and Economic Progress, US Department of Health, Education, and Welfare, February 1966.Colleagues from around the world offered valuable insights into various aspects of our research. We thank Jens Riis Anderson, Jake Bryant, Richard Dobbs, Rajat Gupta, Kimberly Henderson, Tasuku Kuwabara, Meredith Lapointe, Jan Mischke, Anu Madgavkar, Deepa Mahajan, Mona Mourshed, Chandrika Rajagopalan, Jaana Remes, Jimmy Sarakatsannis, Katharina Schumacher, Jeongmin Seong, Bob Sternfels, and Eckart Windhagen. We are also grateful to the following McKinsey colleagues who provided technical advice and analytical support: Peter Aagaard, Jonathan Ablett, Rohit Agarwal, Tarun Agarwal, Moinak Bagchi, Drew Baker, Sergio Balcazar, Tim Beacom, Shannon Bouton, Leon Chen, Debadrita Dhara, Eduardo Doryan, Alan FitzGerald, Isabelle Fisher, Sarah Forman, Boyan Gerasimov, Enrique Gonzalez, Nicolas Grosman, Jose Mora Guerrero, Shishir Gupta, Fernanda Hernandez, Shumi Jain, Frederik Jensen, Karen Jones, Priyanka Kamra, Arpit Kaur, Mekala Krishnan, Priyanka Kumar, Krzysztof Kwiatkowski, Alison Lai, Freya Li, Mike Munroe, Jesse Noffsinger, Emilio Noriega, Erik Rong, Martin Schultz-Nielsen, Narasimhan Seshadri, Raman Sharma, Vivien Singer, Rachel Valentino, Charlotte van Dixhoorn, Jerry van Houten, Mike Wang, Wendy Wong, Hank Yang, and Desmond Zheng. This report was edited and produced by MGI senior editor Peter Gumbel, editorial production manager Julie Philpot, senior graphic designers Marisa Carder, Margo Shimasaki, and Patrick White, and data visualization editor Richard Johnson. Rebeca Robboy, MGI director of external communications, managed dissemination and publicity, while digital editor Lauren Meling provided support for online publication and social media. We thank Deadra Henderson, MGIs manager of personnel and administration, for her support. This report contributes to MGIs mission to help business and policy leaders understand the forces transforming the global economy, identify strategic locations, and prepare for the next wave of growth. As with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we are grateful for all the input we have received, the report and views expressed here are ours alone. We welcome your comments on this research at MGImckinsey. Jacques Bughin Director, McKinsey Global Institute Senior Partner, McKinsey & Company Brussels James Manyika Chairman and Director, McKinsey Global Institute Senior Partner, McKinsey & Company San Francisco Jonathan Woetzel Director, McKinsey Global Institute Senior Partner, McKinsey & Company Shanghai December 2017 On Fifth Avenue, New York© Mitchell Funk/Photographers Choice/Getty ImagesCONTENTSHIGHLIGHTSHistorys lessons Middle-wage conundrumThe retraining challenge 3387106In briefSummary of findings Page 11. Jobs lost, jobs changed: Impact of automation on work Page 232. Lessons from history on technology and employment Page 333. Jobs gained: Scenarios for employment growth Page 554. Implications for skills and wages Page 77The future of work by country Page 91China 92Germany 94India 96Japan 98Mexico 100United States 1025. Managing the workforce transitions Page 1056. Priorities for government, business, and individuals Page 123Technical appendix Page 131Bibliography Page 143IN BRIEF JOBS LOST, JOBS GAINED: WORKFORCE TRANSITIONS IN A TIME OF AUTOMATION In our latest research on automation, we examine work that can be automated through 2030 and jobs that may be created in the same period. We draw from lessons from history and develop various scenarios for the future. While it is hard to predict how all this will play out, our research provides some insights into the likely workforce transitions that should be expected and their implications. Our key findings: Automation technologies including artificial intelligence and robotics will generate significant benefits for users, businesses, and economies, lifting productivity and economic growth. The extent to which these technologies displace workers will depend on the pace of their development and adoption, economic growth, and growth in demand for work. Even as it causes declines in some occupations, automation will change many more60 percent of occupations have at least 30 percent of constituent work activities that could be automated. It will also create new occupations that do not exist today, much as technologies of the past have done. While about half of all work activities globally have the technical potential to be automated by adapting currently demonstrated technologies, the proportion of work actually displaced by 2030 will likely be lower, because of technical, economic, and social factors that affect adoption. Our scenarios across 46 countries suggest that between almost zero and one-third of work activities could be displaced by 2030, with a midpoint of 15 percent. The proportion varies widely across countries, with advanced economies more affected by automation than developing ones, reflecting higher wage rates and thus economic incentives to automate. Even with automation, the demand for work and workers could increase as economies grow, partly fueled by productivity growth enabled by technological progress. Rising incomes and consumption especially in developing countries, increasing health care for aging societies, investment in infrastructure and energy, and other trends will create demand for work that could help offset the displacement of workers. Additional investments such as in infrastructure and construction, beneficial in their own right, could be needed to reduce the risk of job shortages in some advanced economies. Even if there is enough work to ensure full employment by 2030, major transitions lie ahead that could match or even exceed the scale of historical shifts out of agriculture and manufacturing. Our scenarios suggest that by 2030, 75 million to 375 million workers (3 to 14 percent of the global workforce) will need to switch occupational categories. Moreover, all workers will need to adapt, as their occupations evolve alongside increasingly capable machines. Some of that adaptation will require higher educational attainment, or spending more time on activities that require social and emotional skills, creativity, high-level cognitive capabilities and other skills relatively hard to automate. Income polarization could continue in the United States and other advanced economies, where demand for high-wage occupations may grow the most while middle-wage occupations declineassuming current wage structures persist. Increased investment and productivity growth from automation could spur enough growth to ensure full employment, but only if most displaced workers find new work within one year. If reemployment is slow, frictional unemployment will likely rise in the short-term and wages could face downward pressure. These wage trends are not universal: in China and other emerging economies, middle-wage occupations such as service and construction jobs will likely see the most net job growth, boosting the emerging middle class. To achieve good outcomes, policy makers and business leaders will need to embrace automations benefits and, at the same time, address the worker transitions brought about by these technologies. Ensuring robust demand growth and economic dynamism is a priority: history shows that economies that are not expanding do not generate job growth. Midcareer job training will be essential, as will enhancing labor market dynamism and enabling worker redeployment. These changes will challenge current educational and workforce training models, as well as business approaches to skill-building. Another priority is rethinking and strengthening transition and income support for workers caught in the cross-currents of automation. McKinsey Global InstituteviiiHelp wanted, Beverly Hills, California© Geri Lavrov/Photographers Choice/Getty ImagesSUMMARY OF FINDINGS The technology-driven world in which we live is a world filled with promise but also challenges. Cars that drive themselves, machines that read X-rays, and algorithms that respond to customer service inquiries are all manifestations of powerful new forms of automation. Yet even as these technologies increase productivity and improve our liv