Digital transformation and its

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Employment and Social Developments in Europe 2018

Digital transformation and its impact on labour markets and

social protection

INAPP Conference, Rome, 15 February 2019

Loukas STEMITSIOTIS

Head of Unit - Thematic Analysis, DG Employment, Social Affairs and Inclusion, European Commission

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The storyline

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• Major challenges lie ahead: Ageing will require higher productivity growth. Rapid robotisation and digitalisation, while fuelling productivity, may come at the expense of job losses.

• Investing in skills and education can turn digitalisation into a net job creator.

• The world of work is also changing. Digitalised platform work is increasing rapidly.

• Digitalised platform work may go along with more atypical forms of work, and higher social risks. New social challenges emerge.

• The adequacy as well as the financing of social protection become increasingly challenging.

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The influence of megatrends grows stronger

Technological

Transformation  ESDE 2018

Demographic change (ageing and

its impact on intergenerational fairness) ESDE 2017

Globalisation

(globalised

competitive markets and offshorable labour demand)

The changing world of work

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• Working-age population here: age group 20-64

Sources: UN World Population Prospects 2015 for the US, Eurostat 2015 population projection for the EU

Ageing is not occurring only in Europe … but the ageing pattern will be particular in Europe.

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187 207 227 247 267 287 307

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

millions

64.0 69.0 74.0 79.0 84.0 89.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

% of working Age Population (20-64 years) Working-age

Population (20-64)

Employment Active

population

Employment rate

EU-28 Employment will face its limits …

Own calculations based on Eurostat 2015 population projections, Eurostat LFS

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Working-age population

population

Employment rate

LOW activity scenario

+1.1% p.a.

EU-28 Employment will face its limits…

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Robots are becoming cheaper relative to labour

7

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The number of robots is increasing rapidly

Level of the operational stock of robots in the EU28

8 edetioboRof on rati FSonalatiernnt: Iceourcs 0

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Units of Robotos (Operational Stock)

DE IT FR ES UK other EU

Most robots are

installed in Germany.

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Robots fuel productivity

Robot intensity and total factor productivity in manufacturing between 2010 and 2015

AT

BE

DE

DK

FI FR

NL ES

UK

y = 1,2048x + 3,3029

-6 -3 0 3 6 9 12 15

-2 0 2 4 6 8

TFP (value added per hour worked based) growth

Change in robot intensity 9

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J

obs with high automatable task content may be lost

If today’s cutting-edge science and technology were applied in production processes, a substantial part of jobs could be automated.

0,00 5,00 10,00 15,00 20,00 25,00 30,00 35,00 40,00 45,00

IE BE HR NO CY LU UK IS FI SE EE LT ES DK FR AT EL NL CZ PT SK HU DE IT

Share of fully automatable jobs

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New jobs are created: increasing robot density and net job creation go hand-in-hand …

Operational stock of robots in manufacturing and employment in Germany

0 50 100 150 200 250 300 350

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Industrial robots in manufacturing Workers in manufacturing Workers in services

change since 1995

+35% (services) -7% (manuf.)

+214% (robots)

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… because smarter physical capital seeks smarter human capital

Capital and high-skill labour are complementary:

• Employers buy robots because capital is more efficient than labour, so labour gets displaced, initially;

• THEN, employers hire new labour, skilled enough to operate and fulfil the new capital's higher productivity potential

OR,

• Employers buy robots to equip higher-skilled workers with better capital and thus achieve higher productivity ¹²

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Today, platform work makes only a small share of the EU labour force…

As a concept, 'platform work' does not lend itself to easy definition and categorisation

The monetary value of transactions within collaborative platforms grew by +56% in 2014 yoy, +77% number of transactions in 2015 yoy

• Only 1 in 10 adults have experience of platform work

• Only 1 in 43 (2.3%) make a living from

platform work, earning more than 50% of their income

from it ^0%

10%

20%

30%

40%

50%

60%

70%

80% Daily internet users in 14

MS in survey

Have ever done platform work

Of those…. Monthly or more

Of those…. 10h per week or more

Of those…. 50% of income or more

13

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... but a rapid increase is under way (example: Uber statistics).

Source: BusinessOfApps - Uber Statistics Report (2017)

Number of active Uber drivers in the US by month

0 5 10 15 20 25

2014 2015 2016

Uber gross revenue, bn $

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Many platform workers consider themselves as self-employed…

0% 20% 40% 60% 80% 100%

"Self -employed" "Employee and self -empl."

"Not employed and self -empl" "Not employed"

"Employee"

More than half of main-job platform workers indicate they are self-employed in one or the other way.

Source: COLLEEM survey 15

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The increasing significance of platform work may lead to further rise in self-employment

Increase between 2011 and 2016 (%) according to LFS in the 14 EU countries covered by the COLLEEM survey

Source:

LFS, COLLEEM survey

"Platform tasks" as classified in COLLEEM are:

Clerical tasks, professional activities, creative tasks, software development, transport tasks, on-location tasks.

0%

1%

2%

3%

4%

5%

6%

7%

8%

Self-empl. Total empl.

Typical "platform tasks"

Entire economy

16

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Atypical employment is associated with higher social risks…

Workers at risk of poverty by type of employment

0,00 5,00 10,00 15,00 20,00 25,00 30,00 35,00

All types of

workers Full-time, open- ended contract,

i.e. "standard worker"

Part time Full time

temporary Solo Self employed

17

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Atypical employment is also associated with lower access to social protection..

Risk of no statutory access to unemployment benefits, by employment type, in red

18

Temporary, full-time

Temporary, part-time

Self-employed Permanent, full-time

Source: computations by Matsaganis et al, 2015

EU-28

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The financing of social protection is becoming more challenging

S

ocial protection relies increasingly on government subsidies.

19

35 40 45 50 55 60 65

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Social Contributions (paid by employers and by the protected persons) Government contributions from taxation

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20%

22%

24%

26%

28%

30%

32%

34%

36%

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059

Standard scenario

Faster hours reduction scenario Hours recovery scenario

Funding social security in an environment of fast change

Hypothetical contribution rate as % of wages

(Unemployment and pension insurance), EU-28

For all: Constant share of self-employed (15%)

.. assuming "High Activity" labour market scenario (ESDE 2017) 20

DG EMPL calculations based on EU-LFS

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In the medium-term, a higher share of self- employed will make social insurance costlier.

Hypothetical social security contribution rate (unemployment benefits and pensions, EU-28)

20%

22%

24%

26%

28%

30%

32%

34%

36%

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059

.. assuming "High Activity" labour market scenario (ESDE 2017) 21

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22

DG EMPL calculations based on the Labour Market Model

Model simulation

0% 1% 2% 3% 4% 5% 6% 7%

GDP Capital Workers in employment Net wage rate per hour Labour cost per hour

Higher skills and education attract investment and foster productivity

Structural shift, away from low qualified workers (-5% of workforce) towards medium (+3%) and highly qualified workers (+2%), Germany

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Conclusions

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• Major challenges lie ahead: Ageing will require higher productivity growth. Rapid robotisation and digitalisation, while fuelling productivity, may come at the expense of job losses.

• Investing in skills and education can turn digitalisation into a net job creator.

• The world of work is also changing. Digitalised platform work is increasing rapidly.

• Digitalised platform work may go along with more atypical forms of work, and higher social risks. New social challenges emerge.

• Adequacy as well as the financing of social protection are becoming more challenging.

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Thank you for your attention!

ESDE 2018 link:

https://ec.europa.eu/social/main.jsp?catId=738&langId=en&

pubId=8110&furtherPubs=yes

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High speed of robotisation; by industry

Level of the operational stock of robots in the EU28

25 edetioboRof on rati FSonalatiernnt: Iceourcs 0

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Units of Robotos (Operational Stock)

Automative Metal products

Rubber and plastic other manufacturing non-manufacturing

Automotive industries rely heavily on robots.

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Full-time Part-time Full-time Part-time Family worker with employees without employees

Perman.Temp.Self-empl.

0% 10% 20% 30% 40% 50% 60% 70%

2002 2016

Platform work is increasing, as is atypical work in general

26

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Benefits of platform work (and similar new forms of work)

• Increased flexibility for both businesses and workers (time and location)

• Better work-life balance

• More inclusive labour markets: new

opportunities including for LM-challenged groups

(women caring for children/elderly at home, the

disabled, those discriminated against in standard

jobs, etc.)

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Downsides of new forms of work

• Potentially worse working conditions and job quality for workers unable to take advantage of changes.

• New forms of work have the potential to amplify income (and other) inequalities.

• Many workers may not be covered by social security schemes. This implies:

o Lower social protection coverage of the workforce;

o Growing pressure on the financing of social welfare systems, as the contribution base shrinks, compounded by demographic ageing.

• Facilitate more frequent labor market transitions and offshorability of labor demand

28

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29 Monthly

or more

10h per week or more

50% of income or more

UK 88% 12% 9.9% 6.7% 4.3%

ES 67% 12% 9.4% 6.6% 2.0%

DE 78% 10% 8.1% 6.6% 2.5%

NL 86% 10% 8.7% 5.4% 2.9%

PT 60% 11% 7.1% 6.0% 1.6%

IT 66% 9% 7.1% 5.4% 1.8%

LT 60% 9% 5.9% 5.6% 1.6%

RO 42% 8% 6.4% 4.5% 0.8%

FR 70% 7% 5.9% 4.2% 1.8%

HR 63% 8% 5.2% 5.2% 1.0%

SE 85% 7% 5.3% 3.5% 1.6%

HU 71% 7% 5.0% 4.1% 1.3%

SK 68% 7% 5.1% 2.7% 0.9%

FI 85% 6% 4.1% 2.9% 0.6%

Total 10% 7.7% 5.6% 2.3%

Of those….

Daily internet

users

Has ever done platform

work

Platform work: A cross-country comparison

Source: COLLEEM survey (JRC)

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187 207 227 247 267 287 307

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

millions

64.0 69.0 74.0 79.0 84.0 89.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

population

Employment rate

EU-28 Employment will face its limits..

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187 207 227 247 267 287 307

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

millions

64.0 69.0 74.0 79.0 84.0 89.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

population

Employment rate

„Europe 2020“:

75% by 2020 +1.1% p.a.