Automation, older workers to shape US workforce in 2020s

Imagine celebrating your 65th birthday with a new full-time job contract, or a generous offer to continue working indefinitely for your existing employer with higher pay and more flexible hours. Those scenarios are likely to become more common in the 2020s as highly skilled workers grow scarcer.

The troubling news is that the next phase of automation, including humanoid service robots, machine learning and autonomous logistics, is poised to displace millions of service workers in the United States and other developed economies. However, most projections about the impact of automation on labor overlook the role of rapidly aging populations. Our research shows it’s the combination of these two forces that will redefine how we work in the coming decade.

{mosads}The baby boomer generation and women’s entry into the workforce powered a long but temporary surge in U.S. labor force growth starting in the 1950s. Now, with baby boomers at or near retirement age, U.S. labor force growth is likely to slow to 0.4 percent a year in the 2020s — a deceleration that already is triggering labor scarcity in a growing number of industries.

That’s good news for highly skilled workers — roughly 20 percent of the workforce. Employers will compete for that pool of talent with incentives to stay on the job to age 70 or beyond. A shortage of highly skilled labor also will give older workers more opportunities to retool their skills. Our research suggests that over the next decade, the main share of workforce growth will come from 55- to 74-year-olds. That means baby boomers will likely remain an important pool of talent through 2030, when the youngest cohort of that generation will be only 66. Companies that don’t develop innovative offers for their older skilled employees may suddenly find that other companies are poaching their talent.

In the near term, a shrinking labor pool should be good news for younger workers as well. The big challenge for businesses over the next few years will be attracting and retaining workers at all levels. In fact, younger workers are adding to the slowdown in labor force growth by delaying their entry into the workforce as part of a trend toward a longer transition between school and work. As a perk, companies may offer prospective employees the option of working remotely. Providing workers with an inspiring mission will also become increasingly important in attracting and retaining talent.

Over time, however, scarce labor will accelerate companies’ investment in automation, ushering in a decade of disruption for a large pool of mid- and low-skilled workers. Our research shows that the rapid spread of automation may eliminate as many as 20 percent to 25 percent of current U.S. jobs, which equates to 40 million displaced workers, and depress wage growth for many more. The hardest hit will be those earning $30,000 to $60,000 a year. And the speed of change is likely to make this technological transition harder than previous ones. The next generation of automation technologies could eliminate jobs in the U.S. service sector two to three times more rapidly than in previous transformations, including the shift from agriculture to industry from 1900 to 1940.

Demographics reinforce the trend toward growing workforce inequality. The highly educated tend to work longer, and higher-income workers are more likely to be in occupations in which physical decline is less of an impediment to working into one’s late 60s or early 70s. Those in the bottom three income quintiles face a 64 percent chance of suffering an age-related decline in ability to work, compared with only a 25 percent chance for those in the top quintile.

This divergence resulted in high-income workers clocking in 77 percent more hours in 2006 vs. 1979, while the bottom 20 percent of income earners have seen a 39 percent decline over that same period. Because the main share of workforce growth will come from 55- to 74-year-olds over the next decade, the income inequality effect of demographics will become more pronounced.

One bright spot: Automation will make it less costly for entrepreneurs to launch a business. Start-ups can use social media, targeted search engine ads and email newsletters to launch a business at a fraction of the marketing budget previously required. It’s also becoming much easier for small businesses to grow quickly by, for example, using cloud services to sell a product or customer relationship management platforms to manage sales.

The industrialists, engineers, inventors and businesspeople who are creating automation technologies and investing in them will be among the many to benefit from the change. But the growing gap between the majority of workers who suffer from automation’s negative impact and the highly skilled minority who benefit from it is likely to increase income inequality dramatically.

Intergenerational conflicts could rise as retirees and the working-age population battle for resources. In the coming decade, the population of those age 65 and older will grow faster than the working-age population in OECD countries for the first time in history, leading to overall dependency ratios falling below 1:1 in some markets. Businesses may become indirectly involved as they grapple with existing pension obligations, the scarcity of highly skilled workers, social pressure to address job losses and declining incomes among mid- to low-skilled workers.

Optimists argue that the clear pattern of history is that creating more value with fewer resources has led to rising material wealth and prosperity for centuries. We see no reason to believe that this time will be different — eventually. But the time horizon for our analysis stretches only into the early 2030s. Governments confronted with serious economic imbalances in the interim may opt for a more active role in shaping the labor market of 2030 and helping mid- and low-skilled workers train for new jobs.

Karen Harris is managing director of Bain & Company’s Macro Trends Group in New York. The group’s research includes trends driving global growth in GDP and capital markets, as well as specific geographic analyses.

Andrew Schwedel is a partner in Bain & Company’s New York office and senior member of the financial services practice. He leads the Macro Trends Group.