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Countries Most (and Least) Likely to be Affected by Automation
Countries Most (and Least) Likely to be Affected by Automation
Automation is transforming work, business, and the economy. The impact of robotics, AI and the Internet of Things, will vary widely from country to country.
Technology Briefing

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Around the world, automation is transforming work, business, and the economy. But, the impact of robotics, AI and the Internet of Things, will vary widely from country to country.

China is already the largest market for robots in the world, based on volume. All economies, from Brazil and Germany to India and Saudi Arabia, stand to gain from the hefty productivity boosts that robotics and artificial intelligence will bring. The pace and extent of adoption will vary from country to country, depending on factors including wage levels. But no geography and no sector will remain untouched.

The McKinsey Global Institute (MGI) recently took a detailed look at forty-six countries, representing about 80 percent of the global workforce. The MGI team examined what's possible by adopting demonstrated technologies, as well as the likely similarities and differences in how automation could take hold in those forty-six countries. These experts then summarized their conclusions in a special Harvard Business Review report.

What did they conclude?

First, about half the activities that people are paid to do in the global economy have the potential to be automated by adopting demonstrated technology today.

As explained in MGI's report titled "A Future that Works", their analysis focused on individual work activities, which they believe to be a more useful way to examine automation potential than looking at entire jobs. That's because most occupations consist of a number of activities with differing potential to be automated.

Second, 1.2 billion full-time equivalent jobs and $14.6 trillion in wages are associated with activities that are automatable with current technology. This automation potential differs across countries, ranging from 40 percent to 55 percent.

Third, the differences reflect variations in sector mix and, within sectors, the mixture of jobs with larger or smaller automation potential. Sector differences among economies sometimes lead to striking variations, as is the case with the two largest advanced economies: Japan and the United States. Japan has an overall automation potential of 55 percent of hours worked, compared with 46 percent in the United States. Much of the difference is due to Japan's manufacturing sector, which has a particularly high automation potential, at 71 percent (versus 60 percent in the United States). Japanese manufacturing has a slightly larger concentration of work hours in production jobs (54 percent of hours versus the U.S.'s 50 percent); it also has more office and administrative support jobs (16 percent versus 9 percent).

Both production jobs and administrative support jobs are comprised of activities with a relatively high automation potential. By comparison, the United States has a higher proportion of work hours in management, architecture, and engineering jobs, which have a lower automation potential since they require application of specific expertise such as high-value engineering, which computers and robots currently are not able to do.

On a global level, four economies - China, India, Japan, and the United States - dominate the total, accounting for just over half of the wages and almost two-thirds the number of employees associated with activities that are technically automatable by adopting demonstrated technologies. With more than 700 million workers between them, China and India may account for the largest potential employment impact because of the relative size of their labor forces.

Technical automation potential is also large in Europe. According to MGI's analysis, more than sixty million full-time employee equivalents and more than $1.9 trillion in wages are associated with automatable activities in the five largest E.U. economies: France, Germany, Italy, Spain, and the United Kingdom.

Fourth, MGI expects to see large differences among countries in the pace and extent of automation adoption. Numerous factors will determine automation adoption, of which technical feasibility is only one. Many of the other factors are economic and social. These include:

  1. The cost of hardware or software solutions needed to integrate technologies into the workplace.
  2. Labor supply and demand dynamics.
  3. Regulatory and social acceptance.
Some hardware solutions require significant capital expenditures and could be adopted faster in advanced economies than in emerging ones with lower wage levels, where it will be harder to make a business case for adoption because of low wages. But software solutions could be adopted rapidly around the world, particularly those deployed through the cloud, reducing the lag in adoption time. The pace of adoption will also depend on the benefits that countries expect automation to bring for things other than labor substitution. These include the potential to:
  • Enhance productivity
  • Raise throughput
  • Improve accuracy
  • Increase regulatory and social acceptance

Regardless of the timing, automation could be the shot in the arm that the global economy sorely needs in the decades ahead. Declining birthrates and the trend toward aging in countries from China to Germany mean that peak employment will occur in most countries within fifty years. The expected decline in the share of the population, which is working-age, will open an economic growth gap that only automation can fill.

Fifth, MGI estimates that automation could increase global GDP growth by between 0.8 percent and 1.4 percent annually, assuming that people replaced by automation rejoin the workforce and remain as productive as they were in 2014. Considering the labor substitution effect alone, MGI calculates that, by 2065, the productivity growth that automation could add to the largest twenty economies in the world is the equivalent of an additional 1.1 billion to 2.2 billion full-time workers.

The productivity growth enabled by automation can ensure continued prosperity in aging nations and could provide an additional boost to fast-growing ones. However, automation on its own will not be sufficient to achieve long-term economic growth aspirations across the world. For that, additional productivity-boosting measures will be needed, including reworking business processes or developing new products, services, and business models.

How could automation play out among countries? MGI has divided the forty-six focus nations into three groups, each of which could use automation to further national economic growth objectives, depending on its demographic trends and growth aspirations. The three groups are:

  1. The Advanced economies. These include Australia, Canada, France, Germany, Italy, Japan, South Korea, the United Kingdom, and the United States. They typically face an aging workforce, though the decline in working-age population growth is more immediate in Germany, Italy, and Japan than in the United States. Automation will provide the productivity boost required to meet economic growth projections that they otherwise would struggle to attain. These economies thus have a major interest in pursuing rapid automation development and adoption.
  2. The Emerging economies with aging populations. This category includes Argentina, Brazil, China, and Russia, which face economic growth gaps as a result of projected declines in the growth of their working-age population. For these economies, automation will provide the productivity injection needed to at least maintain current GDP per capita. To achieve a faster growth trajectory that is more commensurate with their developmental aspirations, these countries will need to supplement automation with additional sources of productivity, such as process transformations.
  3. The Emerging economies with younger populations. These include India, Indonesia, Mexico, Nigeria, South Africa, and Turkey. The continued growth of the working-age population in these countries will help them maintain current GDP per capita, even without widespread automation. However, given their high-growth aspirations, and desire to remain globally competitive, automation coupled with additional productivity-raising measures will be necessary to sustain their economic development.
For all the differences between countries, many of automation's challenges are universal. For business, the performance benefits are relatively clear, but the issues are more complicated for policy makers. They will need to find ways to embrace the opportunity for their economies to benefit from the productivity growth potential that automation offers, putting in place policies to encourage investment and market incentives to encourage innovation. At the same time, all countries will need to evolve and create policies that help workers and institutions adapt to the impact on employment.
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