How G7 Nations Can Support and Prepare for the Next Technology Wave

A wave of new technologies appears to be emerging that many speculate will not only boost productivity but also increase rates of labor market disruption. While past waves of technological innovation have had enormous positive impacts, including on per-capita GDP growth, all have had some disruptive impacts, including on incumbent firms, workers, and communities. While it is not the role of governments to protect businesses from innovative competitors, it is their role to help workers and communities make effective transitions.

This paper provides a description of the various technologies encompassing the next production revolution (NPR) and G7 policies to spur NPR innovation. It then provides an analysis of the likely labor force impacts of the technologies, including on jobs and unemployment and on particular demographic groups and types of places. It then offers key principles to guide G7 policies, and lists specific policy ideas in four areas: spurring the development of NPR technologies, spurring their adoption, easing labor market transitions, and shaping policies related to common approaches to AI. The report closes with a brief discussion of key points G7 partners might make in common.

Findings

• A set of new and improving technologies that promise to boost productivity growth rates is emerging.
• It could be a decade or more before this technology wave is fully reflected in GDP growth.
• This technology wave is not unprecedented, and likely to be of the same order of magnitude as the waves of the 1890s and 1900s, 1950s and 1960s, and 1990s and early 2000s.
• If policymakers do not give in to reactionary, anti-innovation forces, this wave could increase annual labor-productivity growth rates up to approximately 3 percent per year (up from the current average 1 percent).
• Current and historical evidence, as well as economic theory and research, strongly indicates this next innovation wave is highly unlikely to lead to a massive loss or shortage of jobs. However, it will likely increase labor-market and occupational disruption, albeit from its current lowest point in a generation.
• While the last wave had a disproportionate impact on the productivity of middle-wage and middle-skill jobs, the next wave is expected to similarly affect lower-skill and lower-wage jobs, whose workers are on average less well equipped to successfully make labor market transitions. On the other hand, this impact is likely to result in G7 labor markets having a larger share of better and higher paying jobs than at present.

Transformative Technology Firm/Society Recommendations

• G7 nations are taking steps to support the development of the next wave of technologies. But more can be done, including supporting pre-competitive research partnerships (public-private partnerships focused on early-stage R&D) to support the development of automation technologies, especially advanced robotics.
• Many of these technologies can play important roles in helping particular socio-economic groups. Toward that end G7 nations should support research and share findings on the development and application of these technologies aimed at helping underrepresented groups such as women, youth, the elderly, and people with disabilities.
• Since it appears that the AI impacts on productivity-driven job displacement are more likely to be greater for lower-skilled and lower-income workers, G7 nations should collaborate on best practices for both skill development and work transition practices to support lower-skilled workers.

Artificial Intelligence/Data Recommendations

• The NPR, particularly in the area artificial intelligence, will depend on data. To maximize AI innovation and adoption, nations will need privacy regimes that enable the use and reuse of data. While national privacy rules do not need to be harmonized as they mainly travel with data, this heightens the need for interoperability between regimes so as to facilitate the ease of doing business.
• Binding international rules regarding NPR technologies, including AI, are generally not needed because national regulatory regimes are adequate to address policy concerns. However, G7 nations should work cooperatively to limit restrictions on cross border data flows.
• G7 policy makers should work to ensure that data-protection regulations do not inadvertently limit AI innovation. In particular, privacy laws and other regulations that apply restrictive standards to automated decisions that would not apply to human decisions would raise costs and limit AI innovation, as well as force a trade-off with the accuracy and sophistication of AI systems.
• To help limit harmful or inaccurate results from AI applications, policymakers should pursue efforts to ensure algorithmic accountability (e.g., steps to ensure that algorithms do what they are intended to do). Requiring algorithmic transparency, especially requirements that source code and detailed explanations of how the algorithm work be exposed to some degree of public scrutiny, will limit AI innovation.

Government Programming Recommendations

• G7 nations should cooperate on the development of sector- and system-based strategies for the widespread adoption of NPR technologies, including in key sectors such as construction, finance, health care, utilities, transportation and governments (e.g. smart cities).
• To the extent G7 nations focus on regulatory frameworks for the NPR, these should be grounded on the “innovation principle,” rather than the “precautionary principle.” NPR technology is in its infancy and its impact on society is only just starting to be understood.

Skills for the Future Labor Force Recommendations

• G7 nations will need to do more to ensure that workers displaced by NPR technologies have stronger capabilities and tools to make successful transitions. Policymakers should consider approaches that support employers’ need for a flexible workforce while also supporting workers so they can make successful transitions.
• Education reform should be focused on enabling workers to get better skills and other competencies, particularly “21st century generic skills” and more technical skills. This will require significant, sometimes disruptive, reforms, particularly to high school and post-secondary institutions.
• More will need to be done to encourage employers to expand workforce training efforts, including wider use of portable skills credentialing, sector-wide training and development plans, industry-led skills alliances, apprenticeship programs, and portable training accounts.
• G7 nations should collaborate on how to better use information and communications technology to facilitate online skills assessment, career navigation, training, and workforce placement.

Going forward, there is little reason to believe historical patterns will not continue. Moreover, G7 economies will need the NPR to proceed at a robust pace. G7 productivity growth rates over the last decade have been lower than in the two decades prior, while the demographic challenges from an aging population are becoming more severe. Without faster rates of productivity growth, the only way for G7 economies to cope with increasing dependency ratios is to either decrease consumption by the elderly (through reduced benefits or delayed retirement) or increase taxes on workers. Greater productivity through technology—growing the proverbial pie—is the only way to allow both workers and retirees to see their living standards increase at reasonable rates. This can and should be done in ways that protect widely held values such as privacy and enable all individuals and groups to benefit.