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Winding Road AheadChristopher Ragan

OCA Conference, OttawaSeptember 28, 2018

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Some things I won’t discuss today.

Basic Storyline

1. Lots of economic transitions in our future;

2. They all require lots of adjustment;

3. Adjustment requires a “flexible” work force;

4. Where will this flexibility come from?

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1. The transition to a cleaner economy …

… means moving away from these ….

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… and toward these.

2. The aging of our populations …

80% of people 65 or older will live in low or middle-income countries.

For the first time in history, there will be more people over the age of 65 than under the age of 14.

The number of people worldwide aged 80 or older will quadruple.

The proportion of world’s population over age 65 will double.

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1. … about productivity growth…

2. … and about a looming “fiscal squeeze”

… creates two large challenges...

“Identity Economics”

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GDP/POP = (GDP/E) x (E/LF) x (LF/POP)

Past 40 years

Next 40 years

Per capita income = (labour productivity) X (employment rate) X (LF participation rate)

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32

34

36

38

40

42

44

46

48

50

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1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

% of GDPThe Fiscal Squeeze in Historical Perspective

Government revenue Government expenditure

What would happen if we don’tchange our taxes or other spending – if we just borrow this amount?

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20

30

40

50

60

70

80

90

100

110

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Total Government Net Debt-to-GDP Ratio

r - g = 0.5 ppt r - g = 1.0 ppt r - g = 1.5 ppts r - g = 2.0 ppts

Return to the “debt wall”?

No steering wheel

No blindspot

3. “Disruptive” technological change …

… includes now-familiar names …

Asset ownership

Distribution

Production cycle

500,000 rooms

1,500 stores

12-18 month production cycle

2M+ rooms, no physical assets

No physical stores

Monthly software updates

2005 2015

… and drives huge productivity gains …D

etro

it,

1990 $250 billion

$328 billion

Revenues

$36 billion

$1,467 billion

Market cap

1.2 million

155,000

Employees

Silic

on V

alle

y,

2015

Percent of activity that can be automated using existing technology

… but creates transition in the workforce …

SOURCE: “Where machines could replace humans—and where they can’t (yet),” McKinsey Quarterly, July 2016

Occupations that mostly require

predictable physical work

are most likely to be automated

Occupations that mostly require

interacting with others are least likely to be automated

78%

68% 69%25%20%18%

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… is expanding the “gig” economy …

Primary Income Supplemental Income

Preferred Choice Free Agents

30%(49 M people)

Casual Earners

40% (64 M people)

Out of Necessity Reluctants

14% (23 M people)

Financially Strapped

16% (26 M people)

Source: Independent Work: Choice, Necessity, and the Gig Economy, McKinsey & Company, 2016.

The Characteristics of Workers in the Gig Economy(162 million workers in the United States and Europe)

… and “hollowing out” the labour market.

20Earned Income ($)

% of Earners

High-income, servicesHigh educationHigh job security

HARD to automateor outsource

Low-wage, servicesLow educationLittle job security

HARD to automateor outsource Middle-wages, goods/services

Manufacturing, resources, construction

Low-middle education

EASIER to automate or outsource

This increases the value of “flexibility”.21

creative, articulate, bold, industrious, curious, cooperative, empathetic, …

“soft” or “social” skills

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Who’s Teaching the Skills?

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Firm Specific Transferable

“Hard”

“Soft” ???

Employer training

On-the-job learningUniversities and colleges

Can we do a better job?25

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Thank you.