McKinsey report: Global economy needs robots to boost productivity

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At a time of lackluster productivity growth worldwide, automation technologies, including robotics and artificial intelligence (AI), can give a needed boost to economic growth and prosperity and help offset the impact of a declining share of the working-age population in many countries.

robot waiter

This is according to a new McKinsey Global Institute (MGI) report, which estimates automation could significantly enhance the performance of companies and raise productivity growth globally by as much as 0.8 to 1.4 percent annually.

Automation will change the daily work activities of everyone, from miners and landscapers to commercial bankers, fashion designers, welders — and CEOs, the report said.

?Almost half the activities we pay people to do around the world today have the potential to be automated by adapting currently demonstrated technologies,? it said.

?However, only a small proportion of occupations, less than 5 percent, can be fully automated based on existing technologies, and most workers will continue to work alongside machines.?

While much of the current debate about automation has focused on concerns about mass unemployment, McKinsey said the global economy will actually need everyone working, in addition to the robots, to boost productivity and enable economic growth.

?But the workplace will change. The anticipated shift in labor force activities from automation is of a similar order of magnitude as the long-term shift away from agriculture and decreases in manufacturing share of employment.

“At a time of sluggish GDP growth and weak productivity gains — and when demographic trends are starting to work against growth in a broad range of countries — automation could serve as a welcome boon to the world economy and companies,” said James Manyika, director of the McKinsey Global Institute.

“Automation’s challenge for policy makers, business leaders, and workers everywhere is a formidable one: how to capture the positive effects on growth, productivity, and breakthrough enhancing innovations, at the same time as navigating what is likely to be a complicated transition period. The potential social and employment implications, including for wages, skills, and dislocation, are significant.”

Overall, McKinsey estimates that 49 percent of the activities people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology. That amounts to almost $12 trillion in wages.

While less than 5 percent of occupations can be fully automated, about 60 percent have at least 30 percent of activities that can technically be automated.

This means many more occupations will change as business processes are transformed than will be automated away in their entirety, the report said.

For companies, automation will bring a wide range of performance benefits other than labor substitution, including higher throughput, raised quality, and improved safety.

“Science fiction has become business fact. Robots and computers can not only perform a range of routine physical work activities better and more cheaply than humans, but are also increasingly capable of accomplishing activities that include cognitive capabilities once considered too difficult to automate successfully, such as making tacit judgments, sensing emotion, or even driving,” said Michael Chui, a partner at the McKinsey Global Institute.

“Yet automation won’t happen overnight. We estimate it will take decades for automation’s effect on current work activities to play out fully. So mass labor redeployment is what we need to think about, not mass unemployment.”

Adoption of automation technologies will take time, and the pace will vary widely across different activities, occupations, and wage and skill levels, the report said.
At a global level, technically automatable activities touch the equivalent of 1.1 billion employees and $11.9 trillion in wages.

Four economies — China, India, Japan, and the United States — account for just over half of these total wages and employees; China and India together account for the largest potential employment impact-600 million workers between them-because of the relative size of their labor force.

The effect could also be large in Europe: according to MGI analysis, 54 million full-time employee equivalents and more than $1.9 trillion in wages are associated with technically automatable activities in the five largest economies — France, Germany, Italy, Spain, and the United Kingdom.

The activities most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing.

In the United States, these activities make up 51 percent of activities in the economy. They are most prevalent in manufacturing, accommodation and food service, and retail trade. And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential.

As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa.

MGI’s scenarios suggest that half of today’s work activities could be automated by 2055, but this could happen up to 20 years earlier or later depending on the various factors, in addition to other wider economic conditions.

“Companies can use AI and robotics to raise productivity, including through performance gains such as greater efficiency and quality, and increase scale of their companies,? said Mehdi Miremadi, a McKinsey partner.

?Automation can also increase speed to market and the ability to individualize products and services. Executives will need to inventory their activities for automation potential and rethink business processes to capture the full value of automation.”

As workers are displaced by automation, retraining efforts will be critical, and companies will need to play an important role in these efforts.

Policy makers will need to innovate safety nets, encourage investment by businesses in both technology and skills, adapt to an evolving regulatory landscape, and rethink economic development plans.

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