About Urban 20•

Urban 20 (U20) is a new city diplomacy initiative developed under the leadership of, Horacio
Rodríguez Larreta, Mayor of the City of Buenos Aires, Anne Hidalgo, Mayor of Paris and Chair of
C40 Cities Climate Leadership Group (C40). Launched on December 12, 2017 at the One Planet
Summit in Paris, the initiative is chaired by the cities of Buenos Aires and Paris, and convened by
C40, in collaboration with United Cities and Local Governments (UCLG).
U20 seeks to highlight the expertise of cities in a range of global development challenges andto raise the profile of urban issues within the G20. U20 offers solutions and clear
recommendations for consideration by national leaders ahead of the 2018 G20 Summit. It will
culminate in the inaugural U20 Mayors Summit in Buenos Aires on October 29-30. This will be a
stepping stone towards ensuring a dialogue between cities and the G20.
In 2018, 26 cities have participated in Urban 20: Barcelona, Beijing, Berlin, City of Buenos Aires,
Chicago, Durban, Hamburg, Houston, Jakarta, Johannesburg, London, Los Angeles, Madrid,
Mexico City, Milan, Montreal, Moscow, New York, Paris, Rio de Janeiro, Rome, São Paulo, Seoul,
Sydney, Tokyo, and Tshwane.
For more information, please consult: www.urban20.org

About the White Papers
Urban 20 is proud to present a series of White Papers from our Strategic and Advisory Partners
that highlight the most relevant topics on the cities development agenda and the forthcoming
urban trends. These papers define the challenges that local governments are currently facing
and offer open recommendations supported by relevant, up-to-date research and data. The
intention of this work is to broaden the understanding and perspective of decision makers andstakeholders as to enhance their ability to tackle these most pressing issues. The White Papers
also represent the hard work and dedication of these agencies and organizations to keep the
public well informed about the ongoing efforts to address the present and future challenges weshare as humankind.

Image Orbon Alija

THE FUTURE OF WORK | URBAN 20 WHITE PAPER

The Future of Work in Cities is a White Paper preparedby subject matter experts from U20 Strategic Advisory
Partners as a voluntary contribution to enrich thediscussions of the Urban 20 process.

About the Authors
Javier Sanchez-Reaza
Javier Sanchez-Reaza is a Senior Economist at the World Bank
working on jobs and labor market issues. He holds a PhD from theLondon School of Economics and participated in executive
education at the Harvard Kennedy School of Government. With
over 20 years of experience, Javier has also worked on urban andregional development at the World Bank and the Organisation for
Economic Co-operation and Development. In Mexico, he worked in
the ministries of finance, economy, and labor, as well as thecouncil for science and technology. He has published in the fieldsof growth, trade, labor, and regional economics.
Guillermo Alves
Guillermo Alves is a research economist at CAF Development
Bank of Latin America. He joined CAF in 2017 after completing his
PhD in Economics from Brown University. His research focuses on
topics of urban economics in developing countries, with a focus
on the causes and consequences of informal settlements.

Lucila Berniell
Lucila Berniell is a research economist at CAF since 2011. She
holds a Ph.D. in Economics from Universidad Carlos III de Madrid(Spain). Her research focuses on the formation of human capital indeveloping countries, with an emphasis on the analysis of public
policies to foster skills development.

The World Bank Group is one of the world’s largest sources offunding and knowledge for developing countries. It comprises fiveclosely associated institutions: the International Bank for
Reconstruction and Development (IBRD) and the International
Development Association (IDA), which together form the WorldTHE FUTURE OF WORK | URBAN 20 WHITE PAPER

Bank; the International Finance Corporation (IFC); the Multilateral
Investment Guarantee Agency (MIGA); and the International Centre
for Settlement of Investment Disputes (ICSID). Each institution plays
a distinct role in the mission to fight poverty and improve living
standards for people in the developing world. For more
information, please visit www.worldbank.org, www.miga.org, andwww.ifc.org.
CAF –Development Bank of Latin America- is a multilateral financial
institution whose mission is to support the sustainable
development of its shareholder countries and the integration of
Latin America. Its shareholders are: Argentina, Barbados, Bolivia,
Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador,
Jamaica, Mexico, Panama, Paraguay, Peru, Portugal, Spain,
Trinidad and Tobago, Uruguay, Venezuela and 13 private banks in
the region.
CAF assists the public and private sectors, providing multiple
products and services to a wide portfolio of clients comprised byshareholder countries, private companies and financial
institutions. The institution’s management policies integrate socialand environmental variables, and all of its operations take into
account sustainability and eco-efficiency criteria. As a financial
intermediary, the bank mobilizes resources from international
markets to Latin America to promote investment and business
opportunities.

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Contents
Executive summary...................................................................................................................................... 6
Glossary.......................................................................................................................................................... 7
Introduction................................................................................................................................................... 8
Cities and jobs............................................................................................................................................. 9
A framework for cities and jobs..................................................................................................... 9
Megatrends that will affect jobs in cities....................................................................................... 9
Demographic change........................................................................................................ 9
Spatial transformation....................................................................................................... 12
Technological disruption.................................................................................................. 13
Megatrends’ impacts on cities—opportunities and challenges.............................................. 18
Recommendations.................................................................................................................................... 23
Rethink active labor market policies........................................................................................... 24
Plan for livability to attract firms and workers............................................................................. 24
Formulate policies for skill formation........................................................................................... 24
Apply new technologies to urban policy.................................................................................... 25
Devise national urban policy approaches to address urbanization challenges anddemographic change................................................................................................................... 25
Bibliography............................................................................................................................................... 26
Acknowledgments................................................................................................................................... 28
FiguresFigure 1. Firms with the greatest market capitalization, 2011 and 2018...................................................14
Figure 2. Structural change in value added and employment .............................................................. 15
Figure 3. Structural change in employment in the United States and Latin America, 1950–2015......16
Figure 4. Changes in occupations’ requirements................................................................................... 16

The views, opinions, positions and recommendations expressedin this White Paper are solely those of the authors and do notnecessarily reflect the view of the those of WBG, CAF, their
Boards of Directors, Urban 20 or any of its chairs, conveners,
partners and participating cities. Many of the references in thisWhite Paper will direct the reader to sites operated by third
parties. Neither the institutions nor the authors of this White
Paper have reviewed all of the information on these sites or theaccuracy or reliability of any information, data, opinions, advice orstatements on these sites.

THE FUTURE OF WORK | URBAN 20 WHITEPAPER

Executive summary
Cities create jobs if they are successful in attracting both firms and workers. Firms are attracted
to cities by the benefits they receive from sharing inputs, knowledge, and infrastructure withother firms; matching interests with numerous and diverse workers, suppliers, and customers;
and learning from other firms and workers. Workers are attracted to cities by higher wages andthe great variety of jobs and consumption opportunities.
Cities around the globe are experiencing the effects of several megatrends that are creating
opportunities and challenges in job creation. First, demographic changes imply an aging
population in developed countries and a rapidly growing urban population in developing
countries. Aging in developed countries’ cities implies declining labor supply and an increasing
demand for jobs in health and personal care industries. Jobs in these industries can be an
opportunity for migrants from developing countries. In developing countries, rapid urbanization
implies the need for infrastructure to anticipate urban population growth. Expanding basic
urban infrastructure, such as water, sanitation, and transportation, is not only essential for
maintaining and improving urban residents’ well-being, but can also be a source of job creation.
A second megatrend encompasses the impacts of technological disruption on cities’ labormarkets. The expected—although very much uncertain—shifts in demand for some types ofhuman labor will likely eliminate some jobs while creating others. A key aspect of thistransformation in labor demand relates to changes in skill requirements. Automation andartificial intelligence, while not necessarily reducing total labor demand, are very likely to change
the mix of skills that will be in high demand. These changes in labor demand could worsen
inequality. They imply a larger role for active labor market policies, such as employment services,training, and apprenticeships programs.
Beyond affecting labor markets, new technologies are also altering the traditional tools of urban
policies and support opportunities for improving the quality of life in cities. The emergence ofbig data, for example, changes several aspects of urban policy, from the way cities collect taxes
to the way they monitor urban expansion (satellite imagery) and transport and housing needs(GPS information on households’ location and movements). Cities are important regulators of aset of new technologies affecting vital aspects of urban life, such as transportation (ride-hailingservices) and housing (Internet-based, short-term rental apps). By adopting a proactive role
toward these new technologies, cities can use them to improve both the quality of life andjob opportunities.

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Glossary
Agglomeration economies•

Benefits generated when firms and workers
are close to each other. Examples are thebenefits from sharing inputs, knowledge, andinfrastructure with other firms; matching ofinterests with numerous and diverse workers,
suppliers, and customers; and learning fromother firms and workers.

Congestion forces

Costs generated when firms and workers areclose to each other. Examples are theincreasing time-costs of urban travel, theincreasing land prices affecting housing
affordability, and the increasing pollution due
to motorized transport and the emissions ofsome manufacturing activities.

Automation

The technology that allows a process orprocedure to be performed without direct
human assistance.

Active labor market policies:

Governments’ efforts to improve the labormarket situation for individuals who are out ofwork. Typical examples are programs thatassist with job searching, as well as training
and apprenticeship programs.

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Introduction
Cities across the globe, particularly in G20 countries, will continue to experience the effects
of several megatrends, first of which is demographic change. Some megatrends will affecturban labor markets, as the world’s population is moving “through time” at different speeds. The
developed countries are aging rapidly as developing countries enlarge their youth bulges. This
polarization of demographics presents both opportunities and challenges. These demographic
changes are accompanied by climate change, fragility, conflict and violence, and migration.
Second, the world’s population is moving through space, as countries continue toexperience further urbanization. Urbanization will soon be complete in developed countries,
while developing countries will continue to urbanize. Cities in the developing world will feel thepressure to provide urban infrastructure and services to a growing population. How countries
cooperate to meet each other’s needs through migration will determine the outcome forG20 cities.
Third, cities will also face technological disruption, which is changing labor markets. The
relationship between employer and employee is being transformed in many industries, as are
the skills needed to be hired. Skills and innovation will be the key to jobs in the future, andservices will demand highly skilled workers. Automation will eliminate many routine-task jobs,
and artificial intelligence will transform jobs, if not directly replace many. But at the same time,
automation will free up labor to pursue better paid jobs. Skills development, including reskillingand upskilling, will be key to overcoming labor market challenge. Finally, connectivity willcontinue to help consumers eliminate the asymmetry of information and intermediation, as wellas enable technological transformation to work for equality for the vulnerable and for those living
in remote regions.
These challenges require an active urban agenda on many fronts. Cities will need an urban
policy that includes infrastructure that helps cities adapt to and mitigate the effects of climatechange, provide affordable housing to a growing population, and use digital information
efficiently for an agile response to changing conditions in the labor market. 1 Cities will also need
to work on improving their business environment and seize the opportunities offered by newly
available land. New technologies are also altering the tools available for urban policy. Big data,
for example, changes the way cities collect taxes, monitor urban expansion, and understandtransport and housing needs. Big data can also provide timely information on supply anddemand for local labor. Cities will need to invest in these new technologies to operate
more efficiently.
In this context, the future may hold as many opportunities as challenges for cities. This paper
first lays out a brief conceptual framework on how to think about jobs in cities. The paper thendescribes each of the three megatrends: demographic change, spatial transformation, andtechnological disruption. While the meaning of these megatrends for cities at large, and for
those in G20 countries in particular, remains uncertain, the paper sketches out some of thepotential challenges and identifies some of the opportunities for cities in the context of achanging labor market.

1

For example, communication technologies could increase work-from-home arrangements,
reducing commuting and office footprints. It could also free land and real estate in prime locations.

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Cities and jobs
A framework for cities and jobs

“Cities create jobs if they attract both firms andworkers. Firms are attracted to cities because they
can share inputs, knowledge, and infrastructure withother firms; match numerous and diverse workers,
suppliers, and customers; and learn from other firms
and workers. Workers are attracted to cities to enjoy
higher wages and a large variety of jobs andconsumption opportunities”.

These favorable attributes, referred to as agglomeration forces or economies, tend to increase
with city size. But as cities grow, they may also develop some undesirable features that
discourage the location of firms and workers and thus hurt job creation. These negative effectsof city size, referred to as congestion forces, include the increasing time and cost of commuting
as urban land becomes more expensive and rising air and noise pollution.
Job creation in cities results from the way cities manage the fundamental trade-off between
agglomeration and congestion. For instance, attracting and retaining good workers requires
investing in transport infrastructure to avoid high commuting costs, which make workers lose
time they could otherwise devote to leisure or production. Similarly, having low commuting costs
and affordable housing favors a numerous and diverse workforce, which benefits firms in bothlabor supply and customers.
Yet, urban areas confront a paradox. Cities usually concentrate wealth and employment
opportunities in G20 countries. But they often host poverty and exclusion. One form of exclusion
appears in the labor market. As land prices rise with the success of the city in attracting firms
and workers, housing becomes less affordable. Poorer workers and member of othervulnerable groups locate in hazard-prone, improperly connected and serviced land that is
farther away from job centers. Such a spatial mismatch between places of residence and jobs
can be seen in cities from Chicago to Johannesburg. As a consequence, cities are places
where wealth and poverty cohabit, where opportunity and exclusion coexist.

Megatrends that will affect jobs in cities

Demographic change
Aging will continue in high- and middle-income countries. According to UN population
forecasts, the elder population will nearly double worldwide between 2015 and 2035 andincrease fourfold by 2100. But aging will be concentrated in some countries. In 2015, lessdeveloped countries had almost twice as many older-age citizens (65 and older) than moredeveloped countries. Growth in that population group will continue to be significantly higher inless developed countries (5.5 times the 2015 levels) than in more developed countries (1.8 times).
But as a proportion of the population, the older-age group will grow more between 2015 and 2100
in developed countries (from 18 percent to 30 percent) than in developing countries (from 6
percent to 22 percent). While the share of older-age population will be the highest in OECD
countries, the bulk of growth in the older-age population will be in middle-income countries: fromTHE FUTURE OF WORK | URBAN 20 WHITE PAPER9

64 percent of the world’s older population in 2015 to 71 percent in 2100.
The world’s population will be divided into richer but aging economies and developing but
young economies. Aging is not happening homogenously across the globe. Europe alone ishome to one-quarter of the world’s senior population. In the next three decades, older people
will represent at least a quarter of the population on every continent except Africa. The richest
parts of the world, along with middle-income countries, are expected to have particularly large
shares of older residents.
Current high fertility rates in the poorest regions of the world will produce the youth bulges
of tomorrow. As population growth in OECD countries stagnates—and contracts in somecountries—the world’s population growth will come almost entirely (99 percent) from middle- andlow-income countries. Most of the population growth to 2050 will be in middle-income countries(58 percent). But the trends will be reversed thereafter, as nearly 80 percent of population
expansion takes place in low-income countries. As Asia registers significant negative population
growth rates, Africa’s population growth will drive global trends, compensating for contractionsin other continents. Northern America and to a lesser extent Oceania will register modest gains.
Africa’s engines of demographic expansion—accounting for nearly three-quarters of population
growth—will be six countries in West Africa (Burkina Faso, Cameroon, Cote d’Ivoire, Mali, Niger,
and Nigeria; 35 percent of global growth) and eight countries in mid-Africa between the Equatorand the Tropic of Capricorn (Angola, Democratic Republic of the Congo, Kenya, Madagascar,
Mozambique, Tanzania, Uganda, and Zambia; 39 percent). By 2100, 95 percent of population
growth in Africa will be in Sub-Saharan Africa (table 1).

Table 1. Population projected growth by countries’ level of development,
income, and continent, 2015–2100 (percent)Country and region

2015–30

2030–50

2050–2100

2015–50

2015–50More developed regions

3

2

1

1

-1

Less developed regions

97

98

99

99

101

High-income countries

6

5

3

3

0

Middle-income countries

69

63

48

58

22

Low-income countries

25

32

49

39

78

Africa

44

56

86

68

137

Asia

45

35

9

25

-34

Europe

0

-1

-2

-2

-4

Latin America andthe Caribbean
Northern America

7

6

2

5

-5

3

3

4

3

5

Oceania

1

1

1

1

1

Sub-Saharan Africa(as share of African
population growth)

88

90

93

91

95

By development

By incomeBy continent

Source: Calculations based on UN Population Forecasts in UN (2017a).

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10Workforce growth will be imbalanced too. In 2015, the world’s workforce (population ages 15–64)
stood at 4.8 billion people. More than a billion new workers will be added in the next two
decades, reaching 6.1 billion—almost twice the current population of Europe or the whole
population of China. 2 By 2100, 6.7 billion workers will make the entire global workforce. But theworkforce expansion will be imbalanced. More developed regions will lose around 36 million
workers in the next decade, and the loss will double by 2050 and more than triple by 2100. In
upper-middle-income countries (Latin America, Middle East and North Africa, and Asia)
workforce contractions will not be immediate but will increase dramatically after 2030. By 2050,
upper-middle-income countries will lose nearly 110 million workers, and the loss could approachhalf a billion by the end of the century. Workforce expansion will be almost evenly distributed
between lower-middle income countries and low-income countries, but 85 percent of thoseworkers will be in Sub-Saharan Africa. Again, two regions will account for 91 percent of all workers
in the world: Western Africa (Burkina Faso, Cameroon, Ivory Coast, Mali, Niger, and Nigeria) andmid-Africa (Angola, Democratic Republic of the Congo, Kenya, Madagascar, Mozambique,Tanzania, and Uganda).
Jobs will be needed. Meeting the challenge of workforce growth will require creating at least 40
million jobs globally each year. However, average job creation has been 2.5 million per year in
the European Union since 2014, and 2 million in the United States since 2016. The remaining 90
percent of new jobs need to be created in the rest of the world. However, unemployment isalready two times higher among Africa’s youth than among its older adults—and four times higher
in North Africa. The influx of workers is likely to exacerbate the challenge of youth unemployment.

Source: CAF

2

This section uses UN population estimates from the 2017 revision in UN (2017a). Population growth figures
for different regions and groups of countries come from UN (2017a), which uses median population
estimates for 2015, 2030, 2050, and 2100. UN methodology to calculate population growth is based on theassumptions and methodology in UN (2017b). As admitted by the UN (2017b), there is inherent uncertainty
in population projections since these depend on future trends in specific demographic variables such as
fertility, survival rates, and mortality. The UN (2017a) dataset is based on medium-variant projections of the2017 Revision, which assumes (i) a decline in fertility in countries where large families are present, (ii) aslight increase in fertility in some countries with fertility rates below 2, and (iii) an increase in survival rates
due to a decline in mortality in all countries. Uncertainty was assessed using statistical methods to test arange of plausible outcomes for which the UN (2017b) argues there is a 95 percent certainty. Our
calculations used the median values exclusively, but slightly higher or lower projections are also possible,
as described in UN (2017b).

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In developing country cities many workers rely on the informal economy for jobs. In most of
Latin America’s largest cities, youth employment in the informal economy ranges from 50
percent to 60 percent (CAF 2016). In Hawassa Town, Ethiopia, the informal sector employs close
to 40 percent of young workers. Even under informal work conditions, young workers haveacquired training and on-the-job experience, earn above minimum wage, have savings above
the average for formal workers, and feel positive about their work experience (Darge 2015).
However, the informal sector offers few opportunities for more advanced on-the-job skills
development. Most informal occupations draw minimally on the skills that are relevant for labormarket success, and skills that are not used can deteriorate rapidly. In Latin American cities, only
one in six jobs in the informal sector requires high levels of cognitive skills, compared with one
in three in the formal sector (CAF 2016).

Spatial transformation“Urbanization has been a driver of development.
The benefits of agglomeration provide incentives
for firms and workers to concentrate in urban areas.
Urbanization and the structural shift from agriculture
to manufacturing, and now to services, have beensome of the ingredients of growth. Urbanization
enables structural change and leads to spatialtransformation. Every country in the world has
required urbanization to stimulate the productivity
gains that lead to higher incomes”.

With the spatial transformation almost complete in more developed countries, future
urbanization will occur mostly in lower middle-income and low-income countries. Spatialtransformation will add nearly 2.5 billion urban dwellers by 2050, up almost 60 percent fromtoday’s 4.2 billion. The world’s urban population share will expand from 55 percent today to morethan 68 percent by 2050. However, nearly three-quarters of that urban growth will take place in
middle-income countries, in particular in lower middle-income countries such as Cameroon,
Republic of Congo, and Côte d’Ivoire. More than half of the world’s urbanization will take place inthose three countries. Low-income countries (such as Democratic Republic of the Congo, Niger,
and Tanzania) will contribute less than one-fifth of the urban expansion.
Africa will urbanize, but at a rate much slower than its population growth rate, which may leadto international migration or to rural poverty. Sub-Saharan Africa will contribute to around
one-third of the world’s urban population growth. But its contribution to global population growth
will be much lower than its contribution to global urbanization. By 2100, Sub-Saharan Africa willaccount for 85 percent of the world’s population growth and 91 percent of its workers; by 2050,
it will contribute only 34 percent to global urbanization. Whether workers born in Sub-SaharanAfrica migrate to other countries or remain in rural poverty remains a question.
Migration can also be spurred by fragility, conflict, and violence. Economic migrants (thoseseeking employment and better living conditions) stood at almost one-quarter of a billion people
worldwide up to 2018 (IOM 2018). Asylum applications to the European Union tripled between
early 2014 and the end of 2016 (World Bank 2017). By 2016, the UN Refugee Agency estimated thatnearly 66 million people were forcibly displaced. Every minute 20 people become newly
displaced (UNHCR 2017). Fragility, conflict, and violence around the world could continue to

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propel forced migration to other countries, including to G20 members. In 2016, the stock of
refugees in the world stood at almost 18 million, which is twice as many as in 1980 and aroundnine times the 1970 level. In the European Union, the stock of refugees doubled between 2013
and 2016, reaching 2 million people.
Natural disasters are displacing even more people. Each year since 2008, an average of 25
million people were displaced by natural disasters (IOM 2018)—far more than the number ofpeople forced to migrate because of fragility, conflict, and violence. These numbers could groweven higher as climate change affects the frequency and intensity of climatic events and as it
rearranges economic livelihoods through drought and floods, making rural production
economically non-viable in some places and forcing people to move to urban areas.

Technological disruption
The world is undergoing a fourth industrial revolution. Manufacturing took off in the late 18th
century thanks to innovations in power (steam) and transport (railroads) that changed the way
textiles were produced and output was shipped. A century later, mass production was enabled
by electricity and the division of labor that gave the world light bulbs, telephones, and theassembly line. A third wave of industrialization took place almost half a century ago with the
emergence of computers and information technologies. The current revolution is based on
cyber-physical systems that are altering supply and demand patterns. These changes could befurther fueled by the spread of 3D printing and the power to understand markets made possibleby the collection of big data (WEF 2016).

“Through innovation, automation, and connectivity,
technology is changing markets, including labormarkets. New ideas and processes lower the costs
and risks associated with new products. Someinnovations lead to new businesses and jobs, whilesome spawn entirely new industries”.

And some innovations have transformed industries, as the Internet and the emergence of
streaming did for the music and film industries. Devices that are now taken for granted, such as
smartphones, were not even in the market a decade or so ago! Similarly, connecting devices
through technologies like Bluetooth and enabled by the “Internet of things” was not within ourreach a few years ago. Connectivity changes the costs of transactions and in some cases canhelp firms achieve economies of scale, access resources, and reach old and new markets andcreate jobs to serve them. Perhaps no innovation has been as influential in its impact on labormarkets as automation. Automation can eliminate some jobs and create others.
Recent technological innovations have changed entire industries. In the last few decades,
significant changes in computing and communication technologies have profoundly alteredproductive and social organizations. Technological disruption is shaping new industries while
affecting the production of more traditional good and services. For instance, companies are
moving their core business processes—such as accounting and sales—online. Platforms andpeer-to-peer networks (AirBnB, Uber) are addressing the asymmetry of information between
consumers and suppliers. The Internet is enabling better communication (email, videoconferencing, Skype). Laptops, office software, and mobile phones have made work more
efficient and productive and are replacing everything from music devices to encyclopedias.
Tech companies are gaining more relevance in the economy. Technological progress is

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creating enormous economic benefits, as reflected in the recent (and dramatic) change in thecomposition of the list of publicly traded companies with the highest market capitalization(based on the Financial Times Global 500 rankings). Whereas in the first quarter of 2011, the 10companies with the highest market value were mainly oil-related industries, only seven years
later, in 2018, the list was populated almost exclusively by technology-based companies(figure 1).

Figure 1. Firms with the greatest market capitalization, 2011 and 2018

Source: Based on Financial Times Global 500 rankings [https://en.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization].

Automation is boosting the demand for robots. According to the International Federation of
Robotics (2017), the operational stock of industrial robots increased 12 percent between 2015
and 2016. Demand has been so high that the worldwide stock of industrial robots doubled
between 2008 and 2017. At an estimated annual growth of 14 percent, the stock will growthreefold between 2008 and 2020. The consequences of robotization are not entirely
predictable. The effects will probably be localized in cities with large manufacturing firms
engaged in activities that are routine enough to be automated (Acemoglu and Restrepo 2017).
Structural change implies a growing role for services and the “servicification” ofmanufacturing. Technological progress has been occurring during a period of structuralchange: value added across sectors continues to grow (figure 2, top panel), but in mostcountries employment in both manufacturing and agriculture continues its secular decline as
employment in services grows (figure 2, bottom panel). The United States and Latin America
have both seen employment shift from agriculture and manufacturing into services (figure 3). At
the same time, the line between manufacturing and services is becoming increasingly blurredby what has been called the “servicification” of manufacturing (Hallward-Driemeier and Nayyar2018). Services are embodied in manufactured goods both during their production and whensome final goods are used by consumers (for example, software and the apps needed to usesome electronic devices). Cities like Austin, Boston, New York, San Francisco, and Seattle,
among others, are leading in software and apps development, while Amsterdam, Berlin, London,
Singapore, and Toronto are attracting software engineers that are developing the innovations
that are leading to servicification.

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Figure 2. Structural change in value added and employment

Average annual growth rate in manufacturing value added

Value added

Average annual growth rate in agricultural value added

Percent change in industry’s share of total employment

Employment

Percent change in agriculture’s share of total employment

Source: Sanchez-Reaza (forthcoming).

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Figure 3. Structural change in employment in the United Statesand Latin America, 1950–2015
United States

Latin America (average)

Source: CAF (2018).

This accelerated technological disruption of production also implies significant changes forjobs and workers. Machines now perform many tasks better than humans. This is particularly so
for routine tasks, typically concentrated in occupations that used to rank in the middle of theincome (and skills) distribution. This pattern of task automation is behind the job polarization
seen in the last two decades in most developed countries (figure 4a), and somewhat less clearlyin developing economies (see figure 4b for Latin America).
Robots are replacing workers, but technological change is estimated to have created many
more jobs already. From 1999 to 2016, more than 23 million jobs were created across Europe
because technology also raises the overall demand for labor (World Bank 2019). Technologicalprogress leads to the direct creation of jobs in the technology sector, but it also introduces
efficiencies in value chains that create other jobs (World Bank 2019).
Figure 4. Changes in occupations’ requirements
a. Developed economies, 1993–2010

Source: Goos et al. (2014).
Note: Countries arranged in descending order by middle-skilled occupations.

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b. Latin American countries (recent decades)

Source: CAF (2016).
Note: Periods are not strictly comparable. Countries arranged in descending order by low-skilled occupations.

In future, non-routine tasks could also experience transformation. Recent technological changes
have affected mainly the automation of routine tasks. Recent advances in artificial intelligence androbotics could presage the possibility that machines will perform non-routine tasks as well. They
already engage in many activities currently performed by humans, including speech recognition,
identification of faces and objects, analysis of medical data, and direction of autonomous cars.
Technological advances will not necessarily reduce overall labor demand, but there could bea period of adjustment. Some pessimistic views on the impact of technological change on
employment are based on the greater ease of anticipating which tasks are at risk of automation
than of envisioning new tasks that will be created by new technologies. In addition, the productivity
gains resulting from technological change can boost demand for labor in some sectors that lag
behind in technological adoption, which can absorb some of the workers who are displaced byautomation (Autor and Salomons 2018). Therefore, the expected—although very uncertain—shifts
in demand for some types of human labor will likely eliminate some jobs and create new ones.
Changes in skill requirements are a key aspect of this transformation in labor demand.

“Automation and artificial intelligence will notnecessarily reduce total labor demand (in similar past
events of intense technological progress, employmentrose), but they are very likely to change the mix ofskills that will be in high demand (such as socioemotional
skills). These changes in labor demand and skill
requirements could increase inequality”.

Although the balance in labor demand might be uncertain, the adjustment will take time and will
require racing with, not against, machines (Chuah, Loayza, and Schmillen 2018).

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Source: World Bank

Technological change has the potential to create jobs that we cannot now imagine under labor
relationships that we do not yet fully understand. A recent report by Dell Technologies Institutefor the Future (2017) predicts that 85 percent of jobs in 2030 have not yet been invented. In addition,
the growing “gig economy,” with workers performing certain tasks without a permanent
relationship with an employer, is disrupting traditional industries and changing the relationshipbetween worker and employer.
Finally, faster connectivity could continue to be a force for progress. Connectivity through theInternet and mobile devices is opening markets, improving worker–job matches in the labormarket, and extending the benefits of innovation even to poorly linked regions. Human mobility
needs are increasingly being met through apps. Commercial malls are closing as people movetheir shopping needs online ( Amazon, Ali Baba). Banks are also reducing the number of physicalbranches as people trust their mobile devices to take care of their financial needs. It could soon
be hard to justify keeping a car, with technology bridging the asymmetry of information to provide
mobility services when they are needed (Lyft, Uber). Increasingly, digital platforms are connecting
vacationers with accommodations (Airbnb) and people with know-how and learning (YouTube),and personalizing the entertainment experience (Hulu, Netflix) and health care information (throughwearables and Internet of things devices and platforms like MotherKnows). Digital platforms arealso helping job searchers connect with new opportunities (Glassdoor, Indeed, LinkedIn). With theadvent of blockchain, entrepreneurs can raise funds through crowdfunding using initial coinofferings and cryptocurrencies, eliminating financial intermediation. Finally, vulnerable populations
can benefit from digital platforms to receive critical services—using digital IDs to access financeand services, or platforms like Healthify to find community organizations, social services, andgovernment benefits. Similarly, the Internet and 3D printing could extend medical services, suchas orthopedic solutions, to people in remote regions.

Megatrends’ impacts on cities—opportunities and challenges
Aging populations, youth bulges, and climate change could affect migration trends. As medical
advances have extended longevity and fertility rates have fallen below the replacement level,
populations in developed countries have been aging.

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“An aging workforce means that developed countries
will need to import labor from other countries or rely
further on automation. Even in a scenario in which
automation continues to replace workers in repetitive
tasks, and artificial intelligence reduces demand forworkers in non-repetitive tasks, demand for migrants
will likely remain strong. Health care, mobility
assistance, entertainment, and other services willcontinue to demand workers”.

At the same time, adverse climate events, which will likely intensify and become more frequentwith climate change, will provide a migration push effect from areas prone to natural disasters.
And G20 cities will require workers in fields related to adapting to and mitigating the effects ofclimate change.
Migration to cities will require working with market forces rather than opposing them.
Urbanization is the result of economies of scale in firms located in urban areas: as the firms
become more productive, they pay higher wages, which attracts workers from rural areas. When
policies limit urban sprawl, new business development, or the arrival of rural migrants, markets
always find a way to get what they need. For instance, in the Republic of Korea, restrictions on
setting up firms in Seoul have induced the private sector to locate just outside the core, driving
economic activity to an area still close to the core and thus doing little to reduce congestion(Kamal-Chaoui and Sanchez-Reaza 2012). Rather than opposing urbanization, central and local
governments need to focus policy attention on the market forces that lead to agglomerationand on congestion costs, such as land prices and diseconomies of scale that diminish
residents’ well-being.
Making the most of urbanization requires multi-level governance. Individual cities, particularly
in G20 countries, can implement policies that make urbanization a positive force fordevelopment, from making infrastructure investment decisions that are also oriented to
productive objectives to working with unions, education institutions, and firms to ensure thatneeded skills are being taught in the region. Cities can also ease the administrative costs ofdoing business in the region and revise planning regulations to avoid too much pressure on thecost and availability of housing. But in most cases, cities also need to have the institutionalarrangements in place to coordinate investments, objectives, and mechanisms with other local
governments (horizontal coordination) and for policies that feed into national objectives (verticalcoordination).
National urban policy frameworks are also needed. With growing urbanization, national urban
policy frameworks need to ensure that the objectives and actions of different ministries do notundermine or contradict each other. National urban policies need to become more forward
looking. Urban policies have become more remedial (addressing negative externalities) thanproactive (addressing negative externalities and fostering agglomeration economies). No longer
preoccupied solely with regenerating declining areas, national urban policies and programs are
creating large urban spaces capable of being nodes of production. Forward-looking programs
are providing the high-quality urban infrastructure needed to attract mobile firms and theirhighly skilled workforces in the most innovative and dynamic sectors (Kamal-Chaoui andSanchez-Reaza 2012).
Without significant action, youth employment pressures will grow. Stubbornly high youth

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unemployment rates across the world are a prime concern for all countries. But the challenge
is even greater for developing countries, many of which will experience the pressures of a
growing youth population bulge. Initially, young workers in urban areas will demand jobs, but thechallenge could be greater with rural to urban migration. Many governments in developing
countries consider agriculture a part of their development strategy. However, better livelihoods
in agriculture can be achieved only through productivity gains in farming. Introducing capitaland technology to increase yields would reduce labor demand, which might trigger migration tocities. Urban areas in developing countries will be challenged to provide jobs for a growing
youth population already in cities and those moving there from rural areas. If pressures lead tomigration to developed countries, the youth bulges in developing countries could lead to moremigrants moving to urban areas in G20 countries.
But cities can act on the supply side to reduce youth unemployment. A large component of
the labor market is local. Despite global competition for talent, for the most part firms match job
vacancies with local talent. On the supply side, city governments can support programs to equip
future workers with the necessary skills, particularly in neighborhoods where they are mostneeded. New York City has focused on education in deprived neighborhoods. The Harlem
Children’s Zone aims to break the cycle of poverty by creating an enriching environment ofcollege-oriented peers and supportive adults. It goes beyond investments in education totruancy-prevention programs, family counseling, community centers, job-preparedness, skill
centers, and other programs to ameliorate the conditions that cause children to leave school orunderperform. In operation for more than 40 years, the Harlem Children’s Zone now serves morethan 20,000 children and adults. Similarly, the City of London launched the London Challenge forprimary and secondary school children, focusing both on inspiring children and on attracting
teachers who can reach and motivate students. That same degree of local determination oftraining and education options is also needed in developing countries, where policies are often
centralized and leave little room for local action.

Source: World Bank

Cities have also worked on the demand side and on improving job matching mechanisms.
Policies are also important on the demand side. The London Apprenticeship Campaign,modeled on a program in the German state of North Rhine-Westphalia (home to Bonn, Cologne,
Dusseldorf, and other large cities), subsidizes commuting costs for 16- to 18-year-old students on
apprenticeship wages, improves perceptions about apprenticeships, and links students tocollege-level studies. Vancouver’s BladeRunners program not only works to improve job skills
among youth, but also links youth to local employers (Thomas, Williams, and Serwicka 2016).

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Some decentralization of employment mechanisms to cities and local governments can also
help. Public employment services work to reintroduce unemployed workers into the job market.
Almost every G20 country has used such services to manage unemployment insurance, assist
vulnerable workers, and help with job matching. However, most are national government
programs operating at the local level. In the Netherlands, decentralization has improved
outcomes. While national mandates through the public employment service (WERKbedrijf) set
budget spending limits and goals, municipalities choose which in-house workforce reintegration
services to offer or create their own (Weishaupt 2014). Decentralization offers flexibility to local
governments to address specific local needs for economic specialization.
Aging is creating jobs in health care and personal care industries. Most urban areas in G20
countries are facing the prospect of aging populations, with associated rising demand forservices in health care and personal care. At the same time, the youth bulge in developing
countries may lead to increased migration to G20 cities. This confluence of forces can be
win-win for cities, by giving migrants an opportunity to work in these growing industries while
ensuring adequate care for aging populations.
Most urbanization will take place in developing countries, so the jobs challenge will
increasingly be an urban challenge. Cities in developing countries will face the challenges of
population growth and rural to urban migration. New urban residents will demand the expansionof basic urban infrastructure. That will improve agglomeration forces through education andknowledge creation while reducing congestion forces through better transport infrastructure
and basic water and sanitation services. And building basic urban infrastructure, such as roads
and water and sanitation facilities, can also be an important source of job creation.

“The impact of technological disruption on cities will
depend on how well each city attracts and develops
people with the key skills needed in the new labormarket. Technological disruption that generates
economic dynamism takes place disproportionallyin sectors with a comparative advantage to develop
in cities. Cities that develop these sectors will also
have more dynamic labor markets”.

These sectors thrive in cities because of different types of agglomeration forces. First, innovation
requires the exchange of knowledge and ideas, which typically takes place in cities. Second,
these sectors require access to highly qualified workers, who also locate in cities. Third, these
sectors require access to specific types of infrastructure, such as telecommunications,laboratories, universities, and research centers, which also cluster in cities.
Technological disruption may generate negative shocks in the labor market, but it also
creates opportunities for cities to transform. Technological change can affect wages andunemployment rates in specific sectors. Workers in jobs involving repetitive tasks, especially in
manufacturing, could lose their jobs to automation. But countering these losses will be theyounger workers who will enter the labor market with new skills to fill jobs in fields that do not yet
exist. Many of those jobs will require specialized skills, which could be expected to be wellremunerated. Those new jobs will be located in cities that have amenities that are attractive tohighly skilled workers—cities with urban spaces that favor the exchange of ideas, that help
people nurture their personal and cultural interests, and that have high levels of livability. Thosecities would also have opportunities for workers who provide services to those highly skilled

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workers, thereby creating a space of opportunity for everyone. But cities have to work to put
those amenities in place, to reduce or eliminate congestion costs (including pollution), and to
attract and create the skills needed in the future. To improve on-the-job learning, cities would
need to address business environment obstacles and resolve businesses’ concerns.
New technologies also pose challenges and opportunities in traditional areas of urban
policy, such as transportation and housing. For instance, the widespread use of smartphones
with GPS and Internet connectivity have allowed new forms of ride-hailing services to emerge (Lyft,Uber). With these services and the advent of autonomous cars, some people are forsaking car
ownership, which will reduce congestion costs and parking needs and free up land for other uses.
Uber is testing its line of autonomous cars in 18 US cities, including Boston, Denver, Detroit, Las
Vegas, San Francisco, San Jose, and Washington. The European Commission is also discussing
the autonomous vehicles, particularly in relation to cybersecurity, liability, skills, data protection, androad safety. Some countries in Europe, such as Germany and the United Kingdom (London), areslowly allowing well-monitored public tests. Asia is moving faster, with cities like Singapore andShanghai already testing autonomous vehicles. The delivery industry is also changing. In
Mechelen, Belgium, tests of autonomous vans for deliveries have already been carried out. Trains
are well into automation. Cities from São Paulo to Shanghai, Delhi to Tokyo, have some degree ofautomation on their metro lines. Kuala Lumpur has automated two train lines connecting theGreater Kuala Lumpur Valley, and several Korean cities, including Busan, Daegu, Incheon, andSeoul, have automated light rail lines and metro lines.
New technologies could reduce the cost not only of building new housing units, but also of
running and maintaining them. Technology could lead to more affordable housing in cities if
competition for input materials is addressed and if land and housing market constraints are
eased (for example, zoning and other legal restrictions). At the same time, newly available land incities (through reduced need for parking and other real estate) could be developed as affordable
housing or as urban amenities to attract and host knowledge workers.
How cities address regulation influences their labor markets in two main ways. On one hand,these new technologies can be important sources of job creation at a time when new jobs are
particularly needed. On the other hand, new technologies can help cities fight congestion forces
and improve urban quality of life by favoring productivity and well-being, thus attracting more firms
and workers. For instance, new transportation technologies can reduce road congestion andcommuting times, while also cutting air pollution.
Finally, connectivity may reduce commuting needs. Greater use of videoconferencing throughdigital platforms (Skype, Google Hangout) and the spread of virtual reality technologies can makeworking across groups in different locations much easier. That creates incentives for firms to
implement new working arrangements that require less commuting. Reducing commuting would
improve air quality and increase leisure time for workers, leading to greater productivity and worker
well-being. If firms embrace those new working arrangements, they might find it profitable toreduce their office footprint, releasing space for cities and firms to create new urban amenities toattract highly skilled workers.

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Rethink active labor market policies
The rapid changes in the demand for skills imply a role for active labor market policies, such as
job search and matching between firms and workers, as well as training and apprenticeshipprograms. These services, especially apprenticeship programs, have proven particularly
effective for young workers. 3 Cities can implement these policies directly or coordinate withnational governments on adapting national active labor market policies to local labor market
needs. As job matching in the labor market will increasingly take place on digital platforms, cities
need to plan for the future and rethink their policies for the digital age.

Plan for livability to attract firms and workers
The quality of city life is increasingly important for attracting dynamic firms and qualified workers.
In developing countries, cities must provide the basic infrastructure for enabling growth (water,
sewerage, public transport) and attracting talent. Some cities in developing countries have an
opportunity to get urbanization right and plan in a way that reduces congestion costs. Providing
urban infrastructure and facilitating housing construction can both improve amenities andcreate jobs. New building technologies and materials can reduce energy consumption. By
identifying idle land and easing restrictions on land markets, cities can also improve housing
affordability. In developed countries, livability can be improved by addressing some of thenegative externalities of agglomeration, such as pollution. Local approaches such as
densification and compact cities, which reduce commuting times and carbon emissions, canenhance livability and address the challenges of sustainability. At the same time, cities mustbetter understand the needs of firms to work more effectively with the national government toimprove the local business environment and attract firms.

Formulate policies for skill formation
City’s influence over formal education policies depend on the country’s institutionalframework. Education systems may need to change or adopt skill formation programs to meet
new patterns of demand brought about by technological disruptions. Beyond formal education
policies, which are often defined nationally, cities may have a greater role in training policies forthe unemployed and for workers in jobs affected by technological disruptions. Since firms areinterested in skills and not necessarily in formal education, cities may need to create newcollaboration spaces with firms to encourage skills formation through partial salary subsidies,3

See Card, Kluve & Weber (2010) for a general review of these policies and Manoli, Michaelides, and Patel(2018) for causal evidence on the effectiveness of a job-search assistance program. Attanasio, Guarín,
Medina and Meghir (2017), Berniell and de la Mata (2017), and Ibarraran, Kluve, Ripan, and Rosas (2015)
provide causal evidence on successful apprenticeship programs in Latin America.

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provide apprenticeship programs that blend digital platforms with on-the-job training, andbridge the gap between the education system and firms’ skill demands.

Apply new technologies to urban policy
New technologies are changing the tools for urban policy. The emergence of big data, forexample, changes several aspects of urban policy, from the way cities collect taxes (data on
property values), to the way they monitor urban expansion (satellite imagery), to how cities think
about transport and housing needs (GPS information on households’ location and movements).
Cities can be both suppliers of these new technologies, by creating new tools themselves (forexample by providing real-time online information of recreational, education, and health activities
in the city), and users of technologies developed by the private sector (for example, by hiring afirm to create a new transport app for the city or by implementing a smart cities approach toservice provision and congestion). Moreover, cities play a key role as regulators of newtechnologies affecting urban life, such as ride-hailing services and Internet-based, short-term
rental apps. 4 By adopting a proactive role, cities can use these new technologies to improve
quality of life and job opportunities in cities.

Devise national urban policy approaches to address
urbanization challenges and demographic change
Cities and national authorities need to develop a national urban policy framework for dealing
with demographic change. Cities could begin a dialogue with national authorities to plan new
migration frameworks that anticipate rather than react to demographic changes. Cities indeveloped countries will need to consider the effects of aging and the demands that retirees
will make on urban services and infrastructure (for example, adapting modes of transport,
planning for mixed land use to shorten travel distances, and adapting housing and transportfacilities for reduced mobility). In developing countries, cities may need to prepare theirinfrastructure for young workers migrating to urban areas; planning for migration and getting
policies right could change the flow of migration. Cities may want to discuss national urban
policy frameworks with national authorities. Improving intragovernmental coordination to achievea more integrated approach to national urban policy that takes into account cities’ challenges
is key to addressing demographic change.

4

The challenge of regulating these new technologies is illustrative of the more general challenge that cities
face in terms of strengthening their institutional capacity to deal with the set of megatrends discussed inthis document.

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Acknowledgments
This paper was commissioned by the cities represented in the
Urban 20. The authors are grateful to the City of Buenos Aires,the City of Paris, and the C40 for their coordinating role. This
paper

was

preparedbyJavierSanchez-Reaza(Senior

Economist, World Bank), Lucila Berniell (Principal Economist,
CAF), and Guillermo Alves (Principal Economist, CAF), withsupport from Sofía Garcia (Consultant, World Bank) and under
the guidance of Horacio Terraza (Lead Urban Specialist, World
Bank) and Pablo López (Principal Executive, CAF). The authors
would like to thank Ian Walker (Acting Practice Manager of Social
Protection and Jobs, World Bank) and Pablo Sanguinetti(Knowledge Vice President, CAF) for their comments andcontributions to this work.

Conctacts for this report
Javier Sanchez Reaza, WB
jsanchezreaza@worldbank.org
Guillermo Alves, CAF
galves@caf.com
Lucila Berniell, CAF
mberniell@caf.com

The views, opinions, positions and recommendations expressedin this White Paper are solely those of the individuals and theirorganisations. They do not necessarily reflect those of Urban 20
or any of its chairs, conveners, partners and participating cities.

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www.urban20.org