COVER STORY • Digital Society — Issues & Challenges • 2Transformative
Technologies &Jobs of the Future
AuthorDirk Pilat

By Dirk Pilat & Mariagrazia Squicciarini

The Digital Transformation
Countries around the world are in transition towards a digital
economy and society. This digital transformation is not new and has
already contributed to significant structural changes and productivity
gains. The main differences with earlier eras of digital transformation
are three factors that have propelled this issue to the top of the policy
agenda.
The first is the expansion of connectivity to almost every firm andhousehold in the OECD. Already 95% of firms in G7 countries have ahigh-speed connection to the Internet. Although there are still large
differences in digital intensity across sectors (OECD Science,
Technology and Industry Scoreboard 2017: The Digital
Transformation, OECD Publishing, Paris), every firm and every sector
in the economy is now being affected by the digital transformation,
expanding its scope and its potential benefits.
The second has been the advent of the smartphone and with it theera of universal connectivity and ubiquitous computing. By December
2017, Japan led the G7 (and the OECD countries) with 163 mobile
broadband subscriptions per 100 inhabitants (Chart 1).
Third, these devices and many of the services that operate on the

Author
Mariagrazia Squicciarini

Internet generate vast amounts of data. In the 32 OECD countries forwhich data is available, mobile data usage doubled in the 12 months tothe end of December 2017, amounting to over 15 GB per month inFinland. These flows are still somewhat lower in the G7 countries, but
growing also there. They will grow further as connected devices suchas automated vehicles become common.
The growing amount of data, combined with steady advances in the
power of computing, are enabling data-driven innovation. Online
activity and networked things generate Big Data which enable machinelearning and artificial intelligence (AI), which in turn lead to advances
in intelligent machines (robotics, automated vehicles) as well as newtechniques in science which can spur further innovation. The growthof the volume, variety and velocity of data and the ability to analyseand use it is a significant departure from the past and marks the
emergence of data as a new factor of production, augmenting
traditional capital and labor.

Addressing Digital Divides
Although digital transformation has already been underway forabout half a century, digital technologies have only recently reached

CHART 1

Mobile broadband subscriptions & mobile data usage in G7 countries
Panel A: Mobile broadband subscriptions per
100 inhabitants, by technology, December 2017

Panel B: Mobile data usage
per mobile broadband subscription, 2017

GB per month, per mobile broadband subscription

180

18
16

y

a
ad
Ca
n

an
rm
Ge

UK

ly
Ita

n
pa
Ja

D
OE
C

ce
an
Fr

ia
ton
Es

ad
Ca
n

an
rm
Ge

Fr
an

Ita

OE

Ja
p

str

0
Au

0
a

2

y

4

20

ce

40

ly

6

UK

8

60

CD

80

US

10

an

12

100

ia

14

120

d

140

lan

Data & voice subscriptions
Data-only subscriptions
Total (where breakdown not available)

Fin

160

Notes: In Panel A, data for the US are estimates. GB = gigabytes.

Source: OECD, Broadband Portal, www.oecd.org/sti/broadband/oecdbroadbandportal.htm, June 2018

8 Japan SPOTLIGHT • November / December 2018https://www.jef.or.jp/journal/

COVER STORY 2

almost all individuals in G7 countries. In 2016, between 73% and 98%
of adults in G7 countries accessed the Internet, with access almost
universal in Japan and the United Kingdom. However, despite thegrowth in connectivity, the uptake of digital technologies still differs byage, education and income levels, although these gaps have beenclosing with time. For example, while in some G7 countries the gap
between those with higher and lower levels of education has almost
disappeared, it remains sizeable in other G7 countries.
Gender is particularly important in ensuring an inclusivetransformation and many believe that the ongoing digitaltransformation provides new opportunities to empower women andstrengthen their position in the labor market (“Going Digital: The
Future of Work for Women”, OECD Policy Briefs on the Future ofWork, 2017, Paris). More flexible ways of working can make it easier
to combine paid work with caring responsibilities, which are more
often taken on by women. Automation is also more likely to replaceless skilled jobs, giving women an advantage since they now
outperform men on most measures of educational attainment.
However, a closer look at the evidence suggests a mixed picture.
Women may benefit from increased flexibility in work but the growing
use of new atypical work arrangements may also reduce job quality.
Automation has so far been most common in sectors like agriculture
and manufacturing, where men dominate. However, in the future,
automation is expected to spread, albeit to different degrees, across all
sectors and most occupations, including those traditionally dominatedby women, such as retail trade, food and beverage services. And whilejobs are likely to grow the most in business services, health, educationand social services — many of which have been traditionally femaledominated — persistent gender differences in fields of study may
mean that women will benefit less from the new job opportunities
related to STEM (Science, Technology, Engineering, and Mathematics)
occupations.
A second important dimension of the digital divide relates to the
diffusion of digital technologies across firms, and notably to small andmedium-sized enterprises (SMEs). For example, even though cloudcomputing can increase the availability and affordability of computing
resources, only 22% of enterprises with 10 to 49 employees usedcloud computing services in 2016, compared with almost 47% offirms with over 250 employees (OECD Digital Economy Outlook 2017,
OECD Publishing, Paris). SMEs often face challenges in the use of
information and communication technology (ICT), due to lack ofaccess to finance, skills and management, amongst others. But while
SMEs face challenges in the use of ICT, they also have important
opportunities, such as the ability to engage in global e-commerce,
improved access to a range of financing instruments, improved
understanding of internal processes, markets and the businessenvironment through data analytics, or the outsourcing of key
business functions, all of which can help improve performance.

Digital Transformation & Productivity
Whether the digital transformation is of the same magnitude as
earlier industrial transformations linked to steam or electricity is an

open question. Long-term trends point to a slowing down ofproductivity growth since the 1950s, a time of exceptional productivity
growth, when there was significant scope for catch-up growth and therebuilding of G7 countries following World War II (The Future of
Productivity, OECD Publishing, 2015, Paris). Today, despite theongoing digital transformation and the range of technologies that are
emerging, we once more “see […] computer[s] everywhere but in the
productivity statistics” to paraphrase Robert Solow (“We’d better
watch out”, New York Review of Books, July 12, 1987). While theprecise reasons for today’s productivity paradox remain difficult todisentangle, a number of factors are likely to contribute.
The first factor that has thus far limited the impacts of digitaltransformation is the state of diffusion of advanced digitaltechnologies across the economy. While many firms now have accessto broadband networks, the use of more advanced digital tools andapplications within firms still differs greatly across countries, evenamong G7 countries. For example, only 16% to 17% of firms in Franceand Germany used cloud computing in 2016, compared to some 45%
in Japan (OECD Science, Technology and Industry Scoreboard 2017:
The Digital Transformation, OECD Publishing, Paris). Moreover, there
are important differences between firms within countries, with SMEs
lagging. As with other periods of rapid technological change, advanced
technologies are initially only adopted by some leading firms and then
only later diffuse to all firms, as the technologies become moreestablished, new business models grow, and costs fall.
Second, digital transformation is not only about the technology, buteven more about the essential complementary investments that firms
need to make into skills, organizational change, process innovation,
new systems and new business models (Capitalism Without Capital:
The Rise of the Intangible Economy by Jonathan Haskel and Stian
Westlake, Princeton University Press, Princeton, New Jersey, 2017).
These investments are often costly and take time to take effect.
Moreover, the scale and complexity of these complementary
investments may be growing, making digital transformation achallenge for many firms (“Artificial Intelligence and the Modern
Productivity Paradox: A Clash of Expectations and Statistics”, by Erik
Brynjolfsson, Daniel Rock and Chad Syverson, NBER Working Paper
No. 24001, November 2017, National Bureau of Economic Research,
Cambridge, Massachusetts).
Third, the limited impacts of digital technologies on productivity
thus far may also be related to a slow pace of structural change andresource re-allocation in OECD countries. For example, the share ofnon-viable old firms — firms older than 10 years that record negative
profits over at least two consecutive years — has been increasing inmany OECD countries, particularly since the 2007-2008 financial
crisis, while the productivity of the latter group of firms has beenfalling rapidly relative to “viable” old firms. This has been accompanied
by a slowdown in reform in product markets (OECD Economic
Outlook, Volume 2017, Issue 2, OECD Publishing, Paris). By slowing
down resource allocation and structural change, new business models
have more difficulty gaining market share and the potential impacts ofdigital technologies on productivity will be slower to emerge.
This suggests that the impacts of digital transformation are likely to
Japan SPOTLIGHT • November / December 20189

COVER STORY 2

emerge in the future, as more firms start to use advanced
technologies, make the necessary complementary investments, anddigitally-intensive firms gain market share. Policy can help in
unlocking these potential productivity gains by fostering investment,
including in skills, and strengthening structural reform.

Impacts on Jobs

change also creates new jobs. It can do so both directly, through the
emergence of entirely new occupations, and indirectly, as a result of
rising productivity growth and growing demand.
What is more certain is that the digital transformation will involve
significant structural changes in the labor market. Most jobs will betransformed in some way, others will be displaced — as elevator andphone operators have been displaced in the past — and new ones willbe created. The types of jobs that are being created are not the sameas those that are disappearing and the workers affected by job loss indeclining activities may not be those benefitting from the new job
opportunities emerging in expanding areas. Many of the new jobs thatwill be created will use (and complement) digital technologies, as thiswill lead to more complex tasks that cannot be easily codified in turn.
OECD countries where workers use ICT more intensively at work arealso characterized by a higher share of non-routine jobs (Chart 2).
In particular, the labor market appears to be polarizing away frommiddle-skilled jobs and into low- and high-skilled jobs. Looking
forward, however, low-skilled workers are most likely to bear the costsof the digital transformation. With the exception of some relatively lowskilled jobs — for instance, jobs that involve caring for and assistingothers — the risk of automation declines as educational attainmentand skill levels rise, as Nedelkoska and Quintini have shown. Lowskilled workers look most likely to lose their jobs, face increased
competition for jobs from middle-skilled workers, are least likely to beable to adapt to new technologies and working practices, and are also
least likely to benefit from the new opportunities that arise as a resultof the digital transformation.
Skills provide an important safeguard against the risk of automation.
Fewer than 5% of workers with a tertiary degree are at a high risk oflosing their job due to automation, on average, compared to 40% of
workers with a lower secondary degree (“The Risk of Automation for

Closely linked to the discussion on productivity is the question ofjobs. Recent OECD estimates suggest that digital technologies will put
about 14% of workers at a high risk that their tasks will be automatedover the next 15 years, and another 30% will face major changes in thetasks required in their job and, consequently, the skills they would
need to do their job (“Automation, Skill Use and Training”, by Ljubica
Nedelkoska and Glenda Quintini, OECD Social, Employment andMigration Working Papers, No. 202, 2018, OECD Publishing, Paris). In
short, about half of all workers will confront the need to significantly
adapt to the new workplace.
The OECD estimates rely on the expert assessment carried out by
Carl Frey and Michael Osborne (“The Future of Employment: How
Susceptible Are Jobs to Computerisation?”, Working Paper of the
Oxford Martin Programme on Technology and Employment, Sept. 17,
2013) of the risk of automation for a subset of occupation titles, basedon the tasks performed on the job within these occupations. This
allows the identification of “bottlenecks to automation”, i.e. the tasks
that, given the current state of knowledge, are still difficult toautomate. These include: social intelligence, such as the ability toeffectively negotiate complex social relationships, including caring forothers or recognizing cultural sensitivities; cognitive intelligence, suchas creativity and complex reasoning; and perception and manipulation,such as the ability to carry out physical tasks in an unstructured work
environment.
CHART 2
While these and other estimates of the possible
Share of non-routine employment & ICT task
redundancies triggered by automation haveintensity, 2012 or 2015
attracted the attention of policy makers worldwide, it
Correlation of average industry values in the macro sector, manufacturing
is important to consider that the risks of automation
Non-routine employment (%)
need not necessarily translate into a decline in jobs
75
at the economy-wide level. Technology adoption
Norwaydepends on a host of economic, legal, ethical and65
IsraelGreecesocial factors, as well as on the availability of theSingaporerequisite skills and organizational changes.
β=1.32***55
Netherlands
New ZealandConsequently, there is a gap between what can be
South Japan
Belgium
Chile
Korea
Austria
Denamrk
automated from a technical point of view, and what
45
US
FinlandFranceis actually automated by firms. As discussed above,
CanadaUK
Ireland35
data on the diffusion of specific ICT technologies
SwedenAustralia
Czech
Republic
shows that while most firms have access toGermany
Italy
Lithuania
25
Slovenia
broadband networks, most have not yet adopted
TurkeySpain
Estonia
Polandmore advanced digital technologies, such as Big
Slovakia
15
Data, which implies that diffusion is only occurring
30
35
40
45
50
55
60
65
70
slowly. Moreover, large differences remain in the ICT
ICT task intensity
intensity of different sectors of the economy. In
Note: Notes to this figure are available at http://dx.doi.org/10.1787/888933617586.
addition, while automation may displace some jobs
Source: OECD (2017a), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation,
http://dx.doi.org/10.1787/9789264268821-en.
or change the task content of others, technological
10 Japan SPOTLIGHT • November / December 2018

COVER STORY 2
CHART 3

Additional labor market returns to skills indigital-intensive industries, 2012 or 2015

Percentage change in hourly wages for a standard deviation
increase in skills%
12

Returns to skills in less digital-intensive industries
Additional returns to skills in digital-intensive industries
Coefficient insignificant at the 5% level

10
8
6
4

cy
era
Lit

Nu
me
rac
y
na
g
co ememm nt
un and
ica
tio
ST
n
EM
-qu
an
tita
tiv
e
Se
lf-o
rga
niz
ati
on
Pr
ob
lem
so
lvin
g
Re
ad
ine
ss
to
lea
rn
Ma
rke
tin
ac g a
co
un nd
tin
g
Ma

IC

0

Ts
kill
s

2

Source: OECD, Science, Technology and Industry Scoreboard 2017,
http://dx.doi.org/10.1787/888933617472

Jobs in OECD Countries: A Comparative Analysis”, by Melanie Arntz,
Terry Gregory and Ulrich Zierahn, OECD Social, Employment andMigration Working Papers, No. 189, 2016, OECD Publishing, Paris). To
thrive in the digital era, all workers will need to be equipped with awide set of skills, encompassing cognitive as well as non-cognitiveand social skills, and notably ICT skills, STEM-quantitative and selforganization skills.
OECD analysis also finds that quantitative skills, ICT skills,
numeracy and STEM skills as well as self-organization andmanagement and communication skills seem to be especially
important in digital-intensive industries (Chart 3). This may be because
workers in those industries operate in a more independent anddecentralized fashion (e.g. through teleworking), perform relatively
more non-routine tasks, or have to deal with continuously changing
settings for which technical skills coupled with communication andorganizational skills are increasingly important. Moreover, for workers
in digital-intensive industries, bundles of skills appear to be particularly
important: workers endowed with a high level of numeracy skills
received an additional wage premium if they also showed high levelsof self-organization or managing and communication skills (“Which
Skills for the Digital Era?: Returns to Skills Analysis”, by Robert
Grundke, Luca Marcolin, The Linh Bao Nguyen and Mariagrazia
Squicciarini, OECD Science, Technology and Industry Working Papers,
2018/09, OECD Publishing, Paris).

Policy Implications
The digital transformation requires workers, businesses andgovernments to prepare, now, for the emerging digital economy andsociety, rather than to look for ways to stop or reverse these trends.
Despite all the uncertainty about the depth and speed of change,
clinging to the status quo is not an option; rather a people-centred“adaptation agenda” needs to be formulated so that all individuals may
benefit from a positive, forward-looking plan that does not leaveanybody behind and puts people’s well-being at the center. By doingso, both people and firms will benefit. If business as usual prevails, atech backlash may ensue that may prevent many of the positive
outcomes made possible by the digital transformation.
With this transformation comes a rare opportunity to improve wellbeing and address pressing social issues from health care to education
to the environment. Yet potential benefits come with serious
challenges as digital transformation changes the nature and structureof organizations and markets, and raises concerns around jobs andskills, privacy, security, how we interact, the formation andcomposition of communities and notions of equity and inclusion.
Adjustments are inevitable, but there is an opportunity to shape themwith sensitivity and foresight so they can support more inclusive
growth and improve well-being.
In particular, policy will need to facilitate worker redeployment,
invest in skills, strengthen social protection, future-proof labor market
regulations and promote social dialogue. More precisely:• Facilitating worker redeployment: adapting to technologicalprogress will require policies facilitating the redeployment ofworkers across businesses, industries and regions.
• Investing in skills: people, especially youth, need to prepare forthe jobs of the future by being equipped with the right mix ofskills required to successfully navigate through ever-changing,technology-rich work environments. This mix includes general
cognitive skills, complementarity skills such as problem solving,creative thinking, communication, ICT generic skills and technicalskills, and a strong ability to continue learning.
• Strengthening social protection: adequate social protection is
crucial to help workers transit smoothly between jobs, especiallywhen they have been displaced. In a context where many
countries already struggle to provide adequate social protection
for workers on non-standard work contracts (e.g. temporary
contracts, self-employed, on-call labor), the advent of theplatform economy adds to these difficulties.
• Future-proofing labor market regulation: maintaining andimproving labor market performance in the future world of work
will also require a fresh look at existing labor market regulations
to ensure that they are still fit for purpose.
• Fostering social dialogue: anticipating future challenges andopportunities, finding solutions, managing change proactively,
and shaping the future world of work can be achieved more easily
and effectively if employers, workers and their representatives
work closely together with governments in a spirit of cooperationand mutual trust.

Dirk Pilat is deputy director of the OECD Directorate for Science, Technology
and Innovation (DSTI) and currently helps coordinate the OECD’s Going Digitalproject.
Mariagrazia Squicciarini is a senior economist in the DSTI’s Economic
Analysis and Statistics Division and works on skills, intellectual property andinnovation.

Japan SPOTLIGHT • November / December 201811