Where will the jobs come from?

The following is a summary of a talk Geoff Mulgan gave to the OECD in September 2012:

With high levels of unemployment across much of the world, there is a rising tide of political demands for more jobs. In election after election politicians promise to create jobs. But there is little confidence that they will deliver. So where will new jobs come from?

Once you get past the clichés (the promises of x000 jobs; or comments that only businesses/entrepreneurs create jobs), there are six possible starting points for an answer:

We can look at what people will demand, and where they will want to spend new money. In some parts of the world the priorities will be things like clothes, food, cars and housing.  But in the OECD countries the sectors with the highest positive elasticity of demand are ones like health, education, leisure, tourism.  It's no coincidence that half of jobs created in recent decades in the US have been in healthcare.

Next you can look at new industries and where jobs are being visibly created.  An example is the apps economy - one rough estimate (from Michael Mandel) suggested half a million jobs in the US alone. We are doing research on the role of data in the economy, and here too we should expect many new jobs to be created, mainly high end.  How many jobs will be created net is much harder to judge. Google has a comparable capitalisation to GE by only a tenth as many jobs, for example.

Then you can look at labour supply to try to judge whether people will fit the potential jobs.  Employers want sophisticated skills as well as literacy and numeracy. But in some countries they also say that the biggest need is non-cognitive or social skills, the ability to work in a team, along with resilience and motivation - not things much prioritised by education systems in recent years.

Predicting jobs in any one region or country is made harder by the much more complex global division of labour.  Take the iPad or iPhone. The great majority of the value in these things - ie. what you pay - is being captured by Apple. But most of the jobs are going to southern China, to firms like Foxconn (mainly in Guangdong but increasingly shifting to lower labour cost areas in western China).  So US capital benefits, but probably not US labour.

Then we have to look at productivity effects. The more successfully a sector drives up productivity, the more likely it is to see jobs numbers fall. This happened to farming (now under 2 per cent of jobs in the UK), then manufacturing, and could be happening to parts of IT itself. So even if manufacturing retains its share of GDP in countries like the US or France, the share of jobs will probably fall.  The opposite is also true in that the relative importance of sectors that can't raise productivity rises - as does their relative cost. This is why quite unskilled jobs have often grown in number - retail, care, and cleaning.

Here are two perhaps more controversial predictions about jobs.  The first is that a knowledge based economy will create more intermediary roles.  For several decades we have been told that professions would lose out because of automation and intermediaries would be dis-intermediated.  I've lost count of the number of business gurus who have asserted this.  Instead, the opposite has happened: intermediary numbers have risen. Complex modern economies appear to need ever more sophisticated coordination, some of it provided by armies of lawyers, accountants, auditors and consultants. For the foreseeable future it's probably safer to assume that the gains from greater coordination outweigh these added costs.

The second prediction is that we will see a return to jobs that are essentially about maintenance rather than production.  This is certainly happening in health - where more jobs involve maintenance of bodies, rather than, for example, manufacture of pills.  It's also true of green jobs which aren't just about manufacturing PVCs or electric cars.  Many are about retrofitting and maintaining buildings; urban agriculture; waste.  This is a theme I write about in my new book and suggest it's partly a return to the pre-industrial economy now informed by very modern digital technologies.

But the most striking thing about the jobs field is that it's crying out for innovation.  The decision makers simply don't know how to create jobs. A generation of labour market reforms has run its course in some countries - it helped drive up employment rates but now risks ever more feverish attempts to match not very skilled people with not very good jobs: a recipe for disappointment.

The alternative is to do what we know works in innovation - energetic generation of ideas; testing them in the real world; measuring what works; and then scaling up the successes.   As in other fields of innovation the benefits will be broad, the risks will be concentrated (which is of course why there is a deficit of innovation in the first place), so we need some public support for the risk taking otherwise there simply won't be enough innovation.

Studio schools are a good example - designed as a response to employers' complaints about why they didn't want to employ school leaders; shaped through the generation and adaptation of ideas from many sources; tested in the real world; refined; and then spread.  But they happened thanks to pulling together small packets of funding from many sources rather than anything resembling a system of innovation.

At Nesta we are working on the design of a more concerted innovation programme for jobs. It includes analysis of the dynamics of labour market systems to understand the blockages and failures; exploring the roles of new technologies and platforms such as Slivers-of-Time which we already support; redesigning such things as apprenticeships and work experience; looking at how capital can be unlocked (eg capital in older peoples' homes unlocked to purchase services); and many other ideas.

Roosevelt was President of the US at another time of high unemployment and said of course we must experiment, and of course some ideas will fail. But I'm not aware of any systematic innovation programme for jobs anywhere in the world today.