Job polarisation is an ever-present characteristic of the economy. Using the framework of the knowledge economy and the factors that comprise a place-based economic development strategy, this article posits how solutions for this problem can be developed.
An overview of the current situation
Despite all the current focus on major economic and societal issues such as the COVID-19 pandemic and climate change, the hollowing out of the labour market is still a concern that hasn’t gone away. This hollowing out, or job polarisation, is defined as relatively slower growth in the number of middle-income jobs compared to lower and higher income jobs. It has been observed in job markets for quite a few years now.
This trend plays out in a couple ways. First, there is a reduction in career advancement opportunities for those at the lower end of the income scale. With proportionally lower number of jobs, those entering the workforce for the first time find increasing competition for higher paying jobs than their forbears. One ordinary example of this is found in the supermarkets that we frequent. With computerisation opening the way for self-serve checkouts, reductions in the numbers of point-of-sales staff flow on to reductions in the numbers of supervisory staff. The result – reduced career advancement options from entry level to more senior roles.
A second way that this impacts employment opportunities is when middle-income employees lose their jobs. Because of a smaller pool of middle-income jobs, competition is heightened. For those who find themselves in the labour market, perhaps for the first time in a long time, they are faced with limited replacement wage options. The experience of workers from a shuttered automotive plant in Australia more than a decade ago is typical. A good portion of quite experienced and skilled workers struggled for quite a period of time to find work, if at all, that matched their capabilities. Many headed to the lower end of the income scale.
There is much discussion as to the causes of this trend. Some see the rise of computerisation and automation, replacing the routine tasks carried out by those in these intermediate jobs, as the culprit. Others, the shift of employment opportunities to countries taking advantage of the realities of globalisation. While a third category that some point to is the gradual global rise in the trade of services.
What lies ahead
Although this change in the structure of the workforce has been underway for several years, and will no doubt continue, we do need be aware of other trends that are underway. For there are significant drivers of change that will force the economy to be yet more different in the years ahead.
Consider demographic changes. According to the UN, between 2015 and 2030 the proportion of those over 60 across the world is expected to grow by over 50% to 1.4 billion people (Figure 2). With up to 68% of the global population living in cities by 2050 (up from 55% in 2018).
Fig 2: UN estimated and projected global population
Consider environmental changes. In recent years we have witnessed shifting weather patterns and increasing ocean temperatures. Reports and research from the insurance giants, such as Munich RE, continue to paint a picture of the greater risks ahead that they will be exposed to (Figure 3).
Fig 3: Number of World Natural Catastrophes (Munich RE)
And consider the growing pervasiveness of digital services. Not only are we communicating more and transacting more using digital services, but enterprises are increasingly investing in digital transformations of their business models, products and services. All of this forms part of the digital economy. An economy defined as the economic and social activities that information and communication technologies deliver.
Various estimates put the current value of the digital economy at about $5 trillion. Considering that the global economy as a whole is worth more than $80 trillion, the growth of the digital economy from a standing start twenty years ago is phenomenal. Where the components of this phenomena include, for example, ICT hardware software and services at over $3 trillion and electronic games at over $100 Billion. And where for some countries, up to 10% of their GDP relies upon the ICT sector.
Fig 4: Growth in the use of digital services (OECD)
It goes without saying, then, that change will always be with us. Ongoing and continuous change is a given.
What lies ahead
What can be done? How do we think about, and frame, approaches to solutions for this job polarisation problem?
The focus of this piece is on two sets of workers. Those at the beginning of their working life and those mid-career. We can use the tripartite framework of the knowledge economy (the production, distribution and application of knowledge) and the four components of a place-based economic development strategy (business ecosystem, hard and soft institutions, innovation and entrepreneurship, and external knowledge and support) as a way to think about potential solutions.
Firstly, to those mid-stream. Here are some questions. Are the businesses and industry sub-sectors that they are working in fully embracing any or all of the knowledge economy’s three components? Because change is ever present, businesses need to have an ever steady flow of knowledge streaming through their operations. If the employing business is not supporting the production of knowledge, e.g. research, are they in some way leaning into innovation? If its neither the production or application of knowledge are they partaking in the distribution of knowledge? That is, are they increasing the know-how, know-why, know-who and know-what of their employees through planned training, mentoring or networking activities?
In a proactive knowledge economy environment mid-career employees will be continually adding to their own “stock of knowledge”. They will be broadening and/or deepening their skills, capacity and experience. They will be strengthening their CV. They will be positioning themselves for better outcomes in case they are faced with a loss of employment.
And on the employer’s side, they will benefit from a workforce that has a greater depth and breadth of skills. They will benefit from a capacity to change as their macro-environment changes.
There are also benefits to businesses, and by extension to these mid-career employees, if they are operating in a locale whose local governing authority has implemented a supportive place-based economic development strategy. Such a strategy should have four separate, yet related, areas of focus. First is the business ecosystem. Where local factors such as regulation, infrastructure and resources are suitable. Second are the hard and soft local institutions. Where governance and administration are fit-for-purpose and well run, but also soft institutions such as business and community groups are supported and maintain a contemporary relevance. The third factor, innovation and entrepreneurship, is not so much about whether or not these activities are happening but rather it is about active support from the local government. Lastly, the fourth factor. The first three factors are endogenous, they are ascribed to the locale. These strategic objectives have to do with local institutions, the local ecosystem and local activity. The last factor, external support, has to do with the administrative and governance body higher in the chain. Does this higher body have knowledge of the locale’s unique characteristics and is their support tailored to this particular set of “facts on the ground”.
Fig 5: Place-based economic development strategy components (Tero)
Mid-career employees will benefit from a locale guided by an economic development strategy that has these described place-based features. As the dynamism of the locale’s business community is maintained, opportunities for career momentum will be maintained.
Such employees will benefit from the locale’s business networks, entrepreneurial activities and from the tailored support offered by higher levels of government.
Secondly, to those at the beginning of their careers.
Self-evidently, the above all points towards framing the locale as a learning locale. And for those who are starting out, long-term success will come if they operate as a life-long learner.
With reference to how they fit into the knowledge economy. Perhaps they could make a career out of producing knowledge. Researching and developing new ideas and either bringing them to market or passing these ideas onto others who will. Perhaps they can be one of the innovators, developing new knowledge into successful businesses or career specialisations. But they should definitely partake in knowledge distribution activities, whether as an educator or as a student.
For those early-career people will continue to benefit throughout their working life by not settling for personal stasis.
Finally, with reference to a place-based economic development strategy, this particular cohort will benefit from the same business conditions that the mid-career cohort exerience. As the dynamism of the locale’s business community is maintained, opportunities for career advancement will continue to present themselves.
Conclusion
There is much discussion as to the causes of the hollowing out of the labour market. Some lay the blame at globalisation, others at automation, and others at the rising trade in services. Couple these factors together with current and prospective change in arenas such as demography, the environment and digital services and you have potential for even more disruption.
The knowledge economy framework and place-based economic development strategy can be used as guides in the effort to develop solutions in the face of job polarisation. By framing the locale as a learning locale, ongoing opportunities for early- and mid-career employees can be conceived.
Solutions can be developed by understanding how employees and the businesses they work for can benefit from a focus on developing their stock of knowledge. And solutions can also be developed through relevant economic development strategies that are tailored to a locale’s current and future needs and aspirations.
Change will always be with us, but success is found through our understanding of it and our responses to it.
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