COVID-19 is changing the future of work in Asia
by Oliver Tonby, Chairman, McKinsey Asia
Work was changing even before COVID-19, but the pandemic has accelerated this trend by disrupting business models and consumer behavior. Recent McKinsey research suggests that the trends accelerated by COVID-19 will have a huge and lasting impact on the future of work. Countries across Asia are at different stages of development and will be affected in very different ways, with big implications for the region’s businesses and governments.
A key finding of the research, which focused on eight countries including China, India, and Japan, is that the scale of workforce disruption will be larger than pre-pandemic estimates. More than 100 million workers in the eight focus countries, or one in 16, may need to switch occupations by 2030. That’s a 12 percent increase compared to before the pandemic.
Across the region, the impact will be uneven both in terms of geography and sector. In China, it could mean 38 million additional displaced workers. In Japan, 9.2 percent of the workforce may need new jobs because of the impact of COVID-19, compared to 8.2 percent under a pre-COVID-19 scenario. India’s workforce — with around five million workers displaced — will experience the least disruption from of the pandemic, largely because of the country’s lower wage structure and higher share of workers in agriculture.
Before the pandemic, labor displacement would have occurred mainly in manufacturing and office-based jobs that are largely middle-wage occupations. However, trends set in motion by COVID-19 could create much larger job losses in lower-wage occupations. The share of employment for low-wage job categories will decline for the first time. Disruptions will concentrate among the most vulnerable workers, including those without a college degree, women, and young people — many of whom have already lost jobs during the pandemic.
The research groups occupations in a novel way based on the frequency of human interactions and physical closeness to coworkers or customers, among other factors. It found that workers facing displacement and occupation transitions are concentrated in four work arenas characterized by high physical proximity; namely, travel and leisure venues such as restaurants and airports, on-site customer interaction spaces including retail and hospitality, computer-based office work, and production and warehousing.
The flip side to this is that job growth in different occupations has the potential to offset labor displacement; while e-commerce displaces retail jobs, it creates jobs in warehouses and delivery. Increased use of technology drives greater demand for engineers and other technologists, while the rising need for re-skilling and the trend towards expanded tertiary education creates greater labor demand in the education sector. However, such transitions will require large-scale reskilling efforts.
Job growth will concentrate more in high-wage jobs and high-growth occupational categories such as science, technology, engineering and math (STEM), and healthcare (which scores high on physical proximity but is likely to experience only moderate disruption over the next decade because technologies tend to complement workers, and because of demographic trends). In China, we estimate that demand for workers in the medical care arena will rise by 121 percent, representing 13 million more workers than in 2018.
Our research also identifies three trends that were sparked or accelerated by COVID-19: an increase in hybrid remote work and virtual meetings; an explosion in e-commerce and other virtual transactions; and a potential acceleration of automation adoption in some parts of the economy. These trends have delivered benefits like convenience, efficiency, and flexibility to consumers, businesses, and employees, and are therefore likely to persist.
Again, these trends play out differently across Asia. The potential for remote work is higher in advanced economies, including Japan where 22 percent of workers could work from home for three to five days without loss of effectiveness, compared to just 11 percent and five percent in China and India, respectively.
The surge in the digitally enabled “delivery economy” is particularly pronounced in Asia. In India, for example, e-commerce grew 50 percent more in 2020 than pre-COVID-19 estimates. This growth will reduce low-wage jobs in retail and food service and shift employment from hourly wage jobs to gig work. That’s already evident in China where e-commerce and other online platforms created more than 5.1 million jobs during the first half of 2020. Sales assistants, factory workers, and others displaced by COVID-19 found jobs as delivery drivers and livestream hosts there.
Similarly, we see companies increasingly, if selectively, shift to artificial intelligence (AI) and automation. In Japan, sales of industrial robots grew by two percent in August 2020 compared to the previous year, even as machinery sales fell more than 12 percent. Meanwhile, call centers in India and the Philippines drafted chatbots to field calls, replacing workers.
Companies, along with governments, will need to find new approaches to workforce reskilling and redeployment. The enduring effects of the pandemic make it even more critical for businesses and policymakers to reimagine how and where work is done, and to strengthen the skills of their workforce.
