Rise of the machines could jeopardise millions of millennial jobs

15 May 2017 Consultancy.uk

The research arm of McKinsey & Company predicts that millennials may face increasing economic uncertainty in the coming years, as the jobs they most commonly fulfil become increasingly automated. In an exhaustive 150 page analyses published by the firm, the consultancy giant conclude that while less than 5% of jobs can be completely replaced by technology, over 60% of all work activities could be automated by 2055.

While that projection might seem to sit in the distant future though, McKinsey predict that the adoption of an automated workforce could initially be much quicker in advanced economies, such as the United Kingdom and the United States, due to “wage levels and integration solution costs.” When weighing growing wage demands against the decreasing cost of readily available hardware, companies are already making designs to replace their human workforce, at least in part, with new technology.

Automation potential of jobs

In the UK and US particularly, jobs in the most immediate danger of automation are those most heavily based around routine. These include industrial roles such as mining and manufacturing – but the researchers also highlight the potential for replacing human labour hours with machinery in many areas where the bulk of applicants are younger members of the workforce.

Millennials under threat

Popular areas of millennial employment under threat include entry level positions in food services, retail and trade and even junior positions for graduates which are largely admin-based. This follows a similar forecast from the international jobs site Indeed, whose research wing recently warned millennials could stand to lose a multitude of jobs to machines. While millennials might be considered the most widely educated generation to date, Indeed found 50% of users from Generation Y used the site to search for positions that could be automatised in the immediate future.

Technical potential for automation across sectors varies depending on mix of activity types

Once more, moving beyond the conception that these will be limited to manual labour and manufacturing meanwhile, consultancy firm PwC published its own paper forecasting the automation of up to 38% of American jobs by 2030. Even white-collar industries such as finance, insurance and information and communications rely on rigid systems of routine, with results that could easily be replicated by digital technology.

As such, the research from McKinsey & Company comes as the latest chapter in a long line of work foretelling one of the largest periods of upheaval in labour relations since the industrial revolution. While sophisticated machinery has already begun replacing the workforce in factories, supermarkets and fast food restaurants, the document also mentions examples where even complex roles are integrating technology – ranging from journalism, to law, to the striking example of IBM’s Watson, which made international news in 2016 by diagnosing a rare form of leukaemia doctors had missed in a 60-year-old woman.

Interpreting figures from the US Labor Bureau, and citing particularly the growing wage premiums of American college graduates – which in 2005 were 97% higher than non-graduates – McKinsey also suggests that wage inflation in skilled sectors could hasten employers to take such examples more seriously when plotting the future of their companies. As the most qualified generation on record, millennials look set to be the first generation to be hit by this – as employers seek a cost-effective alternative to an increasingly expensive workforce. In the Early scenario, in which technology is most rapidly integrated into the workforce, over half of all work hours could be automated by 2035 – and the countries with the fastest, most complete uptake of technology in this regard will most likely be developed economies, where technology is both most advanced and readily available, to the extent it becomes a cheaper alternative to human labour.

Adoption will take decades and there is significant uncertainty on timing

However, while jobs may be lost to robots in many sectors, this may be a period of realignment rather than regression. The study suggests in the short term that mechanisation could be motivated by a bid to push down wages, but what may occur in the long-run is that jobs modify rather than vanish – with the elements of costly repetitive strain once contained within them removed. While the implications of the analysis will undoubtedly make for unnerving reading amongst younger workers now, it also suggests there is potential for optimism.

More time for human value adding tasks

The paper ultimately concludes that rather than opting for a new era of Luddite fear, this new phase of tighter integration with technology will free up time for human workers to focus more fully on activities to which they bring skills that machines have yet to master. To that end, as millennials in particular make education and career choices, it will be important to prepare for the future by honing so-called ‘21st century skills’ that will enable them to adapt to engaging with machines as part of everyday employment. High-skill workers who work closely with technology will likely be in strong demand, while those involved in developing and deploying technologies will have many opportunities.

Automation impact will be global under multiple modeled scenarios

Michael Chui, one of the report’s authors, stated, “Roughly all of us will have automation affect what we do at work… Even if our job doesn’t go away, pieces of our job will be automated… Does that mean we need fewer sales people, or does that mean what an individual does will change over time?” In the short term, that may mean a period of painful change, with fewer roles for uniform, repetitive work, however technological advances may eventually open up a new chapter in human creativity and productivity – according to McKinsey & Company, one which the millennials hit by the automation of today may reap the benefits of tomorrow.

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High employment drives deals to access fresh talent

09 April 2019 Consultancy.uk

The UK continues to have a historically low unemployment rate, resulting in a tightening employment market and demand for recruitment services. The industry topped £12.3 billion last year, while valuations continued to rachet up. There were were 32 firm acquisitions in the recruitment services space last year, up significantly on the previous five-year average.

Labour markets globally are tightening, particularly in developed economies. At the same time, access to top talent is becoming increasingly difficult to source, as demand for that talent continues to rise. Higher demand has been one of the key drivers for acquisitions in the space. New analysis of the recruitment M&A market, from consultancy firm BDO, looks at current trends and future projections for activity in the segment.

The UK employment rate has grown considerably over the past decade, with the number of NEET decreasing, more women joining the workforce, and older people continuing to work, among other trends. Participation rates hit more than 75% in 2018, up from around 73% in 2014. The unemployment rate dropped to 4.1% last year, the lowest level in more than 40 years.

UK Recruitment Market

 

The recruitment industry has enjoyed strong growth over the same period, with revenues increasing from around £8 billion in 2014 to £12.3 billion last year. However, the growth rate for the industry is expected to stall for the coming years – the firm is projecting annual growth of 0.1% to 2024. The stall reflects deep seated uncertainties stemming from the future of the UK, from migration to internal employment in an increasingly uncertain future.

According to the firm’s analysis of market trends for UK listed FTSE recruitment companies, their performance over 2018 outperformed the wider FTSE market by a significant market during some months – the end-of-year uncertainty hit both recruitment and non-recruitment firms with relatively equal strength. The drop partly reflects market sentiment about the future of the UK.

FTSE Listed Recruitment Firms Average EV/EBITDA Multiple

 

The study also considered the multiples growth, average EV/EBITDA multiples, over the past year – which has shown considerable ups and downs. The yearly average multiple of 10.4x was above that of 2017’s 9.9x – although a 26% drop at the end of the year was significant. The drop was tied to the relative volatility in macroeconomic conditions affecting the globe, though another major contributing factor has been Brexit and political instability.

Global M&A

The global recruitment M&A market was particularly active in the UK, with 32 deals last year – a five-year high, and well above the 17 recorded for second-place US. Deal activity in the UK was focused on expertise and capacity in industrial and technical sectors, reflecting skills shortages in those segments. The US was largely focused on healthcare-related M&A, representing 25% of their market.

Overall, of the 92 deals in 2018 (a 21% drop on 2017) generalist firms were the most in demand, at 25% of the total, followed by education at 14% and engineering & construction at 13%. Software saw relatively low demand, at 2%.Investment into the UK by country

In terms of investments made into the UK, domestic investment continues to be the most dominant, accounting for 24 deals. Japan made three deals, although Brexit is seeing the country become increasingly nervous about investment. The US accounted for two deals. The longer-term trend shows that domestic investment is up on 2017, hitting the highest level in five years, while the US has reduced its M&A investment into the UK.

Commenting on the results, the firm noted, “The latest report shows the recruitment sector remains strong and continued to grow through 2018 despite facing many challenges. Notwithstanding the personalised nature of these services, the market continues to evolve, seeing traditional recruitment firms utilising available technology along with new entrants showcasing innovative platforms.”

Related: High UK employment masks troubled economy.