THE CHANGING NATURE OF WORK

Simeon Djankov and Federica Saliola

Abstract: This article presents findings from the World Development Report
2019: Die Changing Nature of Work} The Report studies how the nature of work
is changing as a result of advances in technology today. Fears that robots will
take away jobs from people have dominated the discussion over the future of
work, but the World Development Report 2019 finds that on balance this appears
to be unfounded. Work is constantly reshaped by technological progress. Firms
adopt new ways of production, markets expand, and societies evolve. Firms
can grow rapidly thanks to digital transformation, expanding their boundaries
and reshaping traditional production patterns. Technology is also changing
the skills that employers seek. Workers need to be better at complex problem­
solving, teamwork, and adaptability. Digital technology is also changing how
people work and the terms on which they work. The Report analyzes these
changes and considers how governments can best respond. Investing in human
capital must be a priority for governments in order for workers to build the
skills that are in demand in the labor market. In addition, governments need
to enhance social protection and extend it to all people in society, irrespective
of the terms on which they work. To fund these investments in human capital
and social protection, the Report offers some suggestions as to how govern­
ments can mobilize additional revenues by increasing the tax base.

arel Capek, the Czech writer who invented the word “robot” in 1920, used the
K Slavic-language word for work, robota, to make it clear what these machines
would be used for. Over the last century, machines have replaced workers in many
tasks. On balance, however, technology has created more jobs than it has dis­
placed. Technological progress has transformed living standards. Life expectancy
has gone up; basic health care and education are widespread; and most people
have seen their incomes rise. And yet, fears of robot-induced unemployment have
dominated the discussion over the future of work. The World Development Report
2019 finds that on balance, such concerns appear to be unfounded.

Journal o f International Affairs, Vol. 72, No. 1. 57

© The Trustees of Columbia University in the City of New York
Simeon Djankov and Federica Saliola

As technology advances, firms adopt new methods of production, markets

expand, and societies evolve. Firms rely on new technologies to better use capital,
overcome information barriers, outsource, and innovate. New technologies allow
for more efficient management of the operations of firms: firms hire workers in one
location to produce parts, in another location to assemble, and in a third location
to sell. Meanwhile, the net result is consumers enjoy a wider range of products at
lower prices.
The future of work will be driven by the competing forces of automation and
innovation, the other “AI.” Technological progress enables firms to automate,
replacing labor with machines in production, and to innovate, expanding the
number of sectors, tasks, and products. The pace of innovation will determine
whether new jobs or tasks emerge to counterbalance the decline of old, routine-
based jobs. Recent evidence for Europe suggests that while technology replaces
some workers, overall it raises labor demand. Overall, technological advances are
attributed to replacing routine work, and these advances created an estimated
more than 23 million jobs across Europe from 1999 to 2016.2
As technology creates jobs, it disrupts the demand for skills. Occupations
involving non-cognitive, routine tasks are most susceptible to automation and
demand for those skills is declining.3 Evidence across low- to high-income countries
suggests that jobs are increasingly defined by more cognitive, analytical tasks, as
well as sociobehavioral skills such as relationship management. For the most part,
automation has lagged behind in replicating these skills to compete with workers.
Since 2001, the share of jobs in occupations that are intensive in nonroutine cog­
nitive and sociobehavioral skills has increased from 19 to 23 percent in emerging
economies and from 33 to 41 percent in advanced economies.4 Simultaneously,
demand is growing for transferable higher-order cognitive skills including logic,
critical thinking, complex problem solving, and reasoning.
Despite the opportunities technology offers, its effects are not manifesting
equally across the globe. Workers in some sectors have greatly benefitted from
technological progress, whereas those in others have been displaced and must
adapt. The greatest challenge for emerging economies, irrespective of technological
progress, continues to be persistent informality. Informal employment remains
greater than 70 percent in Sub-Saharan Africa, 60 percent in South Asia, and more
than 50 percent in Latin America.5
This changing nature of work requires a new social contract centered around
both robust investments in human capital and universal social protection.
Investing in human capital and lifelong learning is the priority to make the most of
this evolving economic opportunity. Enhanced social protection, regardless of the
form of labor contract, must be taken into consideration. Social inclusion for all

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workers is important, regardless of how or where they work. To fund human capital
investments, governments must reconsider their fiscal policies and priorities. Many
developing countries lack financial capacity due to inadequate tax bases, large
informal sectors, and inefficient administrative practices.

The Changing Nature of Work

Technology has driven a fundam ental shift in the nature of firm s

Historically, firms have operated within distinctive boundaries. Free trade
agreements and improved infrastructure have reduced the cost of cross-border
trade, allowing transactions to occur wherever costs are lower.6 With new tech­
nologies reducing communication costs, firms are less vertically integrated, which
enables managers to outsource more tasks to the market.
Digital technology enables firms to innovate and quickly scale, challenging
traditional production patterns and blurring boundaries. New business models,
including digital-platform firms, evolve rapidly from local startups to become
global behemoths, often with few employees and tangible assets, or “scale without
mass.”' Moreover, some companies are even creating new markets. For example,
JD.com, China’s second-largest e-commerce company, has more than 170,000
online merchants on its platform, many in rural areas. This creates jobs. The rise
of digital-platform marketplaces allows the impact of technology to reach more
people, faster, than ever before. This capacity brought economic opportunity to
millions who live outside of industrialized countries or industrial areas in the
developing world.
Large firms driving economic growth is not new. These firms increase aggregate
productivity through upgrading internal capabilities to become more efficient, thus
driving out unproductive competitors. These firms are at the forefront of adopting
new technologies and achieve economies of scale that benefit the consumers with
goods and services at lower prices. Of the world’s companies, 10 percent are esti­
mated to generate 80 percent of all profits. However, the advent of digital platforms
has changed how this phenomenon unfolds. The digital economy has enabled firms
to grow at a greater rate than those 20 years ago. Digital platforms are replacing
brick-and-mortar malls, connecting shoppers with different brand stores, creating
efficiencies for brands, and generating revenue for platform owners.8 Additionally,
data gathered through platforms are leveraged to improve firm efficiency, at times
in markets other than those from which the data were collected in the first place.
While the rise of large firms produces many benefits, there is also much to
consider with caution. Notably, digital markets provide new opportunities for
firms to stifle their competition, and the risk of market concentration increases in

JOURNAL OF INTERNATIONAL AFFAIRS | 59

Simeon Djankov and Federica Saliola

a world with few large firms. U.S. economist Sherwin Rosen, who introduced the
concept of superstar firms in 1981, predicted that technology would allow firms to
expand markets or crowd out the competition more easily. In many markets, this
prediction has proven to be true. Technology has allowed some companies to rise
quickly, while preventing others from rising at all. In the digital economy, network
effects often benefit early adopters of technology, facilitating the emergence of
monopolies.
Globally integrated firms, particularly in the digital economy, create new chal­
lenges for taxation. It is increasingly difficult to determine where value is created
when businesses create value by combining networks of users, ideas, and produc­
tion across borders. Taking advantage of international value creation, firms are
better able to divert profits to lower tax jurisdictions. Meanwhile, countries could
take unilateral steps by extending value-added tax regimes or creating new taxes
for the digital economy. Yet, it is difficult to collect taxes on intangible assets,
notably user data.

Technology is shaping jobs and changing the skills being rewarded in the labor
market
Robot density per worker in 2018 is the highest in Germany, Korea, and
Singapore. In all of these countries, despite the high prevalence of robots, the
employment rate remains high.9 Technology generates employment in a variety
of direct and indirect ways. Improvements in transcontinental communications
technologies, coupled with the fall in transportation costs, have expanded global
value chains toward East Asia, creating jobs in new markets. In China, rural
micro “e-tailers” began to emerge in 2009 on Taobao.com Marketplace. Owned by
Alibaba, it is one of the largest online retail platforms in China. These clusters of
“Taobao Villages” spread fast, from just three in 2009 to 2,118 across 28 provinces
in 2017.
Technology also creates jobs through online work or through the gig economy.
More widespread access to digital infrastructure—via laptops, tablets, and smart­
phones—provides an enabling environment in which on-demand services can
thrive. The nature of work in the gig economy ranges from grocery delivery and
driving services to more sophisticated tasks including accounting, editing, and
music production. Bangladesh contributes 15 percent to the global online labor
pool with more than 650,000 freelance workers in the gig economy.
Despite the opportunities created by technology, some workers are replaced
during the adoption of new advancements. Workers involved in routine tasks
that are “codifiable” are the most vulnerable. More than two-thirds of robots
are employed in the automotive, electrical/electronics, and metal and machinery

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industries. With robots representing cheaper alternatives to existing manufac­

turing processes, firms become more amenable to relocating production closer to
consumer markets. For example, in 2017, 3-D printing technologies enabled the
German company Adidas to establish two “speed factories” for shoe production:
one in Ansbach, Germany, and the other in Atlanta in the United States, elimi­
nating more than 1,000 jobs in Vietnam.
As technology replaces mainly routine, non-cognitive work, it is changing the
skills being rewarded in the labor market. The premium is rising for skills that
cannot be replaced by robots—specifically, technology is disrupting the demand
for three types of skills in the workplace. First, the demand for nonroutine cogni­
tive and sociobehavioral skills appears to be rising in both advanced and emerging
economies. Second, the demand for routine job-specific skills is declining. And,
third, payoffs to combinations of different skill types—indicative of adaptability—
appear to be increasing. Creating a skilled workforce for the future of work rests on
countries meeting the demand for these skills.
Technology is also changing how people work and the terms under which they
work. Replacing the once standard long-term contracts, digital technologies are
moving toward more short-term work contracts, often via online work platforms
that eliminate many of the geographical barriers previously associated with certain
tasks. These so-called “gigs” make certain kinds of work more accessible on a more
flexible basis, yet such work typically comes without traditional social protections.
The best estimate for the size of the gig economy is that less than 0.5 percent of
the active labor force participates in it globally, with less than 0.3 percent in devel­
oping countries. The emergence of the gig economy and the increasing prevalence
of short-term work is blurring the divide between formal and informal work. Labor
markets are becoming more fluid in advanced economies, while informality is per­
sisting in emerging economies.

H ow G overnm ents C an R espond to th e C h an g in g N atu re of W ork

The most significant investments that people, firms, and governments can
make with respect to the changing nature of work and firms are in human capital.
A basic level of human capital, such as literacy and numeracy, is needed for eco­
nomic survival. The growing role of technology in life and business means that all
types of jobs—including low-skill ones—require more advanced cognitive skills.
Individuals with stronger human capital gain higher economic returns from new
technologies. Firms with a higher share of educated workers do better at innovating.
Yet, governments often do not prioritize human-capital investments. One
reason is the lack of political incentives. Few data are publicly available on whether
health and education systems are generating human capital. This gap hinders the

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Simeon Djankov and Federica Saliola

design of effective solutions, pursuit of improvement, and the ability of citizens

to hold their governments accountable. The World Bank’s Human Capital Project
is designed to address the shortcomings of political incentives and provide the
impetus for investing in human capital. The project has three components: a global
benchmark in the Human Capital Index (HCI); a program of measurement and
research to inform policy action; and a program of support for country strategies
to accelerate investment in human capital.10
HCI, presented in the World Development Report for the first time, highlights
the link between investments in health and education and the productivity of
future workers. The index is measured in terms of the amount of human capital
that a child born in 2018 can expect to attain by the end of secondary school. HCI
has three components: (1) a measure of whether children survive from birth to the
school age of five years old; (2) a measure of expected years of quality-adjusted
school, which combines information on the quantity and quality of education; and
(3) two broad measures of health: stunting rates and adult survival rates.11 The
components of HCI are aggregated by first transforming the data into measures
of respective contributions to worker productivity relative to a benchmark cor­
responding to a complete education and full health.12 The aggregated index then
measures the amount of human capital that the average child born in 2018 expects
to achieve (Figure l).13
Because HCI is measured in terms of the productivity of the next generation of
workers relative to the benchmark of complete education and full health, the units
of the index have a natural interpretation: a value of x for a country means that
the productivity as a future worker of a child born in a given year in that country
is only a fraction x of what it could be under the benchmark. Due to the units of
measure, the index can be connected in a straightforward fashion to scenarios for
future per capita income and growth.

Lifelong learning alongside form al schooling

A country’s ability to cope with the demand for changing job skills depends on
how quickly the supply of skills shifts. Education systems, however, tend to resist
change. Therefore, a significant part of the readjustment in the supply of skills
must occur outside of compulsory education and formal jobs. Skills development
for the changing nature of work is a matter of lifelong learning. Early childhood
learning, tertiary education, and adult learning sought outside the workplace are
increasingly important in meeting the skills that will be sought by future labor
markets.

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 The Changing Nature o f Work

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Source: W D R 2 0 1 9 team.
Note: The H um an Capital Index ranges between 0 and 1. The index is measured in terms of
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tion and fu ll health. A n economy in which the average worker achieves both fu ll health and
fu ll education potential will score a value o f 1 on the index. G D P = gross domestic product;
PPP = purchasing power parity.

Early childhood development

The most effective way to acquire the skills demanded by the changing nature

JOURNAL OF INTERNATIONAL AFFAIRS | 63

Simeon Djankov and Federica Saliola

of work is to start early. The architecture of the brain forms from the prenatal
period to age five. Thus, this stage is important for developing cognitive and
sociobehavioral skills. During this period, the brain’s ability to learn from experi­
ence is at its highest level.
Moreover, learning is cumulative: skills acquired at an earlier stage facilitate
skills formation in subsequent stages. As such, the returns to early investments
are the highest of those made over the life span, and the advantages conferred by
these investments grow over time. An additional dollar invested in quality early
childhood programs yields a return of US$6-$17.14 In Jamaica, early stimulation
for infants and toddlers increased their future earnings by 25 percent—equivalent
to that of adults who grew up in wealthier households.15 In Guatemala, an early
childhood development nutrition program for poor families significantly increased
the wages for these children in adulthood.16 By contrast, poor-quality early child­
hood development programs are associated with disappointing results in children’s
language development, cognitive skills, and sociability. A study of preschools in a
Nairobi slum in Kenya revealed, despite high participation rates, the curriculum
and pedagogical approach were not age appropriate. In the program, three- to six-
year-olds had to follow academic-oriented instruction and even sit for exams.17
Early childhood investments are an important way to improve equality of
opportunity, yet these investments are underprovided and underutilized. This is
especially the case for poor, disadvantaged children, often in rural areas. In low-
and middle-income countries, approximately 47 percent of the wealthiest families
have access to early education programs. On the contrary, for the poorest families
this number is 20 percent.18 Children from poor families are the least likely to
attend early childhood development programs.

Tertiary education
Integrated, technology-driven economies are increasingly valuing tertiary
education (defined as any education beyond the high-school level, including trade
schools and college). The global average private return to tertiary education is 16
percent.
The changing nature of work makes tertiary education more attractive in three
ways: technological integration, lifelong learning, and attractive innovation. First,
technology and integration have increased the demand for higher-order general
cognitive skills such as complex problem-solving, critical thinking, and advanced
communication. These skills are transferable across jobs but cannot be acquired
through schooling alone. The rising demand for these skills has enhanced the
wage premiums of tertiary graduates, while reducing the demand for less educated
workers. Second, tertiary education increases the demand for lifelong learning.

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Workers are expected to have multiple careers, not just multiple jobs, over their
lifetime. Tertiary education, with its wide array of course offerings and flexible
delivery models, such as online learning and open universities, meets this growing
demand. Third, tertiary education, especially universities, becomes more attrac­
tive by serving as a platform for innovation. The relevance of tertiary education
systems for the future of work depends on how well they deliver on these three
fronts.
In addition, skills acquisition is increasingly a continuum. Flexibility is
increased by ensuring that when students open the door to one pathway, the doors
to others do not close irrevocably. For example, when first undertaking tertiary
education most students must choose between general education and vocational
training. Tertiary education systems should also guarantee a minimum threshold of
transferable high-order cognitive skills, which are the best inoculation against job
uncertainty. One approach is to incorporate more general education in tertiary pro­
grams. For example, an additional year of general education was added in 2012 to
undergraduate programs in Hong Kong SAR, China, focusing on problem-solving
and critical thinking. The Faculty of Architecture and Environmental Design
at the College of Science and Technology-University of Rwanda has promoted
learning strategies that include open-ended assessments, feedback opportunities,
and a progressive curriculum that balances academic challenges with student
support. These approaches have improved the critical-thinking skills of students.
Technology-enabled platforms are making tertiary education more available,
especially for those with historically low access. The five largest distance-learning
programs are based in lower- or middle-income countries. India is the second-
largest consumer of massive open online courses (MOOCs). XuetangX, China’s
biggest MOOC and blended learning portal, was serving 10 million students in
2018. In Brazil, Veduca launched the world’s first open online master’s in busi­
ness administration program in 2013 and was offering over 5,000 courses in 2018.
MOOCs, while providing a promising way of delivering flexible, personalized edu­
cation to a large population, face the challenge of ensuring quality.

A dult learning
As the nature of work changes, workers are caught in the crosshairs of ongoing
disruptions in the need for skills. Globally, some 260 million people ages 15-24 are
both out of school and work. As economies adjust to provide the human capital for
the next generation, adult learning can supply workers who are not in school or in
jobs with new or updated skills. However, this approach has shown more promise
in theory than practice. Often, poor design plagues progress. Adult learning can
be improved in three ways: more systematic diagnoses of the specific constraints

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Simeon Djankov and Federica Saliola

adults face; customized pedagogies for the adult brain; and flexible delivery models
that are compatible with adult lifestyles.
Adults face significant stress, which compromises their mental capacity and is
not always factored into program design. Adults also face specific socioeconomic
constraints. Adult learners have high opportunity costs considering lost income
and time with their children due to programs often having inflexible and intensive
schedules. Furthermore, adult brains learn differently, which is not always factored
into program design. An adult brain’s ability to learn is significantly dependent on
how much it is used. Adult learning programs have a better chance of success if
lessons are integrated into everyday life. In Niger, students who received instruc­
tion via their mobile phones as part of an adult education program achieved
reading and math scores that were significantly higher than those who did not.20
Flexible adult learning programs allow adults to learn at their convenience. In
a voucher program for vocational training in Kenya, nearly 50 percent of women
cited proximity to a training center as a determining factor in choosing a course.21
In addition, studies show that adult learning programs are more successful when
they are explicitly linked to employment opportunities, such as apprenticeships
or internships. Colombia’s Jovenes en Accion (Youth in Action) program combines
classroom instruction with on-the-job training at private companies. The prob­
ability of formal employment and earnings rose in the short term and has been
sustained in the long run.

E xpand social protection beyond the fo rm a l sector

Uncertain labor markets call for strengthening social protection. But many
workers are still exempt from basic social assistance and insurance. In low-income
countries, of those in the poorest quintile, only 18 percent are covered by social
assistance and 2 percent by social insurance. The corresponding rates increase to
77 and 28 percent in upper-middle income settings. Considering these figures and
the changing nature of work, the Bismarckian model of social protection, which
prevails in most countries, may no longer be appropriate. Three main components
of social protection can manage labor market disruptions in the changing nature
of work: a guaranteed minimum social assistance, expanded social insurance, and
labor market regulation.

Social assistance
A social minimum would consist of a set of social assistance programs that
provide financial support to a large share of the population, or even all of it. Social
assistance works on many levels. Empirical studies have shown that cash transfers
are spent on food, healthcare, education, and other desirable goods. Transfers are

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associated with improvements in the human capital of current and future genera­
tions. A systematic review of 56 cash-transfer programs found significant advances
in school enrollment rates, test scores, cognitive development, food security, and
use of health facilities.22 Social assistance programs also affect household assets
and livelihoods. Evaluations in Africa found that, on average, livestock ownership
increased by 34 percent and ownership of durable goods by 10 percent.23
Despite its positive impacts, social assistance frequently fails to reach those
who need it most. In advanced economies, social assistance faces the challenge
of low uptake among eligible beneficiaries. In the European Union, only about
60 percent of social benefits are claimed.24 In developing countries, welfare dis­
tribution may contrast with sharp, somewhat arbitrary, measures of poverty or
eligibility criteria. For example, in some middle-income countries, people living on
US$6 a day, or just above the poverty line, face a 40 percent probability of falling
back into poverty.25 Poverty is often dynamic: in Africa, a third of the population
is persistently poor, while another third moves in and out of poverty.26
These facts suggest the need for broader and more permanent coverage than
most social assistance programs provide. Although more universal approaches are
desirable, the specific shape of this social minimum faces technical, budgetary, and
political challenges. Universal approaches typically reduce or eliminate hurdles
around program fragmentation, eligibility determination, and social tensions, but
they require significant additional resources. Expanding social assistance should
proceed at the same pace as the mobilization of required resources.
A universal basic income (UBI) is one expansion option. This tool enshrines
the notion of building a guaranteed social minimum through a single program with
three design features. First, the program is aimed at every individual, independent
of income or employment status. Second, participants do not have to fulfill any
conditions or reciprocal co-responsibilities. Third, assistance is provided in the
form of cash instead of in-kind transfers and services.
Despite its appeal, little is known about how UBI works in practice. Only one
country, Mongolia, utilized the initiative covering its entire population. In this
case, UBI lasted only two years (2010-12) before being dismantled due to the col­
lapse of mineral prices. The Islamic Republic of Iran had a similar program for one
year: in 2011 energy subsidies were replaced by cash transfers to 96 percent of the
population.
The fiscal implications of UBI could be significant. New analysis of four
European countries suggests that the additional cost of UBI varies significantly:
13.8 percent of GDP in Finland, 10.1 percent in France, 8.9 percent in the United
Kingdom, and 3.3 percent in Italy. Simulations from developing countries also
suggest significant additional spending: a UBI set at 25 percent of median income

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Simeon Djankov and Federica Saliola

would cost about 3.8 percent of GDP. By comparison, low- and middle-income
countries spend, on average, 1.5 percent of GDP on social assistance.

Social insurance
Social insurance that does not fully depend on formal wage employment would
complement social assistance. The Bismarckian social insurance model of earn-
ings-based contributions is premised on steady wage employment, clear definitions
of employers and employees, and a fixed point of retirement. It relies on levying
a dedicated tax on wages. In rich countries, this policy option was effective in
increasing coverage as workers were steadily absorbed into factories, then into jobs
in formal services firms. Yet, this contributory approach is not a good fit for devel­
oping countries, where formal and stable employment are not common. Indeed,
because eligibility is based on making mandatory contributions, this form of social
insurance excludes informal workers, who account for more than two-thirds of the
workforce in developing countries and one in ten in India and many countries in
Sub-Saharan Africa. Rethinking this model should be a priority.
A reformed system must ensure that low-income workers have access to effec­
tive risk management tools. The right combination of instruments, subsidized
for the poorest, is required to cover losses from livelihood disruptions, sickness,
disability, and untimely death. Instruments that support stable consumption pat­
terns, or are consumption smoothing, are important. A comprehensive insurance
package would include: first, guaranteed minimum insurance with subsidized
coverage against impoverishing losses; second, a mandated savings and insurance
plan (to allow for consumption smoothing); and third, voluntary savings options
to allow people to contribute more if desired. Elements of this model already exist
in many countries.
This approach can, along with a guaranteed minimum income, reduce the size
and pure-tax element of mandated contributions. The significant extension of the
rural pension scheme in China is one example. Currently, around 360 million rural
and urban informal workers are contributing to the scheme. Some 150 million
older people are receiving payments.27 Similarly, Costa Rica’s government covers
part of the pension contribution for the self-employed. Thailand provides the same
for informal sector workers who choose to join a special pension scheme aimed at
low-income workers. Subsidies could be offered to everyone or just to the poor, or
they could be gradually reduced as income grows. Turkey’s health insurance system
does the latter.

Labor regulation
Once workers are better protected through social assistance and insurance,

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labor regulation could, where appropriate, be made more flexible. More restrictive
approaches to labor regulation often fit poorly with many developing countries’
labor markets. Designed with industrial-era economies in mind, labor regulations
often fail to protect most workers when informality is the norm and work is often
out of reach of the authorities.
On the contrary, if regulations are too strict and exclude many workers—
especially young and low-skilled workers—firms may find it difficult to adjust
the composition of their workforces, an important condition for adopting new
technologies and increasing productivity.28 In addition, strict labor regulations,
specifically those with burdensome dismissal procedures, are negatively associated
with the adoption of productivity-enhancing technology.29 Thus the technology­
intensive sectors are smaller in countries with stricter employment protection
regulations.30 More stringent regulations are also associated with lower entry and
exit of firms—especially small firms—in industries in which labor moves more
frequently between jobs.31
To address this challenge, policy makers must rethink labor regulations. Italy’s
recent reforms have been associated with the creation of more permanent jobs.
Aiming for a balance of security—through enhanced social assistance and insur­
ance—and flexibility is vital. Increasing flexibility for firms goes hand-in-hand
with stronger social protection, intermediation and job-search assistance programs,
and arrangements for strengthening the agency of workers. Beyond basic regula­
tions, protections could be provided to all working people no matter how they
engage in the labor market as part of a comprehensive approach to social protec­
tion and labor institutions. This would be a shift away from protecting some jobs
to protecting all people.
Firms could be given more flexibility in managing their human resources con­
tingent on laws mandating proper notice, the presence of an adequate system of
income protection, and efficient mechanisms to punish discrimination. When the
rules applied to firms’ hiring and dismissal decisions are too onerous, they create
structural rigidities that carry higher social costs in the face of disruption. For
example, in 32 countries, an employer needs the approval of a third party even for
individual redundancies. The provision of financial protection to workers whose
livelihood has been disrupted is also ripe for reconsideration. Severance pay is an
ineffective instrument for income protection because it pools risk at the firm or
industry level, where shocks and losses are correlated. Employees also face a high
risk of not receiving payments. Placing greater reliance on unemployment benefits
organized nationally would position workers with more reliable options.
Scrutiny of industrial-era employment protections should be accompanied
by an assessment of rigid—possibly outdated—laws on work arrangements. Some

JOURNAL OF INTERNATIONAL AFFAIRS | 69

Simeon Djcmkov and Federica Saliola

new forms of work blur the distinction between being an employee and being a
“dependent” self-employed—for example, is a Yandex.Taxi driver in Moscow a
Yandex.Taxi employee? Labor codes should define more clearly what it means to
be an employee in current labor markets to ensure the basic set of protections
just discussed. This goes hand-in-hand with better enforcement of labor laws and
mechanisms to expand workers’ voices. Digital technologies, including the use of
social media, can assist with both tasks.

Increasing fisca l space

Investments in human capital, basic social protection (including community
health workers in some developing countries), and productive opportunities for
youth are likely to have fiscal costs of 6 to 8 percent of GDP. The share of tax
revenue in low-income countries is half that of high-income countries. How will
governments raise the additional resources needed to invest in human capital and
advance social inclusion?
Most of the required fiscal resources are likely to come from improved capacity
in tax administration and policy changes, particularly to value-added taxes and
through an expansion of the tax base. Sub-Saharan African countries could raise,
on average, 3 to 5 percent of GDP in additional revenues through reforms that
improve the efficiency of the current tax systems. Closing tax exemptions and
converging toward a uniform tax rate in value-added tax could raise further rev­
enues. In Costa Rica and Uruguay, such revenues could amount to more than 3
percent of GDP.
Other taxes and savings could also contribute to the financing of human
capital. The Kingdom of Saudi Arabia adopted an excise tax in 2017: 50 percent on
soft drinks and 100 percent on energy drinks and tobacco products. It is estimated
that nationally efficient carbon pricing policies would raise more than 6 percent
of GDP in China, the Islamic Republic of Iran, the Kingdom of Saudi Arabia, and
Russia.33 Taxes on immovable property could raise an additional 3 percent of GDP
in middle-income countries and 1 percent in poor countries.34
Age-old tax avoidance and evasion schemes by firms and individuals need to be
tackled as well. By some estimates, approximately 50 percent of the total foreign
income of multinationals is reported in jurisdictions with an effective tax rate of
less than 5 percent.35 As a result, estimates suggest that governments worldwide
may miss out on US$100-$240 billion in annual revenue, which is equivalent to
4 to 10 percent of global corporate income tax revenue. The increasingly digital
nature of business only creates more opportunities for tax avoidance. Generating
revenue from new kinds of assets, such as user data, makes it increasingly unclear
how or where value is created for taxation.

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 The Changing Nature o f Work

Conclusion
Preparing people to seize the potential that technological progress brings, and
thus enabling them to work alongside new technologies, is the challenge. The rela­
tive demand for skills is changing. The rise of platform marketplaces means that
the effects of technology reach more people more quickly than ever before. The
most effective way to meet the skills demand in future labor markets is to invest
in people’s knowledge, skills, and health: people’s human capital.
The politics of some of the reforms are complex because of the potential trade­
offs between, for example, investments in the current generation of workers against
those in future generations. However, technology-driven changes in production
structures increase the cost of inaction on human capital. Adjusting to the next
wave of jobs requires social protection. A solid guaranteed social minimum and
strengthened social insurance, complemented by reforms in labor market rules in
some emerging economies, would achieve this goal. Public spending must become
more efficient and additional sources of revenue have to be identified to enhance
social inclusion, w

Simeon Djankov is director of the World Development Report 2019, and he was deputy
prime minister and minister of finance of Bulgaria from 2 0 0 9 to 2013. Prior to his cabinet
appointment, Djankov was chief economist at the World Bank. He is thefounder of the World
Bank’s Doing Business project. He is author of Inside the Euro Crisis: A n Eyewitness Account
(2014) and principal author of the World Development Report 2002. He is also coeditor of
The Great Rebirth: Lessons from the Victory of Capitalism over Communism (2014) and
Europe’s Growth Challenge (2017). He obtained his doctorate in economics in 1997from the
University of Michigan at A nn Arbor.

Federica Saliola is director of the World Development Report 2019, and she was a manager
at the World Bank. Under her intellectual leadership, nine World Bank global reports have
been published, including Enabling the Business of Agriculture (2015, 2016, and 2017),
Benchmarking Public Procurement (2015, 2016, and 2017) and Procuring Infrastructure
PPPs (2015, 2017, and 2018. She has also contributed to a number of reports, including
Golden Growth: Restoring the Luster of the European Economic Model (2012) and the Jobs
Study: Assessing Private Sector Contributions to Job Creation and Poverty Reduction (2013).
She holds a doctorate in economics and a laurea in political science from the University of
Rome, la Sapienza.

NOTES

1 Official website for the World Development Report 2019: http://www.worldbank.org/en/publication/

JOURNAL OF INTERNATIONAL AFFAIRS | 71

Simeon Djankov and Federica Saliola

wdr2019.
2 Ibid.
3 David H. Autor and David Dorn, “The Growth of Low-Skill Service Jobs and the Polarization of
the US Labor Market," American Economic Review 103, no. 5 (2013), 1553-97.
4 The World Bank Group, World Development Report 2016: Digital Dividends, (Washington, DC: The
World Bank Group, 2016).
5 Official website for the World Development Report 2019: http://www.worldbank.org/en/publication/
wdr2019.
6 Simeon Djankov, Caroline L. Freund, and Cong S. Pham, 2010, “Trading on Time,” Review of
Economics and Statistics 92, no. 1 (2010), 166-73.
7 Erik Brynjolfsson et al., “Scale without Mass: Business Process Replication and Industry
Dynamics” (Research Paper No. 07-016, Harvard Business School Technology and Operations
Management Unit, Cambridge, MA: 2008).
8 Official website for the World Development Report 2019: http://www.worldbank.org/en/publication/
wdr2019.
9 Ibid.
10 Aart Kraay, “Methodology for a World Bank Human Capital Index” (Policy Research Working
Paper 8593, The World Bank Group, Washington, DC: 2018).
11 Ibid.
12 This approach follows the development accounting literature. See Francesco Caselli, “Accounting
for Cross-Country Income Differences,” Phillipe Aghion and Steven N. Darlauf, eds., Handbook of
Economic Growth 1A (Amsterdam: Elsevier, 2005), 679-741; David N. Weil, “Accounting for the Effect
of Health on Economic Growth,” Quarterly Journal of Economics 122, no. 3 (2007), 1265-1306.
13 The data, which have been made publicly available at http://www.worldbank.org/en/publication/
human-capital, can be disaggregated by gender for most countries so that differences in the prospects
of boys versus girls can be observed.
14 Nina Rosas and Shwetlena Sabarwal, “Can You Work It? Evidence on the Productive Potential of
Public Works from a Youth Employment Program in Sierra Leone” (Policy Research Working Paper
7580, The World Bank Group, Washington, DC: 2016).
15 Sarah Jane Baird, Craig T. McIntosh, and Berk Ozler, “When the Money Runs Out: Do Cash
Transfers Have Sustained Effects on Human Capital Accumulation?” (Policy Research Working Paper
7901, The World Bank Group, Washington, DC: 2016).
16 Celine Ferre and Iffath Sharif, “Can Conditional Cash Transfers Improve Education and
Nutrition Outcomes for Poor Children in Bangladesh? Evidence from a Pilot Project” (Policy Research
Working Paper 7077, The World Bank Group, Washington, DC: 2014).
Stephen Knack and Philip Keefer, “Does Social Capital Have an Economic Payoff? A Cross-
Country Investigation," Quarterly Journal of Economics 112, no. 4 (1997), 1251-88.
18 Robert Jensen, “The (Perceived) Returns to Education and the Demand for Schooling,” Quarterly
Journal of Economics 125, no. 2 (2010), 515-48.
19 George Psacharopoulos and Harry Antony Patrinos, “Returns to Investment in Education: A
Decennial Review of the Global Literature” (Policy Research Working Paper 8402, The World Bank
Group, Washington, DC: 2018).
20 Jenny C. Aker, Christopher Ksoll, and Travis J. Lvbbert, “Can Mobile Phones Improve Learning?
Evidence from a Field Experiment in Niger,” American Economic Journal: Applied Economics 4, no. 4
(2012), 94-120.
21 Joan Harnory Hicks et al., “Vocational Education Voucher Delivery and Labor Market Returns: A
Randomized Evaluation among Kenyan Youth” (Report for Spanish Impact Evaluation Fund, Phase
II, The World Bank Group, Washington, DC: 2011).
22 Fransesca Bastagli et al., Cash Transfers: What Does the Evidence Say? A Rigorous Review of Programme
Impact and of the Role of Design and Implementation Features (London: Overseas Development Institute,
2016).

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 The Changing Nature o f Work

23 Laura Ralston, Colin Andrews, and Allan Hsiao, “The Impacts of Safety Nets in Africa: What
Are We Learning?” (Policy Research Working Paper 8255, The World Bank Group, Washington, DC-
2017) .
24 Eurofound, “Access to Social Benefits: Reducing Non-Take-Up” (Publications Office of the
European Union, Luxembourg: 2015).
23 Luis F. Lopez-Calva and Eduardo Ortiz-Juarez, “A Vulnerability Approach to the Definition of
the Middle Class” (Policy Research Working Paper 5902, The World Bank Group, Washington, DC:
2011 ).

26 Hai-Anh H. Dang and Andrew L. Dabalen, “Is Poverty in Africa Mostly Chronic or Transient?
Evidence from Synthetic Panel Data "Journal of Development Studies (2018).
2/ Organization for Economic Cooperation and Development, Taxing Wages 2017 (Paris: OECD,

28 Ricardo J. Caballero et al„ “Effective Labor Regulation and Microeconomic Flexibility,” Journal of
Development Economics 101 (2013), 92-104.
29 Eric Bartelsman, Pieter A. Gautier, and Joris De Wind, “Employment Protection, Technology
Choice, and Worker Allocation,” International Economic Review 57, no. 3 (2016), 787-826.
30 Anna Bottasso, Maurizio Conti, and Giovanni Sulis, “Firm Dynamics and Employment
Protection: Evidence from Sectoral Data,” Labour Economics 48 (2017), 35-53.
31 Irene Brambilla and Dario Tortarolo, “Investment in ICT, Productivity, and Labor Demand: The
Case of Argentina” (Policy Research Working Paper 8325, The World Bank Group, Washington, DC:
2018 ) .

32 International Monetary Fund, “Tackling Inequality,” Fiscal Monitor (World Economic and
Financial Surveys, IMF, Washington, DC: October 2017).
33 Ian W. H. Parry, Chandara Veung, and Dirk Heine, “How Much Carbon Pricing Is in Countries’
Own Interests? The Critical Role of Co-benefits" (IMF Working Paper WP/14/174, International
Monetary Fund, Washington, DC: 2014).
34 John Norregaard, “Taxing Immovable Property: Revenue Potential and Implementation
Challenges” (IMF Working Paper WP/13/129, International Monetary Fund, Washington, DC: 2013).
3j Kimberly A. Clausing, “The Effect of Profit Shifting on the Corporate Tax Base in the United
States and Beyond,” National Tax journal 69, no. 4 (2016), 905-34.

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