Automation and economic disparity: A new challenge for CEOs

McKinsey 08 Oct 2019 12:00

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As intelligent machines take over a wider variety of tasks, many global companies are doubling down on workforce retraining. And rightly so—the next wave of automation technologies promises to alter the nature of work further across a range of industries. But beyond these thorny organizational challenges around what work is—and what work will become—is another, less-explored management consideration: Where will this work happen?

New McKinsey Global Institute research on the future of work in the United States holds some clues. Economic disparity in the United States is high, and the health and trajectory of US local economies differ sharply from place to place—meaning that the forces of automation will affect localities in vastly different ways. How local economies respond will therefore have big, long-term implications for companies in where they hire, where they locate operations, where they invest, and even where they will find their customers.

Between these extremes are some fast-growing niche cities, as well as a larger “mixed middle.” Niche cities include emerging tech hubs, such as Boise, Idaho, and Provo, Utah; towns such as Chapel Hill, North Carolina, and South Bend, Indiana, that can build on the advantage of major research universities; and expanding retirement destinations, mainly in Arizona and Florida. The mixed middle comprises 180 cities that are home to one-quarter of the US population but post only modest employment growth. These include cities such as Detroit, Michigan; Providence, Rhode Island; San Diego, California; and St. Louis, Missouri; as well as manufacturing hubs, such as Grand Rapids, Michigan, and Greensboro, North Carolina. The challenge for all these places is to boost economic growth or risk falling behind.

The stark divergence across America has significant implications for where and how companies invest. For instance, the shifting fortunes of local labor markets will affect purchasing power. Consumer-facing companies in industries such as retail, food, hospitality and leisure, retail banking, healthcare, and personal services will need to understand these trends at a detailed level to see how their customer bases are evolving. These variations could prompt companies to deprioritize locations in slow-growing and distressed areas while focusing on localities where job growth is more robust. In booming markets, meanwhile, companies may want to expand, modernize, or roll out new, higher-end offerings.

A second gap to bridge is between haves and have-nots. The automation age could widen disparities that already exist between high-growth cities and struggling rural areas—and between high-wage workers and everyone else. In booming communities, such as Seattle, for example, rising rents have coincided with marked increases in homelessness. Addressing the problem of poverty amid plenty is another place where corporate-investment choices, as well as civic engagement, can create better outcomes. The recent announcement by the 181 CEOs of the Business Roundtable that they are committing to considerations beyond shareholder value, such as workforce reskilling and environmental issues, is a sign that companies are thinking in bigger and bolder terms about the future.

About the author(s)

André Dua is a senior partner in McKinsey’s Miami office; Susan Lund is a partner of the McKinsey Global Institute and a partner in the Washington, DC, office.

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