The future of work: Why societal shifts matter

The COVID-19 pandemic has accelerated many existing societal shifts, bringing fundamental changes to the lives — not least the working lives — of millions. The rise of working from home (WFH) and the rapid increase in the use of digital technology have already disrupted many industries around the world.

This kind of societal change will no doubt continue to significantly impact financial markets. Here, we explore some of the changes we can expect over the next decade by imagining a typical day for Heidi, a fictional working mother in 2030. While we have located Heidi in Germany, we believe the themes we discuss will apply globally.

Changing trendlines
De-urbanization and household spending

Our hypothetical case study with Heidi illustrates why the urbanization trend may be going into reverse. Rent inflation has outpaced general inflation over the last two decades in Germany and elsewhere, and affordability ratios have fallen in urban centers globally.

We estimate that a 1% shift in German household budgets away from housing would equate to a reallocation worth about €20 billion. The money saved from lower-rent rural living could be reallocated to areas like leisure and travel.

Urban centers often score poorly in terms of quality of life. But if quality of life, rather than proximity to the workplace, is increasingly driving life decisions, the new lifestyle could change how consumers, businesses, and governments interact. In particular, it could alter the bargaining power dynamic between employees and employers as workers favour WFH as they move out of urban centers.

While many workers, including Heidi, increasingly prefer to work from home, there are some drawbacks, notably the potentially adverse impact WFH can have on morale, motivation, collaboration, and productivity. Employers and employees will need to find ways to deal with these potential headwinds.

An uptick in up-skilling

More sophisticated skills are now required to get jobs done. Technological progress, including automation and AI-based information processing, is reducing the amount of labor required for physical and basic tasks, while the demand for talent within complex skill areas — less easily replaced by automation — exceeds supply.

This dynamic is likely to drive growth in adult education, which has a relatively low historical allocation within household budgets. Increased spending on adult education should be particularly appealing to governments as a way of increasing productivity. For instance, the European Centre for the Development of Vocational Training (CEDEFOP) estimates that the productivity loss arising from mismatches in workers’ skills amounts to 2% of GDP in the European Union¹.

Before the pandemic, public spending on jobs training had been falling in developed markets for many years (see Figure 1). Now, governments and households may allocate greater resources to labor training, including the education of middle-aged workers such as Heidi. In 2020, Germany increased subsidies for unemployed people undertaking IT training by 20% – 25%. Other countries may follow suit.

Figure 1

Digitalization as a driver of labor participation and training for mothers

There is a strong correlation between the ability to work from home and the employment rate for mothers. Digitalization is happening in the job training space too, with the share of non-physical delivery of job training increasing, as illustrated by Heidi’s experience below. Investment in remote working and training may be an increasingly important strategy for companies hiring highly skilled employees, including working mothers, and this could present opportunities for education companies with online platforms.

Growing internet usage

In some countries, notably Japan, internet usage already dominates other media among younger age groups and is now becoming increasingly prevalent in other age brackets (Figure 2). It seems inevitable that people will spend more and more time on devices connected to the internet, in both their home life and at work as internet access expands from smartphones and computers to a broad range of other uses, such as smart cars, and the capabilities of those devices continue to increase.

Figure 2

New revenue models for digital media

Studies measuring how much market share the internet is taking from other channels often classify media into radio, newspapers, TV, and the internet. While this made sense in the past, today it may be misleading, as all these channels can be accessed from smart devices. So traditional media will need to find a place in the evolving digital world and create new revenue models. Already we are seeing the emergence of two new revenue models.

In the first model, which we call “Influencer 1.0”, people who have developed large followings on social media become promoters of products — effectively, this is a new form of advertising. Digital media has the advantage of offering more accurate, more interactive, and potentially more influential advertising because its content can be shared and saved.

The second iteration of revenue models is “Influencer 2.0”. Rather than traditional tangible goods and services, increasingly intangible services and content are traded from home. Examples already exist, such as platforms where users can post and fulfil requests for voice recordings. Similar online platforms exist for buying and selling specific subject expertise. The same goes for fitness lessons and a growing array of creative talent. The scope for potential expansion is wide and could begin to include medical expertise, although regulation of these new markets will be essential.

Case study: A day in the life of Heidi in 2030

To bring these predictions to life, let’s imagine a typical day for Heidi in 2030.

De-urbanization: Over breakfast, Heidi and her husband continue to plan their move out of the city. Heidi already works from home 50% of the time and her children study at home 40% of the time. The flat they live in is too small for the lifestyle Heidi wants — and moving out could save them 40% on housing expenses while adding only 10% to the cost of commuting. (These numbers are hypothetical and for illustrative purposes only.)

Training subsidy: Heidi’s first task of the day is an online course, learning to use a new IT system that will improve her skills as an HR professional. In the previous year, her employer tripled its resourcing of online courses. When Heidi has completed her latest course, she will receive a universally recognized certificate that will improve her career prospects.

Smart device: In the afternoon, Heidi takes an online fitness class with her newly purchased smart yoga mat that provides live feedback to her personal trainer.

Online medicine: Afterwards, Heidi uses her new smart ID card (government issue in 2029) to enter an online virtual medical center and consult a doctor about a recent ailment.

Influencer 2.0: Over dinner that evening, Heidi’s son tells her that the voiceover she was recently paid to record for his school via an online platform was used in his listening exam for his English class. While this is a helpful income stream, a bigger source of income for Heidi comes from the artwork she sells at a premium into the Asian market on a platform using a smart 3D camera.

Investment implications

Accelerating societal shifts and the changing nature of work may have significant investment implications:

• The structural trend toward urbanization over recent decades may be challenged or even reversed. In the real estate market, this would potentially create a value shift between urban and rural locations.
• The time and money saved as a result of lifestyle changes would give consumers greater discretionary spending power.
• The increasing need to invest in personal development would likely benefit companies that provide education, upskilling, and reskilling for older segments of the population.
• A large “in-home” economy will likely be formed, particularly through person-to-person or business-to-customer transactions, with the online leisure market and the gig economy continuing to grow. Online security will be ever more critical, meaning digital security providers could be a key beneficiary of this trend.

Bottom line

The pandemic has accelerated several societal trends — most notably the inexorable rise of digital technology in our personal and working lives — and reshaped the future of work. The potential investment implications are only starting to emerge but span a wide range of areas from real estate to new forms of consumer spending and services for older workers.