JEDDAH — A growing and globalizing labor force in last 30 years has delivered economic rewards for both developed and developing nations. Recently, however, strains have become more apparent. These strains — heightened by the "Great Recession" — include widening income inequality, growing and persistent joblessness for many low- and middle-skill workers, rising youth unemployment, and shortages of high-skill workers.
By 2020 there could be around 85 million too few high- and medium-skill workers, and around 90 million too many low-skill workers globally. Avoiding such massive imbalances will require a radical approach to accelerate education and training, and to boost job creation for less-skilled workers, according to a new McKinsey Global Institute (MGI) report, The world at work: jobs and skills for 3.5 billion people.
The report finds demand for high-skilled labor in advanced economies is now growing faster than supply, while demand for low-skill labor remains weak. As a result, income inequality is growing as low-skilled workers experience unemployment, underemployment and stagnating wages. The effects are particularly harsh for young workers-75 million young people (15 to 24 years old) around the world are unemployed.
MGI finds that, in the coming years, this mismatch between what employers need and what the labor market can supply will grow and spread to China and other developing economies.
Based on current trends in demographics, labor participation, education, and labor demand, the report projects that by 2020 the global economy could face:
• Around 40 million fewer workers with tertiary education (college training or post-graduate degrees) than employers will need.
• Around 45 million too few workers with secondary education in developing economies.
• Around 90 million more low- skill workers (for example, those without college training in advanced economies, and those without even secondary education in developing economies) than employers will need.
To understand where these gaps are likely to arise and have the greatest impact, MGI looked at the 70 countries that account for 96 percent of global GDP and are home to 87 percent of the world’s population.
The population in China and in many advanced economies is aging, reducing the growth rate of global labor supply. Retirements will likely result in 360 million older people who are no longer in the global labor force in 2030, raising the productivity imperative in many parts of the world. One quarter of the global labor force in 2030 will be over the age of 55 years, as much as 30 percent in China and the most aging economies such as Japan and Germany. Yet, China’s recent surge in tertiary education will make it, along with India, contribute over half the net additions to college-educated workers in the world through 2030. Even this pace of increase in college-educated workers will not be sufficient to keep pace with China’s rate of increase in demand for high-skill workers as its economy evolves up the value chain.
MGI finds that 60 percent of the additions to the global labor force from 2010 to 2030 will occur in India and the "young" developing economies of South Asia and Africa. Basic schooling and vocational training will lag behind the needs of expanding manufacturing and services sectors in these economies. Even by 2030, the world will have as many as 1 billion workers without even secondary education, concentrated in India, South Asia and Africa.
For the global labor market to continue to deliver benefits to all workers, employers, and national economies over the next 30 years, these imbalances must be avoided. While market forces will move to eliminate some of these imbalances before their full impact is felt, they cannot be avoided entirely without a concerted, global effort by governments and businesses to raise educational attainment and provide job-specific training. Advanced economies will need to double the rate at which the number of young people earning college degrees is rising.
They also need to find ways to increase the number of students graduating in science, engineering and other technical fields; these workers will be in high demand and their contributions will be critical for meeting the rising productivity imperative if historic growth rates are to be sustained.
Secondary and vocational training must be revamped, and capacity enhanced substantially in developing economies, to provide job-specific skills to students who will not go on to four-year colleges and retrain mid-career workers.
Even then, in the next two decades, the world is likely to have too many workers without the skills to land full-time employment. In both developing and advanced economies, policy makers will need to find ways to not only produce high-skilled workers, but also to create more jobs for those without higher education.
Solutions include moving up the value chain in developing economies (i.e., food processing creates more employment than growing export crops) and finding opportunities for workers without a college education to participate in fast-growing fields such as health care in advanced economies. Another tactic is the "marketization" of household work-employing lower-skill workers for child care, elder care, cleaning, cooking and other household chores, and upgrading this "off-the-books" or "home produced" sector of the economy to an organized industry in the formal economy. Germany and Sweden have proven this can work, if the proper incentives and supports are in place.
Businesses operating in this skills-scarce world will need to understand where pools of talent with needed skills are and build strategies to hire, retain, and train the workers who will give them competitive advantage. To fill skill gaps, companies will need to find ways to retain more high-skill women and older workers.
Businesses will also need to significantly step up their activities in shaping public education and training to build pipelines of workers with the right skills for the 21st century global economy. — SG