2012 TheWorldatWorkJobsPayandSkillsf
- (Dobbs et al., 2012) ⇒ Richard Dobbs, Anu Madgavkar, Dominic Barton, Eric Labaye, James Manyika, Charles Roxburgh, Susan Lund, and Siddarth Madhav. (2012). “The World at Work: Jobs, Pay, and Skills for 3.5 Billion People.” McKinsey Global Institute Report, June 2012.
Subject Headings: Technological Unemployment; Developing World Unemployment
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Executive summary
In the past three decades, technology and globalization have reshaped economies around the world, unleashing sweeping changes in markets and sectors. In the process, a global labor market began to take shape, bringing tremendous benefits — as well as dislocations and challenges. The most striking benefit has been the creation of 900 million non-farm jobs in developing countries, helping lift hundreds of millions of people out of poverty. During this time, advanced economies were able to raise productivity by investing in technology and tapping new sources of low-cost labor, while creating new high-wage jobs for high-skill workers.
Strains in this global labor market are becoming increasingly apparent — especially in the aftermath of the “Great Recession.” Joblessness remains high, and there are expanding pools of the long-term unemployed and other workers with very poor employment prospects; youth unemployment is approaching crisis proportions. And, even as less-skilled workers struggle with unemployment and stagnating wages, employers face growing shortages of the types of high-skill workers who are needed to raise productivity and drive GDP growth. Jobs and income inequality have become grave political and economic concerns.
In this report by the McKinsey Global Institute, we identify forces of demand and supply that are shaping a global labor force that will grow to 3.5 billion by 2030. We document these shifts and analyze the implications for workers, national economies, and businesses. We conclude that the forces that have caused imbalances in advanced economies in recent years will grow stronger and that similar mismatches between the skills that workers can offer and what employers need will appear in developing economies, too.
If these trends persist — and absent a massive global effort to improve worker skills, they are likely to do so — there will be far too few workers with the advanced skills needed to drive a high-productivity economy and far too few job opportunities for low-skill workers. Developing economies could have too few medium-skill workers to fuel further growth of labor-intensive sectors and far too many workers who lack the education and training to escape low-productivity, low-income work.
These potential imbalances are based on our “momentum” case, which uses current patterns in demographics and in the demand and supply of labor to project likely outcomes in the next two decades. In this analysis, we use educational attainment as a proxy for skills because education data are available across most nations, but we acknowledge that this is a rough measure — the quality of formal education varies across countries, and training through apprenticeship can be more important than formal education in many occupations.1 We also note that the market can at least partially correct imbalances through changes in supply, demand, and wages, which would reduce potential gaps.
However, analyzing these nominal gaps indicates where potential problems may arise (e.g., where it may be extremely difficult to hire graduate engineers to staff an R&D facility) and provides a framework that policy makers, business leaders, and workers can use to guide their decisions. Moreover, the magnitude of the gaps suggests that “business as usual” market responses will be insufficient to prevent adverse outcomes for millions of workers in advanced and developing economies. A concerted public and private effort will be required on multiple fronts.
The most significant imbalances that would arise in the momentum case include:
- A potential shortage of about 38 million to 40 million high-skill workers, or 13 percent of demand for such workers. Based on current patterns of educational attainment and demand growth, employers in advanced economies could face a shortage of 16 million to 18 million college-educated workers in 2020, despite rising college-completion rates. The remaining gap — around 23 million college-educated workers — would appear in China, despite a dramatic rise in educational attainment by 2020 (Exhibit E1).
- A potential surplus of 90 million to 95 million low-skill workers around the world, or around 10 percent of the supply of such workers. Labor forces of advanced economies could have as many as 32 to 35 million more workers without college education than employers will need. In India and younger developing countries, there could be as many as 58 million surplus low-skill workers in 2020.
- A potential shortage of nearly 45 million medium-skill workers in developing economies, about 15 percent of the demand for such workers. Industrialization will raise demand for workers with secondary education and vocational training in India and the developing economies of South Asia and Africa. But because of low rates of high school enrollment and completion, India could have 13 million too few such workers; younger developing economies could have 31 million too few.
For advanced economies, such imbalances would likely lead to more long-term and permanent joblessness. More young people without post-secondary training would fail to get a start in the job market and older workers would drop out because they don’t qualify for jobs that are being created. The polarization of incomes between high- and low-skill workers could become even more pronounced, slowing the advance in national living standards, and increasing public-sector burdens and social tensions. In some advanced economies, less-skilled workers could very well grow up poorer than their parents, in real terms.
In China, India, and other developing economies, the impact of potential imbalances would be felt in different ways. An inadequate supply of highly educated workers could slow China’s climb into higher value-added industries and hinder the productivity gains that are increasingly important to its growth. India’s problems will be different — the projected surplus of low-skill workers would imply millions trapped in subsistence agriculture or in urban poverty. This picture could be mirrored in other South Asian economies and in sub-Saharan Africa.
1. A Global Labor Market Emerges
Over the past three decades, the industrialization of developing economies, rising trade, and immigration, have all helped to bring about a more integrated global labor market. More than one billion non-farm jobs were created worldwide. Around 900 million of these were created in developing economies and played a role in lifting 620 million people out of poverty between 1990 and 2008.4 In advanced economies, as growth shifted to services and companies adopted technology to improve productivity, millions of new high-paying jobs were created for high-skill workers.5
But recently, strains have become apparent, particularly during the slow recovery from the “Great Recession” of 2008–09. In advanced economies, the fortunes of high- and low-skill workers have diverged sharply. While demand for high-skill workers remains strong — and shortages of such workers are becoming more common — there are large and growing pools of low-skill workers for whom job opportunities are shrinking. Long-term unemployment is becoming more common, and across advanced economies youth unemployment has risen to 18 percent, or more than twice the overall rate.
While part of the problem is cyclical — a natural result of the global financial crisis and a severe recession — it is increasingly clear that long-term structural changes in global demand and supply of labor play a major role. As a result, in advanced economies, polarization of incomes is growing. And, with slow wage growth for low- and middle-skill workers, labor’s share of national incomes (the sum of all employee compensation) has fallen to its lowest level in 60 years.
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ADVANCED ECONOMIES: MOVING TO HIGH-SKILL/HIGH-PRODUCTIVITY WORK
In the past 20 years, the drive for global competitiveness has shaped job creation across advanced economies. Companies based in wealthy nations adopted technology, streamlined business processes, and took advantage of new sources of low-cost labor — often as they expanded their global footprints. As a result, productivity growth in advanced economies averaged 1 to 2 percent annually. During this time, employment in services (both low- and high-skill) grew rapidly, while employment in manufacturing, mining, and agriculture sectors fell (even in countries that are strong exporters of manufactured goods).
Increasing use of technology and the drive for productivity have all raised demand for high-skill workers, while depressing job growth for workers with lower skills.19 Production and simple transaction jobs (e.g., assembly line work or answering a customer service call) have been automated or, in some cases, shipped to lower-cost locations. At the same time, jobs have grown quickly in “interaction” work, which requires face-to-face contact. These jobs include many low-skill jobs (e.g., home health aides), as well as professions, such as law and medicine. In the United States, the number of interaction jobs grew by 8.9 million from 2002 to 2010; about half of those jobs required tertiary education. In the same period, the number of production jobs declined by 2.2 million and the number of transaction jobs fell by 3.5 million.20
From the 1970s to 2007, employment in agriculture, manufacturing and mining in advanced economies shrank from 33 percent of total employment to 17 percent. This included the loss of approximately 20 million jobs in manufacturing (Exhibit 9). Even economies such as Germany and Japan, which retain strong manufacturing exports, have experienced falling employment in manufacturing. They remain globally competitive by focusing on advanced manufacturing and by investing in technology. So, even though Germany lost the same share of manufacturing jobs as the United States, its knowledge-intensive manufacturing jobs did not fall as steeply — including workers who design and run advanced manufacturing machinery (Exhibit 10).
(Exhibit 9)
(Exhibit 10)
Job creation in advanced economies has been strongest in services such as food preparation, health care, and government, as well as in the professions and business management — roles that cannot be automated or easily moved. Within service sectors, however, the share of labor-intensive jobs has fallen significantly, while that of knowledge-intensive services has grown. Technology, the quest for productivity, and the pressure of global competition all raised demand for skilled knowledge workers and reduced demand for low-skill workers, such as assemblers or machine operators. As a consequence, despite doubling tertiary educational attainment in the past 20 years, the supply of high-skill workers in advanced economies has not kept up with demand. Business leaders surveyed in Europe and the United States in the past two years have said they have been unable to fill open positions due to a lack of qualified candidates, and cite skill shortages among their main concerns.21 While demand for workers without post-secondary training was essentially flat in the United States during the 2000–10 decade (a period of very weak job growth), demand for college graduates, continued to grow by about 1 percent annually. Today, unemployment rates for workers with only secondary school education are nearly twice those of college graduates, and hiring in skill-intensive sectors has recovered faster since the recession than in other sectors.
RISING INEQUALITY
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2. Labor Supply and Demand, 2010-2030
In the coming decades, the dynamics driving the global labor market will evolve. The most significant change will be slower growth of labor forces around the world. The sharpest declines are likely in the aging economies — which now will include China. As China’s labor force growth slows — by about half — India and the “Young developing” economies of South Asia and Africa will become the biggest sources of labor force growth in the coming decades. But China, along with India, will likely be the world’s largest source of college-trained workers.
The first effect of aging and slower labor force growth will be a heightened need to raise productivity to sustain GDP growth. China, with its demographic dividend falling and incomes rising, would need to keep climbing the industrial value chain and accelerate productivity growth. As a result, its labor needs will more closely mirror those of advanced economies, with a similar emphasis on high-skill work. The demand for skilled workers will continue to grow far faster than supply, and the competition for talent will intensify and become increasingly global.
A Slower-Growing Global Labor Force
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3. Where the Gaps Are
If present trends persist, many nations — particularly advanced economies — could face more severe and widespread skill shortages in the coming decades, as well as the prospect of swelling ranks of unemployed low-skill workers. Short of an unprecedented, large-scale effort to raise worker skills, we project that in 2020 the global labor supply could have 40 million too few workers with tertiary education and 90 million to 95 million too many medium- and [[low-skill worker]s. Market forces will adjust labor markets in response these imbalances, but with potentially serious consequences: higher levels of unemployment, falling participation rates, widening income polarization between high- and low-skill workers, millions of workers trapped in low-income, marginal jobs, rising demands for public services, and heightened social tensions.
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- Surpluses of medium- and low-skill workers
The flip side of excess demand for workers with tertiary education in advanced economies is an excess supply of low- and medium-skill workers compared to expected demand. Based on our analysis of demand patterns in the United States and France, we can project that across advanced economies there could be 32 million to 35 million more workers without post-secondary education than employers will demand in 2020, a surplus that would be equivalent to 10 percent of supply in that year. The surplus could imply a range of adverse social and economic outcomes — higher unemployment rates (even during economic expansions); rising numbers of discouraged workers who opt out of the labor force permanently; and more workers forced to accept marginal jobs, resulting in downward pressure on wages. Not surprisingly, the oversupply of low-skill labor will be most acute where educational attainment is lowest. Based on current demand trends, we project that as many as 16 percent of the roughly 50 million workers without a post-secondary education in the Southern Europe cluster could struggle to find employment in 2020.
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4. A Global Agenda for Skills and Jobs
References
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| Author | volume | Date Value | title | type | journal | titleUrl | doi | note | year | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2012 TheWorldatWorkJobsPayandSkillsf | Richard Dobbs Anu Madgavkar Dominic Barton Eric Labaye James Manyika Charles Roxburgh Susan Lund Siddarth Madhav | The World at Work: Jobs, Pay, and Skills for 3.5 Billion People | 2012 |