The Global Workforce Crisis: $10 Trillion at Risk

The Global Workforce Crisis: $10 Trillion at Risk

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The Global Workforce Crisis: $10 Trillion at Risk

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    The Global Impact

    In 2020, we see a mixed labor picture. By 2030, however, most countries will face labor shortages. (See Exhibit 6.) Surpluses of between 0 and 5 percent represent de facto shortages (natural unemployment), in which job openings are already difficult to fill.


    What do these shortages and surpluses mean to the world economy? What aggregate impact could they have by the year 2030? The answer can be represented by an equation. The impact that comes from a surplus (what a country could produce if it created enough jobs) plus the impact that comes from a shortage (what a country cannot produce because it does not have enough people to fill the available jobs or does not have the required productivity increase) equal total impact—that is, the total potential economic loss that results from the supply-and-demand mismatch.

    We begin by taking the labor gap figure for each country—the number of people constituting the shortage or surplus—and multiplying it by the labor productivity (per worker) average. (We ran calculations using the two sets of averages but this report is based on the 20-year assumptions—presumably the most reliable numbers since they cover the longest term.) The resulting number is the dollar value of GDP not created. Adding all of the country results together, we get the total GDP not created as a result of these labor gaps. In the 20-year productivity scenario, we calculated $10 trillion of lost GDP. Addressing labor force imbalances will clearly have a huge economic effect.

    Our aim here, however, is not to dissect the underlying causes of workforce imbalances or to elaborate on recommendations. It is simply to quantify these imbalances today and over the coming years and to draw attention to their severity and imminence. Their effects on individual countries, as well as on regional economies and the global economy, cannot be taken lightly.

    Clearly there is no one solution, neither for the specific problems of labor shortage and labor surplus nor for the particular type of economy, whether developed or developing. We believe that each situation calls for a focused set of interventions. Many cases will require activating a combination of levers. (See “Closing the Gap: How Germany Could Mitigate Its Labor Shortage.”)


    To further illustrate the magnitude of global labor-force risks, let’s consider what it would take for Germany to close the serious labor gap we project it will have by 2030. (See the exhibit below.)


    Assuming a target GDP growth rate of 1.3 percent (the 20-year average annual rate), Germany would need to do all of the following to close the gap:

    • Increase the workforce participation rate of workers age 65 and over from the current 4.1 percent level to 10 percent.

    • Increase the participation rate of working-age women from 71 to 80 percent. The official participation rate does not distinguish between part-time and full-time jobs. Many women in Germany work part-time, which makes the overall participation rate high. So another lever for closing the labor gap would be to convert more women from part-time to full-time employment.

    • Boost the net intake of immigrants from 369,000 to 460,000 each year through 2030 and ensure that the labor force participation rate of immigrants is at least as high as that of nationals. Although this increase appears relatively modest, it’s worth noting that until recently, the net immigration number was considerably smaller. In 2011, only 128,000 people immigrated to Germany. In 2012, Germany experienced a dramatic increase in immigration from high-unemployment EU countries such as Spain, Greece, Portugal, and Italy—the highest levels of immigration since 1995.

    • Boost labor productivity growth from 0.9 to 1.15 percent.

    Calculating these measures is easy; putting them into action is generally not.

    Mitigating a Labor Shortage. A shortfall in available labor renders economies unable to meet their growth targets. To tackle the problem—and sustain economic growth—four fundamental actions can be taken:

    • Boost productivity through capital investment in infrastructure, innovation, technology, and social and training programs in order to help underqualified and less-educated working-age people improve their employability.

    • Increase the participation rate by encouraging women to take part in the labor force, raising the retirement age, promoting jobs for the elderly, and increasing yearly working-hour totals.

    • Increase immigration and mobility by easing immigration norms, cultivating the cross-border talent pool, and taking advantage of technology for virtual collaboration and mobility. By 2030, most of the 25 economies in our study will face shortfalls. Thus, increasing talent mobility can be regarded as only a limited solution.

    • Encourage higher birth rates, which are ultimately essential for sustaining economic growth and healthy demographic ratios. However, the impact of this action has a time delay of at least 15 years.

    Minimizing a Labor Surplus. A surplus means unemployment. The most straightforward solution for unemployment is, of course, economic growth. There are many possible strategies for boosting GDP growth. From a workforce perspective, however, a labor surplus can be reduced by better utilizing the existing workforce. The following are some of the approaches that are available:

    • Vocational Training and Job Qualification Programs. These government- and business-sponsored programs include training for specific skills that are in demand, as well as engaging in better supply-demand job mapping and improving the way skills and job criteria are identified.

    • Education Programs. These include broad-based skill-development programs that make people more employable, such as programs that improve language or communication skills. These programs help more working-age people move into active and full-time work.

    • Reducing Shadow Employment. It is crucial to incorporate a broader part of the workforce into the formal economy. This involves simplifying labor regulation and taxation in order to encourage more small employers to get workers on the books, as well as reforming income and wage tax policies so people will consider net take-home pay attractive.

    These general suggestions are only a start. There are many more strategies for reducing unemployment through growth, workforce levers, or a combination of the two. Whether by legislation and regulation, economic incentives, or even social pressures, solutions to labor force imbalances will need to come from many quarters—government, business, educational and other institutions, and civil society. The first step in solving imbalances, though, is fostering awareness about the magnitude and the imminence of the problem.

    For this report, we examined aggregate national workforces, identifying major global and local imbalances. In subsequent reports, we will break down these numbers by education levels and job families, which will further emphasize the severity of global labor problems. A country may appear to have a perfect overall balance of supply and demand, but after decomposing the numbers, we might find that it, in fact, has a surplus of 1 million people with a primary education but a shortfall of 1 million with a secondary education. This kind of de-averaging reveals the crucial challenge ahead for governments and businesses. Both will need far more sophisticated tools to analyze supply and demand, issues that we will explore in our forthcoming reports.