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The Global Workforce Crisis BCG PDF
The Global Workforce Crisis BCG PDF
Workforce Crisis
$10 Trillion at Risk
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The Global
Workforce Crisis
$10 Trillion at Risk
Rainer Strack
Jens Baier
Matthew Marchingo
Shailesh Sharda
3 Introduction
8 A mixed outlook
A Contrasting Supply Picture
Highlights by Region
2 0 Appendix
This report, the first of a series on this topic, summarizes the findings of
The Boston Consulting Groups extensive research on global talent risk
and outlines basic solutions to mitigate these imbalances. The series as a
whole will describe the consequences of labor imbalances for businesses
and governments and offer further remedies to help mitigate them.
Note
1. See Stimulating Economies through Fostering Talent Mobility, a report by the World
Economic Forum in collaboration with The Boston Consulting Group, March 2010;
and Global Talent Risk: Seven Responses, a report by the World Economic Forum in
collaboration with BCG, January 2011.
Canadas labor surplus of between 700,000 (To understand how we calculated supply
and 1.1 million people in 2020 will become and demand, see the sidebar Methodology,
a deficit of up to 2.3 million by 2030. Assumptions, and Definitions.)
Labor supply, Labor supply annual growth rate, Labor supply annual growth rate,
2012 (millions) 20122020 (%) 20202030 (%)
Methodology
GDP Growth
People employed =
GDP
Labor productivity
People employed
Germany U.S.
52 180
170
48
160
44 150
140
40
130
36 120
2015 2020 2025 2030 2015 2020 2025 2030
Sources: UN Population Division database; International Labor Organization LABORSTA database; Economist Intelligence
Unit country data; BCG analysis.
Note: The labor supply is the forecast of the total population (age 15 and over, divided into five-year age groups) times
the labor force participation rate (per five-year age group). Labor demand is defined as the number of people required
to be employed in order to produce a desired level of economic output (GDP) based on a given output per person (labor
productivity). Twenty-year demand is the number of people needed in order to maintain the same growth rates either
country experienced over the past 20 years; ten-year demand is the number needed based on the ten-year growth rate.
are shortages not only of engineers and IT A Surplus in the U.S. The surplus in the U.S.
professionals but also of positions in many presents a starkly contrasting picture. Again,
other fields. we modeled labor supply and demand using
the same two sets of assumptions: GDP and
What will the increasingly dramatic shortage productivity growth rates for the past 10 and
mean? Quite simply, Germany will not 20 years. In each scenario, the supply of labor
achieve its historical GDP growth rates unless in 2030 will exceed demand. In the best case
it takes action in one or more of the following (the 20-year demand scenario), supply will ex-
four ways: ceed demand by at least 7.4 million people.
Both scenarios clearly show a diminishing la-
Ramping up productivity through techno- bor surplus until 2030. On the basis of assump-
logical investment and innovation, tions of the past 20 years, however, the most
education initiatives, and other efforts probable scenario shows a surplus of 4 percent.
Increasing the labor force participation The U.S. must find ways to better utilize its
rate of women and the elderly workforce as well as increase its economic ac-
tivityfor example, by repatriating much of
Changing immigration policy the manufacturing it outsourced in recent de-
cadesor it will continue to experience rela-
Increasing the number of hours each tively high unemployment. Better workforce
person works per year utilization would mean improvements in
training and education and would also in-
(An additional important strategyachieving clude incentives for individuals and business-
a higher birthratewould have little effect es to produce workers with skills and educa-
until 2030, since children born in 2014 will tion that better match what is needed. (Many
not enter the labor market until 2029 at the experts today blame poor workforce utiliza-
earliest. Beyond 2030, however, its impact tion on a growing mismatch between the
would be significant.) educational qualifications of college gradu-
ates and labor force needs.) More generally, ease this policy, if implemented, will have
the U.S. must do a better job of encouraging only limited impact over the next decade.1
entrepreneurialism.
By contrast, Indias demand for labor will not
exceed supply until 2030, giving the country
Highlights by Region enormous headroom for further growthas-
In many developed economies, demographic suming its existing workforce is utilized more
declinefalling birth rates and an aging pop- effectively. Indias supply-demand balance
ulationtranslates into negative labor will also depend on how much of the work-
growth. In the developing world, rapid force transitions from the nations huge
growth has created an ever-increasing de- shadow economy into its formal economy.
mand for labor. But many emerging econo- (See the sidebar What the Official Unem-
mies are also reaching the final phase of ployment Numbers Dont Show.)
their demographic peak. All economies with
favorable demographicsdeveloped and de-
velopingrisk high unemployment if they
fail to push their growth targets. (See the
Indias labor demand will not
sidebar The Economic Effects of Labor exceed supply until 2030, leav-
Shortages and Surpluses.)
ing plenty of room for growth.
China and India. These long-term stars of the
emerging world are among the nations with
the worlds highest sustained GDP growth for Which of the two countries commands the
the past 20 years (10.1 percent for China and leading position in the East will depend
6.7 percent for India). Both countries have largely on how policymakers address
robust exports, a vast population, a rapidly fundamental questions relating to the labor
rising middle class, and infrastructure needs. market.
Both have instituted significant market
reforms in recent years to open their econo- Australia and Japan. Thanks to its commodi-
mies to foreign trade and competition. But ty-rich economy, Australia was able to contin-
their labor-force trends reveal important ue growing through the end of the first
differences. (See Exhibit 3.) decade of the twenty-first centurysuccess-
fully insulating itself from the global down-
China will be hard hit as a consequence of its turn. If it continues on this trajectory and
one-child-per-family policy, which has been in maintains its GDP growth of above 3.0
effect since 1979. This policy has helped percent, Australia will likely experience a
make the worlds most populous country also severe labor shortage by 2030. By contrast,
its most rapidly aging. Recent proposals to Japans outlook is for continued slowpoten-
most rapidly aging societytranslate into a the highest relative labor surplus of the 25
labor shortage by 2030 in the 10- and 20-year economies we analyzed. Using either of the
growth scenarios. The UK, however, grapples two growth scenarios, Spains labor surplus
with chronic unemployment as a result of an will remain high through 2020.
expanding labor supply and inadequate eco-
nomic growth.3 Switzerland and Poland. While Switzerlands
demographic situation is frequently over-
France and Spain. Frances demographic shadowed by that of its European peers, the
structure is much healthier than neighboring country nonetheless faces severe shortages.
Germanys. Yet depending on its GDP and Today, its own economically active popula-
productivity growth, France may well suffer tion cannot match the demand for workers.
relatively high unemployment over a longer In 2012, 263,000 workers from neighboring
period. Much of its unemployment troubles countries were commuting to Switzerland
stem from stringent employee protections daily to work.4 By 2030, this number could be
that stifle job creation and workforce flexibil- significantly higher as a result of the growing
ity. In the 20-year growth scenario, however, workforce gap.
even France faces a talent scarcity by 2030.
Polands story stands out because it was the
Conversely, Spain was among the hardest hit only EU country to avoid recession during the
by the global financial and euro crisis. Next 2009 downturn. It has benefited from more
to South Africa and Saudi Arabia, it suffers than 20 years of economic liberalization and,
26
30 6
24
28 5
22
20 26 4
2020 2030 2020 2030 2020 2030
22
34
20
20
32
18
10
30 16
28 0 14
2020 2030 2020 2030 2020 2030
Labor supply 10-year labor demand 20-year labor demand
Sources: UN Population Division database; International Labor Organization LABORSTA database; Economist Intelligence Unit country data; BCG
analysis.
Note: The labor supply is the forecast of the total population (age 15 and over, divided into five-year age groups) times the labor force participation
rate (per five-year age group). Labor demand is defined as the number of people required to be employed in order to produce a desired level of
economic output (GDP) based on a given output per person (labor productivity). Twenty-year demand is the number of people needed in order to
maintain the same growth rates either country experienced over the past 20 years; ten-year demand is the number needed based on the ten-year
growth rate.
since 2004, membership in the European young population, threatens to keep unem-
Union. If GDP and labor productivity growth ployment high through 2020 and 2030. (The
rates remain at five- or ten-year levels, how- ten-year growth scenario, however, presents a
ever, Poland may face a severe labor shortage different picture, since it includes the coun-
of up to 24 percent by 2030. trys recovery following a deep economic cri-
sis that began in 2001.)
Latin America and South Africa. In these
emerging economies, rapid economic growth By contrast, Brazil faces surging shortages, re-
and policy changes, combined with underly- gardless of scenario. The worlds seventh-largest
ing social and infrastructure challenges, economy was among the first emerging markets
present wide-ranging prospects even within to recover from the global financial crisis. Slow-
the same country. (See Exhibit 5.) ing population growth and an aging population
are rapidly altering the nations demographic
In Argentina, for example, shifting monetary makeup. Much of Brazils working-age popula-
and fiscal policies have put the country tion is underqualified as a result of gaps in the
through numerous economic ups and downs nations education system.
since the global financial crisis. An influx of
immigrants (Europeans fleeing the euro crisis And while Mexicos supply-and-demand gaps
and returning South Americans), along with a are not nearly as wide as those of other Latin
A look at the six key drivers of labor supply Working Hours per Year. The average
and demand and their impact on Japan in number of hours that each individual
recent decades illuminates the challenges worked each year fell from more than
inherent in addressing workforce imbalances: 1,965 hours in 1992 to 1,728 hours in
2011. That trend has only worsened
Birth Rate. Japans total fertility rate the nations labor-supply situation.
(total births per woman) has declined
from 1.7 to 1.4 over roughly the past 20 Labor Productivity. Japans labor-produc-
years (1988 through 2008).1 (From 2005 tivity growth rate has increased only
through 2010, it fell to 1.3, as shown slightlyless than 1 percent over the
in the Appendix, Exhibit 2). Japan has past 20 years.
not implemented policies that encour-
age population growth. Fewer children Has a labor shortage constrained Japans
today, of course, mean a smaller pool of economic growth? There is no doubt that
workers in the future. these six factors have contributed signifi-
cantly to Japans decline over the last
Labor Force Participation Rates. From 1990 decadesfrom around 4 percent annual
through 2012, the overall participation of average GDP growth in the 1980s to less
the working-age population in the active than 1 percent from 2003 through 2012.
labor force increased slightly, from 70 to
74 percent. Similarly, the participation To be sure, activating these levers can be
rate of working women ages 15 through difficult, given the complex dynamics of
64 increased from 57 to 64 percent. policy, politics, and individual choice. But
Thus, Japan faces favorable develop- these are all direct means of alleviating
ments in labor force participation. labor force shortages, and countries must
be as proactive as they can be. If countries
Retirement Age. For many years, Japans such as Germany and South Korea make
official retirement age was 60. The gov- no attempt to activate these six levers,
ernment is phasing in a higher retire- they might experience the same economic
ment age of 65. (For men, the phase-in decline that Japan has.
ended in 2013; for women, it runs from
2006 through 2018).2 Because many Notes
retirees work part-time, however, the ac- 1. ILO and World Development Indicators, The World
tual retirement age has been closer to Bank.
70. Thus, the nation has benefited from 2. From Pensions at a Glance 2013: Retirement-Income
Systems in OECD and G20 Countries. See http://www.
this lever formally and informally. oecd.org/els/OECD-PensionsAtAGlance-2013-
Highlights-Japan.pdf.
Immigration. The government respond- 3. Vera Mackie, Managing borders and managing
bodies in contemporary Japan, Journal of the Asia
ed by loosening restrictions on highly
Pacific Economy, February 2010. http://www.academia.
skilled foreign workers.3 According to edu/606362/Managing_Borders_and_Managing_
estimates from the UN Population Bodies_in Contemporary_Japan.
Argentina Mexico
100 10
2020 2030 2020 2030
Sources: UN Population Division database; International Labor Organization LABORSTA database; Economist Intelligence
Unit country data; BCG analysis.
Note: The labor supply is the forecast of the total population (age 15 and over, divided into five-year age groups) times
the labor force participation rate (per five-year age group). Labor demand is defined as the number of people required
to be employed in order to produce a desired level of economic output (GDP) based on a given output per person (labor
productivity). Twenty-year demand is the number of people needed in order to maintain the same growth rates either
country experienced over the past 20 years; ten-year demand is the number needed based on the ten-year growth rate.
France 8 6 5 1
Germany 6 4 27 23
Italy 8 8 4 4
Netherlands 14 10 5 7
Europe
Poland 1 5 24 10
Spain 24 17 16 3
Sweden 7 9 4 8
Switzerland 9 5 19 10
United Kingdom 8 6 3 1
Argentina 3 24 23 30
Brazil 7 7 34 33
Americas
Canada 5 3 6 11
Mexico 10 6 4 8
United States 13 10 11 4
Australia 3 2 18 16
China 9 7 3 3
India 8 6 4 1
Indonesia 3 5 3 0
Asia-Pacific
Japan 3 3 2 2
Russia 5 11 24 15
Saudi Arabia 16 30 19 20
South Korea 2 6 16 26
Turkey 7 8 0 4
Egypt 7 9 5 0
Africa
South Africa 30 36 26 39
Sources: UN Population Division database; International Labor Organization LABORSTA database; Economist Intelligence Unit country data; BCG
analysis.
Note: Surplus or shortage = labor supply labor demand for 2020 and 2030. Scenarios are based on the 10-year and 20-year compound annual
growth rate (CAGR) of GDP and labor productivity. For Russia, the 10-year scenario is much more realistic than the 20-year scenario. Polands
labor-productivity CAGR is from 1996 through 2012, Argentinas is from 2003 through 2012, Mexicos is from 2001 through 2012, Russias is from
1995 through 2012, Saudi Arabias is from 2000 through 2012, and South Africas is from 2001 through 2012.
Workforce Labor
Total labor 10.2 million demand productivity 0.87% 1.15%
shortfall people (28%) drivers growth rate
Sources: Federal Statistical Office of Germany; UN Population Division database; International Labor
Organization (ILO) LABORSTA database; Economist Intelligence Unit country data; BCG analysis.
Note: Expected GDP and productivity growth are based on the last 20 years CAGR. Labor shortfall is calculated
using the 20-year scenario. Structural unemployment results from the economys inability to fully match the
supply and demand of skills; 5 percent is assumed. For participation rates for 2030, we assumed similar ILO
projections as for 2020. Current level of immigration is for 2012. The needed level of immigration for 2030
assumes that the participation rate of immigrants is similar to that of nationals. The labor productivity growth
rate is based on the last 20 years CAGR.
Exhibit 1 shows the data underlying our la- Exhibit 2 compares five key labor-force-sup-
bor-force-demand projections for all of the ply indicators across the 25 countries. These
countries we studied: growth rates for annual are the total fertility rates, labor force partici-
GDP and labor productivity over the past 10- pation rates for women, official retirement
and 20-year periods. These were based on the ages (for men and women), effective retire-
growth rates for historical GDP and labor pro- ment ages (for men and women), and average
ductivity (obtained from the Economist Intel- number of hours worked per week at the pri-
ligence Unit). Using these historical rates, we mary source of employment. Because all of
extrapolated the labor force each country these indicators, depending on the country,
would need in order to keep GDP and pro- may be policy driven, they can serve as levers
ductivity growth in 2020 and 2030 at their that will affect labor supply and demand.
historical levels.
Sources: Economist Intelligence Unit country data, actual and estimates; BCG analysis.
Note: Polands labor-productivity CAGR is from 1996 through 2012, Argentinas is from 2003 through 2012, Mexicos is from 2001 through 2012,
Russias is from 1995 through 2012, Saudi Arabias is from 2000 through 2012, and South Africas is from 2001 through 2012.
1
GDP contribution per person employed.
United Kingdom 1.8 69.8 65 (66) 60.7 (66) 63.6 62.3 41.0 31.2
United States 2.0 66.8 66 (67) 66 (67) 65.2 64.8 40.56 35.96
South Korea 1.3 54.7 60 (65) 60 (65) 71.4 69.9 46.7 41.7
Sources: UN Population Division database; ILO Key Indicators of the Labor Market database; Organization for Economic Cooperation and
Development database; BCG analysis.
Note: The total fertility rate is the average number of children per woman. The labor force participation rate is the proportion of the population
that is economically active. Retirement ages in parentheses indicate a planned increase to this age within the next two decades. The effective
retirement age is the average age at exit from the labor force. The number of hours worked is the average weekly hours spent at a primary job.
NA = not available.
1
Workers can retire at age 60 with 40 years of contributing to social security.
2
Men can retire after 35 years of contributing to social security; women after 30 years.
3
The normal pension age for women is 50 in blue-collar jobs, 55 in white-collar jobs.
4
Men can retire at age 55 if they have spent at least 120 months in arduous or unhealthy work.
5
Based on 20052010 data.
6
ILO data for February 2013.
7
ILO data for September 2012.
The Boston Consulting Group pub- Creating People Advantage 2013: When Growth Outstrips Talent:
lishes many reports and articles Lifting HR Practices to the Next Five Strategies for Emerging
that may be of interest to manage- Level Markets
ment teams. Recent examples in- A report by The Boston Consulting An article by The Boston Consulting
clude the publications listed here. Group, October 2013 Group, April 2012
Shailesh Sharda
Consultant
BCG Singapore
+65 6429 2500
[email protected]
To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.
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