New Global Labor Market Surfaces

A new Report from the McKinsey Global Institute maintains that The dynamics of the global labor market may create new challenges for supply chain managers.

The McKinsey Global Institute (MGI) analysts noted that over the past three decades – as developing economies industrialized and began to compete in world markets – a global labor market started taking shape.

“As more than one billion people entered the labor force, a massive movement from ‘farm to factory’ sharply accelerated growth of productivity and per capita GDP in China and other traditionally rural nations, helping to bring hundreds of millions of people out of poverty,” said analysts. “To raise productivity, developed economies invested in labor-saving technologies and tapped global sources of low-cost labor.”

Today, added analysts, the strains on this market are becoming increasingly apparent. In advanced economies, demand for high-skill labor is now growing faster than supply, while demand for low-skill labor remains weak. Labor’s overall share of income, or the share of national income that goes to worker compensation, has fallen, and income inequality is growing as lower-skill workers—including 75 million young people—experience unemployment, underemployment, and stagnating wages.

MGI finds these trends gathering force and spreading to China and other developing economies, as the global labor force approaches 3.5 billion in 2030. Based on current trends in population, education, and labor demand, the report projects that by 2020 the global economy could face the following hurdles:

• 38 million to 40 million fewer workers with tertiary education (college or postgraduate degrees) than employers will need, or 13 percent of the demand for such workers
• 45 million too few workers with secondary education in developing economies, or 15 percent of the demand for such workers
• 90 million to 95 million more low-skill workers (those without college training in advanced economies or without even secondary education in developing economies) than employers will need, or 11 percent oversupply of such workers

The dynamics of the global labor market will make these challenges even more difficult, said MGI. The population in China, as well as in many advanced economies, is aging, reducing the growth rate of the global labor supply; most of the additions to the global labor force will occur in India and the “young” developing economies of Africa and South Asia.

Aging will likely add 360 million older people to the world’s pool of those not participating in the labor force, including 38 million college-educated workers, whose skills will already be in short supply.

Alan Beaulieu, president of ITR, an economic forecasting firm, said an increase in private sector hiring in the U.S. will lower the chances of a “double-dip” recession.
“But that means U.S. companies will have to generate 200,000 jobs per anum for the next 10 years,” he added.

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