The mismatch of labour in the world’s wealthiest countries will, in the coming decades, cost the society dearly. If countries such as the US, UK, Germany and Brazil do not manage to close the demand and supply gap, up to $10 trillion of unrealised gross domestic product could be the result, warns a new report from The Boston Consulting Group.
In the report ‘The Global Workforce Crisis: $10 Trillion at Risk’, The Boston Consulting Group (BCG) analysed the current and future state of the labour market in 25 countries. To forecast future scenarios, the strategy consultants developed a demand and supply model to predict the state of labour markets in 2020 and 2030. BCG concludes that labour markets will in the coming 15 years undergo massive change.
An overview of the labour market developments for the U.S and European countries:
By 2020 the majority of countries will still experience a labour surplus, yet by 2030 many will face a (massive) shortfall of labour. Both scenarios cause different problems. With labour shortage positions cannot be filled. This fuels wage inflation and undermines productivity, and hence economic growth. Countries with a labour surplus also face difficulties though. A workforce surplus can lead to unacceptable high rates of unemployment, and eventually to the attrition of skills and a reduced competitiveness of a country. In addition, a high unemployment rate will lead to significant fiscal and social problems as unemployed workers will seek social assistance from governments.
BCG highlights that either way, whether there is a surplus or a shortfall, a mismatch of labour demand and supply is destructive for the worldwide economy. Calculations from the consultants reveal that if not addressed properly, the worldwide mismatch could threaten a staggering $10 trillion of GDP, which is more than 10% of the world GDP, in the coming two decades.
US, UK, Brazil and Germany
When highlighting some of the countries surveyed, it can be concluded that the US will face persistent worker surpluses. In 2020, some 17 to 22 million working-age adults will be without jobs, translating into an unemployment rate of 10% to 13%. This surplus will decline over the following decade, coming to a minimum of 7.4 million by 2030. The story is reversed in Germany, where a shortage of up to 2.4 million workers is expected by 2020, and the shortage will grow to 10 million by 2030, which comes down to 23% of its labour supply.
The UK shows a single digit surplus in 2020 of between 6% and 8%, and a labour force that balances between a slight surplus and a slight shortage by 2030. The most extreme case of the 25 countries studied is Brazil, where the 2020 shortage of around 8.5 million workers (7%) is expected to nearly fivefold to 40.9 million people, representing roughly 33% of its labour supply.
Based on the analysis, BCG urges governments to understand the dynamics of their labour market, keep a close eye on its development and where required introduce correcting mechanisms. “The consequences for many nations’ growth and competitiveness are serious. Governments, companies, and other institutions must begin to take action now if they hope to avert the potentially long-lasting damage to national and regional economies, as well as to the global economy,” says Rainer Strack, Senior Partner at BCG and a co-author of the study.
The consultants would not be real consultants if they had not put some strategic thinking around recommendations, yet the bad news is that they see no single solution to solve the labour mismatch challenge. “Every situation calls for its own set of custom-made set of interventions,” writes BCG, although they do outline a basic set of key levers and interventions that governments can use to mitigate imbalances. Labour shortage can be mitigated by boosting productivity through capital investment, increasing the participation rate, increasing immigration and mobility, and by encouraging higher birth rates. Vocational training and job qualification programs, education programs and reducing shadow employment can be used to minimise a labour surplus.