In partnership with:creating jobsin a globaleconomy2011-2030The Hays/Oxford Economics Global ReportJune 2011
2 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 1Foreword byAlistair CoxChief Executive, Hays plcGlobal labour markets are set for an unprecedented upheavalin the next two decades. Employers and governments that failto recognise this face hardship and instability. That is the starkconclusion of our new worldwide employment report “CreatingJobs in a Global Economy”, researched and written in conjunctionwith Oxford Economics.The statistics tell their own story. Whilst the world’s labourforce will increase by more than a fifth by 2030, or by morethan a billion people, all of that growth will occur in developingeconomies. The workforce in most developed economies willplateau, decline and age.That implies an enormous shift in economic power from thedeveloped to the developing world as that new workforce is putto work and generates wealth. For those of us who have seen theeconomic shift towards China and South East Asia in the past twodecades, all I can say is – you haven’t seen anything yet.And this is the most optimistic scenario where that vast newlabour force finds work. The potential political and civil instabilitythat would be caused by unemployment on this scale is hard tocontemplate.At the same time the ageing population in the developed worldand their attendant healthcare needs, the anticipated vast spendingon infrastructure in developing countries, the continued growthand increasing sophistication of the financial services industriesand the shift towards green energy will create huge demands fornew skills and specialisms that current educational establishmentswill struggle to meet. But those with the appropriate skills will findthemselves in demand around the globe.Hays commissioned this research after listening to our clients, fromSMEs to multinationals, and their concerns about the continualstruggle they already face to secure staff with the appropriate skills.All of them face the same fundamental challenge – a shortage ofthe right people and skills in the right parts of the world – a worldwith almost seven billion inhabitants, and with many countriesalready at record unemployment levels.This survey suggests that unless governments and internationalorganisations act, those imbalances may worsen. The ageing,developed world may become chronically short of health workersfor example, if it continues to impose barriers to the movementof skilled workers whilst the developing will have to compete in aworld market for professionals with the experience and knowledgeto build their infrastructure.So today we make a series of recommendations to avert thispotential global dislocation of skills and employment. We acceptthat governments and international organisations are aware of thisenormous issue, but too often the policy response is short-termist,piecemeal and parochial. We accept that these recommendationsare far easier to make than to act on, but we feel unless there isa vigorous debate on this critical world issue we will continuemuddling our way towards crisis and will not exploit the potentialthat this new workforce represents.It is one of my favourite facts that the Chinese ideogram for crisiscontains the symbols for both danger and opportunity. In thechanging shape of the world’s labour markets we have a primeexample that involves governments, employers and employeesalike. Let us all ensure we seize the latter and avoid the former.ContentsForeword 1Hays’ five point plan 2Executive Summary 31. A tale of two worlds 41.1 How will labour markets change between 2011 and 2030? 51.2 Hatches, matches, dispatches: the factors behind the numbers 61.3 Structural changes 71.4 Skilled labour markets 81.5 Conclusion 92. Globalisation 102.1 Rising competition from East Asia 112.2 Developed economies must act to stay competitive 122.3 Technological change, globalisation and the ‘hour glass’ 122.4 Onus on governments to act 132.5 Conclusion 133. Mind the gap 143.1 An ageing population 153.2 Ageing will have varied impacts on different countries 163.3 Older workers will offer employers a different mix of skills 173.4 Conclusion 194. Skills match 204.1 Introduction: adapting to change 214.2 Case study one: financial services 214.3 Case study two: ageing populations and demand for healthcare workers 224.4 Case study three: the impact of climate change on the demand for labour 234.5 Case study four: infrastructure needs of large emerging markets 244.6 Conclusion 255. Conclusion 26About Oxford Economics 28About Hays 29Creating Jobs in aGlobal Economy
2 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 3As a result of the findings of this report, and the pending vast and imbalancedgrowth in employment over the next 20 years, we propose a five point plan forgovernments, international bodies and multinational companies to consider intheir policy development. We appreciate these things are far easier to say thanto do but we feel that unless governments and businesses approach this issuestrategically, the opportunities will be lost and the difficulties will be magnified.1. Keep national borders open for the movement ofskilled labourThis report demonstrates there needs to be a massive transferof skills and labour between the developed and developingworlds, in both directions. The developing world will needthousands of skilled engineers from US and Europe whilstthere will be huge demand for health workers in the otherdirection. Labour protectionism will only cause hardship andultimately stunt world economic growth.2. Agree an international code to facilitate employee migrationAt present policy on skill migration is decided on a nationalor at best regional level, despite the fact that these are globaltrends. This creates a piecemeal, and often infuriatinglycomplex and inefficient set of rules governing the movementof labour. We would like to see these issues debated on aworld scale, through the G20 or similar body to agree a codeto govern the enormous cross-border flows of skilled labourthat this report predicts.3. Invest in training and educationThis report shows that the world’s labour market willbecome increasingly ‘hour glass’ shaped, with semi-skilled workers becoming squeezed out of an automatedworkplace. To alleviate that trend all governments andcompanies need to invest in equipping people with relevantskills for our future industries.4. Create employment opportunities in the developing worldIn the past 20 years, there has been enormous growth inemployment in China, as the population there has increasedrapidly. But the number of people of working age in China willreach a plateau in the next 20 years and attention must moveelsewhere, to the Indian subcontinent, Latin America andAfrica. This vast new workforce represents a huge opportunityfor those who can tap into it, or potential dissatisfaction andunrest if it is left idle.5. Retain older people in the workplaceOver the next 20 years developed economies will becomeincreasingly reliant on the contribution from workers aged 60or over. Many countries such as Britain have already passedanti-discrimination legislation to enable older people to stayat work and remain productive, but there is more to be done.Given the dependence many countries will increasingly haveon an ageing workforce, governments should consider taxincentives, retraining, and other provisions to persuade peopleto extend their working lives. Employers need to considerhow they can best take advantage of the years of valuableexperience older employees bring, whilst ensuring their skillsare kept up-to-date as industries develop.Executive SummaryHays’ five point planStructural shifts• The market for skilled labour is set for a major transformationbetween 2010 and 2030. A number of structural shifts indemographics, macroeconomics and technology pose threatsand opportunities to governments and firms in developed anddeveloping countries.• Over the next 20 years the working age population will increaseby 21%. Developing countries will see an increase of 931 millionworkers or 24%, but the workforce in the developed world willcontract by one million. This will increase the economic power ofdeveloping countries.• This shift in the balance of power will be reinforced by astructural shift in employment away from agriculture towardsmanufacturing and services. As these are higher productivitysectors, it will boost developing countries’ share of world output.• The increase in globalisation over the next 20 years is expected toexpose more markets and products to competition. This is likelyto lead to more jobs being displaced from high-wage to low-wage economies.• Globalisation also offers opportunities to developed economies.Exporters of goods and services have access to more and largermarkets with rapidly growing income per capita. Increased tradeshould also boost demand for intermediary services.Skills in demand• The increasing importance of some developing economies’ skilledlabour markets will be given a further stimulus by increases in thenumber of people with higher level qualifications.• Despite the growth in their working populations, the switchto more productive sectors and increase in skilled labour,developing economies may still be hindered by a lack ofexperienced skilled workers in the short term. High qualityuniversity education means developed countries will remain keysuppliers of skilled labour.• Technological change and computerisation will create an‘hour glass’ labour market. Demand for high- and low-skilledoccupations is likely to expand, but semi-skilled jobs will be lost.• Larger emerging economies are likely to increase infrastructureinvestment. This will boost demand for skilled constructionworkers and labour in the engineering and mechanical goodsmanufacturing sector.• Demand for financial service workers over the next 20 years isforecast to grow most rapidly in those countries that alreadyhave large financial sectors. The sharpest growth will be in UK,US and Australia.• Climate change will create demand for skills in green energyproduction, designing environmental taxes and regulations andimproving infrastructure. Evidence indicates this will offset jobs lostin industries closely associated with fossil fuel production and usage.The ageing challenge• Older workers are likely to constitute a larger proportion of theworking population in many industrialised countries particularlyin Europe.• Older workers exhibit different characteristics from their youngercounterparts. They have a greater tendency to be self-employed,part-time or temporary workers. It is not yet clear whether thisreflects their preferences or is driven by what employers want.• Older workers tend to change jobs and employers less frequentlyand are less likely to be geographically mobile. This may add to askills mismatch over time.• While older workers have acquired skills over time, there is a riskthey have become outdated with negative impacts on innovationand productivity. A principal policy issue is the need to maintainthe relevance of older workers’ skills.• Ageing populations in many developed countries are likely toincrease the demand for healthcare workers over the next 20 years.As the ratio of workers to the elderly declines this will increasepressure to recruit from abroad.For employees our message is simpler – be flexible. Be prepared to reskillthroughout your career to address the rapidly changing environment and bewilling to relocate, potentially overseas, to find the best market for your skills.And plan on a longer working life – the days of automatic retirement at your60th or 65th birthday may soon become a thing of the past.
4 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 51. The working age population of the US is forecast to increase by 8.5% over the next 20 years.4 | The Hays Manifesto for Employment – Spring 20101.1 How will labour markets changebetween 2011 and 2030?The world’s population is set for rapid expansion. The UnitedNations projects the number of people will increase to 8.3 billion by2030 from 6.9 billion in 2010, a rise of just over 20% or 1.4 billion.The population of working age is also predicted to grow, by 21%or 931 million people between 2010 and 2030. But this expansionin the productive population will not be evenly spread around theglobe. More than half of the increase in working age population, or534 million people, will come from less developed countries while398 million are expected to come from least developed nations.While two groups will account for an increase of 932 million, thesize of developed economies’ population of working age willstagnate – in fact contracting by one million people. This in turnmeans there will be a dramatic shift in the global distribution oflabour that will increase the long-term economic importance of thedeveloping economies.Chart 1-1: Change in working age populationbetween 2010 and 2030-1000100200300400500600MillionsLeastdevelopedLessdevelopedLessdevelopedexcl. ChinaMoredevelopedSource: Oxford Economics and UNBut this conceals equally dramatic shifts in population withinboth the developed and developing worlds. Within the developedworld some countries will see falls in their working age populationwhile others will see rises over the coming 20 years. Helped byimmigration and relatively high birth rates, developed countriessuch as the US will see their working age populations rise by 18.1million.1Others in contrast will see their populations shrink, withsome of the greatest falls predicted for Japan (13.0 million peopleor -16%) and Germany (8.1 million people or -15%).The disparate demographic trends in the developed world can alsobe found in the developing world. India (up 241 million people),Pakistan (up 62 million) and Nigeria (up 54 million) are forecast toexperience the sharpest increases (Table 1-1). In contrast, developingnations such as the Russian Federation (down 16 million), Ukraine(down six million) and Romania (down 1.7 million) will see theirpopulations contract significantly over the next 20 years (Table 1-2).Table 1-1: The 25 countriesforecast to experience thefastest growth in population ofworking age between 2010-30Table 1-2: The 25 countries toexperience the sharpest fallsin population of working agebetween 2010-30Rank CountryPeople(000s) Rank CountryPeople(000s)1 India 241,116 1 Russian Fed -16,9972 Pakistan 62,930 2 Japan -13,0373 Nigeria 54,330 3 Germany -8,1244 Bangladesh 34,850 4 Ukraine -6,0715 Ethiopia 34,591 5 Poland -3,9676 Indonesia 31,770 6 South Korea -3,7237 DR of Congo 28,953 7 Italy -3,0148 Philippines 23,648 8 Romania -1,6779 Egypt 20,675 9 Belarus -1,15410 Tanzania 19,774 10 France -1,06111 Brazil 18,412 11 Bulgaria -1,05912 US 18,132 12 Cuba -79213 Uganda 17,435 13 The Netherlands -67614 Kenya 16,177 14 Hungary -67515 Sudan 14,339 15 Czech Rep -60416 Iraq 13,911 16 Portugal -52617 Mexico 13,309 17 Georgia -52218 Afghanistan 13,282 18 Rep of Moldova -48919 Turkey 11,296 19 Greece -44820 Yemen 11,089 20 Lithuania -41121 Iran 10,699 21 Croatia -39622 Vietnam 10,452 22 Bosnia Herz. -38823 China 9,944 23 Austria -38724 Nepal 9,124 24 Slovakia -38625 Niger 8,915 25 Singapore -338Source: Oxford Economics and UN Source: Oxford Economics and UNSize does matter: changes in working age population can be animportant factor in boosting economic growth. Countries withgrowing populations offer a larger pool of labour, and a biggerpotential consumer demand.Key points• The next 20 years will see an increase of more than 20% inboth the world’s total population and in the number of thoseof working age – the productive population.• But the growth will be wholly confined to the less and leastdeveloped countries, which will see their populations growby 534 million and 398 million respectively between 2010-30.Developed countries will see a one million decline.• This will increase the relative economic importance ofdeveloping countries.• This shift in economic power will be supported by a structuralshift within developing countries away from agriculturetowards industry and services. As these sectors have highproductivity levels, this will further enhance developingcountries’ economic power.• This transition needs to be supported by investment ininfrastructure and skills.• Developing countries are overtaking developed nations interms of numbers of university degrees but doubts over thequality of education means many will still look to the West tofill skills shortages.1. A tale of two worlds changes in the globalpopulation mix
6 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 73. In contrast, agriculture accounts for less than 1% of output in the developed world.4. A. Singh (2007) ‘Globalisation, industrial revolutions in India and China and labour markets inadvanced countries’, Policy Integration Department, ILO, WP No. 81.2. This trend will be at least partially offset by rising retirement ages in the developed world.1.3 Structural changesThe two-speed growth rates in working age populations in thedeveloped and developing worlds raise important questionsabout the sort of work this larger workforce will do. Globalisationhas already seen profound changes in working patterns. In thedeveloped world most workers are employed in the services andhigh value-added manufacturing sectors, but this is still not the casein developing countries. Although industrialisation in China andIndia is happening at a rapid pace, agriculture still accounts for 15%and 17% of GDP respectively.3The primary sector – which includesnatural resources, forestry and fishing as well as farming – still takesup a large share of workers in developing countries because of lowlevels of productivity. For example, almost six out of ten Indians(58%) are employed in these primary industries.There is clearly a large potential for major structural changes overthe coming two decades. Investment in infrastructure and closerintegration of rural areas into national economies should deliverimprovements in agricultural productivity. More workers will leavethe land as food security becomes less of a problem and increasedwealth levels will open up opportunities in manufacturing andservices. As these are higher productivity sectors, it will boost thesecountries’ share of world output.In all newly industrialised economies, infrastructure investmentis the key to sustaining the pace of transition from an agrarian toan industrial economy. Using Japan and South Korea as a guide,one can expect agriculture’s share of GDP and employment todecline rapidly over the next 20 years in those countries that makethose investments.4However the pace and smoothness of thetransition will be determined by governments’ ability to upgradetheir infrastructure. India, for example, is being held back by itspoor provision of transport, power and telecommunications. Thehigh levels of investment being undertaken to rectify this (seebox below) will create opportunities for both individuals andmultinational firms. Chart 1-4 outlines how this investment is likelyto engineer a shift of employment out of farming and into industryand services.Chart 1-4: Sectoral shares of total employment in agriculture,construction, manufacturing, utilities and services in India00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30Source: Oxford Economics1020304050607080% of totalAgricultureConstruction, manufacturing and utilitiesServices0ForecastUnfortunately the African continent is not expected to mirror theperformance of East Asia. Ongoing civil disputes, weak governance,poor infrastructure and high levels of corruption will limit the abilityof Sub-Saharan Africa to fully participate in the global economyin the next 20 years. Africa may boast the raw population but,without infrastructure and good governance, it will be difficult toleverage economic growth. As a result, foreign direct investmentwill continue to be limited and most of their rapidly expandingworkforce will be confined to the primary sector. There areexceptions however: South Africa and Botswana have performedrelatively well in the recent past, and as a result both have liftedthemselves into the upper middle income group of countries.1.2 Hatches, matches, dispatches: thefactors behind the numbersThe driving force behind these contrasting changes in populationis the outlook for birth rates in these countries. In Europe thefertility rate – the number of live births occurring in a year per 1,000women of child-bearing age – peaked after the Second World Warand has been falling ever since. This has two impacts on the sizeof the working population. The first is that the number of peoplejoining the workforce will decline. In Eastern Europe the pattern isparticularly noticeable. Here the ratio of children (5-14 year olds) toyounger workers (15-24 year olds) is around 0.7, which implies thatthe number of new workers entering the labour force will declinesignificantly over the next ten years.As Chart 1-2 shows, there is a markedly different pattern inSub-Saharan Africa where the ratio is well above 1, with newentrants driving the expansion of the working age populationsin these countries.Chart 1-2: Ratio of children (5-14 years old) to young workers(15-24 years old) in 20100.0Source: Oxford Economics and UN0.51.01.52.0RatioNigerSomaliaMalawiIndiaWesternEuropeChinaLatviaRepofMoldovaQatarMacauIndia will continue to experience a demographic boom.The number of new entrants to the workforce will continueto rise (the ratio of children to young workers is 1.06) and theworking population will expand by 241 million to reach over onebillion by 2030.Falling fertility rates will also have the effect of reducing the ratioof the working age population to those of pensionable age. This isparticularly the case in developed countries where life expectancyis on the increase. In Western Europe a very high percentage ofthe working age population will retire over the next 20 years. As aresult, 42% of the current working age population will retire in orbefore 2030 (Chart 1-3). In contrast, in India the share is 25% andin Sub-Saharan Africa it is around 15%. This highlights the fact thatshrinking labour forces in the developed world will primarily becaused by the retirement of the ‘baby boomer’ generation, who willleave a big gap in the working age population.2Chart 1-3: Share of working age population that is 40-64 yearsold in 201001020304050%FinlandSingaporeGermanyJapanWesternEuropeChinaIndiaEritreaZimbabweUgandaSource: Oxford Economics and UNOne child fits all: China’s unique profileChina’s demographic experience over the next 20 years willbe unique. While it is a developing country with relativelylow per capita income, it shares many of the demographiccharacteristics of Western Europe and North America. Theimposition of the One Child Policy in 1978 has resulted in thenumber of new entrants to the labour market falling in eachgeneration. This will continue over the next decade (the ratio ofchildren to young workers is 0.8). Coupled with improvements inliving standards it has also generated a relatively large group ofpotential retirees, with 32% of the current labour force expectedto retire over the next 20 years. China’s working age population isexpected to peak in 2025 and number around one billion in 2030.Infrastructure investment in IndiaMore than any other developing economy, India’s poorlydeveloped infrastructure has placed a significant drag oneconomic growth in recent years. The government hasprioritised investment in transport, energy generation,telecommunications and water management to fully integratethe economy and allow all members of society to benefit fromeconomic growth.• During the current (11th) five-year plan covering 2007-2012,the government aims to invest $500 billion (7% of GDP)through public-private partnerships in infrastructure.• The bar for the next five-year plan (2012-2017) has beenraised even higher, with the government aiming to double theamount invested to $1,000 billion.
8 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 9University challengeThe Times Higher Education ranking of universities for 2010is dominated by America; of the top 200 universities 72 arelocated in the US. In contrast to this, just six universities in Chinamade it into the top 200. As a result of the higher quality ofresearch, it is likely that the degrees awarded in Europe, NorthAmerica and Australia and New Zealand will be more highlyregarded than in China and India. As a result, graduates in theWest (including foreign students who study there) are highlysought after across the world.This observation also applies to firms; many new start-ups inIndia and China do not have enough experience to producethe necessary goods, and as a result companies and theirskilled labour forces will increasingly be drawn away from thedeveloped world to fill the gap. Over the medium-term this willbecome less of a problem. To fully compete with universities inthe developed world, both in terms of teaching and research,universities in developing countries will have to improve theirstandards, helped by the expansion of overseas campuses ofWestern universities.5. The figure for Germany is very low, but this is due to the differing definitions of a degree acrosscountries, and the variable length of time taken to complete the qualification.1.4 Skilled labour marketsThis combination of a growing workforce and a shift into moreadvanced economic activities raises the question of whetherdeveloping countries can ensure that their workers have theskills needed to compete in the global economy. Defining andmeasuring skills is very hard, especially when trying to take intoaccount the so-called ‘soft’ skills such as teamwork and the abilityto communicate that are just as important to productivity, but evenmore difficult to quantify.One method is to look at the number of university degreesawarded. The figures in Chart 1-5 show that the trends in populationgrowth in developed and developing countries are mirrored bythe number of people gaining a university education, with thedeveloping nations pushing ahead in terms of the absolute numberof degrees awarded. In 2006 China and India awarded 2.4 millionand two million degrees respectively, compared to 1.4 million in theUS and 275,000 in the UK.Chart 1-5: Number and growth rate of graduates in 2006 overprevious ten-year period0500100015002000250005101525301000sNumber of graduates(LHS)Annual growth rate(RHS) %Source: UNESCOAustralia UK France US India ChinaThe rapid growth rate in the number of graduates in India and Chinaover the last ten years is also expected to continue into the next twodecades. As Chart 1-6 highlights, just 12% of school leavers in Chinago on to become university graduates (in contrast to almost 60%of young people in Australia). The shares in Chart 1-6 suggest thatthere is significant scope to increase the number of graduates inEast Asia, and the increase in skilled labour in these economies willincrease their attractiveness to multinational firms from the West.Chart 1-6: University graduates’ share of their age cohortin 200550102030405060%China Brazil Germany US UK AustraliaSource: UNESCOWhilst the dramatic rises in the number of graduates in India andChina suggests that they should be able to satisfy their demand forskilled labour domestically, the quality of the degrees awarded mayresult in short-term skill shortages in these economies. The UNESCOdata that underpin Chart 1-6 assume the quality of degrees to beuniform around the world. This is unlikely to be true. Developingeconomies will need to make major investments in higher educationto close the gap with the West.However, over the next ten years at least there will be a shortageof experienced skilled labour in developing economies despite thegrowing number of new graduates. This higher education dividewill reinforce the drive of multinationals into developing economies.For governments in developing economies this may raise questionsabout migration laws. Acute shortages of experienced skilledlabour could limit the potential for growth and development,and governments across the world will need to ensure that theirmigration laws allow the right kind of skilled labour to entertheir economies and contribute to its prosperity. Developingcountries will see a marked increase in the size of their workingage populations while developed countries will stagnate. This willbolster the growing importance of developing countries in theglobal economy. This trend will be reinforced by a structural shiftin employment in those economies away from agriculture towardsmanufacturing and services. As these are higher productivitysectors, it will boost these countries’ share of world output.1.5 ConclusionThe developed and developing worlds will face different challengesover the next 20 years. Whilst developed economies face adeclining worker population, many developing countries will seea significant increase in worker populations which will help theirshift to more productive sectors. However, their economies maybe hindered by a lack of experienced workers, at least in the shortterm, and they will continue to look to the developed economiesto meet their skills shortages. At the same time, the developingeconomies will see an increase in the number of people attendinguniversity as they seek to plug their advanced skills gap over time.
10 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 11Key points• The post-war era of globalisation has seen large swathesof industries and jobs move from West to East asemerging economies take advantage of lower wages andtechnological innovation.• Further advances in technology, increased mobility ofcapital and closer economic integration are likely to meanthat more jobs will be displaced from high wage to lowwage economies in the future.• However, globalisation combined with population growthoffers opportunities to developed countries. Rising levelsof population and average earnings in the developingworld will create expanded markets for consumer goodsand services.• Increased trade should also boost demand for intermediaryservices that are mostly based in the developed world.• Developed countries will continue to have the competitiveadvantage over developing economies in high valueadded sectors such as pharmaceuticals, aerospace andsophisticated financial services.• Occupations at the very high-skilled and low-skilled ends ofthe labour market will expand in terms of jobs and wagesbut the ‘squeezed middle’ of semi-skilled workers willcontract, leaving rich countries with an ‘hour glass’ economy.• Governments must respond to the challenges and threatsfrom globalisation by focusing education and training on highskill sectors while ensuring that workers in declining industriesreceive support to help them move to new sectors.Despite the shock to world trade from the financial crisis,globalisation looks set to be the dominant economic trend over thenext two decades, so labour-intensive manufacturing will continueto move to low-wage economies. As Chart 2-2 shows, countriessuch as China and India are likely to maintain their competitiveadvantage over the rich countries in terms of wages over theforecast period.Chart 2-2: Average wages per hour (US$)Source: Oxford Economics1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030ForecastUS$9080706050403020100UKJapanUSIndiaChinaAs China and India invest more in education and training and skillslevels rise, they will be better equipped to compete for advancedmanufacturing and services not only with the East Asian tigereconomies but increasingly with developed countries. One needslook no further than the software industry to see this shift in action.In India, IT development and support already accounts for annualrevenues of $73 billion. Over the next decade, growth rates of over10% per annum will see this rise to $225 billion by 2020, whichwill make India a global leader. Similar shifts are also happeningin China. While low-skill manufactured goods are still the biggestexports, firms are beginning to move up the value chain and out-compete firms in Korea and Taiwan.6This will have a knock-on effect throughout the developing world.China and India are taking advantage of lower wage levels than thoseseen in the East Asian tigers, allowing them to undercut their rivalsto take a greater share of the export market for goods and services.As this success is passed on in the form of higher wages – and thereare signs of this shift currently taking place in China – this will allowother economies chiefly in Africa to in turn undercut China and Indiaon wages for lower skilled work. Having said this, it will be a slowprocess, and given the structural and institutional problems endemicin Africa, China and India will remain comparatively cheap locationsfor production for the foreseeable future.2.1 Rising competition from East AsiaThe last chapter showed how emerging and developing economiesare set for a massive increase in their populations and a heightenedfocus on economic activities traditionally dominated by the West.But this transition is only the latest stage in a major structural shiftin the make-up of the global economy that has been going on sincethe end of the Second World War.At the heart of this transformation is globalisation. Low skilledmanufacturing industries such as iron and steel production have allbut disappeared from the developed world in the face of intensecompetition from developing economies, led by countries inSouth and East Asia. At the same time the Japanese economy hasdeveloped and expanded rapidly, overtaking the US in productivityterms in industries such as electronics and car manufacturing.The growth of the Japanese economy facilitated the transfer oftechnology to lower wage economies in Asia.The net effect was to fuel a boost in the export capacity of thesecountries. The share of world exports produced by developingcountries has risen significantly over the last few decades, from 27%in 1980 to 41% in 2007 (Chart 2-1). Within developing nations, Asiancountries are responsible for most of the growth in their marketshare. Asia’s combined share of exports increased from 9% to 21%over the period, whilst the rest of the developing markets’ share hasremained relatively constant.Chart 2-1: Share of world exports80 82 84 86 88 90 92 94 96 98 00 02 04 06Source: IMF Direction of Trade Statistics010203040506070%IndustrialisedDevelopingAsia6. Cui, L. M. Syed, (2007), ‘The shifting structure of China’s trade and production’, IMF WorkingPaper, No. 07/214.2. Globalisation a threat and anopportunity
12 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 137. Goos, M, Manning, A and Salomons, A, (2009), ‘Job polarization in Europe’, American EconomicReview, Vol. 99, pp. 58-63.2.3 Technological change,globalisation and the ‘hour glass’The dual package of threat and opportunity that globalisationwill bring over the coming two decades will be exacerbated bytechnological change. In the last 20 years the computer revolutionhas changed the workplace almost beyond recognition, and thistrend will continue over the next two decades. So far, technologicalchange has mostly affected the manufacturing sector, with jobsthat involve repeated, routine actions, such as assembly lineconstruction, being replaced by automated machines and robots.Routine service sector jobs, such as bookkeeping, data processingand call centre operation, are also under threat from automation.On the other hand, non-routine jobs have generally benefittedfrom the new technology in both high- and low-skilled sectors.Professionals such as managers, doctors and consultants havebecome more productive and valuable over time. Improvementsin technology have taken away many of the routine aspects ofoccupations that require constant decision-making and analysinginformation, leaving them more time for the non-routine analysis.At the same time, demand for labour in routine low-skilledoccupations that computers and machines cannot replace, suchas cooking, cleaning, building, driving, home maintenance andhairdressing, has increased. Indeed, technology has in somecases enabled them to increase their productivity, such as thecomputerisation of restaurant bills.The same will apply to non-routine occupations where face-to-facecontact cannot be replaced with a machine, such as in healthcareand education, and so cannot be outsourced. However, while thesejobs cannot be moved offshore, recent decades have seen a trend ofmigrant workers from poorer countries moving to rich countries totake up jobs in sectors such as building, catering and local transport.Assuming that globalisation will not be reversed, this trend is likelyto continue.In the developing world, more advanced emerging economieswill continue to attract non-routine occupations such as softwaresupport from Europe and North America. As income and skillslevels rise in those economies, workers will be less willing to carryout routine assembly line jobs, which workers in poorer developingcountries will be well placed to take on, in turn fuelling theireconomic development.2.3.1 The ‘hour glass’ phenomenon: how the middlegets squeezedThe combination of increased employment at the top and bottomends of the skills ladder will create an ‘hour glass’ economy, wherelow skilled and high skilled workers squeeze out the middle groupof semi-skilled workers whose job can be outsourced. In the middleare those occupations where computers or machines can performrelatively intricate processes that were typically done by people,such as fitting a car engine. These shifts have already resulted ina hollowing-out of the labour market in the developed world. AsChart 2-3 shows, workers in occupations which placed them in themiddle third of the income distribution in the 1990s have seen theirshare of hours worked fall, whilst conversely the bottom and topthirds have gained.Chart 2-3: Change in share of hours workedbetween 1993 and 20067-15Source: Goos, Manning Salomons (2009)-12 -9 -6 -3 0 3 6 9 12 15%Highest-incomeoccupationsMiddle-incomeoccupationsLowest-incomeoccupationsUKSpainIrelandGermanyFranceEU AverageThis trend also has implications for relative wage levels acrossgroups. Those occupations that have remained at the top of theincome distribution have seen their wages rise relatively quicklyover the last decade. However, the middle group in particular hasseen stagnation – and even falls – in real terms. The ‘hour glass’pattern seen in terms of job numbers is reflected by a similarpattern in terms of earnings growth.2.4 Onus on governments to actThese trends in the labour market have profound implications forgovernments in developed economies. Firms in the developedworld will increasingly have to compete with developing countries,and innovate to overcome the competitive disadvantage of higherwages. By adopting the latest technologies and employing workerswith high levels of skill, the West can still compete, but action isneeded from governments to ensure this continues.Political leaders must act swiftly to ensure that their workforcescan both withstand the challenges and take advantage of theopportunities. There are important steps they can take:• New entrants to the labour force should be encouraged to joinindustries where technology improvements increase productivityrather than ultimately replace workers.• Focus on sectors where developed nations have an advantage(such as pharmaceuticals and business services) or that involveface-to-face contact (such as healthcare and education), as thesecannot be outsourced to developing nations.• Workers that are left behind by technological innovation andoutsourcing need to have access to retraining and be encouragedto move into industries with a more viable long term future.• Review the need for social safety nets in the intervening periodfor affected workers.This cocktail of technological innovation and globalisation willalso have implications for developing countries and particularlyfor fast-growing emerging economies. On the positive side, thewage differential between East and West will enable East Asiancountries to continue to capture service sector activities thatcan be outsourced. On the other hand, while their developmenthas typically been built on capturing routine assembly lineoccupations from the West, falling capital costs mean machinescan out-compete even the cheapest sources of labour for routineassembly line work that has hitherto underpinned their economicdevelopment. Governments in India and China in particular willneed to plan for this, and encourage workers to move into moresustainable industries.2.5 ConclusionGlobalisation is both a threat and an opportunity to developedcountries’ labour markets. It offers low wage economies greaterscope to use wage differentials to attract routine work. But it alsooffers access to very large markets, where incomes are growing.The growth in trade also offers developed economies’ financial andbusiness service firms significant opportunities for expansion.The policy response by developed economies to globalisation andtechnological change must be to focus on education and vocationaltraining. This should offer workers the opportunity to acquire theright skills in dynamic changing economies. Social safety nets andretraining opportunities may also be needed to assist workersthrough that painful transition.2.2 Developed economies must act tostay competitiveThis shift clearly poses a threat to economic growth andemployment in developed countries, just as the first waves ofglobalisation did. But it is important to remember that globalisationoffers great opportunities to Western companies. Some industriesand jobs will inevitably be lost to low wage economies, but otherswill grow in importance. It is therefore crucial that governmentsadopt policies that ensure they are best placed to take advantage ofthe opportunities.There are two aspects to this. The first is to ensure that theycontinue to move up the value chain. Chapter 1 showed how theUS, UK and other advanced economies have significant competitiveadvantage in higher education. Continued investment in this area isvital to ensure that countries continue to nurture the skills neededto compete in the globalised economy.Europe and North America already have a dominant position inseveral high value-added sectors. Financial services, informationtechnology, RD, pharmaceuticals research and aerospaceengineering are just a few sectors where the developed worldout-competes countries in East Asia. By adopting and adaptingto the latest technology and employing highly skilled labour, firmsin the developed world will continue to be global leaders in theseindustries. The reality for newly industrialised economies is that theywill find these well-established industries harder to enter, as theexperience built up over a number of years of production cannot beimmediately undercut by cheaper labour.The second positive aspect for advanced economies is thatglobalisation, industrialisation and population expansion in Chinaand India offer many opportunities. This combination will increasethe number of potential customers developed countries’ firmshave access to. Moreover, in many of the developing countries percapita incomes are rising, enabling large numbers of people toafford new products for the first time. This is in stark contrast tosaturated developed markets that are still struggling to emergefrom recession.The increasing integration of the global economy will requirerising levels of intermediation, to ensure that expectations of bothproducers and consumers are met in spite of any differences inlocation. This will result in increased demand for services such asbanking, law, consultancy and accountancy, as multinational firmsincreasingly need to understand how to efficiently move goods andservices between their producers and final consumers.
14 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 153.1 An ageing populationThe world’s population is not only set for rapid expansion, it is alsoageing very fast. This phenomenon is taking place across all typesof economy albeit at different paces. Between 1990 and 2009,the percentage of people aged over 55 years old increased indeveloped economies by 5.0 percentage points (pp) to 27.9%, rose2.6 pp to 12.4% for less developed economies and by 0.4 pp to 7.6%for the least developed economies (Chart 3-1).Forecasts suggest this trend is likely to continue. The UN forecastsshow the share of the population over 55 years old increases by7.1 pp between 2010 and 2030 for the more developed economies,6.7 pp for less developed economies and 2.5 pp for the leastdeveloped economies. This reflects two factors. First, peopleare living longer thanks to advances in medical technologies,improvements in diets and working conditions and, particularlyin developing countries, higher standards of sanitation and waterquality. Second, fertility rates have declined due to higher standardsof living, education and healthcare.Chart 3-1: Share of population over 55 by economy typeSource: Oxford Economics and UN40%1990 2000 2010 2020 2030More developed regionsLess developed regions (excluding China)Less developed regionsLeast developed regionsForecast05101520253035One of the consequences of the growing numbers of olderpeople is an increase in the age dependency ratio (Chart 3-2).This is the ratio of people aged over 65 to those of working age(defined using the UN data as 15 to 64 years old). This has adverseimplications for the affordability of public sector financed pensions.It explains why various countries have announced increases inthe age at which people become eligible for state pensions andreductions in their generosity in real terms (Table 3-1).Chart 3-2: Ratio of over 65s to 15-64 year oldsSource: Oxford Economics and UN05101520253035% More developed regionsLess developed regions (excluding China)Less developed regionsLeast developed regionsForecast1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025Table 3-1: Current and announced changes to futureretirement agesCountryCurrentretirement age Future retirement ageFrance 60 62Germany 65 67Italy60 for women(private sector), 65woman public sectorand 65 for menIncrease of +3 years for eachcategoryUnitedKingdom60 for women and65 for men66 and 68 in 2044United States 65No specific announcementsto dateCanada 65Plans to eliminate mandatoryretirement ageJapan 65 Introduced in 2006Australia65 men and 63.5womenIncremental increase to 67from 2017New Zealand 65To follow Australias examplewith 67Brazil65 men and 60womenBrazil increased its retirementage in 2003. No furtherannouncements made to dateChina60 for men and 50-55 for womenConsideration of increase in2035India 60Active consideration toincrease to 62Russia60 men and 55womenFuture consideration toincrease the retirement age, 65for men and 60 for womenSource: Individual country sourcesKey points• Older workers will constitute a growing proportion of theworking population in many industrialised countries. TheUN predicts the share of over-55 year olds in the populationof working age will increase from 18.2% in 2010 to 20.2% in2030 in industrialised countries, and in Europe from 17.9% in2010 to 21.5% in 2030.• Older workers exhibit different labour market characteristicsthan their younger counterparts.• Older workers have a far greater tendency to be self-employed, part-time or temporary workers; tend to changejobs and employers less frequently; are likely to stay in ajob for longer; but tend to be less willing to move home orchange their job.• While they have built up skills and knowledge over theircareers, there is a risk that their skills become increasinglydated with negative impacts on innovation and productivity.• It will be very important that older workers have sufficientopportunities to develop new and updated skills. This is likelyto require considerable training efforts and investment byboth government and employers.3. Mind the gap how ageing populationsoffer challenges andopportunities
16 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 173.3.1 Self-employed vs employeesResearch shows self-employment rates increase with age, risingsharply after the age of 60 years old.10This is confirmed by officialdata for the UK that show 22.8% of those over the state pensionage (SPA) are self-employed compared with 12.7% of those aged25 to 49 years old (Chart 3-3). This may be explained by the self-employed not adhering to normal retirement age practices commonamongst employees, or that significant numbers of ex-employeesbecome self-employed after retiring from their employee jobs.Chart 3-3: Percentage of all people who are in employment whoexhibit certain characteristics in the UK in 2009 Q201020304050607080%Self-employedPart-timeTemporary16-24 25-49 50-59/64 (SPA) SPA and overSPA is State Pension AgeSource: ONSOlder workers’ greater tendency to be self-employed may reflecttheir skill sets and resources. It may only be possible for people togo self-employed when they have accumulated sufficient humanand financial capital. The human capital is likely to include both thetechnical skills to produce a product or service that customers wantand the managerial ability to run a business. These skills take timeto accumulate.Older workers may also prefer being self-employed, as it can bea more flexible way of working. It offers the ability to work fewerhours (consistent with older workers’ greater tendency to workpart-time) and the choice of when to work. This may also reflecta preference for a staged retirement – with people reducing thehours they work as they get older, rather than switching fromfull-time employment to retirement.It is worth pointing out that the impact on employers will varydepending on whether the decision is one that tends to be takenby the worker (supply-led), or is one which is guided by whatbusinesses want (demand-led). If older workers’ greater tendencyto be self-employed is supply-led, it is likely to reduce the supplyof skilled labour available for businesses to recruit. However, if itis demand-led then it is a sign that older workers will change theirwork patterns to fit employers’ needs. As of now, it is unclear whichfactor is dominant.While much of the focus of the debate is on the ratio betweenworkers and pensioners, these trends of greater longevity andlonger working lives will have a major impact on the market foractive workers. The increase in retirement ages and growingnumber of older people is likely to increase the share of olderpeople in the labour force. This in turn is likely to impact the skilledlabour market as older workers exhibit different labour marketcharacteristics than younger workers. While all countries canexpect to see their workforces become tilted more towards olderworkers, the changes will affect some countries more dramatically.As with the other population patterns, the changes are likely to belargest in developed countries because of the demographic factorsoutlined in Chapter 1.3.2 Ageing will have varied impacts ondifferent countriesTo give an indication of which countries will be most affected byhaving a high percentage of older workers, the analysis uses theUN population forecasts for 2010 and 2030 to show the countrieswith the highest proportion of people of working age who are over55 years old. As Table 3-2 shows, most of the 25 countries with thelargest shares of older workers will be in Europe.By 2030, the UN forecasts that 26.5% of Italy’s potential workforcewill be between 55 and 64 years old. Germany, Spain, Greece,Portugal, Austria, Bulgaria, the Netherlands, the Czech Republic,and Denmark are also forecast to appear in the top 25 countries.The average for Europe is forecast to be 21.5% by 2030.The only region that is forecast to exceed Europe in the proportionof its potential work force over 55 is Eastern Asia at 22.6%.8Sixout of the seven component countries (excluding Mongolia) areforecast to appear in the top 25 countries by 2030. Of these, three(Japan, Macau and South Korea) appear in the top ten. The clearimplication is that the skilled labour markets in the countriesidentified in the table will change to reflect the higher percentageof older workers.3.3 Older workers will offer employersa different mix of skillsMany countries, particularly in Europe, will see a significant ageingof their workforce. But what does that mean for employers andpolicymakers seeking to exploit the opportunities of globalisationand cope with its challenges? This will become more important asthe percentage of older workers in the labour force increases overtime.9Data suggests older workers exhibit a number of differentlabour market characteristics from younger ones:• They have a greater tendency to be self-employed and a lowertendency to be employees.• The distribution of older workers across industries differs fromthe rest of the workforce.• They have a greater tendency to be in part-time or work ontemporary contracts than other workers.• Older workers tend to remain with an employer for longerperiods of time than other workers.• Involuntary separations are lower for older workers thanyounger ones.• If older workers become unemployed, they tend to remainjobless for longer durations than other workers.It is worth examining each of these phenomena in detail as theycontain different lessons for employers seeking to get the most outof their available staff.Table 3-2: The 25 countries forecast to have the highestpercentage of people of working age (15-64) that arebetween 55 and 64 years old in 2010 and 2030Rank Country 2010 20301 Italy 18.8 26.52 Cuba 14.8 26.43 Japan 23.0 26.14 Macau 14.1 25.95 N. Antilles 16.5 25.26 Germany 18.4 25.17 South Korea 14.2 25.08 Singapore 18.1 24.99 Channel Islands 19.2 24.710 Spain 16.1 24.411 Greece 18.2 24.312 Portugal 18.0 24.013 Austria 16.9 23.514 Bulgaria 20.3 23.415 Hong Kong 16.8 23.416 Romania 17.5 23.017 Slovenia 19.2 22.818 Barbados 16.1 22.719 Martinique 16.9 22.420 The Netherlands 19.6 22.321 China 13.7 22.322 Bosnia Herzegovina 17.1 22.123 North Korea 11.6 22.124 Czech Republic 20.1 22.025 Denmark 20.1 21.9Source: Oxford Economics and UN8. Eastern Asia includes China, Hong Kong, Macau, S. Korea, Japan, Mongolia, and N. Korea. 9. For an excellent overview of the impact of population ageing on the labour market see Dixon, S, (2003), ‘Implicationsof population ageing for the labour market’, Labour Market Trends, Office for National Statistics, February.10. Weir, G, (2003), ‘Self-employment in the UK labour market’, Labour Market Trends, Office for National Statistics.
18 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 19There are both positive and negative reasons why older workers maytypically remain with the same employer for a longer period of time.On the plus side, older workers are more likely to have found a goodmatch between their skills and the job through career changes earlieron. Economists believe another reason is that many employers, oftenin large organisations, remunerate employees according to tenureor seniority in order to retain workers and reduce turnover costs.12One form of remuneration that may be particularly important inincentivising older workers to remain with their current employeris a good pension scheme. On the other hand, the reason may bethat the costs of voluntary redundancy increase over time, making itmore expensive to dismiss older workers.This tendency to stay with an employer feeds through to lowerrates of geographical and occupational mobility. Research hasshown that regional migration rates decline with age, peakingamong young adults and typically decline with age untilretirement.13Job changes incur costs (for example, moving home)which older workers have less time to recoup than youngerworkers. Lower voluntary separation rates may also reflect thedifficulties older people have relative to younger workers in gettingjobs (discussed in 3.3.6).3.3.5 Involuntary dismissal or redundancy is less commonThe rate at which older workers leave their existing employerbecause of redundancy, dismissal or termination of a temporarycontract declines with age (Chart 3-5).14This may also reflect thehigher costs of dismissing older employees with many years ofservice compared with younger ones, as many redundancy schemesare linked to years of service. It may also be that firms value someof the characteristics that older workers exhibit (for example, lowerabsenteeism) and so select other workers for redundancy.Chart 3-5: Rate at which workers in different age groups losetheir jobs through redundancy, dismissal or termination oftemporary contract per year in the UK (1991-1996)024681012Less than 25 years 25-49 years 50 plus yearsSource: Gregg, Knight and Wadsworth (1999)%3.3.6 Jobless older workers take longer to find new workIf older workers are made unemployed, they tend to remainunemployed for longer durations than other workers. Official UKdata shows the share of each group of unemployed people whohave been unemployed for various lengths of time (Chart 3-6). The50 and over age group has the highest share of people who havebeen unemployed for over 12 months and 24 months. It has thelowest share of the two durations of unemployment under a year.Chart 3-6: Unemployment durations in the UK by age group inOctober to December 20100102030405060Source: ONS18-2425-4950 and overUp to 6 months Over 6 and upto 12 monthsAll over12 monthsAll over24 months%There are a number of possible reasons why older workers struggleto get back into the labour market:• Employers hiring new staff incur considerable training costs,which they have less time to recoup from an older worker.• If older workers prefer part-time employment, they may findthat jobs that require team working cannot accommodatepart-time workers.• As stated above, older workers tend to be less occupationallyand geographically mobile, and so less willing to move tosecure a job.These disadvantages are offset by some of the merits of hiringolder workers already discussed. Although they have fewerexpected years on the job, they have lower propensity tovoluntarily separate from the firm. Older workers will be bestplaced to compete against younger ones where technologychanges rapidly. As a result, the skills required can be acquired anddepreciate relatively quickly, so older people’s shorter employmenttime frame is less important.3.3.2 Differences across sectorsOlder workers are more likely to work in health and communityservices, education and government and administration. Researchby the New Zealand Department of Labour showed the share ofolder employees working in those sectors was 4pp higher thanfor all employees.11Older workers were less likely to work in retail,hotels and catering, and finance and insurance. In fact, the shareof older workers working in the retail sector was 5pp less thanall workers. As the share of older workers in the labour forcegrows, it is these private sector industries that are likely to feel thesignificant changes in labour supply.3.3.3 Greater tendency to work part-time or temporaryOfficial data suggests older workers have a greater tendencyto work part-time or work on temporary contracts than otherworkers. Chart 3-3 showed that 25% of people with a job agedbetween 50 and the SPA were employed part-time. This rose to66% for employees above the SPA. These compare with 21% forthose employees aged 25 to 49.Just over a fifth (21%) of people with a job aged between 50 andthe SPA were employed in temporary work. This rose to a third(33%) for those beyond the SPA, compared with 17% for thoseaged 25 to 49. Again, the implications for employers will varydepending on whether this trend is driven by workers’ desiresor by businesses’ needs. If it is supply led, it could be a sign thatworkers wanted staged retirement to help alleviate pension worries.If this is the case, then the availability and range of part-time andtemporary employment opportunities will become increasinglyimportant as populations age.3.3.4 Older workers have greater loyaltyOlder workers tend to remain with an employer for longer periodsof time than other workers. Official UK data shows that theaverage time in current job is 15.5 years for those employees overthe SPA and 13.4 years for those between 50 and SPA (Chart 3-4).This compares with 7.1 years for those employees between 25 and49 years old. The New Zealand data show mean job tenure wasabout twice as long for older employees compared with prime-aged employees.Chart 3-4: Average length of time UK employees have been incurrent job by age group05101520Years16-24 25-49 50-59/64 (SPA) SPA and overSPA is State Pension AgeSource: ONS3.4 ConclusionThe productive population is becoming increasingly old, especiallyin Europe where a fifth of workers will be aged 55-64 by 2030.Older workers exhibit different labour market characteristics thantheir younger counterparts. They have a far greater tendency tobe self-employed, part-time or temporary workers; stay with anemployer for longer; and are more likely to work in public servicesthan in the private sector. While they may build up skills andknowledge over the years there is a risk these skills are obsoleteand the costs of retraining will be discouraging to employers.The challenge for the economy, businesses and policy makers is tounderstand why older workers are over-represented amongst theself-employed, part-time and temporary workers. If it reflects olderworkers’ preferences, the challenge is to ensure the labour marketdelivers sufficient range and quality of part-time and temporaryroles. If it is demand-led, the issue is how to prevent the mismatchbetween older workers wanting to work in full-time permanentjobs, yet only being offered part time or temporary roles.It will be very important that older workers have sufficientopportunities to develop new and updated or up to date skills. Thisshould lower skills mismatch and foster occupational mobility. Thisis likely to require considerable training efforts and investment byboth government and employers.13. Champion et al. (1998), ‘The determinants of migration flows in England: A review of existingdata and evidence’, Report for the Department of the Environment, Transport and the Regions.14. Gregg, P, Knight, G, and Wadsworth, J, (1999) ‘The Cost of Job Loss’. In The State of WorkingBritain, edited by Gregg, P and Wadsworth, J.11. Department of Labour, (2009), ‘The working patterns of older workers, New Zealand Government.12. Groot, W, and Verberne, M, (1997). ‘Ageing job mobility and compensation’. Oxford EconomicsPapers, 49, pp380-403.
20 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 214.1 Introduction: adapting to changeThe fundamental changes in the world’s productive populationover the 20 years to 2030 outlined in this report will have profoundeffects on businesses. The sheer scale of the growth in numbers,the shift in the balance of power towards emerging and developingeconomies, and the ageing of the working population in Europeand Asia are major challenges for employers.But these changes will be magnified by changes that are likely totake place in individual arenas. Consumer tastes will alter, businesssystems will change, technology will alter how much labour isneeded to produce output, and government regulations andtaxation regimes will change. These changes in demand will alteroutput, which in turn will change the skills that employers need.This chapter looks at four areas where these structural changesare likely to combine: financial services; healthcare provision forthe elderly; adaptation to climate change; and infrastructure needsin emerging economies. In all four cases demand for employeesand for skilled workers will increase. The four issues selected willobviously not be the only issues or changes to impact on the skilledlabour market over the next 20 years. But they give good guidesto what skills will be needed and how governments and employerscan ensure businesses’ needs are met most efficiently.4.2 Case study one: financial servicesThis sector fuelled much of the growth during the boom of theearly years of the last decade and faces an uncertain future afterthe crisis of 2007/8, the public sector rescue packages and possibleregulatory responses. The outlook for this sector is unlikely to beuniform. The dependency of economies on financial services, theimpact of the crisis on output and employment and degree ofregulatory reform will vary from country to country.Since not all countries collect data on employment, the bestalternative is to look at output. The Oxford Economics’ GlobalMacroeconomic Model shows growth in financial services output inabsolute terms will be greatest in the countries that already have alarge share of financial output. This will give a better idea of whichcountries’ financial sectors are likely to grow and therefore whosedemand for financial workers is predicted to increase most rapidly.15The fastest growth in output is predicted to occur in the UK ($129billion), followed by the United States ($127 billion) and Australia($71 billion). For every $1 billion of financial services output acountry produced in 2010, it is predicted they will generate anextra $241,000 over the next 20 years. The sharpest growth ratesrelative to where output levels are now will be in emerging marketcountries. The financial sectors in Bulgaria, Malaysia, the Philippines,Poland and Thailand are all forecast to grow by over 5% a year.Russia and Indonesia’s financial services sector are predicted togrow by 4.7% and 4.6% each year, respectively.16Table 4-1: The 25 countries forecast to experience the largestgrowth in financial services output 2010 to 2030Rank CountryGrowth in the financesector’s contributionto GDP between 2010and 2030 (US$ billionsin 2005 prices andexchange rates)GDP contributionfrom the financesector in 2010(US$ billions in2005 prices andexchange rates)1 UK 129.2 1642 US 126.8 2733 Australia 70.7 1074 South Korea 68.9 695 France 39.7 1066 Spain 39.7 587 Italy 33.3 898 Russia 30.7 339 Poland 28.2 2010 Germany 25.0 14411 The Netherlands 23.3 5112 Singapore 21.9 2013 Malaysia 17.3 1514 Switzerland 16.5 4315 Ireland 15.3 1916 Denmark 13.8 1517 Austria 13.2 1918 Belgium 9.9 2119 Taiwan 9.7 3020 Portugal 9.7 1221 Sweden 7.6 1722 Norway 7.5 1223 Bulgaria 7.2 324 Indonesia 6.9 725 Hong Kong 5.4 38Source: Oxford EconomicsThis scenario indicates that the demand for skilled staff willcontinue to be strongest in the countries that are already centresfor financial services. This in turn implies that the regulatory andpolitical response to the 2007/8 crisis will not be severe. On thatbasis it is not likely that there will be a large-scale migration offirms that deal in the wholesale market to jurisdictions with lessonerous tax or regulatory regimes.Key points• The changes to the global economy and labour skills frompopulation change, technological advance, and economicdevelopment over the next 20 years are likely to haveprofound impacts on the needs of employers.• While it is hard to quantify exactly how those factors willcombine, analysis of four key sectors or issues shows thesetrends may define the skills that employers need.• Forecasts of different countries’ financial sector outputindicate that most of the growth in demand for financialsector workers will occur in countries where the sector isalready large.• The increasing number of elderly people will raise demandsfor health care professionals in many industrialised countries.This will require those countries to devote increasingnumbers to work in the healthcare industry or increaseinward migration. As there is already a shortage of healthcare professionals worldwide, international migration maybe controversial and require a coordinated response.• Climate change will lead to job creation in the developmentof green energy sources and in occupations needed tomitigate the impacts of global warning but job losses atindustries closely connected to the generation and use offossil fuels.• The infrastructure needs of some of the larger emergingmarkets will require inward migration of temporaryconstruction workers into those countries. It should alsoincrease the demand for more permanent skilled labour inthe production of engineering and mechanical goods.15. Even so, no data are available for some of the larger emerging markets.16. No data are collected on China or India’s financial service sector’s output by theirstatistical agencies. So it has not been possible to generate forecasts.4. Skills match four sectors at theheart of the debate
22 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 23Migrant workers from developing countries already play a majorrole in healthcare provision in developed countries. Figures fromthe Organisation for Economics Cooperation and Developmentshow that a third of all doctors in New Zealand, the UK and Irelandwere trained abroad.18Similarly, 23% of the doctors in Australiaand 26% of those in the United States were trained abroad in 2007.The bulk of inward migration into OECD countries by healthcareworkers originates from developing and emerging countries. In2000, for example, nurses born in the Philippines and doctors bornin India were particularly prevalent.The challenge for developed countries will be to find an equitablesolution to their healthcare staff needs. There has been a debateover the balance between the negative impact of migration onpoorer countries and the right of people to move for work. TheWHO has introduced a code of practice on the internationalrecruitment of health personnel.One issue to bear in mind is how increased emigration would affectthe relevant country. For example, outflows of health personnelfrom heavily-populated countries such as India and the Philippinesremains low compared to the size of their total workforce. Thesituation is different in the case of some smaller countries andAfrican countries, with expatriation rates of doctors above 50%.Furthermore, WHO says healthcare shortages in these countriesare driven more by low education and training capacity and poorretention rates than emigration. The answer may be a greatercoordinated global focus on funding investment in education andtraining in developing countries to ensure the number of skilledhealth professionals matches the likely increase in demand.4.4 Case study three: the impactof climate change on the demandfor labourClimate change is forecast to have potentially devastating impactsover the next 150 years in the form of rising temperatures, extremeweather, rising sea levels and the desertification of areas of fertileand inhabited land. Despite the long time horizon, governmentswill need to act now to prepare for the most damaging impacts.In terms of employment, the largest impact will be on the energysector as governments seek to move away from energy sourcesthat generate carbon emissions and other harmful greenhousegases towards more sustainable energy sources. This will lead toboth job creation and job losses.Policies designed to lower emissions and change consumerbehaviour should cause a shift in demand, output and employmentaway from energy generation from fossil fuels. Sectors likely to seeslower growth in employment or job losses are coal, oil and gasproduction, transportation and refining. Employment in electricitygeneration using fossil fuels is also likely to grow less rapidly and,in the longer term, decline. The scale of the impact on the skilledlabour market is likely to be relatively small as these types ofactivities are very capital intensive, so are not large employers.There are also likely to be fewer jobs needed in industries thatare most reliant on fossil use, as they will be compelled byregulation, taxation and use of pollution permits to limit theirenergy use. The industries that are most reliant on fossil fuelsfor each unit of production are manufacturers of chemicals,resin, rubber and artificial fibres, government enterprises, andair transport. These industries will find the prices of their inputcosts increasing, which will reduce demand, with an adverseimpact on their demand for labour.However, new jobs will be created through the generation ofelectricity from renewables. In the short-term, this will includesome increases in jobs to design, manufacture, install and operatethe new renewable electricity generating plants. To date, thesehave been on a much smaller scale than fossil fuel plants, sosudden expansion may lead to a net growth in jobs as renewablesreplace fossil fuels.Finally, as new fuels are developed, the technology will be used ina wider range of vehicles and consumer goods, which will requirenew production lines or the refit of existing ones. Its impact is likelyto be felt in those countries that specialise in manufacturing. Jobsmay also be created as part of initiatives to cut fuel usage. Themost obvious area where this may be the case is the improvementof energy efficiency in homes and workplaces. This will createemployment in the construction sector as insulation is retrofitted toexisting buildings and inserted into new builds.4.3 Case study two: ageingpopulations and demand forhealthcare workersAgeing populations will put pressure on health services as demandfor care for the elderly rises. Across the globe, the numbers of over65s are forecast to increase by 446 million. Of these, 121 million(or 20%) will be located in China, 65 million (or 15%) in India and32 million (or 7%) in the US. By 2030, Europe will be home to44 million (or 10%) more people over the age of 65 years old(see Table 4-2).Older people require more frequent treatments and longer stays inhospital than those even only marginally younger. Figures from theUK shown in Chart 4-1 indicate that people aged over 75 requireinpatient treatment twice as often and spend almost three times aslong in hospital as those aged 60 to 74.Chart 4-1: Average inpatient finished consultant episodes andlength of stay per person in England in 2009-10 by age group024681012Episodes or daysper personSource: NHS, ONS and Oxford EconomicsFinished consultant episodes per personInpatient bed days per personAge 0-14 Age 15-59 Age 60-74 Age 75+Clearly, this trend will increase the need for healthcare workers.However, the decline in fertility rates in advanced economieshighlighted in Chapter 1 will reduce the number of indigenousworkers available to fill those jobs. As Table 4-2 shows, certaincountries will see a large increase in the number of over 65s asa share of their working age populations. Across the world, over65 year olds are forecast to be 18% of the size of the workingpopulation (or one for every 5.6 people of working age) in 2030.However, in industrialised regions, this percentage rises to 36%. Itis considerably higher in some countries, for example, Japan (53%),Germany (48%), Singapore (46%), Italy (44%), and France (41%).Table 4-2: The 25 countries forecast to experience the largestgrowth in populations over the age of 65 years oldfrom 2010 to 2030Rank CountryForecast changein the number ofover 65 year oldsbetween 2010 and2030 (million)Forecast of thenumber of over 65year olds as a shareof the populationof working age in2030 (%)1 China 121.2 23.72 India 64.8 12.23 US 32.0 31.74 Brazil 16.2 19.75 Indonesia 14.9 15.46 Mexico 8.5 18.37 Bangladesh 8.2 10.48 Pakistan 7.9 8.99 Japan 7.5 52.810 Vietnam 7.4 18.311 Russia 6.9 29.712 South Korea 6.0 36.113 Thailand 6.0 23.114 France 5.5 40.915 Philippines 5.5 11.616 Germany 5.2 47.617 Turkey 4.9 15.118 Egypt 4.6 11.519 Iran 4.5 12.720 Canada 4.3 37.121 Colombia 3.9 17.322 UK 3.9 33.623 Nigeria 3.8 6.324 Italy 3.6 43.925 Spain 3.5 35.9Source: Oxford Economics and UNGovernments will need to plan now to ensure they can recruitsufficient numbers of workers to care for their ageing populations.For many countries the answer to this shortage will be to recruithealthcare staff from overseas. However, international migrationof healthcare workers is already controversial because it is seen asadding to existing shortages in developing countries. For instance,the World Health Organisation says that of the 57 countries with acritical shortage, 36 were Sub-Saharan African countries.1718. OECD, (2010), ‘International migration of health workers’, Policy Brief, February.17. WHO, (2006), ‘Working together for health’, The World Health Report 2006.
24 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 2519. Renner, M., M. Ghani-Eneland, and A. Chawla (2009), “Low-carbon jobs for Europe: Currentopportunities and future prospects”, June 2009, World Wide Fund for Nature, Brussels.20. Trade Unions Congress, (2005), ‘A fair and just transition – Research report for greening theworkplace’.21. D M, Kammen, K, Kapadia, and M, Fripp (2004) ‘Putting renewables to work: How many jobs canthe clean energy industry generate?’ RAEL Report, University of California, Berkeley.High growth rates in construction output in the BRIICs will increasedemand for construction workers. In the skilled labour market,this will lead to inward migration of highly-skilled constructionworkers. These are likely to include architects, civil engineers andexperienced trades people. Given the project-based nature ofconstruction work, this is likely to be on temporary contracts (forthe duration of the project), but once established the workers mayundertake several projects within the same country.Growth in construction will boost demand in the sector’s supplychain. Infrastructure projects require significant inputs from theengineering and mechanical goods sectors such as constructionvehicles and concrete products. Some of these will be made locally,lowering the need for transporting of larger pieces. While China,the US and Germany will continue to see the largest absoluteincrease in engineering and mechanical output over the next 20years, emerging markets will see the fastest growth from currentlevels. As Table 4-4 shows, the fastest growth rates are in China(23% a year), Turkey (12%), Poland (11%), UAE (11%), South Africa(10%) and India (10%).Table 4-4: The 25 countries forecast to experience the largestgrowth in engineering and mechanical goods manufacturingoutput between 2010 and 2030Rank CountryUS$ billions in 2005prices and exchangeratesAnnual % growthin engineeringoutput1 China 1,281.5 22.82 US 197.9 4.33 Germany 165.3 4.64 Japan 119.1 2.65 South Korea 74.6 7.16 Italy 53.5 3.37 UAE 52.3 10.88 India 48.9 10.39 Mexico 43.7 7.810 Poland 34.2 11.211 Turkey 31.3 12.212 Taiwan 27.9 8.813 France 27.8 3.014 Russia 25.8 7.015 UK 23.7 2.216 Brazil 21.4 5.517 Australia 20.7 4.918 Thailand 20.6 7.119 Austria 17.2 4.920 Czech 15.4 8.521 Canada 11.8 3.122 South Africa 11.6 10.823 Finland 11.0 5.924 Spain 10.3 2.525 Sweden 9.1 3.3Source: Oxford EconomicsThis output growth will lead to additional demand for labour.Unlike construction work, the engineering and mechanical goodsmanufacturing sector tends not to be project-based, so increaseddemand may lead to more permanent jobs.4.6 ConclusionOver the next 20 years, the skilled labour market will be affectedby a variety of changes in demographics, technological changeand economic development. The structural shifts will combine todrastically change the way that businesses operate. The four issueshighlighted in this chapter – financial services, healthcare for theelderly, tackling climate change, and infrastructure in the BRIICs –show how demographic pressure, government interventions andchanges in consumer tastes will lead to major changes in the typesof workers and skilled professionals that will be needed to powerthe economy of 2030.Away from energy generation and use there are many activitiesaimed at tackling climate change and overseeing environmentalregulations that have the potential to create jobs. These include:• Construction and civil engineering and its supply chain• Scientists with the skills to monitor and predict suchweather events• Emergency response equipment and teams• Manufacture of rescue and temporary infrastructure equipment• The design, manufacture and sale of insurance policies• Public officials to design, implement and enforce newtaxes or regulations• Jobs at regulators and compliance functions of firmsusing fossil fuelsIt is too soon to say whether efforts to tackle climate change andembrace new regulations and technologies aimed at controllingemissions will lead to a net creation of jobs. However, it is certainnew skills will be needed. This will require training for new entrantswhile displaced workers may require retraining to gain employmentin other industries.4.5 Case study four: infrastructureneeds of large emerging marketsThe industrialisation of some of the larger emerging markets islikely to lead to the need for considerable infrastructure investment.This will include the building of roads, railways, ports, utilities,and housing as these countries switch from being primarily ruralagricultural economies to largely urbanised, manufacturing andservice-based economies. This will lead to a significant demand forskilled labour in the construction and engineering sectors.Forecasts for construction output growth between 2010 and2030 by Oxford Economics shows a sharp distinction betweenthe developed world and larger emerging markets – Brazil, Russia,How many jobs will ‘green’ energy create?A number of studies have tried to estimate the employmentimpact of the building and operation of renewables electricitygeneration. One study argued that there was a potential for thecreation of more than two million jobs in Europe by 2020, if theshare of renewable energy in Europe increased to 20% of energyconsumption levels.19The UK’s Trades Union Congress arguedthat 117,000 new jobs would need to be created in the UK inrenewables electricity generation if the country was to meetits 2020 renewables target.20These job estimates do not takeaccount of the loss in jobs from fossil fuel electricity generators.A review of 13 studies on differing fuels and regions that tookaccount of job gains and losses suggested that new jobs createdat renewables generating plants would exceed those displacedfrom fossil fuel electricity generators.21It is also likely thatconsiderable research effort will go into the development of newfuels and enhancement of existing alternatives to fossil fuels.This will boost the demand for scientists although it is unlikely togenerate a large number of jobs.India, Indonesia and China (BRIICs). This is reflected in forecasts offaster annual output growth over the next 20 years. Constructionoutput in India is predicted to expand by 18% a year (Table 4-3),followed by China at 17%. Growth in the other BRIIC countries isalso predicted to be strong: 14% for Russia, 12% for Indonesia and6% for Brazil. This compares with 2.8% for the G7 (Canada, France,Germany, Italy, Japan, the UK and the US).Table 4-3: The 25 countries forecast to experience largestgrowth in construction output between 2010 to 2030Rank CountryUS$ billions in 2005prices and exchangeratesAnnual % growthin constructionoutput1 China 872.2 17.02 US 571.2 6.53 India 327.5 18.14 Russia 117.1 14.45 Mexico 108.5 9.46 Indonesia 71.4 12.37 Canada 69.6 5.18 UK 68.9 2.79 Australia 68.5 5.210 South Korea 63.6 5.211 Brazil 59.5 6.312 Turkey 55.1 11.513 Japan 45.5 1.014 France 34.6 1.615 Poland 31.3 6.616 Germany 28.9 1.517 Spain 26.7 1.218 Romania 25.4 13.019 Senegal 23.0 15.520 Saudi Arabia 20.5 5.721 UAE 20.2 6.422 Italy 18.5 1.523 Chile 16.4 8.324 Egypt 15.5 10.925 South Africa 15.3 8.3Source: Oxford Economics
26 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 27The forecast growth in the world’s population, and particularly inthe numbers of working age, has huge implications for employersin both the developed and developing world. The 20% increase inthe workforce, the fact that this is wholly confined to developingcountries and the ageing of the population in the West will combineto alter the balance of global economic power.In developing countries, rapidly expanding working age populationsand structural shifts away from agriculture will increase theireconomic importance and power. China and India will lead the way,and by 2030 they will be challenging the US for economic pre-eminence. Continued globalisation and technological change willsee emerging economies move further up the value chain.The combination of population, globalisation and technologicaladvance offers both threats and opportunities for governmentsand companies all over the world. Mechanisation and automationhas resulted in a hollowing out of the labour market in the West,with semi-skilled routine manufacturing and service occupations(such as assembly line workers and book-keeping clerks) beingoutsourced or disappearing from the labour force. In contrast,non-routine occupations and jobs which require face-to-facecontact have seen their share of hours worked grow both forskilled and lower skilled occupations.Ageing populations will boost the number of older workersas a share of the workforce. Older workers have very differentcharacteristics: they are more likely to work part-time, on temporarycontracts or as freelancers. It is not yet clear if this is driven by theirown choices or by the needs of businesses.Companies in the West that move up the value chain will continueto outperform rivals in developing countries in sectors where costsof entry are high. These include industries such as financial services,pharmaceuticals, aerospace and research and development.Emerging markets will move into more value-added activities aswages rise in those countries, while developing economies, andespecially Africa, will take advantage of wage differentials to takeup lower-skilled routine work.This will have implications for demand for workers. Although thenumber of newly-qualified highly skilled workers in the developingworld is increasing rapidly, experienced skilled labour is still inrelatively short supply. Coupled with the need for rapid investmentin infrastructure in particular, skilled labour from the West is in highdemand. The quality of university education in the West means thatdeveloping economies will continue to look beyond their bordersfor skilled professionals. These trends will create a need for effectiveinternational matching of skills for employers.This is likely to be the case for infrastructure investment and climatechange where skilled labour will be in demand both in existing areasof expertise and new sectors such as environmental regulationand green energy production. Demand for financial professionalsis likely to be strongest in countries that are already leaders infinancial services. Increased demand for healthcare workers tooffer care services for the expanding number of elderly people islikely to require continued migration from developing to developedcountries. This needs to be handed with care.This report points to a number of areas where governments andemployers in the developed world can take action to ensure theireconomies fully benefit from the increased standard of living thatglobalisation brings:• Remain open to trade with the developing world even though thiswill result in some industries and occupations disappearing fromtheir own economic map.• Ensure that new and existing entrants to the labour force are fullyequipped with the skills firms need to compete internationallyand satisfy demand at home.• Ensure that higher education and training is geared towardsproviding the skills needed for the high-value added sectors inwhich developed economies excel.• Understand the different characteristics and needs of olderworkers who will make up a growing share of the workforce.• Ensure the needs for healthcare workers can be met withoutcausing hardship in developing economies by taking acoordinated approach to migration and investment in training.Taking these steps will ensure that the West remains competitive inthe high-tech industries it already dominates, while helping workersdisplaced from declining sectors find new roles and meeting thechallenges presented by demographic, macroeconomic andtechnological change.We propose a five point plan forgovernments, international bodiesand multinational companies toconsider in their policy development.1. Keep national borders open for the movement ofskilled labour.2. Agree an international code to facilitate employee migration.3. Invest in training and education.4. Create employment opportunities in the developing world.5. Retain older people in the workplace.5. Conclusion
28 | The Hays/Oxford Economics Global Report 2011-2030 The Hays/Oxford Economics Global Report 2011-2030 | 29Oxford Economics is one of the world’sforemost independent global forecastingand research consultancies, renownedfor its econometric-based consulting andextensive research services. Founded in1981, Oxford Economics was originallyformed as a joint, commercial venturewith the business college of OxfordUniversity, Templeton College. Since itsfoundation, Oxford Economics has growninto an independent provider of globaleconomic, industry and business analysis,headquartered in Oxford, UK.Oxford Economics is a world leader inquantitative analysis, going deeper andfurther than other economic advisory firms,in helping its clients to fully assess theopportunities and challenges they face forfuture strategy and direction. It specialisesin global quantitative analysis and evidencebased business and public-policy advice,underpinned by a sophisticated portfolio ofbusiness forecasting services consisting ofregularly updated reports, databases andmodels on countries, cities and industries.For more information,visit www.oxfordeconomics.comHays is the world’s leading recruiting expertin qualified, professional and skilled work.We employ over 7,000 staff in 257 officesacross 30 countries. Last year we placedaround 50,000 people in permanent jobsand nearly 180,000 in temporary positions.Working across 17 different specialist areas,from healthcare to telecoms, bankingto construction and education to IT. Weoperate across the private, public and not-for-profit sectors.Our recruiting experts deal with 150,000CVs every month and more than 50,000live jobs globally at any one time. Thedepth and breadth of our expertise ensuresthat we understand the impact the rightindividual can have on a business and howthe right job can transform a person’s life.Our job is to know about professionalemployment, employers and employees.For more information, visit hays.comAbout OxfordEconomicsAbout Hays