Country appendix connecting talent with opportunity in the digital age

Country appendix connecting talent with opportunity in the digital age

Country appendix

APPENDIX: COUNTRY CASE STUDIES

Online talent platforms will not create the same kind of impact in every economy. The potential varies greatly depending on each country’s starting point in terms of demographics, labor market characteristics, digital infrastructure, and patterns of consumption. This supplement to the McKinsey Global Institute report A labor market that works: Connecting talent with opportunity in the digital age describes these variables and how they affect our estimates of the economic potential in seven of the world’s largest economies.

For any country, GDP can be determined by multiplying the amount of valued-added output per worker (also called labor productivity) by the number of workers actively employed in the economy. Online talent platforms have the potential to influence the number of people employed and hours worked by reducing job search time and enabling people out of the workforce to find meaningful freelance or part-time work. They also increase labor productivity by creating better matches between workers and jobs, and by shifting people from informal to formal employment. (See the separate technical appendix for a more detailed discussion of how digital platforms raise GDP and employment.

Our analysis began with a detailed examination of the seven countries covered in this appendix: the United States, the United Kingdom, Germany, Japan, China, India, and Brazil. These economies account for approximately 60 percent of world GDP and 50 percent of the world’s population; they represent a mix of advanced and emerging economies as well as very different labor markets and demographic conditions. The indicators affecting GDP and employment in each country are described below, along with our projections for how online talent platforms could increase GDP and employment by 2025—all of which are based on conservative assumptions.

Advanced economies are environments that are ripe for online talent platforms to take off. They have more sophisticated and extensive digital infrastructure as well as higher Internet penetration, which creates conditions for greater impact. They also have more educated and productive labor forces overall, so the output that can be captured by raising employment or enabling better matches between workers and jobs is higher. Talent platforms are expanding into emerging economies as well. But these countries are starting with lower levels of education, output per worker, and wages as well as lower Internet usage (although mobile usage in particular is rising rapidly). These factors tend to dampen the potential of online talent platforms to raise GDP and employment. However, for many countries, these factors are more than offset by the larger opportunity for emerging regions to shift people out of informal employment and into formal work.

THE UNITED STATES

The United States stands to gain significant economic benefits from online talent platforms—in fact, it is near the top of the list of advanced economies in terms of potential impact. This may seem surprising, given that the US economy is starting from a position of relative strength, but there is substantial room to make its job market and talent pipeline more efficient.

The United States has a dynamic labor market but declining participation

The first crucial variable we examine is the size of the labor force. Like most advanced economies, the United States has an aging population. But it faces milder headwinds from this demographic shift than many peer economies. Its working-age population has continued to expand by 1.1 percent annually since 1980, far more than the rate of 0.4 percent in the United Kingdom, 0.2 percent in Germany, and 0.1 percent in Japan during the same period. Furthermore, the US working-age population will continue expanding through 2025, although growth will slow to a modest 0.2 percent. By contrast, the working-age population has already begun to shrink in Germany and Japan, a trend that will continue.

Despite relatively favorable demographics, a significant share of the 202 million working-age adults in the United States is economically underutilized.2 Some 77 million (or 38 percent) are unemployed, inactive, or working only part-time (Exhibit C1). Individuals who have attained at least four-year college degrees make up approximately 18 percent of this group, representing a tremendous pool of human capital. In addition, the US labor force participation rate has declined to almost a four-decade low, dropping below the rate in other advanced economies. In the wake of the Great Recession, many young people remained in school, people near the end of their careers were forced to retire earlier than planned, and discouraged workers stopping looking altogether. But declining labor force participation also reflects a longer-term trend: the rate for working-age men has been steadily eroding since 1980. The ranks of working women grew until the early 2000s, but the trend has since reversed, with women’s participation rates declining to the same level as in 1986. Today only two-thirds of US women work—a smaller share than in Scandinavia (around 75 percent) or even Germany (73 percent).

The US unemployment rate reached a peak of 9.9 percent in the fourth quarter of 2009 but has fallen to 5.5 percent as of May 2015. Across all age groups and education levels, however, unemployment still remains above pre-crisis levels. Unemployment is particularly high among young people from ages 15 to 24 (at 12.6 percent), and it is lowest among those over age 55. The unemployment rate for individuals with a college degree or more is just 2.9 percent, compared to 8.6 percent for people with less than a high school degree. In addition, around one out of every four unemployed Americans has been out of work for over a year, which increases the difficulty of reentering the workforce.

The US labor market has always been relatively dynamic, with a high share of workers changing jobs each year. This is healthy, as it enables young people to enter the workforce and reflects people moving around in their careers. However, labor market fluidity has been declining over the long term, with fewer people making a change each year. Job changes are positively correlated with economic growth and rising wages, which makes the downward trend worrisome. In parallel, fewer people are moving to new locations. From 1950 through 1990, one in five individuals moved in the United States each year, and roughly half of those were moves across county or state lines. Since 1990, however, that rate has fallen by half; today only one in ten Americans moves in a given year (Exhibit C2). Despite these trends, the United States still has one of the most fluid labor markets in the world on these two dimensions. One out of every four US workers has gotten a new job in the past year, and 11.5 percent of the population moved geographically.

Microeconomic survey evidence suggests that there is significant potential for online talent platforms to speed job searches and enable people to find jobs that are a better fit. In a 2014 survey by Manpower, 32 percent of US employers reported difficulties finding the right talent. Among the occupations that were most difficult to fill were positions in the skilled trades, drivers, and administrative support roles. At the same time, a 2014 survey of LinkedIn members finds that 36 percent of US workers feel overqualified for their current jobs. In addition, 35 percent of part-time workers report that they would like to work more hours for a proportional pay increase.

Technology can play a large role in making the labor market more efficient. Overall, some 85 percent of Americans use the Internet, and US companies have developed most of the world’s largest online talent platforms. By the end of 2014, LinkedIn, for instance, had 115 million US members, which is equivalent to 73 percent of the country’s workforce. The ride-sharing service Uber, launched in the summer of 2012, had 160,000 drivers in the United States by the end of 2014, meaning that on average, seven new active drivers were added every hour during this period. Its robust usage of the Internet, social media, and online talent platforms positions the United States to make full use of these tools in the job market.

By 2025, online talent platforms could raise US GDP by 2.3 percent

If the United States makes the most of online talent platforms, we estimate that they could add 2.3 percent (or $513 billion) to annual GDP by 2025. They could also increase employment by 2.7 percent (4.1 million full-time-equivalent positions), while nearly 41 million people could benefit in various ways (Exhibit C3).

The largest GDP impact comes from drawing inactive adults (including stay-at-home mothers, newly retired people, and students) into the workforce and increasing the hours worked by part-timers—whether through helping them find permanent full-time employment or connecting them with flexible freelance assignments. Increased participation accounts for roughly half of the expected impact in the United States, raising GDP by 1.1 percent and benefiting some 12 million people.

US workers are more likely to leave jobs and seek new employment than those in other countries, and employers are more likely to make new hires and undertake layoffs when needed. This means that conditions are in place for online talent platforms to have a large impact through cutting job search time and filling vacancies more quickly, which reduces the number of people who are unemployed at any given time. This effect raises GDP by 0.6 percent by 2025, increasing employment by 1.5 million full-time-equivalent positions and benefiting nearly 23 million individuals.

Since the US workforce is well educated (42 percent of adults have tertiary degrees), creating better matches between workers and jobs can have a significant productivity impact. This would raise GDP by 0.4 percent and benefit some five million individuals.

Our estimate of the economic potential of online talent platforms in the United States is conservative. As a leader in high-tech innovation and adoption of new Internet-based business models and technologies, the United States is uniquely positioned to harness the capabilities of online talent platforms to solve some of its persistent problems with job matching and skills development.

THE UNITED KINGDOM

The United Kingdom stands to enjoy the second-largest potential economic benefit from online talent platforms among the advanced economies we analyzed. Much of this comes from improving opportunities for the substantial population of part-time workers. The UK labor market is relatively fluid, and much of the country’s population is comfortable using online tools—two favorable conditions for talent platforms to have an impact.

UK labor force participation is strong, but the country’s job market is becoming less fluid

Like the United States, the United Kingdom will continue to see positive growth in the size of its labor force through 2025, due in part to immigration. The working-age population has grown at 0.4 percent annually since 1965 and is projected to grow at an annual rate of 0.2 percent through 2025.

Yet a large and growing share of the population is underutilized. More than 40 percent of the working-age population is unemployed, inactive, or working only part-time. This translates into 17 million people (Exhibit C4). Labor force participation among working-age men has declined by five percentage points since 1990. However, the growing ranks of working women have held the overall participation rate steady at around 77 percent. About half of women and 30 percent of men who did not complete secondary school do not participate in the workforce.

Moreover, part-time employment in the United Kingdom is pervasive. In 2014, more than 10 percent of male workers and more than 40 percent of female workers worked less than full-time. An even larger share of young people work part-time: some 30 percent of young male workers and nearly half of young female workers are part-timers. Overall, some 13 percent of British people of working age work part-time—more than twice the share in the United States. According to a LinkedIn survey, more than a quarter of British parttimers would like to work additional hours for a proportional pay increase. There is a large opportunity to help this population find full-time positions or add hours through platforms for freelance services.

The overall unemployment rate in the United Kingdom was 5.4 percent in 2007, peaked at 9.2 percent at the end of 2011, and now stands at 6.3 percent. As in the United States and many other countries, the unemployment rate is much higher among youth and those with little education. The youth unemployment rate rose from just under 14 percent before the recession to more than 21 percent at the peak in 2011; it still stood at 15.2 percent at the end of the first quarter of 2015. The jobless rate for those who did not complete secondary school remained at 11.8 percent at the end of 2014, far above the 2.8 percent rate for college graduates. Moreover, 36 percent of the unemployed have been out of work for more than a year.

Labor market fluidity is relatively strong but declining in the United Kingdom (Exhibit C5). The share of the population that moves across regions has remained relatively stable since 1980, at roughly 3.2 percent per year. This is similar to the share of the US population that moves across county or state boundaries (4 percent). However, the United Kingdom has seen a sharp decline in people changing jobs in a given year. In 2000, one out of every five individuals had his or her job for less than a year, but that share had dropped to one out of eight by 2013. But while the share of workers whose current job tenure is less than one year is much lower than in the United States, it is still higher than in Germany, France, Italy, and Japan.

The United Kingdom has a skilled labor force. More than 40 percent of its working-age population has a tertiary degree, and the share is nearly 50 percent among ages 25 to 34. This sets the stage for online talent platforms to create significant impact through better matches and faster matches.

As in other countries, there is evidence of a skills mismatch in the United Kingdom. While its system has produced many graduates with tertiary degrees, nearly 50 percent of recent university graduates and 35 percent of non-recent university graduates work in jobs that do not require their degrees, according to the Office for National Statistics. Fourteen percent of employers surveyed by Manpower reported difficulties in finding the right talent, while 39 percent of UK members surveyed by LinkedIn felt overqualified for their current roles. There is a clear opportunity for better signaling regarding the skills and occupations that are in demand.

Internet penetration, which stands at 89 percent today, is projected to hit 97 percent by 2025. Online talent platforms are taking hold rapidly in the United Kingdom, which has the highest adoption rate in Europe. By the end of 2014, LinkedIn had more than 18 million UK members, which is equivalent to one-quarter of the working-age population.

By 2025, online talent platforms could raise the United Kingdom’s GDP by 2.0 percent

We calculate that online talent platforms could boost UK GDP by 2.0 percent ($68 billion) annually in a decade’s time. They could increase employment by 2.5 percent (adding 800,000 full-time-equivalent positions), while benefiting nearly seven million people through faster job searches, better matches, and new opportunities to participate in the workforce (Exhibit C6). The impact in the United Kingdom is the third-largest among the seven focus countries relative to GDP.

As in many other countries, the largest effect stems from increasing participation and hours worked. A quarter of UK workers are part-time, and some 27 percent of those surveyed would like to work more hours.4 Online talent platforms can provide new opportunities to do so, while also mobilizing the inactive population. This aspect accounts for a GDP boost of 0.9 percent ($31 billion). It can also create 500,000 full-time-equivalent positions, boosting employment by 1.4 percent and benefiting up to 2.4 million individuals.

The second-largest impact comes from reducing job search time through faster matches. The average duration of unemployment is 11 months in the United Kingdom, compared to 8.5 months in the United States. Reducing this by 13 percent through more efficient job searches could add 0.5 percent to annual GDP, raising employment by 1.0 percent and benefiting three million people. Finally, the productivity increase associated with putting a well-educated labor force into better matches boosts GDP by 0.4 percent.

GERMANY

We find that online talent platforms will likely have a more modest impact in Germany than in the United States or the United Kingdom. Germany already has a low unemployment rate and a relatively high labor force participation rate, although many women work part-time. This reduces the potential for raising participation and lowering unemployment—the two largest impacts associated with these platforms in advanced economies. In addition, the German labor market is not very fluid in relative terms, and it has a lower rate of online talent platform adoption to date than the United States or the United Kingdom. All of these factors limit the potential impact.

Germany has rising labor force participation and low unemployment, but many part-time workers

Germany is already feeling the effects of the global aging trend; its working-age population peaked in 2000 and has been declining ever since. The old-age dependency ratio (the population over the age of 65 divided by those ages 15 to 64) is 32 percent, the third-highest in the world after Japan and Italy. This means that there are only three people of working age to support each elderly person in society—and that ratio is growing. The pressure of an aging population makes labor force participation and employment vital for sustaining economic growth.

In contrast to most advanced economies, Germany has seen its labor force participation rate increase over time. From 1990 to 2014, the rate for men has increased just slightly to 83 percent, while the rate for women climbed sharply, from 58 percent to 73 percent (Exhibit C7). As a result, Germany’s overall participation rate has risen by 8 percent during a period that spanned the Great Recession. The rate held steady due in part to the worksharing scheme implemented by the government to avoid mass layoffs. As a result, only 21 percent of Germany’s working-age population is not in the labor force (compared to 28 percent in the United States).

Germany’s unemployment rate is among the lowest in our focus countries across all age groups. Although young people are more likely to be unemployed, Germany’s youth unemployment rate of 7.7 percent (as of 2014) is much lower than the levels seen throughout most of Europe. The proportion of German youth who are unemployed and also out of education or training is only about 10 percent. This reflects the tight labor market created by aging pressures but also an education system that does an effective job of connecting apprentices with opportunities and careers.

Despite relatively high rates of labor force participation and a low unemployment rate, Germany has an opportunity to better utilize its human capital. Thirteen percent of the working-age population works only part-time, on par with 12 percent in the United Kingdom and more than twice the share in the United States (6 percent). There is a significant gender gap in this indicator: while less than 10 percent of employed German men work parttime, 45 percent of employed German women do so. Because of prevalence of part-time employment, some 40 percent of Germany’s working-age population is economically underutilized, about the same share as the United States. This translates into 21 million people who could work more hours (see Exhibit C7).

As in other countries, many Germans do not feel their current jobs fully utilize their skills and potential. In a recent LinkedIn survey, 40 percent of German respondents said they felt overqualified for their current jobs. The OECD finds that nearly 20 percent of German employees think that their work environment is stressful, compared with less than 10 percent in the Netherlands and Denmark. Germany has a highly educated and skilled labor force, so this suggests a real opportunity for online talent platforms to boost productivity and wages by connecting people to the right jobs.

But relatively low labor market fluidity may limit the ability of online talent platforms to tackle these issues (Exhibit C8). Only 6.5 percent of the population moves within the same state each year—well below the 11.5 percent of Americans who move (although interstate migration rates are very similar, with 1.9 percent of the German population making interstate moves each year, compared to 1.6 percent of Americans). Just one out of every seven Germans changes jobs every year, much lower than in the United States or the United Kingdom. Lack of turnover in the job market may reflect a lack of information about new job opportunities (which online talent platforms could address), but it may also reflect cultural preferences.

To date, workers in Germany have been slower than those in the United States or United Kingdom to use online talent platforms. LinkedIn has only four million members in Germany, while Xing has about 11 million users. Combining the two (without removing duplicates) would yield 27 percent of the working-age population—compared to 73 percent of the US working-age population currently on LinkedIn alone. Our interviews with experts suggest that there is a social reluctance to networking for new work opportunities in a digital forum. And, since a significant share of young people are already connected with work opportunities through apprentice programs that combine work and schooling, they have less need and motivation to use online platforms.

By 2025, online talent platforms could boost Germany’s GDP by 1.7 percent

We find that online talent platforms could boost Germany’s GDP by 1.7 percent ($70 billion) annually in a decade’s time. They could increase employment by 1.9 percent (creating 700,000 full-time-equivalent positions) while benefiting nearly seven million Germans through shorter job searches, better job matches, and new opportunities to participate and add hours (Exhibit C9).

The largest impact would come from enabling part-time workers to increase their hours. This is significant, since one-quarter of the labor force works only part-time, and some 23 percent would like to work more hours. This effect could boost GDP by 0.8 percent, or $33 billion annually, while benefiting three million people and creating 500,000 fulltime- equivalent positions. The second-largest impact comes from boosting productivity by connecting individuals with jobs that are a better fit. This could generate a 0.5 percent increase in annual GDP (or $15 billion) while benefiting more than one million individuals. Given the lower rate of job turnover, the impact from reducing search time and enabling new matches is lower in Germany than in other countries (0.4 percent of GDP, compared to 0.6 percent in the United Kingdom and 0.7 percent in the United States).

JAPAN

Among the advanced economies we analyzed, Japan has the lowest potential for economic impact from online talent platforms due to its already-low unemployment rate and its rigid labor market.

Japan has an aging labor force, pervasive irregular employment, and a large share of women working part-time

Japan is the country at the leading edge of the global aging trend. Its working-age population peaked in 1995 and has been shrinking by 0.7 percent annually ever since. The country’s old-age dependency ratio (the number of people over the age of 65 compared to those of working age) is 41 percent, the highest in the world.

Labor force participation is a vital engine for economic growth in the face of these demographic headwinds. However, some 37 million people, or nearly 50 percent of Japan’s working-age population, are inactive, unemployed, or working only part-time (Exhibit C10).

The biggest factor behind this underutilization is the prevalence of part-time employment. Some 19 percent of the working-age population works only part-time, compared to 12 percent in Germany and just 6 percent in the United States. This is a particularly issue among Japanese women. Median earnings are 27 percent lower for women than for men, a much larger gap than in other advanced economies such as the United States and the United Kingdom (18 percent), Germany (17 percent), or Sweden (15 percent). This is due in part to tax incentives that favor single-income households, leading many women to opt for part-time work that keeps them just under the eligible threshold.6 Closing the gender gap in the workforce has been high on the Japanese policy agenda, since mobilizing this highly educated talent pool could provide a major economic boost to an aging society.

The labor force participation rate for Japanese men is among the highest in the world and has remained stable for many years at around 85 percent. For women, it has been climbing, from 57 percent in 1990 to 65 percent in 2014 (although many women work part-time, as noted above). As a result, the overall participation rate has risen by 5 percent, compared with a 4 percent decline in US during the same period. Despite the fact that the participation rate among working-age women has been improving, it remains lower than in Germany (72 percent) and China (70 percent).

While labor force participation rates have been rising, Japan’s unemployment rate has steadily declined, from 5.4 percent in 2000 to 3.5 percent as of April 2015. As the population ages, Japan is nearing full employment. Although the youth unemployment rate is higher than that of the overall working-age population, it is among the lowest in the world at 6.3 percent at the end of 2014.

Low unemployment masks the quality of many jobs, however. An increasing share are part-time and temporary positions. Japan has attempted to give companies more flexibility by allowing them to shift away from the lifetime employment model and begin hiring “nonregular” (temporary) workers, or haken. By 2014, more than one-third of workers were covered by these arrangements (Exhibit C11). Unlike regular full-time employees, these temporary workers have limited legal protections and earn no pensions. This trend is continuing to grow, and it has created a two-tiered workforce.

Surveys of Japanese workers suggest that many feel overqualified for their jobs. Coupled with a highly skilled labor force, this could create a big opportunity for online talent platforms to exert impact. According to a LinkedIn survey, 48 percent of workers feel overqualified for their current jobs, the highest such response rate among the focus countries. Educational attainment in Japan is very high: more than 40 percent of the labor force has a tertiary degree (a share that rises to 58 percent among 25- to 34-year-olds). Helping skilled workers find jobs that are a better fit can have a substantial impact on boosting productivity and wages.

But the potential benefits of online talent platforms in Japan are constrained by its rigid labor market. As mentioned above, Japanese companies historically offered a lifetime employment system that emphasized seniority. Today the legal strictures around lifetime employment have mostly been lifted, making the labor market more flexible in theory. But in practice, downsizing is viewed in a strongly negative light, making it difficult for firms to pare back where necessary.

Workers, too, tend to be reluctant to advance their careers by moving from company to company. Both geographic mobility and the likelihood of changing jobs have barely shifted over the years. The share of the population that moves across prefectures and within prefectures each year has slightly declined since 1960, and the share with less than one year of job tenure has remained virtually constant since 2000 (Exhibit C12). However, 1.9 percent of the population moves long distances between prefectures each year, on par with the share in Germany and slightly higher than in the United States (1.6 percent). But the rate of job turnover is very low in Japan. Only one out of 20 Japanese workers has been in his or her current job for a year or less, compared to one out of five Americans and one out of eight Germans. This relative stasis limits the impact online talent platforms can create through better matching.

Another potential barrier is the relatively slow adoption of talent platforms by the Japanese. LinkedIn has only 1.3 million members in Japan, out of a labor force of 65 million people (2 percent). In contrast, 35 percent of the German labor force is on either LinkedIn or Xing.8 Despite Japan’s excellent digital infrastructure, there are limiting cultural factors, including an aversion to publicly posting personal information that could be construed as bragging or linking to one’s boss. Career advancement is traditionally associated with rising through the ranks within the same company, which reduces the incentives to use talent platforms.

By 2025, online talent platforms could raise Japan’s GDP by 1.5 percent

Our projections show that in a decade’s time, online talent platforms could add 1.5 percent ($77 billion) to Japan’s annual GDP and raise employment by 1.5 percent (creating 900,000 full-time-equivalent positions). In addition, they could improve work outcomes for approximately eight million Japanese through shorter job searches, better matches, and new flexible working options (Exhibit C13).

The largest impact comes from higher participation, which could add 0.7 percent to annual GDP while generating 700,000 full-time-equivalent positions and benefiting three million individuals. The impact is smaller than in other advanced economies since cultural barriers discourage many women from working full-time, and we assume online talent platforms do not affect these. However, they can provide new types of flexible working arrangements that may appeal to stay-at-home parents and the recently retired; increasing the number of hours women and seniors work could boost GDP. The second-largest impact comes from higher productivity, which can increase GDP by 0.4 percent and connect some two million individuals with jobs that are a better fit. Since Japan already has very low unemployment and because few people switch jobs, the impact from accelerating job search time is limited. But Japan does have potential for significant impact from improving the fit between workers and jobs, which can raise labor force productivity—a particularly important benefit given Japan’s aging workforce.

BRAZIL

Among the seven focus economies in our analysis, we found the largest potential impact in Brazil. A number of persistent labor market problems could be addressed by online talent platforms, and the population is known for enthusiastically adopting social networking tools.

Brazil has a large, fluid labor force, but many people work in the informal sector

Brazil has enjoyed decades of robust population growth, although that trend is gradually ending as the population ages. In the next decade, the working-age population is projected to expand by 0.7 percent annually, less than half of the growth rate from 2000 to 2010. While the working-age population has been growing, more Brazilian women have been entering the labor force. The labor force participation rate among Brazilian men has remained high and relatively steady at around 85 percent for years, but women’s participation rose from 47.6 percent in 1990 to 65 percent in 2013.

However, among a working-age population of 139 million, around 38 percent are inactive, unemployed, or working part-time. This translates into some 53 million people who are economically underutilized (Exhibit C14). The official unemployment rate remains relatively low, particularly in light of the nation’s recent economic slowdown. It stood at about 10 percent before 2004, after which it steadily declined to 5.0 percent at the end of 2014. The job market has tightened for various reasons, including a shift of labor from tradable sectors to more labor-intensive, non-tradable sectors and the pressures of aging. However, youth unemployment, which stood at 15 percent at the end of 2014, is an urgent issue. Some 20 percent of Brazil’s young people are not in education, employment, or training.

Brazil also has a massive informal economy, which accounts for 42 percent of nonagricultural employment and 37 percent of total GDP. Informal employment accounts for 46 percent of nonagricultural employment among women, compared with 39 percent for men. Past MGI research estimated that the informal sector accounts for more than 40 percent of Brazil’s productivity gap with the United States.9 The ability of online talent platforms to connect individuals with opportunities in the formal sector can make a dent in this disparity.

Brazil has a fluid labor market, with a high rate of people moving between jobs, creating the right conditions for online talent platforms to generate GDP impact (Exhibit C15). One out of five workers have less than one year of job tenure in his or her current role, a similar share as the United States and the second-highest across our seven focus countries. In addition, only 15 percent of the unemployed in Brazil have been out of work for more than a year.

Moreover, Brazil is rapidly becoming a digital nation; its online population has quadrupled over the past decade. Brazilians are avid users of online social networks. Facebook has some 65 million users in Brazil, which is more than 30 percent of the population—an extraordinarily high share given that just over half of the population has Internet access. McKinsey’s iConsumer survey showed that social network use is intense across all income segments, well ahead of use in other countries.10 LinkedIn’s membership in Brazil grew from 325 people at the end of 2003 to 2.1 million at the end of 2014—the fastest growth rate among our seven focus countries.

However, Brazil is facing a serious talent shortage. This requires increased investment in education—an issue that is beyond the scope of what talent platforms can address. Only 12 percent of the population has a tertiary degree, and the average educational attainment is 7.2 years of schooling (slightly below the comparable figure in China). Manpower’s 2014 survey found that almost two-thirds of Brazilian employers say it is hard to fill openings. LinkedIn’s member survey found that only 27 percent of respondents in Brazil felt overqualified for their current roles, far below the proportion in other countries.

By 2025, online talent platforms could raise Brazil’s GDP by 2.4 percent

Of the seven countries we analyzed in detail, we found the largest potential for economic impact as measured by share of GDP in Brazil. Our projections show that by 2025, online talent platforms could add 2.4 percent ($69 billion) to annual GDP while increasing employment by 2.6 percent (adding 2.7 million full-time-equivalent positions). They could improve work outcomes for some 21 million people through shorter job searches, better matches between workers and jobs, and increasing participation (Exhibit C16).

The largest impact comes from cutting job search time to reduce unemployment. Because of the high rate of job changes in Brazil, reducing the amount of time that people spend between jobs can have a powerful effect. There is potential for online talent platforms to lower the equilibrium rate of unemployment rate by 1.2 percentage points, the largest reduction among our seven focus countries. This can increase annual GDP by 0.9 percent while creating 1.3 million full-time-equivalent positions and benefiting 12 million Brazilians. Boosting participation—by creating flexible opportunities for freelance work that can appeal to women or by providing young people with the tools to find work—creates the secondlargest impact. This could raise GDP by 0.8 percent annually and create 1.4 million full-timeequivalent positions. Moving even a small fraction of workers from the informal economy into formal roles can boost productivity and raise GDP by 0.7 percent annually. We estimate that this could affect up to two million individuals in the shadow economy.

CHINA

Perhaps surprisingly, China appears likely to capture the lowest economic impact from online talent platforms as a share of GDP among our seven focus countries. However, this is offset by the sheer number of people—some 92 million in all—who could benefit from these tools in various ways. The relatively limited economic potential stems from China’s alreadyhigh rate of labor force participation and low rate of unemployment, combined with low overall wage levels. China’s laws on residency also limit the impact by reducing the ability of individuals to move between cities in search of better employment opportunities.

China has low unemployment and high labor force participation, although its workforce is aging

For decades, China benefited from an expansion of its labor force, but now it faces serious demographic pressures due to aging. The nation is already feeling the effects of a shrinking labor pool; coastal factories, for example, report difficulties finding workers. This issue increases the importance of labor force participation to sustain economic growth. Some 27 percent of the working-age population is inactive or unemployed.11 This translates into some 266 million people (Exhibit C17). The labor force participation rate among Chinese men, which stood at 88.9 percent in 1990, declined to 84 percent in 2013. For women, it declined from 84.2 percent in 1990 to 77.3 percent. Despite this erosion, both male and female labor force participation rates are relatively high compared to rates in other countries. But this shift is one reason that China’s GDP growth has been slowing.

China’s unemployment rate is low by international comparison and has held relatively steady, fluctuating between 3.8 percent and 4.6 percent from 2000 to 2013. At the end of 2014, the official unemployment rate was reported at 4.1 percent. Although youth unemployment is higher (10 percent as of the end of 2013), it is much lower than the rate in many other countries.12 The aging phenomenon is keeping China’s labor market tight, which limits the ability of online talent platforms to create impact through faster job searches.

In addition, China, unlike other emerging markets, has a more modestly sized informal economy (at about 12 percent of GDP). However, with some 37 percent of non-agricultural employment in the shadow economy, there is potential to boost GDP by moving these workers into more productive roles in the formal economy.

China also faces a major skills shortage. The country could confront a shortfall of 24 million skilled workers by 2020 (eight million university graduates and 16 million with vocational training); this could cost the economy some $250 billion (around 2.3 percent of GDP).13 The average educational attainment is 7.5 years of schooling, and according to the OECD, only 5 percent of adults between the ages of 25 to 64 have tertiary degrees (although 18 percent of Chinese people between the ages of 25 and 34 do). This limits the potential impact of using talent platforms to raise productivity by making better matches.

China’s urban residents have embraced the Internet, but rural areas lag far behind in terms of digital infrastructure. The nation’s overall Internet penetration rate remains relatively low at 47 percent. LinkedIn has eight million members in China, while Viadeo has about five million users after acquiring the local professional network Tianji. Upwork has about 62,000 freelancers in China. These numbers combine to represent less than 2 percent of the country’s working-age population. However, our interviews with experts suggest that there is growing willingness and motivation, particularly among professionals and youth, to use online talent platforms to expand career options.

By 2025, online talent platforms could raise China’s GDP by 1.5 percent

Among our seven focus countries, China is likely to capture the lowest economic impact relative to GDP. By 2025, we calculate that online talent platforms could raise GDP by 1.5 percent ($485 billion) annually while increasing employment by 1.7 percent (creating 12.9 million full-time-equivalent positions). They could benefit approximately 92 million individuals in various ways (Exhibit C18). The largest source of impact is higher participation, which could boost GDP by 0.7 percent annually. Providing part-time or contingent work opportunities could benefit some 34 million individuals; this becomes an increasingly important effect as the demand for work flexibility increases in tandem with household income. The second-largest effect comes from reducing unemployment, and this is somewhat modest since China’s unemployment rate is already low. Additionally, China’s hukou (or household registration) system and its uneven regional development hinder worker mobility and cause large geographic mismatches that online platforms cannot mitigate. Nevertheless, reducing unemployment would increase GDP by 0.5 percent while creating nearly five million full-time-equivalent positions and helping some 40 million individuals find jobs more quickly.

The impact from increased productivity is also quite limited, at only 0.3 percent of GDP annually, due to the population’s low educational attainment and low wages. However, nearly 17 million individuals can become more productive by using online talent platforms to find jobs that better fit their skills or allow them to move from the shadow economy to the formal sector. Although a LinkedIn survey found that some 27 percent of Chinese professionals felt overqualified for their jobs, their low wages limit the scale of impact through better matches.

In the future, China could reap more benefits from online talent platforms if the hukou system is reformed to improve access to services for migrant workers and their families. This would remove some of the barriers impeding geographic mobility and labor market fluidity, allowing workers to pursue better job opportunities. China has also been investing heavily in education, including at the university level. Today many Chinese college graduates are not landing the jobs they expected, while employers complain that they do not have the right skills. China could benefit from harnessing the data and insights gathered by online talent platforms to solve this mismatch and build the skills that the economy truly needs. China could also increase the platforms’ potential impact by continuing to build the necessary digital infrastructure to widen access to the Internet.

INDIA

India could be poised to capture relatively high GDP impact from online talent platforms. The country has low labor force participation, high unemployment, and a large informal economy—all factors that talent platforms can help to address. However, low Internet penetration and cultural barriers that discourage women from working constrain this impact to some degree.

India has a massive and growing labor force, but low participation among women and a large informal economy

India’s labor force has been rapidly expanding for the past five decades, and it will continue to outpace growth in most other countries in the decades ahead. With 30 percent of its vast working-age population under the age of 24, India could reap a major demographic dividend. By 2030, it will have the largest working-age population in the world at one billion strong.

But while the population has been growing, India’s abundant human capital remains seriously underutilized. Some 46 percent of the working-age population is inactive or unemployed, the highest such share across our seven focus countries.14 This translates into some 380 million people (Exhibit C19). Labor force participation among working-age men declined from 87.1 percent in 1990 to 82.5 percent in 2013. The participation rate for women is among the lowest in the world, and it slid from 36.9 percent in 1990 to 28.5 percent in 2013. Overall participation dropped by 7 percent over this period, while the gender gap stretched to 54 percent. This represents a major drag on the economy—but also a large opportunity for growth if India can find a way to mobilize more of its human capital. However, this will depend on making a major cultural shift, which is beyond the scope of this research.

India’s unemployment rate has remained stable at around 4.5 percent since 2000. The labor-intensive agriculture sector still employs nearly half of all workers. Youth unemployment has been fluctuating between 9 and 11 percent, a relatively low level in international terms but one that masks the number of Indian youth who have dropped out of the labor force altogether. More than 25 percent of India’s young people are not in education, employment, or training. Many have had little opportunity to attend school and acquire the skills necessary to find formal jobs. According to a McKinsey survey, 53 percent of Indian employers said that a lack of skills is a common reason for entry-level vacancies.

India also has an enormous informal economy, which accounts for 84 percent of nonagricultural employment and 21 percent of total GDP (Exhibit C20). A web of restrictive labor market regulations is a major factor behind this degree of informality, creating incentives for many businesses to stay in the shadow economy and creating disincentives for companies to hire.16 Since there is a substantial productivity gap between the informal and formal sectors, this issue erodes India’s ability to raise living standards for the country as a whole.

India also has a less skilled workforce than our other focus countries. Only 8 percent of the population has a tertiary degree, for example, and only 42 percent completed secondary school. The average educational attainment is 4.4 years of schooling (compared with 7.5 years in China). While significant strides have been made in expanding primary education over the past decade, nearly 50 percent of adults from ages 25 to 54—or some 200 million people—have had no education at all. India has been expanding vocational education, and some 44 million workers have received formal or informal training. Yet this is only 9 percent of the labor force.17 Almost two-thirds of Indian employers in Manpower’s annual survey reported difficulties in hiring the right talent. This calls for increased and sustained investment in education, but the issue is beyond the scope of our research.

Access to the Internet is limited to only 15 percent of the population. Despite this, online talent platforms are growing rapidly in India. LinkedIn has more than 30 million users, the second-largest membership population in absolute numbers outside the United States. On the platform Upwork, Indian freelancers account for more income than those in any other country. Still, India must expand access to the Internet if it is to capture the full potential of online talent platforms.

By 2025, online talent platforms could raise India’s GDP by 1.9 percent

Online talent platforms could have a relatively high impact in India by 2025, adding 1.9 percent ($222 billion) to annual GDP and boosting employment by 2.2 percent (creating 11.3 million full-time-equivalent positions). Nearly 77 million individuals could benefit in various ways, including shorter job searches, wider job options that result in better matches, and new ways to obtain contingent work (Exhibit C21).

The largest impact in India stems from higher participation, which could add 1.2 percent to GDP. Online platforms can create huge opportunities to connect women to flexible arrangements and remote work opportunities from around the globe. This could generate 10 million full-time-equivalent positions and benefit 42 million individuals by 2025. Higher productivity generates the second-largest impact, at 0.5 percent of GDP, mainly by reducing the extent of the informal sector but also by helping people find jobs that better suit their skills. This could add 0.3 percent, or $33 billion, to annual GDP while making 22 million individuals more productive. Because India has a low rate of formal unemployment, the impact of faster matches is very limited, at 0.2 percent of GDP; this is the lowest such impact among our seven focus countries. Yet reducing job search times can still have the effect of creating 1.4 million full-time-equivalent positions and helping 13 million unemployed people find jobs faster.

This is a conservative estimate, however. India could benefit in a more significant way from online talent platforms if it continues to widen access to the Internet and makes progress in boosting educational attainment.