MGI Research

Help wanted: The future of work in advanced economies

| Report

Some 40 million workers across advanced economies are unemployed. With many nations still facing weak demand—and the risk of renewed recession—hiring has been restrained. Yet there are also long-range forces at play that will make it more difficult for advanced economies to return to pre-recession levels of employment in the years to come. As a result, we see that the current disequilibrium in many national labor markets will not be solved solely with measures that worked well in decades past.

To help develop appropriate new responses, MGI examines five trends that are influencing employment levels and shaping how work is done and jobs are created:

1. Technology and the changing nature of work

Over the past three decades, technology has altered how production and routine transaction work is done, substituting machines for assembly-line workers and ATMs for bank tellers, for example. The next frontier is interaction work, the fastest-growing employment category. This includes employees performing low-skill jobs that must be done face-to-face (for example, day-care work), as well as the managers and professionals who are the costliest resources. One way to redesign high-skill interaction work is disaggregation, or reassigning routine tasks to lower-skill employees. Additionally, with broadband connections, cloud computing, and other technology, many interaction jobs can be conducted “anytime, anywhere”—from the road, from a facility in a lower-cost city, or from an employee’s home.

Exhibit 1
Most job growth in mature economies involves complex interactions, not routine production or transaction work.
the future of work in advanced economies

2. Skill mismatches

There are growing mismatches between the needs of employers and skills of the workforce. In 2011, when US unemployment exceeded 9 percent, an MGI survey found that 30 percent of US companies had positions open for more than six months that they could not fill. In Japan, 80 percent of companies reported similar gaps. Despite rising educational attainment across advanced economies, by 2020, the United States may have 1.5 million too few workers with college or graduate degrees and nearly 6 million too many who have not completed high school; France could be short 2.2 million baccalaureate holders and have 2.3 million too many workers who lack that degree.

Exhibit 2
Jobs in advanced economies are increasingly for high-skill workers.
the future of work in advanced economies

3. Geographic mismatches

Geographic mismatches also are exacerbating the jobs problem: workers with desired skills may be in short supply where companies are hiring, while places with the highest unemployment may have little job creation. This geographic imbalance is occurring both across national borders and within them. Compared with the United States, the European Union has an even more challenging geographic matching problem, given the barriers of language and culture, and the different systems of professional certification that make it difficult to transport skills. Another dimension of the geographic mismatch is between mature economies and developing ones.

4. Untapped talent

Advanced economies have growing pools of underused talent: older workers, women, and youth. Workers older than 55 are highly experienced and can help companies reduce or avoid skill gaps—if they don’t retire. Many women have the education to fill the skill gap, but stay out of the workforce given poor access to child care or disincentives in tax policy. Finally, youth unemployment, which has risen sharply since the recession, remains a daunting challenge. Young people who leave school without the skills they need to be hired or who never land an entry-level job where they can acquire skills suffer lifelong earning handicaps and are more likely to require social services.

5. Disparity in income growth

The trends in job creation and employment described here have significant impact on incomes across advanced economies. Income growth for households at the bottom of the distribution has been low or even declining in many countries, which raises questions about aggregate demand, living standards, and social stability.

The result of these five trends is a jobs and employment challenge in advanced economies that extends beyond restoring jobs lost to recession—many of which will never return, even with robust economic recovery. The jobs that will be created will not look like those that have been lost and may not be easily filled by today’s unemployed. The fundamental challenge is to understand how the nature of work is changing and to prepare as many workers as possible for the jobs of the future.

The discussion paper offers some thoughts about what policy makers and business leaders in advanced economies might do to address these trends, and offers examples for each.

Options for policy makers

While governments must continue to pursue macro-economic growth strategies, they must also address other challenges to employment and job creation.

Enable growth in aggregate demand

Job creation depends on economic growth, so government measures to support aggregate demand (i.e., fiscal and monetary policies) and raise consumer and business confidence remain important. Other policies, such as worker training programs, will be ineffective if employers are not hiring.

Make raising worker skills a national priority

This means programs to improve critical thinking and skills in K-12 education; much higher secondary school completion rates; workforce training; and winning the global war for talent.

Unlock business-creating investment and innovation

Government can stimulate private sector job creation by promoting entrepreneurship and innovation, catalyzing investment in infrastructure, and streamlining business regulations that unintentionally impede business expansion.

Strategic postures for business:

We also see three strategic postures that companies can take in the face of these challenges.

Pursue global value chains

Companies will continue to go where the talent is abundant, or where the costs are low, as many have done in the past three decades. But this will require greater flexibility in coming years, since global supply chains are dynamic and the trade-offs in choosing the best locations are becoming more complex. Simple labor cost arbitrage may not be sufficient.

Address geographic mismatches

If workers don’t have the right skills or live in the right place, companies can use technologies (i.e., broadband and cloud computing) to bring the work to the workers.

Invest strategically in human capital

Instead of leaving it to government to transform education and training systems to meet their needs, more companies will make the strategic decision to take a direct role in creating the skilled workforces and talent pipelines they need. In some industries, the ability to fill talent gaps more effectively may become an important competitive advantage.