Short on Skills

Ever since the start of the Great Recession, the one word that has dominated economic reports from the developed world is ‘unemployment’. Millions have been laid off or prematurely retired, and rates of joblessness have reached levels not seen since the Great Depression. What has been ignored is the paradox that all over the world, and not just in the richer nations, millions of jobs have remained unfilled because of the lack of skilled workers. While this shortage highlights the challenge faced by countries being buffeted by the financial crisis, it also points to deeper problems.

Failure to find skilled workers will hobble the very productivity growth essential for societies burdened with ageing populations. The boosting of secondary and tertiary education and specialised training that is required to meet the skills gap requires time and investment. But with the exception of China, most governments are constrained by budget deficits, thus leaving mostly private enterprises to step up to the task.

All over the world, there is an acute shortage of welders and electricians, engineers, mechanics, machinists and IT specialists. Take the case of the US: some 13 million Americans are unemployed and 8 million more are in part-time jobs. Yet Labor Department data shows that since February, 3 million vacancies have remained unfilled. A recent ManpowerGroup survey found that 49 per cent of employers in the US are frustrated at not finding the required skills.

The survey found notable shortages in Asia-Pacific countries, too. “The number of companies in India reporting difficulty in filling vacancies is second only to Japan,” it noted. Although the shortages in India dropped from 67 per cent in the previous two years to 48 per cent in 2012, it could be due more to the economic downturn than any increase in the availability of skilled labour. A recent World Bank report noted: “The skill shortage has forced India’s exporting IT sector to raise wages by 15 per cent from 2003-06.”

The flip side of the coin is the growing burden of unskilled labour on governments. Within a decade, India could face a shortage of 13 million medium-skilled workers, a McKinsey study noted. Indeed, in India and other developing countries, there may be as many as 68 million low-skilled workers “trapped in subsistence agriculture or in urban poverty”. Although China is far ahead of India in creating skilled workers, the study said, an inadequate supply of highly educated workers could slow China’s climb to higher value-added industries. The ManpowerGroup survey found that worldwide, one-third of employers face a shortage of skills. The problem is more acute in developed economies that have achieved higher productivity through technological innovation. In the late 1970s, developed economies responded to the diminishing labour pool and growing global competition by employing labour-saving technology and outsourcing low-skilled work to countries with cheaper wages.

As businesses now struggle to recover and face popular backlash against the offshoring of jobs, automation and IT-enhanced solutions appear more attractive. The rising cost of labour in China has also prompted a rethink. Many US corporations have been bringing manufacturing back home, but are relying more on robots and automation — the kind of manufacturing that requires high-skilled workers. The fact that the US has fewer graduates in science and technology (14 per cent) compared to China (42 per cent), or Germany (28 per cent) accounts in part for the growing shortage of skilled labour. The US has benefited from a steady migration of skilled labour pool in meeting its needs. Seventeen per cent of workers in the technology field are immigrants. But there’s a growing clamour to restrict immigration.

China has been setting up new universities at the rate of one per month, but an ageing population may dampen its plans to develop a highly skilled workforce. India has a different set of problems — resources. The recent blackouts across northern and eastern India shine a light on the basic infrastructure challenges that lie ahead. Against this dark backdrop, doubts remain about India’s ability to follow through on plans to build 70 universities in a decade, to say nothing of concerns about the quality of education at these universities.

Growing unemployment and the burden of unskilled youth may nullify India’s demographic dividend, while China’s rapidly greying population could take away its current skills advantage.