Leaders in India’s information technology industry a decade ago came to a stark realization: They didn’t have enough skilled workers to keep pace with the growing demands of the Information Age. What to do?

FAST FOCUS

• By 2020, employers could face a shortage of up to 40 million highly skilled workers, or 13% of the global demand.

• In the United States, 10,000 baby boomers reach 65 every day, and many retire, taking with them valuable experience, skills and loyalty to their employers.

• Of employers surveyed in Japan, 81% said they were having difficulty recruiting the right talent.

They decided it was high time to get more involved in public education and training. They began shaping the curricula at engineering colleges and providing on-campus training to ensure students got the skills they needed. In short, says Anu Madgavkar, a senior researcher at McKinsey Global Institute, “the IT industry’s talent supply improved dramatically.”

The story, as recounted by Madgavkar, is instructive: All companies must adapt to the changes in the evolving global workplace, devising ways to produce more skilled labor, or pay the price in lost productivity and profits.

Over the past decade, but especially in recent years, McKinsey and other management consultants have been sticking their collective fingers in the global talent pool and finding it lukewarm to the touch. Indeed, they believe a critical skills gap already exists in many countries, a situation likely to worsen in the coming years if current trends persist. If industries and governments don’t intervene, there will be too few high-skill workers and not enough jobs for medium- to low-skill job seekers in just a decade.

It’s not a pretty picture.

High unemployment. Beset by financial crises, many countries are plagued with high unemployment, yet a third of employers worldwide say they cannot fill mission-critical positions. In the manufacturing sector alone, some 10 million manufacturing jobs are vacant because of a growing skills gap. In the long run, chronic unemployment could become the norm.

Skills Shortages. By 2020, employers could face a shortage of up to 40 million highly skilled workers, or 13% of the global demand for such workers. At the same time, analysts project that 140 million medium- and low-skill workers will not be able to find jobs, including nearly 60 million low-skill workers in India.

Aging Populations. The talent gap will be exacerbated by an inevitable event—old age. By 2030, McKinsey concludes, 360 million older people will have left the global labor market. Japan is the most striking example of the trend. According to a government report, nearly 32% of Japan’s projected population of 115 million will be 65 or older by 2030.

Education Shortfall. Education standards are insufficient and a major contributor to the talent gap—a point hammered home in repeated management surveys and studies. The issue is complicated, but clearly governments and employers need to work more closely with educators and young people to ensure that students develop the skills to succeed in the workplace.

Sustaining Growth. Looking inward, just to sustain economic growth, the United States must add 25 million workers to its talent base by 2030. Western Europe will need 45 million more workers. Even China, which supplies more than a quarter of the world’s work force, according to the McKinsey Global Institute, will face shortages. From 1980 to 2010, according to the institute, China’s non-farm labor force grew by 315 million to around 475 million and now accounts for 60% of the total labor force.

The Great Recession has knocked many countries to their knees, even the most prosperous. Across the globe, men and women of all ages are pounding the pavement looking for work. Many simply give up. Youth unemployment is fast approaching crisis proportions. In the United States, the jobless rate remains near 8%. Eurostat, the European Union’s statistics office, pegs unemployment in the 17 eurozone nations at nearly 19 million people, or 11.8% of the labor force. Spain, at 26.6%, and Greece, at 26%, have the highest unemployment rates in the eurozone. Those countries, along with Italy, Cyprus, and Portugal, remain in the throes of recession.

But even as the global economy improves, those without the skills needed for the jobs of the future will be left behind. Management experts say that finding a global solution to the skills gap is imperative if business is to remain competitive and economies are to grow. The keys to the future: improving and increasing access to education and job training; providing more flexible working environments; allowing for increased worker mobility; developing competitive labor strategies; encouraging innovation and business creation; and utilizing the abilities of workers at all skill levels.

“We are entering the era of unparalleled talent scarcity, which, if left unaddressed, will put a brake on economic growth around the world,” wrote Jean Charest, then the premier of Quebec, Canada, in the foreword to a 2011 “Global Talent Risk” report issued by the World Economic Forum, a prominent research foundation. Over the next two decades, “the world will need millions of new business professionals, engineers, technicians, teachers, plumbers and nurses,” he wrote. “Twenty years from now, we may not have them.” Quite simply, he added, “a global problem calls for a global solution.”

Management analysts agree. “Absent a massive global effort to improve worker skills…there will be far too few workers with the advanced skills and training needed to drive a high-productivity economy and far too few job opportunities for low-skill workers,” McKinsey Global Institute declared in a “World at Work” report last year. The institute, which is the business and economics research arm of global management consulting firm McKinsey & Company, said that “imbalances” between labor supply and demand would affect both advanced and developing nations.

The consequences for the global economy could be grave. The new normal might become continuous jobless recoveries. “Governments need to be involved, educational institutions need to be engaged, and individuals need to keep up with changes, become lifelong learners,” says Melanie Holmes, a vice president of ManpowerGroup, the global staffing firm based in Milwaukee. “We need to partner with educational institutions and be explicit in what we are looking for. We need to work with government to make sure that government money used to train workers is spent wisely.”

In filling job vacancies, Holmes says, employers must recognize they are not hiring “the perfect person.” She says Manpower favors a “teachable fit” approach—hiring people without all the prerequisite job skills and training them to do a specific job. “If I am looking for somebody to fix wind turbines, they better not be afraid of heights,” Holmes says. “I can teach them how to use a wrench, but I can’t teach them not to be afraid of heights. So you want to hire somebody…with aptitude and attitude who you can teach the skills to do the specific job.”

But not everyone buys the skills gap reasoning—at least as it applies to the U.S. labor force. Peter Cappelli, a professor of management and director of the Center for Human Resources at the Wharton School, says there’s a “big surplus of talent.” But employers resist paying market wages, training new employees and working with schools to equip future workers with the skills the employers need. In essence, argues Cappelli, employers too often act like cheapskates. “We wouldn’t say there is a shortage of diamonds when they are incredibly expensive,” says Cappelli, the author of Why Good People Can’t Get Hired: The Skills Gap and What Companies Can Do About It (Wharton Digital Press, 2012). “We can buy all we want at the prevailing prices.”

Brain Drain

After surveying 500 senior executives in various industries worldwide, the most recent corporate risk report from Lloyd’s of London concluded that the talent gap ranked as the second largest risk facing business. Even Germany, an economic power, is feeling the pain in the engineering, medical and IT fields, Lloyd’s says. Across the globe, anxiety reigns. “At the very top of organisations,” Lloyd’s says, “there is huge anxiety about the suitability of available staff for the roles required.”

"We are entering the era of unparalleled talent scarcity, which, if left unaddressed, will put a brake on economic growth around the world."

Ed Pound

There’s reason for that anxiety. For one thing, the workforce is graying, and many talented older workers are retiring. In the United States alone, 10,000 baby boomers reach 65 every day, and many retire, taking with them institutional knowledge, valuable skills and loyalty to their employers. With that kind of brain drain, it’s becoming crucial for businesses to retain their old-timers.

To government leaders and corporate CEOs, moreover, the latest 2012 “Talent Shortage Survey” conducted by ManpowerGroup must read like a horror story. The survey, covering 38,000 employers in 41 countries and territories, shows that talent shortages are most acute in the Asia-Pacific region, particularly in Japan, which enjoyed spectacular economic growth after World War II. Of employers surveyed in Japan, 81% said they were having difficulty recruiting the right talent. In India, the number was 48%. Across the region, employers say the most difficult jobs to fill are sales representatives, engineers and technicians.

The picture in the United States is not a lot brighter: 49% of the 1,300 employers surveyed said they are having difficulty finding the right personnel. Brazil, at 71%, topped the list of 10 countries surveyed in the Americas region. The employers reported that engineers and technicians are the most difficult jobs to fill. Finally, in the 23 countries surveyed in Europe, the Middle East and Africa, the most notable skill shortages were reported in Bulgaria (51%), Romania (45%), Germany (42%), Turkey (41%) and Austria (40%). Skilled trade positions were cited as the hardest positions to fill.

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