1.0 / Introduction
Introduction

Welcome to the 2018 edition of the Hays Global Skills Index (the ‘Index’), a comprehensive overview of the professional global labour market. Based on research and analysis of skilled labour markets across 33 global economies, every year we produce a report that explains the key trends and challenges facing organisations as they search for the most sought-after talent.

Whether it’s the threat of Artificial Intelligence (AI) and machine learning taking the place of workers, or major developments in how consumer data is being managed and monetised, this has been a year of technological upheaval. Within this environment, we understand the importance of continually tracking and examining labour markets and questioning whether the global workforce possesses the skills needed to thrive in this ever-changing environment, both now and in the future. It is also important that we consider the role employers should play in making sure their employees have the right level of support and training.

The Index provides this perspective. As the world’s largest specialist recruiter, Hays places over 300,000 people into new roles every single year, across 33 markets and over 20 professional disciplines. This reach provides us with a unique insight into the opportunities and challenges on the horizon for skilled workers around the world.

While last year’s Index painted a more positive picture than in recent years, this year’s edition reveals that there are clouds on the horizon. Global economic growth is expected to gather momentum over the next twelve months, but this trend is not being matched with improvements in productivity or wage growth.

There are two key factors at play here, both of which need to be tackled urgently. The first is the growing talent mismatch between the skills workers possess and those desired by employers. The scale of this issue is demonstrated by the fact that almost half of the countries included in the Index this year showed a rise in the rate of unfulfilled vacancies – a key indicator of talent mismatches.

Clearly if employers can’t find workers with the relevant experience and skills for available roles, that’s a serious problem, and will only be exacerbated going forward by the transformational technology advancements that we’ve seen over the past few years.

We live in a world where robots can run and jump; cars are driven by computers and drones are replacing delivery workers. These are but a few examples of how the jobs of tomorrow will be very different to those of today. If workers young and old aren’t prepared to take advantage of these new opportunities, and to adapt to developments as they occur, this talent mismatch is only going to increase.

The second factor revealed in the Index – and one that has continued to trouble economists for the best part of a decade –  is the ‘global productivity puzzle’. Labour productivity levels across the globe, particularly in Europe, the Middle East and the Americas, have essentially flatlined since the global financial crisis.

The puzzle seems so hard to solve because the root causes are hard to determine. Following the crisis, there was an inevitable shift in corporate investment, with businesses adopting more risk-averse strategies that included a preference for hiring more staff rather than acquiring new technologies or building key infrastructure – the types of things that can really drive productivity forward.

It has been suggested that the stagnation in productivity may be a longer-term trend; the result of macroeconomic forces such as an ageing population, a downturn in global trade, and reduced investment in education and training.

By providing a snapshot of conditions in 33 markets, the Index helps us to look at the real-world consequences of these trends. It is only when we assess the impact these powerful forces are having on labour markets at both a global and a local level that we are able to develop robust and effective response strategies.

However, there are also broader societal priorities that businesses and governments need to focus on; one of these is undoubtedly the gender pay gap. In all markets covered in the report, women are less likely to participate in the labour market than men, and when they do, they are less likely to find employment. In other cases there is an issue with women re-entering the workforce from maternity leave. Mothers returning to work should be facilitated with new skills that employers are looking for, to improve their employability and alleviate skills shortages. Policymakers and businesses must work together to remove these social barriers and to do more to close the pay gap when women do join the workforce. This can be done through the elimination of discriminatory hiring practices; encouraging flexible working; and introducing shared paid parental leave.

At Hays, we regularly receive feedback from both companies and candidates on their concerns and expectations. Based on these real-world perspectives, as with previous years, we have developed a set of recommendations for policymakers, businesses and other stakeholders as they seek to drive economic growth.

1) Ensure workers are prepared for technological disruption by fundamentally reviewing existing training and education programmes

With technology creating new opportunities and business increasingly looking to a future where robots and machines carry out manual tasks, governments and companies need to take a step back and consider whether current education systems and training regimes fit the bill. The world of work continues to evolve alongside technology and we need to ensure education and training do too. This is essential if we want to tackle the talent mismatch we see across the globe and be prepared for a very different future.

2) Take advantage of relatively low interest rates and stable economic conditions to increase investment in new technologies and infrastructure

While it’s easy to put off big-ticket investment decisions due to concerns about the economy, it has never been more important that companies look ahead and consider whether investing now will place them in a better position for the future. The only way to snap out of the current productivity malaise is to make the most of new technologies, innovation and new systems, to increase productivity by automating tasks or identifying opportunities through harnessing data.

3) Embrace diversity in all its forms, not just because it’s the right thing to do, but because it makes business sense too 

The Index highlights the work we still have to do to ensure there are sufficient opportunities for women to enter the workforce and to continue to progress when in employment. Businesses that make this a priority will not only have more satisfied and loyal employees, they will also have a more effective workforce, with a diverse range of voices and perspectives united behind their objectives.

These recommendations alone will not solve the issues facing labour markets, but there is an urgent need to place a spotlight on these issues and look to work together to tackle them. We must act fast to ensure we are prepared for the ever-changing world that lies ahead: we are at a critical junction and we are in danger of a spiralling skills crisis.

I hope that the Hays Global Skills Index 2018 provides not only a unique and useful perspective on the worldwide labour market, but also ideas for businesses and policymakers alike to consider going forward.

Alistair Cox, Chief Executive, Hays plc

2.0 / Executive Summary
Executive Summary

The Hays Global Skills Index (the ‘Index’) is an annual assessment of the trends impacting skilled labour markets and examines the dynamics at play across 33 markets, determining how easy or difficult it is for organisations to find the skilled professionals they need.

The seventh edition of the Hays Global Skills Index sheds new light on the multiple pressures facing today’s labour markets around the world. These include:

  • Growing talent mismatch;
  • The widespread productivity puzzle;
  • Ageing populations;
  • Gender pay gaps; and
  • Shrinking share of the national income for workers.

As ever, the picture is complex. While global economic growth is forecast to increase this year, that trend has not been matched by widespread growth in the productivity or wages of global workforces.

This report highlights a number of factors that may be contributing to this sluggishness; a key example is the growing talent mismatches between the skills workers possess and those desired by employers. This is a trend identified in almost half of the 33 markets assessed in this Index – indeed, of the 17 European countries with data on job vacancies, no fewer than 16 have showed a rise in their rate of unfilled employment vacancies this year – a key indicator of talent mismatches.

But that’s only one element of the story. This report also investigates the global productivity puzzle, which has seen labour productivity levels particularly in Europe and the Middle East grow at rates far below their pre-financial crisis levels.

While this was to be expected in the immediate aftermath of the crisis, the fact that productivity has not bounced back during the subsequent economic recovery is more surprising. Some countries appear to be stuck in a low growth trap, whereby  weak productivity growth has led to reduced investment in  labour and capital, further weakening overall productivity levels – with troubling knock-on effects for workers.

But there are also longer-term trends to consider, notably countries’ ageing populations. This report also explores what causes such marked differences in the average working hours of countries featured in the Index, and the significant gender gaps that endure in everything from average wages to opportunities for promotion.

Another serious issue of concern is the shrinking share of national income that workers receive, which has been linked to the effects of globalisation and the increasing introduction of robots, AI and machine learning. But again, as this report explains, this is not a one-size-fits-all issue. In some industrial sectors and geographical regions, the advent of AI and robotics may potentially boost the productivity of workers. This is, in part, because technological innovation cuts the cost of producing goods and services, raising the purchasing power of consumers whose extra spending creates new jobs. In other sectors and regions, however, it is having a clear, negative impact on jobs and wage growth. Overall, a key challenge for policymakers must be to try to ensure their citizens possess the right skills to take advantage of whatever new opportunities emerge in this fast-changing work landscape.

Across the world, we are seeing a pattern of narrowing wage gaps between high- and lower-skilled occupations. But while this may serve to decrease wage inequality levels, rising wage pressures and talent mismatches, together with falling labour participation levels, means the average Index score across all 33 markets has increased this year to 5.4 – continuing the trend of the Overall Index score rising steadily on average since its inception in 2012.

Regional differences highlight how even subtle movements in the Overall Index mask a wealth of information at each individual country level. The country indices and their sub-components,  not to mention the insights from Hays experts on the ground that have been provided for each country profile, are all designed to help firms hone their strategies for the selection and hiring of skilled staff. This report underlines that these issues are now more important than ever.

Regional overview

Europe and the Middle East (EME)

  • The Index score for Europe and the Middle East has risen from 5.4 in 2017 to 5.5, suggesting employers now face slightly greater pressures in EME labour markets.
  • This rise is largely due to higher overall wage pressures and an increase in talent mismatch.

Asia Pacific

  • As in EME, employers are typically finding it more difficult to attract and retain talent in Asia Pacific, with the region’s average Index score rising from 4.8 in 2017 to 4.9.
  • Over the past decade, participation rates have been driven up by improvements in education levels and other socioeconomic factors. This year, however, a slowdown in the growth of labour market participation rates across various age groups has been a major driver of the region’s higher score.

The Americas

  • Overall, labour market conditions have remained stable in the Americas, with the region’s average Index score unchanged from 2017 at 5.7.
  • But beneath this apparent stability, there have been important changes in individual indicators: for example, declining wage levels for employees in high-skilled occupations, relative to lower-skilled jobs, has exerted a considerable negative impact on the Index this year.

3.0 / Wages, growth and the future of work
Wages, growth and the future of work

Labour markets across the globe continue to experience varying pressures, with one major issue being the recent weakness in wage growth. This section of the report looks at the issue of slow wage growth and related labour market trends such as the slowdown in productivity growth since the financial crisis; the decline in the labour share of income; and the impact of automation and machine learning. We explore the wider implications of these trends, and the ongoing labour market policy implications of automation.

Why are real wages growing so slowly? 

A key feature of the labour markets featured in the Hays Global Skills Index is the relatively slow growth of economy-wide wages in recent years, after allowing for inflation. This comes despite falling unemployment rates, implying there has not been a large pool of unemployed workers competing for the available jobs. Some downward pressure on wages has been acknowledged from those in part-time jobs who would like to work full-time, but this alone can’t explain the widespread trend for slow wage growth.1

The issue of declining real-wage growth, particularly evident in countries such as the United Kingdom and the Czech Republic (see Fig. 1), is important to understand as it negatively impacts the rate at which each worker’s standard of living improves.

There appear to be two key explanations for this: the rate of growth of labour productivity – the value of goods and services produced per worker – which has slowed markedly since the financial crisis struck a decade ago; and the shrinking share of income that workers have been receiving in recent decades. In the latter case, a principal driver behind this declining ‘labour share of income’ is argued to be advances in technology and the automation of tasks.

The Global Productivity Puzzle

Productivity is a key determinant of wage growth. Unless economies are able to produce more output with a given set of inputs, there will be little growth in firms’ revenues or the real wages they pay.

If we compare growth trends in labour productivity – countries’ output per worker – before and after the financial crisis, we see that growth rates after 2008 remain well below pre-crisis levels. This is particularly the case for our Index countries in Europe, the Middle East, and the Americas (see Fig. 2). This was expected in the immediate aftermath of the crisis because in recessions output falls while firms tend to retain their labour. What was not expected was this slow rate of productivity growth to remain during the subsequent years of economic recovery.

Some of the enduring weakness can be explained by the large drop in both public and private sector investment levels following the crisis, meaning firms were unable to increase the productivity of their workers through the enhancement of the tools and machinery they use. The tighter credit conditions and heightened uncertainty also led to reduced investment in cutting-edge technologies, which is now weighing heavily on productivity growth.2 As a result, many countries appear  to be caught in a ‘low-growth trap’, whereby weakness in productivity growth leads to lower investment that, in turn, further dampens productivity.

But while the financial crisis certainly appears to have been a contributor, some studies suggest this global decline in productivity is a longer-term trend, influenced by factors such as ageing populations globally; a downturn in global trade; less investment in education and training; and a slowdown in technological advancement. Despite the apparent flood of new digital and mobile technologies, there is an argument that productivity improvements from information and communications technologies (ICT) have not matched the exponential gains associated with the introduction of the steam engine, electricity or the telephone in earlier eras.3

Another factor highlighted by one recent study is that there has been a slowdown in technology and knowledge ‘spillovers’ from the world’s most productive (‘frontier’) firms to others within their sector (‘laggards’).4 Global firms including the likes of Amazon, Uber and Microsoft can more easily upscale their operations, expand internationally and generate synergies to create dominant positions in the market, whereas smaller firms are less able to do so. These are the firms that have experienced very weak growth in productivity.5

Finally, the increasing importance of the digital economy may also have led to productivity growth being underestimated in certain countries, as many information and communication technologies are not captured adequately in overall assessments of firms’ contributions to GDP.

Explaining the decline in workers’ share of income

While poor growth in labour productivity has weighed heavily on wage growth recently, there appears to be another, longer-term factor dragging on wage growth in many countries: a fall in the share of national income that goes to workers. The International Monetary Fund (IMF) estimates the share of national income going to labour in advanced economies has declined from a peak of 55% in the early 1970s to 51% in 2015 (see Fig. 3). In emerging markets and developing economies, it is estimated to have fallen from 39% in 1993 to 37% in 2015.

Some suggest this ‘decreasing share of the pie’ going to workers could be driven by globalisation, particularly in advanced economies, where many firms have moved labour-intensive tasks overseas to reduce costs (known as ‘off shoring’). This has made production processes more capital intensive, and thus reduced workers’ bargaining power.6  The dominance of ‘superstar’ firms such as Google and Apple may also have contributed as these companies have very high profits while hiring few, albeit well remunerated, employees.7

But it is widely argued that, prior to the financial crisis, technological advances and automation were the main contributors to this global decline in the labour share of income, because improvements in technology lead to faster productivity growth in capital, lowering the price of capital goods relative to labour, and therefore encouraging firms to substitute capital for labour.8 While the labour share has been broadly flat since the crisis, recent advances in AI and machine learning suggest the labour share may begin to fall again in future.

Robots or jobs?

Amid weak productivity growth and a declining labour share in many parts of the world, what does the future hold for workers? One of the most disputed labour issues is the advent of AI and robotics: on the one hand, this could herald a productivity revival that boosts wage growth, while on the other, it may threaten jobs throughout the economy.

Advancements in AI enable businesses to automate many jobs that have been historically undertaken by humans, which may have a negative impact on new job creation in the short term.

In the longer term, however, economic theory and the available evidence suggests there will be little impact on aggregate employment levels because technology cuts the cost of producing goods and services, which in turn will raise the purchasing power of consumers, whose extra spending creates new jobs. One recent study examining the impact of automation across a number of European countries, as well as Australia, Japan and the United States, found it has had a positive effect on aggregate employment.9

In addition, a recent study concluded that around 4.3 million workers in the United States will be displaced over the next decade due to the impact of automation. However, the report also found that the rise in prosperity caused by these new technologies would see millions of new jobs created elsewhere in the US economy. In short, while technological change will cause dislocation in the labour market in the coming years, new employment opportunities will also emerge and the main challenge for policymakers is to ensure people have the skills to take advantage of them.10

Of course, such a transformation of the global labour market will cause unsettling disruption for many workers. Further improvements in technology will likely lead to a ‘hollowing out’ of jobs distribution, whereby some middle-skilled jobs disappear and more jobs are created in both lower- and higher-skilled occupations. Indeed, relatively rapid change along these lines has been underway for many years: between 1995 and 2015, the largest decreases in middle-skilled jobs were observed in Austria, Switzerland and Ireland.11

Possible responses

The fast-changing workplace means businesses and policymakers face important choices. Adapting to a new workforce composition in the face of rapid technological change is challenging, as workers’ productivity and capacity to transition into different occupations will depend on their ability to develop new skills. Education and on-the-job training should therefore be a priority, enabling businesses and workers to boost their productivity, which will in turn help workers to retain good-quality jobs and boost wage growth.12

In addition, active labour market policies, such as publicly-funded vocational training schemes or job-search assistance, can improve employability and expand opportunities available to jobseekers.

Different countries have different attitudes concerning such policies, however. While a number of countries featured within the Index, including Denmark, Sweden and France, invest significantly in these labour market programmes, others, such as Mexico, the United States and Japan, exhibit very low spending as a proportion of their overall GDP.13

Either way, governments will need to think about how to best provide assistance for workers who find themselves displaced. More radical policies that have been suggested to mitigate the negative impact of automation include the introduction of universal basic income (UBI) and job guarantees, whereby the government becomes the employer of last resort.14

 

4.0 / The Macroeconomic Backdrop
The Macroeconomic Backdrop

How labour market conditions have changed since last year’s Index

This year’s Hays Global Skills Index (the ‘Index’) reveals that global labour market conditions have become more pressured in the last year. The average score across all 33 markets featured in the Index rose slightly from 5.3 in 2017 to 5.4 in 2018. While this appears to be a marginal change when taken as a whole, there has been considerable variation in how domestic labour markets have changed. The Overall Index score has increased for 16 countries, but decreased for 12 and stayed the same for five.

One of the biggest drivers behind the increase in this year’s average Overall Index score across all countries is talent mismatch. Almost half of the countries featured (16 of 33) saw their talent mismatch score increase, highlighted by a growing job vacancies rate or a higher rate of long-term unemployment. This indicates that the gap between the skills employers require and those that the labour force has continues to grow across the world.

The extent of talent mismatch varies, both across and within different regions. However, the largest increase in this discrepancy is seen within Europe, most notably Austria, France and Belgium, where vacancies and long-term unemployment rates have increased above pre-recession levels. This suggests that those who are unemployed do not hold the skills required for the available positions.

Outside of Europe, Mexico showed the clearest sign of a growing skills gap as the number of people who have been out of work for over a year rose. Meanwhile falling unfilled vacancies rates in Chile, and declining shares of long-term unemployment in the United States and the United Kingdom, caused these countries’ scores to fall during the period.

Increasing wage pressures relative to the period of stability prior to the recession additionally contribute toward the higher global score this year, although this picture is also mixed. Wage growth is expected to accelerate in 2018 for 21 of the 33 countries, notably in Belgium, Ireland and New Zealand, but are expected to slow, or even fall, in eight.

Wage pressures in highly-skilled industries have decreased overall this year, offsetting some of the upward pressure on the average Overall Index score across all 33 countries.

This suggests that wage gains have not been enjoyed evenly across industrial sectors, with the wage premium for working in a highly-skilled industry declining on average. In some countries, such as the Czech Republic and Poland, this is a result of accelerating wages in lower-skilled industries, alongside slower growth in higher-skilled ones. In the case of the Czech Republic, fast wage growth in hospitality and administrative and support services has helped to narrow the gap, while in Poland it has been driven by higher growth in several manufacturing sectors. In other countries such as the Netherlands and Singapore, wage growth has slowed overall but has been somewhat faster in lower-skilled industries.

A similar pattern of narrowing wage gaps are also evident between higher- and lower-skilled occupations this year. This suggests that the pressure of growing wage bills is greater for employers of lower-skilled workers to those of higher-skilled ones. The closing of occupational wage gaps is especially notable in the United States, where wage growth has accelerated for lower-skilled industries such as agriculture, production and service occupations, while falling in higher-skilled ones. Elsewhere, in places such as Sweden and Malaysia, wage growth has been flat for higher-skilled occupations such as managers, professionals and skilled technicians, while lower-skilled occupations such as craft and trade workers experienced positive growth.

Global economic outlook

Despite high-profile geopolitical issues, global economic growth is forecast to remain robust this year, although it is expected to slow in the medium-term. This expansion is expected to increase the demand for workers, all else being equal.

In April, the International Monetary Fund (IMF) forecasted global GDP growth of 3.9% in 2018 and 2019. This would be a small increase on the 3.8% increase achieved in 2017, which was the fastest rate of growth since 2011. Focussing on the 33 countries featured in the Index, economic growth is forecast by the IMF to be around 3.4% in 2018, up slightly from 3.2% in 2017.

Europe and the Middle East (EME)

Economic growth in the European and the Middle East region is forecast to remain strong this year at around 2.3%, having accelerated last year. Many European countries have entered a more mature phase of their economic recovery, with stable but robust growth rates.

The Overall score for the 19 EME countries included in the Index has increased slightly, from 5.4 in 2017 to 5.5 in 2018.

This suggests that, on average, firms are finding it more difficult to attract and retain workers in the region. However, behind the Overall Index score, there is considerable variation in movement across indicators.

Rising wages in some European countries have also put upward pressure on the region’s Overall score this year. In real terms, wage growth is forecast to be faster in 2018 than in 2017 in 16 out of the 19 EME countries. Notable acceleration in wage growth in countries including Ireland (4.5% in 2018 vs 2.2% in 2017) and Belgium (1.8% in 2018 vs -0.3% in 2017) have contributed significantly to the higher score. However, these substantial wage increases have not been seen across all European countries.

Real wages continue to fall in Portugal, while in other countries, such as Austria and the United Kingdom, wage growth has been sluggish compared to historic norms.

As well as varying across countries, wage growth rates have differed across industries and occupations. While rising wages and a growing skills gap would lead to a higher score, all things being constant, much of the pressure on the skilled labour market has been offset by narrowing wage gaps across the economy, as workers in both lower-skilled sectors and occupations have enjoyed faster wage growth than their higher-skilled counterparts. This suggests that firms looking to recruit higher-skilled workers, are facing less pressure on their wage bills relative to those firms that recruit less highly-skilled workers.

Skills mismatch is a challenge for many European countries.  This is reflected in the rise in the talent mismatch indicator score this year. This suggests that it is more difficult for employers in Europe to find and retain staff with the necessary skills. Of the 17 European countries with data on job vacancies, 16 had a rise in the rate of unfilled vacancies to employment this year.

The biggest increases were in the Czech Republic (38%), Italy (32%) and Austria (28%). On the upside, 12 of the 17 countries have experienced falling rates of long-term unemployment, which is people who have been out of work for over a year.  This has eased some of the pressure on the talent mismatch score, as long-term unemployment can lead to erosion of workers’ skills.

Asia Pacific

GDP growth rates in Asia Pacific are forecast by the IMF to slow slightly this year, but remain high at 5.2%, compared to 5.3% in 2017. As in previous years, this is predominantly driven by rapid expansion in India (7.4%) and Mainland China (6.6%). Excluding these two countries, GDP growth in the region is forecast to be more modest, at 1.9%.

Labour market participation growth rates are forecast to slow in Asia Pacific in 2018 compared to 2017, contributing to a rise in the region’s labour market participation score. Of note, participation growth is forecast to slow from 2.3% in 2017 to 0.2% in 2018 in New Zealand, while participation rates are expected to decline slightly in Singapore. Only one of the Asia Pacific countries featured in the Index, Malaysia, has a rise in growth rates forecast this year, rising to 0.7% from 0.4% last year.

Asia Pacific’s higher Overall Index score this year – 4.9 compared to 4.8 last year – indicates that employers may be finding it harder to attract and retain workers with the right skills in 2018 than in 2017. A significant driver of this increased pressure in the labour market is an increasingly evident talent mismatch. In all six countries with data available, the job vacancies rate rose last year. A rising rate of unfilled vacancies as a share of employment suggests a growing gap between the skills employers require, and those held by the labour market. This trend is supported by evidence on long-term unemployment. The share of people who have been out of work for over a year has increased in all four Asia Pacific countries with data available.

Real wage growth is also increasing pressure on the Asia Pacific labour market. Wage growth is forecast to accelerate faster than inflation this year in half of the eight Asia Pacific countries included in the Index. In particular, Malaysia’s real wage growth is forecast to rise from 2.2% to 5% this year, while wages in New Zealand are expected to grow at a pace of 2.1%, up from just 0.7% last year. Firms seeking higher-skill staff may face the greatest difficulty, as rising skill premiums have widened the region’s occupational wage gaps.

The Americas

Economies in the Americas are forecast to grow at a combined 2.8% this year. This is a notable increase on the 2.2% GDP growth achieved in 2017. All else being equal, this would be expected to mean higher demand for skilled labour in the region.

On average, the Overall Index score for the Americas is unchanged at 5.7 this year. However, behind this stable overall score, there has been movement in each of the seven indicators. The evidence suggests that pressures on the labour market have been mixed, but that overall firms are still finding it relatively difficult to attract and retain talent than prior to the recession in 2009.

However the slight downward change in the score – which was less than 1% – suggests that these pressures show signs of easing.

The decline in the wage premium firms pay for people in higher-skilled occupations has had a negative impact on the Index in the region. The greater equality in wages this year was caused by differences in wage growth between higher- and lower-skilled roles.

In contrast to the other regions featured in the Index, evidence suggests that talent mismatch is less of a problem for firms in the Americas this year.

The region’s falling indicator value has been driven by improved conditions in Chile and the United States. The job vacancies rate fell considerably in the former, while the latter has benefitted from a declining long-term unemployment rate. This suggests that employers in the Americas are having an easier time finding workers with the right skills, although the story continues to differ across countries.

In keeping with global trends, growth in labour market participation in the Americas is expected to slow this year. Participation growth rates are forecast to be lower in five of the six countries in the region this year. Notably, Canada and Mexico’s labour markets are both expected to shrink over 2018. Declining participation rates mean that firms seeking to expand may struggle, if the supply of talent fails to keep up with demand, or even contracts.

Conclusions

Examining conditions across all the countries, we find labour market conditions to be slightly more pressured this year.

This is largely due to the increasing problem of talent mismatch as well as emerging wage pressures. However, underneath the relatively stable overall scores, there is significant variation, both across and within the different regions.

In EME, wage pressures have increased overall but firms in higher-skilled industries and those employing workers in higher-skilled occupations have seen some of this pressure offset by narrowing, skill-specific wage gaps. Talent mismatch has posed the biggest challenge for Asia Pacific countries and is the main driver behind the region having the biggest score increase overall. The Americas contradict these trends with a fall in talent mismatches overall, but also face difficulty from falling – and in some cases negative – participation rates.

The analysis looked at why real wage growth in many of the labour markets within the Index has been slow in recent years compared to the years leading up to the financial crisis. At present, unemployment rates suggest there is not a large pool of unemployed workers competing for the jobs. It investigated two possible causes, namely the slow growth in productivity and the longer-term issue of the declining share of national income that workers have been receiving in recent decades.

One of the most hotly-debated issues in labour markets is the impact of AI and machine learning. This may have exerted downward pressure on labour’s share of income.

We reviewed the latest evidence on whether it will impact aggregate employment levels or lead to further hollowing out of middle-skilled jobs. Additionally, we considered how best policymakers can respond to the challenges of changing workforce composition brought about by technological change.

Given that Hays operates in 33 markets across the globe, the Index looks at important differences between labour markets. It investigates the differences in average hours worked, which are partly driven by female participation rates. It explores differences in gender equality in the workplace across countries and also examines the implications of an ageing workforce.

Skilled labour markets across the world continue to evolve. Understanding the trends that are occurring and the reasons behind them is important for business, policymakers and workers themselves. Alongside analysis and insight from our executives on the ground in the 33 markets, it is hoped the Index contributes to that understanding.

5.0 / Key Insights
Key Insights

Key insight: Preparing for an ageing workforce

As birth rates fall and life expectancy rises across the globe, population ageing is predicted to accelerate for all global regions of countries featured within the Index (as illustrated by Fig. 4). This is occurring at a faster rate in high-income economies, although emerging markets such as Mainland China and Russia are expected to follow a similar trend given the long-term decline in fertility rates.15 As a consequence, many countries’ shrinking labour forces will struggle to generate sufficient tax revenues to sustain the current levels of social security payments for the growing number of retirees in the future. Furthermore, within the labour market, older participants will likely struggle to keep up with the pace of structural and technological change, and to maintain the skills they require to remain employed.16

As fewer individuals retire early, policymakers will need to focus on improving the employability of workers at an older age by facilitating the training necessary to update their skills. In addition, the International Monetary Fund (IMF) suggests that greater international migration would help to boost labour supply and address the ageing workforce in some countries.17 Others argue that migrants can only play a temporary role, however, given they too will inevitably age.18

Certainly, finding other ways to boost productivity will help to offset the impact of an ageing population. Interestingly, one study found that population ageing has been associated with more growth, as a more rapid uptake in technology has occurred in countries undergoing large demographic changes.19

Key insight: What causes such a marked difference in working hours?

The average hours worked by employees each year varies significantly across the countries featured within the Index. While there are several explaining factors, there is some relationship with national income in that people in low- and middle-income countries, such as India and Mexico, tend to work longer hours than people in high-income countries. This has significant welfare implications, as people in lower-income countries not only consume less compared with  those in high-income countries, they also have less time for leisure.20 However, there are exceptions to this rule, as some countries – Singapore, for example – average a relatively high number of hours worked, despite being at the top end of the income distribution.

Differences in hours worked may also be partly explained by differences in the availability of childcare services and in variations in tax rules. In Germany, for example, the average hours worked by married women have been found to be lower than for unmarried women and men. This may be because, while countries such as the United Kingdom, Sweden and Austria treat income tax on an individual basis, Germany taxes married couples on a joint basis. In other words, individuals are taxed as if their income is half of the total household income. In this case, secondary income earners face a higher marginal tax rate than under a system of separate taxation, disincentivising the secondary earner from increasing their hours.21

Tax rules that discourage individuals from increasing their hours are likely to be hindering female labour supply around the world. This is particularly important given the ageing populations and shrinking workforces in many countries. To facilitate higher labour supply, policymakers need to improve incentives to increase hours, particularly for their female populations.

Key insight: Gender equality in the workplace

Improving gender equality in the workplace is important not only for achieving social objectives, but for economic growth. We can examine the extent of gender inequality in the workplace across countries using the World Economic Forum’s Economic Participation and Opportunity Sub-index (see Fig. 10).22 This measure captures differences in labour force participation, earnings and career advancement between men and women.23 While the gap remains wide in emerging economies such as India and Mexico, the difference has narrowed in developed economies, with Sweden having closed over 80% of the gap.

In all countries, however, women are still less likely to participate in the labour market than men, and when they do, they are less likely to find employment. There are particularly large differences in participation between men and women in emerging economies, for example in India. The participation gap is narrower in developed economies which show similar educational attainment levels across men and women, and which possess more advanced public policies concerning affordable childcare services, the right to paid leave, and the right to return to equivalent work. Yet there remains a persistent pay gap in developed economies, which can only be partly explained by women taking more time out of paid work compared to men for the purposes of childcare.24

To tackle the differences in participation in emerging economies, policymakers must work to address social norms that obstruct women from entering paid work. In developed economies, policymakers must work towards closing the gender pay gap by eliminating discrimination, enabling more flexible working patterns and instituting paid parental leave for both men and women (with a particular focus on men), in order to address the differences in time taken out of paid work.25

6.0 / Sources
Sources

1) International Monetary Fund, “World Economic Outlook, October 2017, Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges”, 2017, and David N.F. Bell and David G. Blanchflower, “Underemployment and the Lack of Wage Pressure in the UK”, 2018

2) Gustavo Adler, Romain Duval, Davide Furceri, Sinem Kiliç Çelik, Ksenia Koloskova, and Marcos Poplawski-Ribeiro, “Gone with the Headwinds: Global Productivity”, 2017

3) Robert J. Gordon, “Secular Stagnation: A Supply-Side View”, 2015

4) Dan Andrews, Chiara Criscuolo and Peter N. Gal, “Frontier Firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries”, 2015

5) Jonathan Haskel, Stian Westlake, ‘Productivity and secular stagnation in the intangible economy’, 2018

6) International Monetary Fund, “World Economic Outlook, April 2017: Gaining Momentum?”, 2017

7) David Autor, David Dorn, Lawrence F. Katz, Christina Patterson and John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms”, 2017

8) International Monetary Fund, “World Economic Outlook, April 2017: Gaining Momentum?”, 2017

9) David Autor and Anna Salomons, “Is automation labor-displacing? Productivity growth, employment, and the labor share”, 2018

10) Cisco and Oxford Economics, “The A.I. Paradox How Robots Will Make Work More Human”, 2017

11) OECD, “Jobs gap closes but recovery remains uneven”, 2017

12) Joseph Rowntree Foundation, “The links between low productivity, low pay and in-work poverty”, 2018

13) OECD, “Active Labour Market Policies: Connecting People with Jobs”, 2015

14) Luke Martinelli, “Assessing the Case for a Universal Basic Income in the UK”, 2017, and David Autor, “Why Are There Still So Many Jobs? The History and Future of Workplace Automation”, 2015

15) International Monetary Fund, “Regional Economic Outlook: Asia and Pacifi c, May 2017: Preparing for Choppy Seas” 2017

16) International Labour Organisation, “World Employment and Social Outlook – Trends”, 2018

17) International Monetary Fund, “World Economic Outlook, April 2018, Cyclical Upswing, Structural Change”, 2018

18) OECD/European Union, “Matching Economic Migration with Labour Market Needs: Demographic trends, labour market needs and migration”, 2014

19) Daron Acemoglu and Pascual Restrepo, “Secular Stagnation? The Eff ect of Aging on Economic Growth in the Age of Automation”, 2017

20) Alexander Bick, Nicola Fuchs-Schündeln, and David Lagakos, “How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications”, 2018

21) Alexander Bick, Nicola Fuchs-Schündeln, and David Lagakos, “Taxation and Labor Supply of Married Couples across Countries: A Macroeconomic Analysis”, 2017

22) World Economic Forum, “The Global Gender Gap Report”, 2017

23) The advancement gap measures the ratio of female to male legislators, senior offi  cials and managers, and the ratio of female to male technical and professional workers. 24 International Labour Organisation, “World Employment and Social Outlook: Trends for Women 2018 – Global snapshot”, 2018

25) Damian Grimshaw and Jill Rubery, “The motherhood pay gap: A review of the issues, theory and international evidence”, 2015

7.0 / Data sources and indicator scores
Data sources and indicator scores

Data sources for indicator scores
The analysis on which the Hays Global Skills Index was based utilised data as of Q2 2018. Developments subsequent to this date are not reflected in the 2018 findings.

Labour freedom
Heritage Foundation, Index of Economic Freedom

Improvements in education levels
Barro and Lee dataset (www.barrolee.com)

Change in economic participation rate (overall)
Oxford Economics Global Macro Model

Change in economic participation (15-24 year olds)
International Labour Organization (ILO)

Change in economic participation (55-64 year olds)
International Labour Organization (ILO)

Economic participation rate rank
International Labour Organization (ILO)

Long-term unemployment rate
Organisation for Economic Co-operation and Development (OECD), National statistical agencies

Vacancies (000s)
Organisation for Economic Co-operation and Development (OECD), Eurostat, National statistical agencies

GDP (LC, real, billion)
Oxford Economics Global Macro Model

GDP growth (real)
Oxford Economics Global Macro Model

Population (mn)
Oxford Economics Global Macro Model

Real earnings
Oxford Economics Global Macro Model

Earnings by industry
National statistical agencies

Earnings by occupation
National statistical agencies

Unemployment rate
Oxford Economics Global Macro Model

GDP/head (LC, real)
Oxford Economics Global Macro Model

Non-Accelerating Inflation Rate of Unemployment (NAIRU)
Oxford Economics Global Macro Model

CPI inflation
Oxford Economics Global Macro Model

Net migration
US Government

International Surveys of Educational Attainment in reading, mathematics, and science PISA: Programme for International Student Assessment (OECD)
TIMSS: Trends in International Mathematics and Science Study (Boston College,
TIMSS & PIRLS International Study Center)
PIRLS: Progress in International Reading Literacy Study
PIAAC: Programme for the international assessment of adult competencies (OECD) LLECE: Latin American laboratory for assessment of the quality of education (UNESCO) Educational Attainment (UNESCO)

8.0 / About
About Hays and Oxford Economics

Hays

Hays has been helping organisations and businesses fill permanent positions, contract roles and temporary assignments, across the private and public sectors for 50 years. As the world’s largest specialist recruitment agency, last year alone Hays helped over a quarter of a million professional people worldwide find their next career role. With 11,000 staff operating from 257 offices across 33 countries, Hays is a market leader in the UK and Asia Pacific and one of the market leaders in Continental Europe and Latin America and has a growing presence in North America.

Hays works across 20 specialist areas, from healthcare to energy, finance to construction and education to IT. It has the largest and most engaged global candidate database in specialist recruitment and received over 10 million applications during the last year.

Every day Hays helps clients simultaneously dealing with talent shortages in certain markets, while having to reshape workforces in others. The nature of employment is also changing fast, with technological advances driving evolutions in the way people work. Hays understands these complexities and is uniquely positioned across its markets to solve them.

The depth and breadth of Hays’ expertise ensures that it understands the impact the right individual can have on an organisation and how the right job can transform a person’s life.

To find out more about Hays, visit www.haysplc.com

 

 

 

 

 

 

 

Oxford Economics

Oxford Economics was founded in 1981 as a commercial venture with Oxford University’s business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad. Since then, Oxford Economics has become one of the world’s foremost independent global advisory firms, providing reports, forecasts and analytical tools on 200 countries, 100 industrial sectors and over 3,000 cities. The company’s best-of-class global economic and industry models and analytical tools provide an unparalleled ability to forecast external market trends and assess their economic, social and business impact.

Headquartered in Oxford, England, with regional centres in London, New York, and Singapore, Oxford Economics has offices across the globe in Belfast, Chicago, Dubai, Miami, Milan, Paris, Philadelphia, San Francisco, and Washington DC. The company employs over 300 full-time people, including more than 200 professional economists, industry experts and business editors – one of the largest teams of macroeconomists and thought leadership specialists. The global team is highly skilled in a full range of research techniques and thought leadership capabilities, from econometric modelling, scenario framing, and economic impact analysis to market surveys, case studies, expert panels, and web analytics. Underpinning Oxford Economics’ in-house expertise is a contributor network of over 500 economists, analysts and journalists around the world.

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