Welcome to the 2017 edition of the Hays Global Skills Index (the ‘Index’). Now in its sixth year, our report provides the only true overview and analysis of the global labour market, based on our research of professional employment markets across 33 major global economies.
Each year we seek to throw a spotlight on the supply of skilled labour and the demand for those skills among employers. Based on our insights, the Index highlights the issues facing businesses while offering recommendations on how to alleviate the skills crisis that our world struggles with daily.
As the world’s largest specialist recruiter, Hays places almost half a million people in a new role or contract assignment every single year. One such advantage of our position as a worldwide leader is that we can spot the challenges on the horizon which our clients will face in global labour markets in the foreseeable future.
After a period of global uncertainty which impacted last year’s Index, there are signs emerging of a more positive backdrop for businesses around the world. In past years, we have found that an improving economic environment tends to be linked with tightening labour markets as demand for talent increases and the challenge of recruiting the most sought-after skills begins to impact organisations.
However, there would seem to be cause for optimism this year as there is evidence in our study of a slight easing in some of the key pressures and drivers impacting labour markets, notably rising participation levels and moderate growth relative to the past in employment costs, which will help businesses stay competitive.
While the specific reasons for this development differ from country to country, it can only be good news that the 2017 Index is showing a small decrease of labour market pressures overall. It suggests that, on a country-by-country basis, governments, educational establishments and organisations are becoming more focussed on the levers and dynamics driving the supply and demand of skills.
This suggests that across Europe, the Middle East, Asia Pacific and parts of the Americas, employers may now find it slightly easier to retain and attract skilled talent. Our supporting research suggests ways in which the world is also learning to adapt and evolve in relation to uncertainty and nowhere is that more obvious than in how businesses are engaging their workers and embracing demographic trends.
Our report shows that more and more employers are adopting new working patterns and responding to workers’ demands for flexibility. In the US the amount of freelance, contract or temporary work has risen from 10 per cent to 15 per cent while European freelancer roles have grown four times faster than total employment in the last five years. These mark profound changes in the traditional view of workforces.
Technology and digitisation has had a significant influence on workers, with a growing trend towards a more digital economy. Businesses must engage with technology to reap the benefits rather than fear any fundamental change, helping to ensure they stay competitive – constantly innovating is essential to success.
In addition to changes in the way we work, our global workforce has also changed considerably. Following two decades of decline it is welcome news to see that the percentage of working age women who were either looking for work or in employment has increased since 2011.
However, not all changes are positive, with the working age population across all countries forecast to decline by nearly a million as the workforce ages. One such way of resolving this challenge is to continue to embrace skilled migration. There are now more global migrants than ever before, with 3.3 per cent of the world’s population living in a country other than that of their birth. More notably, these workers are increasingly well educated.
At a time when skilled migration is at the top of both the political and news agenda, it is reassuring to see the benefit that countries receive from an educated workforce. Prosperity and growth depend on people, and without the right skills, businesses and therefore societies can flounder rather than flourish – skilled migration provides an important and necessary short-term resolution to the global skills gap.
At Hays we continue to call on governments and business to make concerted efforts to tackle the skills shortage across labour markets around the world. Based on the trends we have seen this year and in previous iterations of the Index, we have developed practical solutions to not only address the global skills deficit but also provide insights to businesses as they attempt to navigate the complexities of sourcing scarce talent. We believe if these recommendations are implemented we will continue to see positive changes in labour markets and societies around the world, as further jobs are created and economies run closer to their full potential.
1. Embrace skilled migration and facilitate greater workforce participation to address an ageing working age population gap
The working age population is declining in many countries. Over the next ten years, the working age population in 18 out of the 33 Index countries will decline by 50 million people, and this is likely to hinder employers looking for skilled workers. Furthermore, evidence from the EU, US and Japan in the last five years suggests that higher-skill workers are in greater demand relative to medium- and lower-skill workers. The impact of skilled migration can be mixed both for countries that send and receive skilled migrants, but when there are gaps it is important to fill them. We must ensure a smooth flow of people across all countries where there is demand, especially given that high-skill migrants currently tend to concentrate on only a handful of recipient countries.
2. Ensure readiness for technological disruption through training and education
Even though the rise of technology and automation in the workplace will inevitably eliminate some job categories, it’s important to remember that technology creates demand for new jobs as much as it will render others redundant. Low-skilled jobs are the most likely to be affected, so low-skilled workers must prepare to adapt their skillset to meet the new demands brought about by a more tech-centric work landscape. Similarly, employers should look to adapt their training for workers whose jobs will be changed rather than eliminated through technology.
3. Capitalise on easing wage pressures and a growing world economy to invest in the future of your business
There has been a slight easing of wage pressures in European and Middle Eastern markets with a slower wage growth for high-skill industries relative to low-skill industries. This means employers could find it slightly easier to attract and retain talent in 2017 than in 2016. The world economy is also picking up speed, albeit at a slower pace than expected – which is also increasing demand for skilled workers. Employers must invest in their talent to ensure the future success of their business and those investments should be made now.
I hope that the Hays Global Skills Index 2017 provides not only a useful insight into the worldwide labour market, but some food for thought on how business can navigate uncertain times and ensure people and talent are at the heart of business strategies for growth and success in the years to come.
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 countries, determining how easy or difficult it is for organisations to find the skilled professionals they need.
This is the sixth edition of the Index and for many organisations across the globe access to talent remains an issue. Businesses are continuing to compete for the sought-after skills required to operate and ultimately succeed. When employers don’t have the right people with the right skills, the implications can be far reaching.
While organisations continue to deal with skills shortages, labour markets across the globe are continually changing. This report explores three significant labour market changes: employers and workers are increasingly taking up less rigid working patterns, skilled migration is on the rise, and new technology is raising questions about who will do the work of tomorrow and what that work will look like.
Start with the fact that more and more employers and workers are adopting innovative working patterns. In the US, the number of freelance, contract, temporary or on-call jobs has grown from 10 per cent to 15 per cent of all workers in the last decade. In Europe, freelance roles have grown four times faster than total employment in the last five years. In the Asia Pacific region, Singapore and Australia are among the biggest freelance employers, and total freelancer earnings in the Philippines, Bangladesh, India and Pakistan are among the highest in the world. The greater flexibility afforded to employers and workers and the proliferation of mobile broadband are driving these innovative work patterns, making it easier than ever for businesses and workers to interact, regardless of location.
Another important finding of this report is that migrants are increasingly well educated. In the US in 2015, nearly half of recent arrivals were educated to university level. In the European Union, the proportion of all people born in another country who were university educated in 2016 was 29 per cent, up from 26 per cent five years earlier. That is important for labour markets because the United Nations estimates that 244 million people – 3.3 per cent of the world’s population – are now living in a country other than that of their birth. This is more than ever before.
Finally, digitalisation – including artificial intelligence, big data, online platforms and computers that communicate with each other with little or no human intervention – is changing the world of work. As these technologies grow in prevalence in workplaces, they will cause some roles to become less common, others to move up or down the skills spectrum and others to be freshly created due to greater efficiencies and lower transaction costs.
The challenges presented by these three developments will play out in the years to come. Others have already made themselves felt: evidence from the European Union, US and Japan in the last five years shows that higher-skill workers remain in ever greater demand relative to medium- and lower-skill workers, which is the continuation of a long-term pattern.
In the midst of these changes, the global economy is picking up modestly, and this year’s Index suggests a slight easing of labour market pressures overall compared to last year.
The average Index score across all 33 countries has declined from 5.4 last year to 5.3 this year. Overall wage pressure is a major driver. Compared to last year, average, inflation-adjusted wages are forecast to grow more slowly overall in 21 of the 33 countries covered in the Index.
Europe and the Middle East (EME)
- The Index score for Europe and the Middle East has fallen from 5.5 in 2016 to 5.4 in 2017, suggesting a slight easing of pressures in EME labour markets.
- The easing is largely due to lower overall wage pressures. Real, inflation-adjusted earnings for employees are forecast to increase by less in 2017 than they did in 2016 in 12 of 19 EME countries.
- Similar to Europe, employers may find it slightly easier to attract and retain talent in 2017 than in 2016. The average Index score has fallen from 5.0 last year to 4.8 this year.
- This is because overall wage pressures are declining in six of nine Asia Pacific countries. As in Europe, inflation is playing a role in limiting real wage growth.
- The Americas is the only region to see an overall increase in the Index score – it has increased from 5.6 in 2016 to 5.7 in 2017.
- This is largely due to a recent spike in wages in high-skill industries in Chile; if not for that, the score for the Americas would be stable. The bigger story in the Americas is that Talent Mismatch is less of a problem, indicating that employers are able to find the employees with the required skills more easily than before.
Within these average Index scores there are important changes in individual countries’ indicators. Employers continue to experience difficulties while navigating the supply and demand of skilled labour due to issues such as talent mismatch, inflexible labour markets and wage pressures in high-skill industries or high-skill occupations, with important implications for educators, policy makers, firms and workers everywhere. Failure to address these issues will only exacerbate the skills crisis further and create a lasting impact on tomorrow’s workforce.
LABOUR MARKET CHANGES ARE SWEEPING THE GLOBE
Labour markets are experiencing broad changes across the globe: freelance, temporary and part-time work are becoming increasingly important for skilled labour markets; skilled migration is at an all-time high; and digitalisation is raising questions about who will do the work of tomorrow and what that work will look like. This section of the report explores each of these important labour market issues, examining how they are impacting the way companies manage their workforce and how workers manage their careers.
Innovative working patterns are invigorating labour markets
There are more opportunities than ever before for firms and workers to adopt newer working patterns. As a result, there is evidence that temporary, part-time, freelance, and self-employment options, including work in the so-called ‘gig economy’, are an increasing trend in labour markets around the world.
Employers and employees alike are beginning to embrace new contract models and the benefits they provide to both parties, such as a greater work-life balance and higher earnings for skilled professionals, and the flexibility and greater ability to manage talent pipelines for businesses.
In the US, for example, new work patterns are flourishing. In 2015, an estimated 23.9 million people worked as freelancers, contract, temporary, and on-call workers. This amounted to 15 per cent of all workers, up from 10 per cent a decade previously. This increase in people in alternative working arrangements (9.4 million) – as opposed to standard full-time employment – was equivalent to the net number of new jobs created in the US between 2005 and 2015. Innovative work patterns are growing fastest in business operations, finance, computing, mathematics, healthcare, education, food services, and community and social services occupations.
Although some of the people working in these jobs would undoubtedly prefer traditional, full-time employment, their demographic profile suggests that much of the growth in innovative working is by choice: older and female workers, who often prize flexibility, and the well-educated, who have more options, have been the fastest to adopt freelance, contract, temporary and on-call work1.
New work patterns are growing in importance in Europe, too. For example, research suggests that there were 9.9 million freelancers operating in the EU in 2016 – a 16 per cent increase on five years earlier and quadruple the rate of growth in total employment over this period. Freelancers now make up 30 per cent of all self-employed people and 4 per cent of all workers. As in the US, many of these freelancers are highly skilled: 57 per cent of the freelancers were educated at the graduate level or above, and 30 per cent worked in professional, scientific, and technical sectors. Many freelancers are older and choose to work independently after acquiring extensive experience in the workforce.2
In the Asia Pacific region, a recent OECD analysis demonstrates that freelancing is important for both employers and people with skills to offer. The Philippines, Bangladesh, India and Pakistan are among the ten countries with the highest freelancer earnings, and Singapore and Australia are among the top ten countries by employer spending on freelancers.3
Technology is contributing to these trends. Widespread mobile broadband access makes it easier to work on the move, social networking sites make it easier for employers and people with skills to find each other, and online freelancing sites help employers and workers monitor each other’s obligations. These efficiencies can benefit both firms and workers, ultimately making it less costly for firms to seek flexible workers and easier for individuals to offer their skills if they want to earn extra income.
An important implication of innovative working is that employers are increasingly able to access demographics that were hitherto less active in labour markets. For example, more women are joining the labour market because part-time and self-employment opportunities make it easier to manage family with work life. And part-time and freelance work patterns are letting older workers take retirement in stages, which may prove to be a lifeline for experience-hungry firms operating in the growing list of countries where the prime working age population – those between the ages of 15 and 64 – is shrinking.
“The biggest potential for untapped professionals lies in the inclusion of women into highly-skilled sectors.”
Gerardo Kanahuati, Managing Director, Hays Mexico
Key insight: Female participation in the world of work
After two decades of decline, the percentage of women aged 15 to 64 who were either working or looking for work increased globally between 2011 and 2016. This was due to trends in high-income countries like Sweden, Japan, Italy, Hungary and Chile.4 The increase in female labour market participation in high-income countries overwhelmed the decline in middle-income countries like India and Indonesia, as well as in low-income countries like Tanzania and Malawi. Part of the reason for declines in low- and middle-income countries is that women are going to school for longer, which keeps them from being active in the labour market. In addition, there is an ongoing shift out of subsistence agriculture – which often requires that the entire family works – and into urban life, which is less labour intensive and boosts household income.5
In the next several years, the International Labor Organization (ILO) expects female labour force participation to increase in low-income and high-income countries, but continue to decline in middle-income countries (Fig. 1). The ILO’s forecast is built on an analysis of each country, which considers how local economic growth rates, education enrolment, and population ageing affects peoples’ decisions to enter or exit the labour market.
Changing female participation rates (i.e. those active in the labour market) have important implications for the gender mix of employment by industry. In high-income countries, women already outnumber men in employment in the service sector, and the ILO forecasts that this difference will persist over the next five years. In low-income countries, men outnumber women in services, but growth in female employment in services is expected to be greater than for men in the next five years.6
Changes in gender mix by industry will affect occupations, too. Because high-skill occupations – like those requiring research, medical treatment, and architectural design – are more common in the services sector, more women in services mean more women in high-skill occupations. Thus, in both high- and low-income countries, where female labour market participation rates are expected to increase over the next five years, the number of women working in the highest-skilled occupations is forecast by the ILO to grow faster than the number of men.7
There are more migrants than ever before and they are increasingly well educated
More people live outside of their home country than ever before. The United Nations (UN) estimates that there were 244 million people living outside their birth country in 2015, or 3.3 per cent of the world’s population. The clear majority of these migrants – 92 per cent – moved for personal or professional reasons, with the remainder classified as refugees.
Migrants are increasingly well educated. In the US, census data analysed by the Migration Policy Institute shows that nearly half of recent migrants in 2015 were university educated, compared to fewer than two fifths in 2010.8 In the European Union countries, 29 per cent of all migrants were university educated as of 2016, up from 26 per cent five years earlier.9
High-skill migrants tend to go to a small handful of recipient countries. Among OECD countries, four countries account for 70 per cent of all immigrants educated to university level: the US, UK, Canada and Australia. That is a disproportionately high share, since those four countries account for only 37 per cent of all employment and 51 per cent of all economic output in the OECD.10 For these countries, a larger pool of skilled workers makes it easier for employers to find the skills they need, which tends to increase productivity, wages and firms’ profitability. This is particularly important when skills are rare or in places where clustering creates a disproportionately large demand for a particular skill relative to the size of the economy – for example, Silicon Valley or the City of London.
Inward migration can have both positive and negative implications for existing workers. For example, migrants increase competition for particular jobs, which can put downward pressure on wages; and the faster migration occurs, the less time an economy has to adjust in ways that do not involve downward wage pressures.
Yet, by expanding the pool of available workers, migrants increase an economy’s capacity for specialisation, which can lead to an increase in productivity and wages. Migrants also consume goods and services. That boosts demand and employment opportunities. The net effect is therefore an empirical question, although the evidence across multiple countries is not overwhelming in one direction. The measured effects are often small or even indistinguishable from no change. Among studies that found positive wage effects overall, some noted that lower-skilled workers experienced a decline in wages due to immigration while higher-skilled workers experienced an increase.11
For countries that send migrants, again the impact on the local labour market is mixed. Local firms suffer when skilled people emigrate. Vacancies take longer to fill and businesses may need to pay more and look longer to find the skills they need, as a result of ‘brain drain’ within the country. But there can be benefits, too. People who migrate to live in another country, either permanently or temporarily, can establish connections to global sources of knowledge, capital and goods. Former migrants who are educated or work abroad and later return home enrich their home economies with knowledge and skills that might otherwise be unavailable to local firms. Overseas workers also often repatriate a proportion of their salaries back to their country of origin to help their families.
Regardless of the pros and cons for individual countries, migration is a trend that will continue. In the five years to 2020, the UN forecasts that high-income countries will receive an additional 14 million migrants (Fig. 2). Most of these are expected to come from middle-income countries. Low-income countries Middle-income countries High-income countries.
Technology is disrupting the work landscape
Digitalisation, which includes big data, artificial intelligence, the internet of things and online platforms, is having a profound effect on skilled labour markets around the world.12 The trend towards a more digital economy is raising questions about who will do the work of tomorrow, what that work will look like and how many jobs will change or disappear.
Some jobs will inevitably be made redundant by advances in software and robots. Estimates of the number of jobs that are at risk from automation vary widely, however. At the higher end, two academics assessed over 700 occupations in the US and determined that 47 per cent of jobs there are at risk of being automated over the next decade or two.13 Their analysis predicts that jobs in transportation and logistics, office and administrative support, and manufacturing are at greatest risk. At the lower end, two OECD economists estimated that nine per cent of the jobs that exist today in 21 member countries are at risk of being automated; this analysis is based the tasks people do at work, which the authors believe is a more robust technique than judging automation risk for entire occupations.
Some jobs will move up or down the skill-spectrum because of technology. Consider, for example, graphic design jobs, which would formerly have been largely paper-based but which now are largely computer-based and require skills with graphics editing software. Because of these technological changes, the quality of graphic designers’ output has improved and the quantity of their output has never been greater.
Still other jobs will be created because new business models become viable when technology lowers search and transactions costs – as has been seen with the rise of freelance work platforms that match employers with skilled individuals.
While pessimistic predictions may get all the headlines, it is important to remember that, historically, the total number of jobs in the world has grown alongside both technology adoption and population growth. This is because technology raises output per worker, which boosts prosperity and leads to extra demand for goods and services. Therefore, technology creates demand for new jobs just as it is rendering others redundant.
Still, there will likely be both winners and losers in the transition to new types of work. In the last five years, there is evidence that digitalisation – in combination with globalisation and demographic shifts – has disproportionately driven demand for highly-skilled workers relative to low- and middle-skilled workers (Fig. 3).14 This recent trend has a lot in common with theories developed in the last decade about ‘job polarisation’ and ‘hourglass economies’, whereby high-skilled workers are in ever greater demand while middle-skilled workers are squeezed.15
The effects of digitalisation are likely to continue over the next five years and beyond. As more people use digital technologies, the more valuable they become to their users (because part of the benefit is the number of other people who use them and the accumulation of user data that enables functionality improvements), which attracts still more people into the fold. This is a virtuous, self-reinforcing circle that is bound to continue to influence the world’s labour markets in powerful ways, some of which we are only just discovering.
Key insight: Industry 4.0 looks set to revolutionise the manufacturing sector
Industry 4.0, or the fourth industrial revolution, has the potential to change the manufacturing sector as we know it. The concept was first expressed by the German Government as part of a policy framework to maintain Germany’s industrial competitiveness.16 It is typically used to mean industrial use of machines and robots that communicate with each other, as well as with people, via the internet, although the concept can be applied to machine-to-machine or computer-to-computer conversation in many industries.17
Communication between the robots on factory floors, and between people and robots, could allow robots to start and stop processes based on real-time conditions around them and alert people when there is a problem; robots could increase their own efficiency if they could monitor themselves and determine when they needed maintenance; efficiency would also be improved if machines and robots could make production decisions on their own by, for example, ordering new supplies when existing inputs into a production process run low. The increase in productivity of industrial robots will likely reduce the number of manual jobs on the shop floor. At the same time, the increased output made possible by such robots will mean that manufacturers need more people in accounting, finance, sales, advertising, and other roles. The increase in output may also drive increased employment in manufacturers’ supply chains.
Outside of the manufacturing sector, computers that talk to each other through what are called application programming interfaces (APIs), are growing in number. APIs let machines send data to each other, analyse data without people guiding them, and present easy-to-digest results to the people who set them up. This is likely to change the composition of many jobs, with fewer people needed in basic analytical roles in professional services, but more people needed to add value to API outputs by packaging them and selling them in unique ways, making organisational decisions based on them, or even developing new products and services based on the information the APIs offer up.
In addition to shifts in particular industries, the distribution of jobs across countries could change if robots lead companies to ‘re-shore’ their factories to high wage countries. Re-shoring is the reverse of the process where companies moved manufacturing activity to low-labour-cost countries. Such shifts are expected to become more common because at the same time as wages are rising in many markets that benefited from the initial offshoring trend, locating production near consumer markets and product design centres decreases transportation costs and cuts production lead times. In turn, faster delivery and technological advancement open opportunities for firms to offer more bespoke products to their customers.
The long-term effect of Industry 4.0 on the type, quantity, and location of jobs will ultimately depend on the relative cost of labour and capital, investment levels in new technologies by different industries, the flexibility of labour markets and firms, and workers’ education and skills.
“The pace of technological change in the country creates opportunities for businesses to develop a new vision and purpose to attract talented millennials into their workforce by creating targeted and logical solutions built around automation, virtual collaboration and partnerships.”
Marc Burrage, Managing Director, Hays Japan
UNDERSTANDING THE INDEX
The Hays Global Skills Index measures how easy or difficult it is for firms to attract and retain the most talented workers in 33 countries.
The Hays Global Skills Index measures how easy or difficult it is for firms to attract and retain the most talented workers in 33 countries.
To give a complete picture of each country’s labour market, our seven indicators are chosen to highlight supply-side issues, demand-side issues, or both supply- and demand-side issues relating to the hiring of skilled workers. Together, they give a comprehensive picture of demand and supply conditions in each country’s skilled labour market, reflecting the experiences of the people on both sides of hiring tables in North America, Europe and the Middle East, and Asia.
As you explore this report, keep in mind that the Index is not a league table, where countries on one end of the spectrum could be considered ‘the best’ and the others ‘the worst’. Each country has its own labour market strengths and challenges, which are scored relative to conditions in the same country in the past. For a clearer picture of a country’s complex labour market and the dynamics at play, you must examine each of their indicator scores.
Detailed description of each indicator
Each indicator measures pressure in the local labour market now relative to a period of economic tranquillity. Higher scores mean that a country is experiencing more pressure than has historically been the case. Lower scores mean that a country is experiencing less pressure. Each of the seven indicators are given equal weight when calculating the overall Index score for each country.
Education flexibility (supply-side indicator)
In today’s global and technology‑driven economies, raising educational standards is crucial to bridging skills gaps. This indicator provides a comprehensive view of the state of education. The lower the score, the better the chance that the education system is flexible enough to meet labour market needs. The higher the score, the less likely an education system is equipped to build a solid talent pipeline.
Labour market participation (supply-side indicator)
Bringing more people into the workforce is a powerful way to improve economic and labour market performance. Countries that can raise the employee participation rate can gain an edge over countries with less scope to do so. The lower the score, the larger the potential pool of workers. The higher the score, the lower number of workers there are available to join the workforce.
Labour market flexibility (demand-side indicator)
Governments play an important part in determining how well labour markets function. For instance, they can cut red tape, avoid laws that discourage hiring and adapt policies that welcome talented people from abroad. The lower the score, the better aligned governmental policies are with labour market dynamics. A higher score means there are more barriers restricting the local labour market.
Talent mismatch (supply- and demand-side indicator)
This indicator measures the gap between the skills that businesses are looking for and the skills available in the labour market. A higher score indicates that businesses are facing a serious problem in matching available talent with unfilled jobs. A lower score suggests employers are having an easier time finding workers with the skills they need.
Overall wage pressure (supply- and demand-side indicator)
Skills shortages are likely to be an important issue when wages are growing faster than the overall cost of living. A higher score indicates the presence of overall wage pressures that are higher than the historic norm for that country. A lower score tells us wages are not rising quickly and those pressures aren’t as apparent.
Wage pressure in high-skill industries (supply- and demand-side indicator)
Some industries require higher‑skilled staff than others. As it takes time to undertake the training necessary to work in those industries, it potentially makes them more vulnerable to skills shortages as the number of people qualified to start work cannot be changed quickly. A higher score indicates that wages in high‑skill industries are growing faster than in low‑skill industries relative to the past, which is indicative of the emergence of sector‑specific skills shortages (such as in engineering or technology). A lower score tells us wages for those in high‑skill industries are rising more slowly or in line with wages in low‑skill industries.
Wage pressure in high-skill occupation (supply- and demand-side indicator)
Some occupations require a higher than average amount of training, education and experience. These are called high‑skill occupations. Rising wage pressure in this category signals that these occupations are experiencing shortages of workers with the necessary skills. The higher the score, the greater the presence of skills shortages affecting high‑skill occupations. A lower score tells us wages for those in high‑skill occupations are rising more slowly than those in low‑skill occupations.
How we display the indicators
Each country’s overall Index score is accompanied by a visual indicating the score range for each indicator (see below).
The analysis on which the Hays Global Skills Index was based used data as of Q2 2017. Developments subsequent to this date are not reflected in the 2017 findings.
THE MACROECONOMIC BACKDROP
How labour market conditions have changed since last year’s Index.
In this year’s Hays Global Skills Index, skilled labour market conditions have eased slightly relative to last year.
The average score across all 33 countries has fallen from 5.4 in 2016 to 5.3 in 2017. The score fell for 18 countries, rose for 12, and stayed the same for 3 (Fig. 4).
The main driver of more relaxed labour market conditions is overall wage pressure (Fig. 5). In 21 of the 33 countries featured in the Hays Global Skills Index, the growth in real earnings that employees take home from their jobs is forecast to slow in 2017 compared to 2016, or in some cases even fall.
The decline in average real earnings growth was reinforced by the narrowing of the gap in pay between employees in high-skill and lower-skill industries. The score for wage pressures in high-skill industries fell in 18 countries, rose in 12, and stayed the same in three. In countries like the UK and Spain, this was because wages in lower-skill industries have grown faster while wages in high-skill industries grew more slowly. In others, like Russia and Hungary, while wages in both high- and lower-skill industries slowed, growth was slightly faster in lower-skill industries.
Offsetting the decline in indicators of overall wage pressure and the wage gap in high-skill industries, the available evidence shows that the gap in wages between high- and lower-skill occupations has grown significantly in a couple of countries.
The changes were especially notable in Chile, which saw wages for people in executive positions increase substantially, and Australia, where wages in high-skill occupation categories like database and systems administrators, ICT security specialists and medical practitioners, have continued to grow at the same rate as they had in the previous year, while lower-skill occupations experienced much slower wage growth. Elsewhere, in Denmark and Luxembourg, there are signs of a diminished skills premium. In Denmark, pay growth in high-skill occupations has been mostly flat, whereas pay for lower-skill occupations increased at a faster than usual rate. In Luxembourg, wages in high-skill occupations fell slightly while wages in lower-skill occupations rose slightly. This suggests that, relative to lower-skill occupations in Denmark and Luxembourg, the supply of high-skill workers has increased or that the demand for high skill workers has moderated, or a combination of both.
“Things are expected to become somewhat bleaker in the next few years as baby boomers begin retiring from 2020 and, due to low birth rates, won’t be replaced in the market.”
Klaus Breitschopf, Managing Director, Hays Germany
Global economic outlook
The world economy is picking up speed, albeit at a slower pace than expected in the recent past. All else being equal, this will tend to increase employers’ demand for workers.
The International Monetary Fund (IMF) forecasted in April that world GDP would grow by 3.5 per cent in 2017.18 if achieved, that would be an improvement on economic growth of 3.1 per cent in 2016, and slightly higher than the average for the last five years, at 3.4 per cent. The 33 countries featured in the Index are forecast by the IMF to experience GDP growth of 2.9 per cent in 2017, up from 2.5 per cent in 2016.
Amidst modestly rising global growth, the supply of workers available to employers is changing because of shifting demographics and labour market participation rates. Across all countries in the Index, the working age population is forecast to increase by 12.2 million people between 2016 and 2017, although most of this is due to population growth in India. Excluding India, the working age population across all countries in the Index is forecast to decline by nearly a million people in 2017 due to population ageing (Fig. 6). However, even with shrinking populations, rising participation rates in 25 of these 32 countries will cause the supply of skilled workers to increase by 1.1 million people.
Key insight: The long-term demographic outlook
Ten years ago, only four of the Hays Global Skills Index countries’ prime working age populations – people between the ages of 15 and 64 – were shrinking: Germany’s, Portugal’s, Hungary’s and Japan’s. This has changed. In 2017, The United Nations estimates the 13 out of the 33 Hays Global Skills Index countries will experience declines in their working age populations: the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Portugal, Russia, Spain, China, Hong Kong and Japan.
Within five years, Austria, Belgium and Singapore will join that list. And within ten years, Denmark and Switzerland will count among the countries with declining working age populations, bringing the total to 18 out of the 33 countries in the Index. The total decline among these 18 countries over ten years is forecast to be 50 million people, or 3.5 per cent of their combined population this year.
While increasing labour market participation rates may help ease the challenges in some countries for a time, it will likely be overwhelmed by declines in the size of the working age population at some point. As that happens, employers may find it increasingly difficult to find the skilled labour they need.
Europe and the Middle East (EME)
Like the rest of the world, European economies are beginning to see a slight increase in their growth prospects. The IMF forecasts that the 19 Index countries in the Europe and Middle East region will experience economic growth of 1.8 per cent in 2017, up from 1.6 per cent in 2016.
The decline in working age populations in several European countries is likely to adversely affect employers looking for skilled workers, because the skill pool is shrinking as people retire. In Russia, the UN forecasts that there will be a million fewer people in the labour market in 2017 compared to 2016. Small falls in the size of working age populations are also predicted for Poland, Germany and Italy.19 Overall, the number of people participating in the labour markets in the Index’s EME countries is forecast to decline by 0.3 per cent this year.20
Rising vacancies are a growing challenge in many European countries, and that has pushed the average score for the talent mismatch indicator up. In 2016, vacancies rose compared to 2015 in all but one of the 16 European countries for which vacancy data is available. The largest increases were in the Czech Republic (up 40 per cent), Hungary (33 per cent), and Sweden (29 per cent). There were smaller but still significant increases in vacancies in Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, the Netherlands, Poland, Spain, Switzerland and the UK.
Despite a modestly rising economic growth rate, higher talent mismatch indicator scores and a declining supply of labour– which would otherwise lead to a more pressured labour market – the Index score for Europe and the Middle East is 5.4 this year, down slightly from 5.5 last year. That suggests that it is slightly easier, on average, for firms looking to attract and retain talented staff.
The cause is lower overall wage pressure. That, in turn, is mostly a result of higher forecasted inflation. After three years where the average inflation rate was less than 1 per cent in the 18 European economies in the Index, consumer prices are forecast to rise by nearly 2 per cent on average in 2017. Wages may not always keep up. In real terms, wage growth is forecast to be lower in 2017 than in 2016 in 12 of 18 European countries. In some countries, like Belgium, Italy, Spain and the UK, overall wages are forecast to decline in real terms in 2017.
Economic growth is expected to increase in Asia Pacific countries in 2017, but the average growth rate for the region will be driven almost entirely by India and China. The Asia Pacific economies are forecast by the IMF to grow by 5 per cent in 2017, up from 4.9 per cent in 2016.21 Excluding India and China, however, GDP growth is forecast to be a more modest 1.9 per cent.
Several Asia Pacific countries are forecast to have higher rates of labour market participation in 2017 compared to 2016, and this has contributed to a decline in the labour market participation indicator score. In New Zealand, overall labour market participation rates are expected to rise by three percentage points, while Hong Kong and Japan are expected to experience one percentage point increases in their labour market participation rates.22 In Japan this will help to offset a falling working age population.
As in Europe, employers may find it slightly easier to attract and retain talent in 2017 than they did in 2016 in the Asia Pacific region. The average Index score among countries in this region declined from 5.0 last year to 4.8 this year. Apart from increased labour market participation which increases the talent pool for employers to choose from, this is largely driven by lower overall wage pressures. Employees are forecast to receive lower real wage growth in six of nine Asia Pacific countries in 2016 compared to 2015. A significant reason for this is rising inflation. In five of the six countries where overall wage pressures are lower, inflation is forecast to be higher in 2017 than in 2016, which will limit real terms wage growth.
The economies in the Americas are forecast by the IMF to grow by 2.1 per cent in 2017, nearly double the growth rate achieved by these economies in 2016.23 That will tend to increase demand for skilled labour in the region.
Offsetting the expected increase in demand in the Americas, the supply of workers continues to increase in the region. The ILO and the UN forecast that 1.2 million people will join the labour market in Brazil in 2017 and 1 million will join in Mexico. In the US, which gets more immigration than any other country, the working age population is forecast to grow by just over half a million people.
The Americas is the one region that has seen an overall increase in the Index score in 2017, although this is largely due to a significant change in Chile. If not for Chile’s contribution – driven by a significant increase in the gap in wages paid to people in executive occupations in Chile – the Index Score for the Americas would remain unchanged.
Perhaps more important is evidence that talent mismatch is less problematic in four of the six countries in the region. In Canada and Chile, for example, the job vacancy rate was lower in 2016 than the previous year. Meanwhile, the rate of long-term unemployment, which contributes to the talent mismatch indicator, has recently declined in the US, Canada and Mexico. These lower vacancy and long-term unemployment rates suggest that employers are having an easier time finding employees with the right skills in the Americas compared to earlier years.
Each year, our analysis of skilled labour markets incorporates the views of our in-country experts, considers the latest labour market statistics across 33 countries, and includes research about the overarching skilled labour market issues that span the continents.
Averaging across all countries, we found that labour market conditions have eased slightly this year, largely due to declines in overall wage pressures. But within that overall picture, there are significant changes. In the Europe and Middle East region, there has been a rise in talent mismatch, but the effect on the overall score has been limited by easing wage pressure in the whole economy. In the Asia Pacific region, rising gaps in the pay between people in high-skill occupations and lower-skill occupations has been counteracted by lower overall wage pressure. And in the Americas, a decline in talent mismatch – due to falling vacancies and long-term unemployment rates – has been outweighed by an increase in wage pressure in high-skill occupations, particularly in Chile.
Our research also uncovered sweeping changes taking place in labour markets around the world. Technology has made it cheaper and easier for firms and workers to adopt temporary, part-time, freelance and self-employment options, and there is evidence that more and more people in the US, Europe and Asia are taking advantage of those options.
The number of migrants in the world is at an all-time high, at 244 million people or 3.3 per cent of the global population, and the evidence shows that they are increasingly well educated. Finally, digitalisation is causing certain jobs to move up or down the skill spectrum, eliminating other jobs, and creating entirely new jobs, all while generally driving up demand for highly-skilled workers.
Labour markets are evolving at a rapid rate, from how workers connect with employers to automation of the workforce. The labour market must now adapt to the sweeping changes affecting labour markets globally and navigate the complexities of supply and demand of skills.
There will be both opportunities and challenges for employers, workers, educators and policy-makers for years to come as the diverse skills landscape we describe in this report continues to unfold.
“Candidates in areas of skills shortages remain in high demand and can receive multiple job offers and counter offers. They are also commanding significant salary increases, but generally wage pressure is easing across the UK.”
Nigel Heap, Managing Director, Hays UK
1. Lawrence F. Katz and Alan B. Krueger, “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015”, 2016.
2. Association for Independent Professionals and the Self Employed, “Understanding Independent Professionals in the EU, 2015”, 2016.
3. OECD, “New forms of work in the digital economy”, 2016.
4. In this report, countries’ income classifications adhere to World Bank definitions of high income (US $12,476 or greater), middle income (US $1,026 to $12,475), and low income ($1,025 or less).
5. International Labour Organization, “Women at Work: Trends 2016,” 2016. Note: unlike the participation rate, the number of women in work in all country income classifications has increased; that is because growth in the female population aged 15-64 overwhelmed declining participation rates among that group.
6. International Labour Organization, “Employment by sex and economic activity – ILO modeled estimates”, 2016.
7. International Labour Organization, “Employment by occupation – ILO modeled estimates, Nov. 2016”, 2017. The highest-skill roles require complex problem solving, decision making, and creativity. They include things like research and analysis; diagnosis and treatment of disease; teaching; architecture; ensuring regulatory compliance; preparing detailed estimates of materials and labour costs; coordinating and supervising workers.
8. Migration Policy Institute, “New brain gain: rising human capital among recent immigrants to the United States”, 2017.
9. Eurostat, “Population by educational attainment level, sex, age and country of birth”, 2017.
10. World Bank, “Global Talent Flows”, 2016.
11. Christian Dustmann, Tommaso Frattini and Ian Preston, “The effect of immigration along distribution of wages”, 2013, and Bank of England, “The impact of immigration on occupational wages: evidence from Britain”, 2015, and Christian Dustmann, Albrecht Glitz and Tommaso Frattini, “The labour market impact of immigration”, 2008.
12. The internet of things refers to the growing number of devices and appliances connected to the internet.
13. Carl Benedikt Frey and Michael A. Osborne, “The future of employment: how susceptible are jobs to computerisation?”, 2013, and OECD, “The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis”, 2016.
14. IMF, “World Economic Outlook”, April 2017.
15. David Autor, Lawrence Katz and Melissa Kearney, “The Polarizaton of the US Labor Market”, 2006 and Maarten Goos, Alan Manning and Anna Salomons, “Explaining Job Polarization: Routine- Biased Technological Change and Offshoring”, 2013.
16. European Parliament, “Industry 4.0”, 2016.
17. The first industrial revolution was steam power, the second was electricity and assembly lines ,and the third was computerisation. A related term is the ‘internet of things’.
18. IMF, “World Economic Outlook”, April 2017.
19. United Nations, “World Population Prospects: The 2015 Revision”, 2015.
20. International Labour Organization, “Labor force participation rate by sex and age,” 2015.
21. IMF, “World Economic Outlook”, April 2017.
22. When subtracting one percentage from another, the result is a change in ‘percentage points’.
23. IMF, “World Economic Outlook”, April 2017.
DATA SOURCES FOR INDICATOR SCORES
The analysis on which the Hays Global Skills Index was based utilised data as of Q2 2017. Developments subsequent to this date are not reflected in the 2017 findings.
Heritage Foundation, Index of Economic Freedom
Improvements in education levels
Barro and Lee dataset (www.barolee.com)
Change in economic participation rate (overall)
Oxford Economics Global Macro Model
Change in economic participation (15-24 year olds)
International Labour Organisations (ILO)
Change in economic participation (55-64 year olds)
International Labour Organisations (ILO)
Economic participation rate rank
International Labour Organisations (ILO)
Long-term unemployment rate
Organisation for Economic Co-operation and Development (OECD), National statistical agencies
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
Oxford Economics Global Macro Model
Oxford Economics Global Macro Model
Earnings by industry
National statistical agencies
Earnings by occupations
National statistical agencies
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
Oxford Economics Global Macro Model
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
ABOUT HAYS AND OXFORD ECONOMICS
Hays has been helping organisations and businesses fill permanent positions, contract roles and temporary assignments, across the private and public sectors for nearly 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 10,000 staff operating from 250 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. Its recruiting experts deal with 7 million CVs every year and conduct nearly 45,000 interviews per month. Last year Hays worked with clients, large and small, across the globe to find over 70,000 permanent employees and to fill 240,000 temporary assignments.
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 during 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 Hay’s’ 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 haysplc.com
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