Comparison Tool


Introduction

 

“As the global economy slowly recovers, businesses are still struggling to find the talent they need.”

Alistair Cox, Chief Executive, Hays plc

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Welcome to the 2016 edition of the Hays Global Skills Index. In our fifth year of producing the Index, the need to address skills shortages is more critical than ever; the skills gap is fast becoming a skills chasm. As the world’s largest specialist recruiter, we feel it is our responsibility to continue to examine the global skills landscape and add our expertise and insight to the debate.

This year marks the fifth edition of the Hays Global Skills Index. Looking back to our first report in 2012, we’re reminded how much has changed – in politics, business and technology – and the pressure on organisations to keep up.

2016 has been a year of momentous change. The EU referendum, the US presidential elections and the slowdown in emerging markets are just a few of the issues companies are contending with. We have seen workers’ strikes in France, political upheaval in Spain and ongoing debates about global border control.

At Hays, our focus is on placing great people into the right jobs and helping our clients find the talent they need, whichever country they are in. Our diversity by geography and specialism is more important now than ever.

The past year has seen much debate about how technology and automation will impact the global labour market. We know that automation is no longer limited to mechanical, repetitive tasks. Machines are now able to drive cars, draft annual reports, diagnose illnesses and create complex economic models.

While we often hear daunting predictions about the number of jobs this may replace, my view is that these technological advances will bring huge benefits to the global labour market. We need to remember the millions of new jobs that will be created, many of which aren’t even imaginable today. We also need to find ways of using robotics to make tasks more efficient, putting humans in control, making them better at their jobs and boosting productivity.

Never has this been more important. This year’s Hays Global Skills Index shows that as the global economy slowly recovers, businesses are still struggling to find the talent they need.

In Europe, the skills gap has widened while productivity levels remain dismally low. In Asia, China and India are experiencing slower economic growth, which places its own pressure on employment. On the other side of the world in the US, the story is one of an increasing talent mismatch, manifested by simultaneous growth in both unemployment and job vacancies.

There are, however, some bright spots. Looking at the countries that fared particularly well this year, around 130,000 new jobs have been created in Italy since the start of 2015, while unemployment has also fallen. Germany’s labour market continues to be buoyant. In Japan the Government has introduced new ‘womenomics’ policies aimed at boosting the number of female workers.

Based on the trends we have seen from the past five years of the Hays Global Skills Index, and the views of our experts around the world, we have developed a set of strategic recommendations to governments and business leaders alike. We believe if these recommendations are implemented we will 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. Address skilled migration to tackle the ever-growing skills gap

The skills gap is something that we at Hays have been talking about for a long time, but the issue is becoming more serious as each year passes. To address this problem, we need to make a clear distinction between skilled migration and mass immigration, looking at new ways to ensure each market is attracting the best and most relevant talent. Governments need to identify skilled roles that aren’t being filled by local workers, opening up their labour markets to appeal to more overseas candidates regardless of their origin.

2. Implement smarter training programmes to ensure businesses are future-proofed

Businesses and governments need to work more closely together to create policies that will train and develop the skills of the future. These aren’t just new digital skills – such as coding, programming, informatics and data analysis – although these are critically important. It’s also the softer ‘employability skills’, including problem‑solving, communication and negotiation, which are often neglected in education but highly valued by business. This training must apply not only to new graduates, but also middle managers and older workers.

3. Tackle low productivity through better technology and employee engagement

Low productivity continues to be an obstacle to economic growth in many countries, particularly in Europe. Better technology is part of the solution. This could include anything from greater access and use of smart devices while on the move, to introducing new software to analyse customer data. Businesses also need to have open conversations with employees about how to improve their engagement with the business. Organisations can never be productive if their people are not productive; people can never be productive if they are not engaged.

As we look ahead beyond 2016, I hope that this year’s Hays Global Skills Index will provide a useful insight into global labour markets, mapping out what is needed to attract the best talent both now and in the future.

 

Executive summary

Skills shortages and skills mismatches are worrying issues for businesses. When employers find it difficult to recruit the people with the skills they need, there are real costs involved. These may be lost business, reduced productivity or a need to undertake additional training to upskill people. There are also implications for the workload and welfare of existing staff with increasing pressure to meet growing demand. For these reasons, Hays continues to monitor developments in skilled labour markets in which it operates. The Hays Global Skills Index (the Index) is one of our contributions to that debate.

The Index helps to identify where there are skills shortages, or too great a skill pool for the jobs available and also looks at the effect this has on wages. The report analyses how the global skilled labour market has changed over the previous year, but as this is our fifth year we have also looked back to the report’s initial year of 2012 to take a longer‑term view of developments across the global labour market.

Movements in the overall Index

  • Across the 33 countries in which Hays operates, there is evidence that the skilled labour market has tightened further since 2015. The overall average Index score has increased slightly from 2015.
  • At the global level, the tightening in skilled labour markets was brought about by a strengthening in the demand for skilled labour, as the global economy continued its slow recovery. This has increased talent mismatch and wage pressures. The indicators for skilled labour supply, such as labour market and education flexibility, remained unchanged over the past year.
  • By region, the increase in the overall Index score reflects more pressured skilled labour market conditions in Europe and the Middle East (EME), which has more than offset
    a slight easing in demand in the Americas and Asia Pacific.

Europe and the Middle East (EME)

  • In EME, the Index increased from 5.4 in 2015 to 5.5 in 2016, suggesting skilled labour markets have tightened.1
  • Moving through 2016, the demand for skilled labour in Europe has increased slightly. Growth has been particularly strong in several economies that were worst hit by the financial crisis, such as Ireland, Portugal and Spain.
  • Echoing the global picture, the indicators around the supply of skilled labour have changed little in EME. As a result, wage pressures have emerged and talent mismatch has worsened, pushing the average Index score higher this year.

The Americas

  • In the Americas, the skilled labour market performance is broadly unchanged compared to the previous year. This hides considerable disparity between, on the one hand, tight labour markets in the United States and Canada, and on the other, a downbeat picture in Central and Latin America, held back by economic turmoil in Brazil.
  • The standout story across the Americas, however, is again one of increasing skills mismatch, brought about by simultaneous growth in both unemployment and job vacancies. This suggests companies are finding it increasingly difficult to find the people with the right skills among the unemployed.
  • The growth in mismatch does not appear to have impacted wage pressures yet across the Americas. Both overall wage pressure and occupational wage pressure wielded a negative impact on the aggregate Index score in 2016.

Asia Pacific

  • In the Asia Pacific region, the picture is also one of divergence.2
  • The Big 3 of China, India, and Japan have all experienced an easing in their labour markets. In the other Asia Pacific countries, the evidence is more mixed, pointing towards softer demand for skilled labour in some, but increased skill shortages in specific occupations and industries.
  • Nowhere are the divergent experiences more evident than in the strength of wage pressures in the skilled labour market in the Asia Pacific region in 2016. While there seems to be a decline in the wage premium between high‑ and low‑skill industries relative to the past, it seems to have increased
    in high‑skill occupations relative to low‑skill ones.

Global labour markets continue to be placed under pressure as they are impacted by ongoing economic uncertainty. The continued challenge to find skills in key areas is not unique to one country and businesses are struggling to manage their talent pipelines. While there is still a lot more that policy makers, business leaders and educational institutes can be doing to tackle the issue, we have seen examples of governments having a positive impact by implementing polices that are supportive to labour markets. The Hays Global Skills Index examines these changes in an effort to learn what can be done in other areas of the world and also continues to offer important insights into the puzzle that is the global skills crisis.

 

UNDERSTANDING THE INDEX

The Hays Global Skills Index is a complex, statistically-based report designed to assess the dynamics of skilled labour markets across 33 countries.

Seven indicators make up the Hays Global Skills Index

The following seven indicators are given equal weight when calculating the overall Index score for each country. Each indicator measures how much pressure different factors are exerting on the local labour market. 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 than has historically been the case.

Education flexibility

education

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

labour-market-p

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

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

talent-mismatch

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

overall-wage-pressureSkills 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

wage-pressure-in-high-skill-industries

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

wage-pressure-in-high-skill-occupations

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.

Each country’s overall Index score is accompanied by a visual indicating the score range for each indicator (see below).

Seven indicators example graph

 

The analysis on which the Hays Global Skills Index was based utilised data as of Q2 2016. Developments subsequent to this date are not reflected in the 2016 findings.

 

THE MACROECONOMIC BACKDROP

The Macroeconomic Backdrop

The global economy continues to recover from the effects of the financial crisis but growth remains modest at best. Even the emerging ‘giants’, China and India are experiencing slower rates of GDP growth than they enjoyed a few years ago, while Brazil is in recession. Relatedly, any improvements in skilled labour market conditions have been limited and patchy, highlighting how conditions have profoundly shifted: companies’ demand for skilled labour is no longer buoyed by surging world trade and global economic growth.

At a regional and country level, the macro picture is mixed: some economies have strengthened, while others – particularly emerging and developing economies – have suffered as a result of low commodity prices and tightening financial conditions. Certain emerging markets, such as Brazil and Russia, are still stuck in very deep recessions, while others, like Ireland had managed to outpace most developed economies thanks to an uplift in household spending.

Consequently, skilled labour market conditions vary markedly in different parts of the world. Grouped into large overarching regions, however, it is possible to discern some headline patterns. The overall Index score increased slightly from 2015, as changes in skilled labour market conditions in Europe and the Middle East (EME) more than offset a very slight loosening in the Americas and Asia Pacific. The annual change in Index scores should not mask the overall position that suggests skilled labour markets in the Americas and EME remain tight relative to the past, while Asia Pacific remains little changed from historic trends.

Drilling down into the seven separate indicators that make up the Hays Global Skills Index provides us with additional detail of skilled labour market conditions across the world. At the global level, there has been no change in the indicators of skilled labour supply: education flexibility, the labour market participation rate and labour flexibility are all unchanged in 2016 from their 2015 levels. This suggests a strengthening in companies’ demand for skilled labour is likely to explain the worsening in talent mismatch score and the increases in overall and occupational wage pressures, which boosted the aggregate score.

Figure 1: HGSI indicator scores (2016 vs 2015)

The unchanged nature of the three indicators that directly relate to the supply of skilled labour at the global level should also not mask the changes that are occurring in individual countries.

These relate to policy decisions made by each individual country’s governments, these are discussed in a section of their own.

Malaysia and the United Arab Emirates – two new additions to the Hays Global Skills Index

From the outset, the Index aimed to cover all 33 countries in which Hays operates, though this was never going to be easy given the quantity of information needed to construct the Index for each country. We started in 2012 with 27 countries. The next year, we added Austria, Chile and Luxembourg. Colombia followed in 2014, taking the total to 31, and missing only Malaysia and the United Arab Emirates (UAE). This year both countries have been added to the Index, though a lack of data on vacancies (used to build the talent mismatch indicator) has meant that for these two countries the overall Index score has been calculated using just six indicators.

In Malaysia, the labour market is performing fairly well with an overall score of 5.3, indicating average pressures on the market and consistency in line with its historical performance.

One indicator that stands out is the high labour market participation rate (score of 3.7), which boosts the supply of labour available. However this is negated by relatively poor (and worsening year‑on‑year) labour market flexibility (score of 6.1).

The UAE overall score of 4.8 suggests that the labour market is close to being in balance. It achieves this in a very different way to Malaysia, for example, by having a flexible and open labour market which attracts international migrants (seen in the low flexibility indicator score). This compensates for the inflexibility of the local educational system and a relatively low participation rate amongst local Emirati (seen in the reasonably high participation score of 5.6).

In this report UAE comes under the region Europe and the Middle East (EME), while Malaysia completes the Asia Pacific bloc.


“The region is still attractive to international job seekers and interest in moving here remains high. For those organisations which are hiring there is no critical shortage of talent.”

Chris Greaves, Managing Director, Hays UAE


Figure 2: Hays Global Skills Index scores (by country)


Europe and the Middle East (EME)

Demand for skilled labour in Europe seems to have picked up slightly in 2016 given modest economic growth across the region. Another positive theme this year is evidence of economic recovery among several of the economies worst hit by the financial crisis (Ireland, Portugal and Spain), arguably lending credibility to claims that tough labour market reforms are finally starting to pay off. As a result, some noted disparities in European skilled labour markets have started to decline across the continent. All is far from rosy, however. Unemployment remains high, pay and productivity growth remains weak and the workforces in some countries are set to decline in size in the near future.

Labour market conditions have tightened across the EME region. Figure 3 shows the average scores for 19 EME countries. Both employment indicators have tightened: talent mismatch recorded a large increase (0.22), indicating the number of unfilled job vacancies remains high despite high numbers of unemployed workers. Labour market participation also increased slightly (0.04), signalling a fall in participation rates across the region. Though less dramatic, this is worrying as poor employment prospects might be acting to discourage some from looking for work. This may be important as working‑age populations begin to decline in the future (as an ageing population and lower birth rate impact the numbers of working‑age people in countries like Germany).

Figure 3: EME - HGSI changes (2016 vs 2015)

Turning to wage pressures, overall wage pressure – the increase in wages over and above the cost of living – recorded a sharp increase (0.64). By contrast, wage pressure in high-skill industries and wage pressure in high-skill occupations changed little, suggesting that pressures are not any more pronounced in those parts of the labour market than others. This contrast is perhaps surprising, since the strong pick up in talent mismatch (0.22) suggests that employers are finding it increasingly difficult to fill vacancies despite continuing high rates of unemployment, a difficulty that is by definition more likely
to affect higher‑skilled industries more.

Figure 4 reports the indicator scores for the region, together with their values five years ago when the Hays Global Skills Index was first created. Four of the five indicators have increased suggesting the skilled labour market has tightened between 2012 and 2016 which is broadly what would be expected as the economy recovers. The only indicator that has not increased is wage pressure in high-skill occupations, which only marginally changed.

Figure 4: EME - HGSI indicator scores (2016 vs 2012)

Figure 4 also points toward a sharp pickup in overall wage pressure, despite there being plenty of flexibility in the labour market. An explanation that this might reflect improved productivity rather than higher costs (and prices for their customers) is, unfortunately, ruled out by Europe’s productivity record: over the past decade pay has risen faster than productivity in all but four of the 19 countries. Of these four, Ireland and Spain have faced tough austerity programmes, while Luxembourg and the United Kingdom have had exceptionally weak pay growth.

Key insight: Are we in a ‘new normal’ of weak employment growth and higher unemployment?

The majority of this report focuses on developments in the skilled labour market up to mid‑2016. But a new report by the International Labour Organisation (ILO) suggests the outlook over the next few years may be more pessimistic.3 This reflects downward revisions to forecasts as to the rate at which the world economy is expected to grow over the next few years, in particular, the more negative outlook for growth in emerging and developing economies. In turn, this and other developments are expected to negatively impact commodity prices, which will adversely affect the economies and labour markets of the commodity exporters in the Hays Global Skills Index, such as Australia, Brazil, Canada, Chile and Russia.
The ILO forecasts that the numbers of unemployed will increase by 2.3 million in 2016 to stand at 199.4 million across the globe. Some 2.4 million additional people will be looking for work in emerging economies and 0.5 million in developing economies. The forecast predicts a further 1.1 million increase in global unemployment in 2017. Long periods of unemployment erode people’s skills and productive potential. The numbers forecast to be unemployed around the world over the next two years are dwarfed by the numbers of working‑age people who choose not to participate in the labour market.

The ILO estimate this untapped source of labour supply exceeds two billion around the globe. They estimate a further 26 million joined their ranks in 2015. The ILO projections predict participation rates are likely to fall in the next few years, from 62.9 per cent in 2015 to 62.5 per cent in 2020, with developed and emerging economies forecast to see declines in activity rates. The forecast decline in participation is expected to be part cyclical and part structural. Unemployment and a weak labour market outlook will cause some jobseekers to become discouraged and drop out of the labour market. The ILO identifies an ageing population and increasing years spent in education in many countries as possible drivers of the participation rate.

The combination of the less optimistic demand outlook and falling participation rates leads to relatively subdued predictions for employment growth in 2016 and 2017. The ILO forecasts that employment will grow by less than one per cent a year in Eastern Asia, Western Europe, Canada and the United States. Latin America and the Caribbean are forecast to fare slightly better.

ILO forecasts for average annual growth in employment in 2016 and 2017 (%)

The Americas

Taken as a whole, economic growth in the Americas has also been subdued over the past year, but this overall impression hides two different stories within the continent. North America has performed well, relatively, enjoying another year of growth, while Latin America has been dragged down by the severe recession in Brazil. A common theme across both parts of the Americas, nonetheless, is a rebound in labour market participation.

The US labour market remains under strain. Talent mismatch and wage pressure in high-skill industries are both stuck around ten (the Hays Global Skills Index’s highest score). Yet in a positive development, participation rates continue to recover from their precipitous fall following the 2008 recession, with labour market participation falling by 0.4 points. Partly offsetting this positive development, however, the US must confront the problems of both an ageing workforce and sluggish productivity growth that remains well below its pre‑recession level. Canada has also fared relatively well: wage pressures have eased, notably in high‑skill occupations.

Turning to Central and South America (Figure 5), the picture is more downbeat. Brazil is the biggest cause of concern. By the end of this year, GDP is likely to have fallen by over eight per cent in the past two years, with the unemployment rate expected to end the year at around 12 per cent (up from 6.5 per cent in the final quarter of 2014). This large jump is one reason for the large increase in talent mismatch in Figure 5 rather than because of worsening matching per se. Colombia’s labour market also took a turn for the worse on the back of slowing economic growth, albeit the economy is expected to pick up again next year. In contrast, Chile has performed well with the economy growing at about two per cent and positive supply‑side developments helping to edge down its overall Index score by 0.1 on improving labour market participation and talent mismatch.

Figure 5: Central and South America - HGSI changes (2016 vs 2015)

Arguably, the Americas encapsulates the global story within one continent. The US was at the epicentre of the financial crisis in 2008, while the tail end of the storm has hit the continent’s commodity exporters, as commodity prices collapsed, with Brazil the most prominent casualty.

Yet while Brazil’s problems cast a shadow over the region’s immediate prospects, the continent’s skilled labour markets are showing remarkable resilience. This is shown in Figure 6 that compares the region’s scores this year with those of 2012. Employment conditions have actually improved over the five years, whether measured by labour market participation or talent mismatch. Overall wage pressures have also been restrained, despite strong commodity prices over much of the period and the strength of the US economy. The picture at the industry and occupational level is less clear cut. High‑skill industries have faced increasing wage pressures, but this is not corroborated by the evidence on high‑skill occupational wages. This suggests high‑skill occupations are spread across a range of industries, not just located within the high‑skill ones.


“The overall shortage of skilled workers shows no sign of improving, especially as more baby boomers retire every year without enough experienced professionals available to replace them.”

Rowan O’Grady, President, Hays Canada


Figure 6: The Americas - HGSI indicator scores (2016 vs 2012)

Key insight: Robots and the workplace – what are the implications for workers?

The past year has seen a great deal of interest in how the technological revolution is changing the way we live and work. Automation is currently no longer confined to simple routine physical tasks; machines are more and more capable of conducting non‑routine cognitive tasks, such as driving or legal writing.4 Experts predict that robotics and artificial intelligence (AI) will pervade ordinary life in the coming decade, with huge implications for a wide range of sectors including healthcare, transport and logistics, customer service, and home maintenance.5 According to recent studies widely cited by the press, as many as half of all jobs in the US and the UK will be transformed or disappear.6 Given the scale of its possible impact, the World Economic Forum has called it the ‘fourth industrial revolution’, although many jobs in the service sector are as vulnerable as those in industry.

Whether so much change brings in its wake a better or bleaker future for the employee and employers remains to be seen. Some experts optimistically argue that “advances in robotics and AI are likely to provide new opportunities for human workers that are not realised at this time”, hence benefitting both employers and employees.7 With this respect, a clear distinction must be made between AI and intelligence amplification (IA). While the former makes robots autonomous and detached from humans, the latter puts humans in control and makes them better at their jobs. Therefore IA gives humans the chance to leave robotic tasks to robots and find more fulfilling and rewarding work for themselves, which would be beneficial for both firms and workers. It may not be an easy or smooth transition, but big gains could lie ahead and not taking advantage would represent a missed opportunity.

A study by the Pew Research Center interviewed a number of experts about how they thought networked automated, AI applications and robotic devices will affect jobs by 2025. Half of the respondents (52 per cent) expect that the coming changes shall not displace more jobs than they create within this time horizon. Although they think many tasks currently performed by humans will in essence be taken over by robots, they also believe that human ingenuity will generate new occupations, industries, and ways to make a living, as it has been doing throughout history. In addition, many argue that there are some jobs which only humans have the ability to do, for example because they involve creativity or critical thinking. A general manager at Microsoft put it this way; “It is clear that advances in automation will eliminate some jobs, but they will create others as well as free up some resources that could be applied to other pursuits. I do not foresee a situation where we will have successfully automated humans out of work. On the contrary, I see a situation where we have greater need for higher‑skilled workers who are comfortable with using and creating technologies.”7

Back in 2011, our report ‘Creating Jobs in a Global Economy, 2011‑2030’ looked at many of these themes. It remains our view that the continuing technological revolution will bring with it both winners and losers. Being adaptable and willing to invest in one’s skills will be a key factor in deciding whether or not your role is future proof.

Asia Pacific

Despite growing less rapidly than in previous years, the Asia Pacific region displayed lively growth rates last year, with the two ‘giants’, China and India, taking the lead. The region also stands out being less affected by an ageing workforce while also being more successful at sustaining growth in productivity and pay, albeit at below the pre‑global crisis rate. All said and done, Asia Pacific appears the stronger performing region over the past 12 months.

This appearance of ‘business as usual’ is deceptive, however, with the performance of the region’s skilled labour markets increasingly divided into two blocs. On one hand, the Big 3 of China, India, and Japan have experienced an easing in their labour markets (Figure 7). For India and Japan, the easing is most apparent in wage pressure in high-skill industries and talent mismatch. For China, where labour supply has also improved (labour market participation fell by 0.9 points), overall wage pressure has fallen sharply by two points.

Figure 7: Big 3 - HGSI changes (2016 vs 2015)

In the other Asia Pacific countries (Figure 8), a somewhat different picture emerges. This group includes the commodity exporters, Australia and New Zealand, together with the smaller trading nations of Hong Kong and Singapore. Overall wage pressure has eased, consistent with softer demand. But despite this, the other indicators all point to increased skills shortages. Talent mismatch has increased, indicating that firms are finding it harder to fill posts, despite an easing in demand. Moreover, this is corroborated by wage pressure in high-skill industries and high-skill occupations which have both increased. So it appears that these countries which have played an important role in powering the region’s economy, are now finding it hard to adjust to changing patterns of demand among their larger trading partners.

Figure 8: Rest of Asia Pacific - HGSI changes (2016 vs 2015)

Figure 9 looks at how the region’s Big 3 economies compare in 2016 relative to five years ago when the Hays Global Skills Index was first constructed in 2012. Overall wage pressures have increased markedly and, as in Europe, pay has run ahead of improvements in productivity (except for Japan, where real pay has decreased over the past decade). Yet this does not appear to have been driven by mounting skills shortages as neither wage pressure in high-skill industries, nor wage pressure in high-skill occupations have increased. Indeed, the former fell noticeably. Moreover, talent mismatch eased a bit. So despite the superficial differences between Japan on the one hand and the two emerging giants on the other, all three appear to have remained fairly balanced.

Figure 9: The Big 3 - HGSI indicator score (2016 vs 2012)

While the region has so far come through this turbulent period relatively unscathed, this could give a misleading impression of its prospects. With the fall in commodity prices and world trade growing well below the rates seen pre‑crisis, it seems likely that the region will need to adjust to lower growth expectations.

For many countries this will mean re‑equipping (and re‑skilling) for a future in which their economies depend more firmly on domestic consumers.


“While overall wage pressures have eased slightly in comparison to 2015, talent shortages and increasing regulations have resulted in a tightening in the labour market, and employers must be flexible and innovative to attract top talent.”

Dean Stallard, Regional Director, Hays Hong Kong


Countries that are heading in the right direction

Since the publication of the 2015 edition of the Hays Global Skills Index, skilled labour market performance across the 33 countries included in its calculation has varied markedly. This reflects differences in economic circumstances and the effects of varying government labour market policies. But four countries’ skilled labour markets are worth focusing on as performing well in 2016, according to the Index.

Italy’s labour market strengthened in 2016. Around 130,000 jobs have been created since the start of 2015 and the jobless rate had fallen to 11.7 per cent by April 2016, from its post‑recession peak of 12.8 per cent in 2014. The labour market has been boosted by fiscal incentives encouraging firms to hire permanent workers and by labour market reforms. For example, the Jobs Act 2014‑15 aims at enhancing labour market flexibility, by easing access to the labour market particularly for the youth. Among younger jobseekers (15‑24), the unemployment rate is about 37 per cent in Italy, among the highest in Europe, and around two million young people are neither studying nor working in the country. The introduction of a contract with increasing guarantees should have a positive impact on permanent employment as it creates incentives for employers to offer jobs to individuals with little or no experience, in turn, encouraging new talent into the labour force. Consequently, Italy’s overall Index score, increased by 0.4 per cent to 4.4.

Hungary’s economy has grown strongly over the last three years. In 2015, GDP growth was around three per cent, boosted by strong domestic demand. Private sector employment growth, aided by public works, had reduced the unemployment rate to six per cent in March 2016, its lowest since 2004. Positively, despite this, and the strong growth, our overall Index suggests that skills shortages have eased, lowering the country’s overall Index score from 6.3 in 2015 to 6.1 in 2016. This reflects a slowdown in wage pressures, and positive supply‑side developments including an increase in labour participation and enhancements in labour flexibility. The main challenge continues to be widespread skills mismatches, reflecting differences in the kind of talent that employers are seeking and what the workforce has to offer.

Germany’s labour market continues to be buoyant, boosted by strong domestic demand in the economy – wage growth is, consequently, robust. Helpful supply‑side developments reduced the value of the Index slightly from 6.4 in 2015 to 6.3 in 2016, moving it closer to balance. Among these were increases in both educational and labour market flexibility, and an increase in the participation rate. It is important the supply side continues to improve in the future, to prevent the build‑up of bottlenecks in the labour market and a further acceleration of wage growth, which might otherwise undermine the positive trajectory.

Japan is undertaking an ongoing programme of structural reforms to tackle the problems it faces. Amongst these are its shrinking workforce, which negatively impacts the supply of labour. To attempt to address this problem the government has implemented a number of policies, including the so called ‘womenomics’ policies, aimed at boosting female participation rates. It is also trying to boost inward migration, by making it easier for highly skilled foreign professionals to obtain visas, especially in the IT field. By those efforts, talent mismatch and labour market participation improved slightly this year, leading to a modest shift towards a more balanced position in the Index from 6.1 in 2015 to 6.0 in 2016.


“The talent pool is now being supplemented by increased female participation in the workforce… Wages for temporary workers are rising and skilled migration is being endorsed by the government.”

Marc Burrage, Managing Director, Hays Japan


The role governments have to play

The global financial crisis has had a lasting impact on the global economy. What had first seemed a crisis that affected the developed economies of Europe and North America, has eventually taken the wind out of the sails of many emerging economies, through much weaker flows in world trade and most recently lower world commodity prices. Labour markets have felt the brunt of these shocks, with higher unemployment, less employment security, and pay often struggling to keep pace with costs of living. In the face of such pressures, it is perhaps not surprising that the past few years have seen governments especially active in intervening in labour markets.

These changes can be seen in the Index’s two policy indicators. Labour market flexibility assesses the legal and regulatory environment faced by businesses; education flexibility measures whether the education system can adapt to meet organisations’ future talent needs, particularly in the fields of mathematics, science and literacy. The regions’ scores for both indicators are shown in Figure 10.

Figure 10: HGSI's policy indicators (2016 vs 2012)

Turning first to labour market flexibility, a high score means the labour market legislation is judged to be inflexible, while a low one implies it is better able to accommodate change. Figure 10 brings out three important facts:

  • First, the Americas remains the region with the most to do to improve the regulatory environment to make it more employment friendly.
  • Second, Asia, having started with the lowest score (most employment friendly), has seen its score rise over the past five years, as regulations have made it harder for employers to fill their talent gaps.
  • Third, Europe has started to put its house in order. Having started out with a higher score than Asia Pacific, a concerted effort to free‑up labour markets in some of the most troubled economies, has led the region’s score to fall so that it is now where Asia Pacific started at in 2012.

This dramatic change in position of Europe and Asia Pacific reflects the fact that Europe was hit early by the financial crisis, while Asia Pacific has run into economic difficulties much more recently. Moreover, the region has so far been the least hard hit by the crisis, and it only started on its transition towards a less export‑oriented, and more moderate growth path.

Turning next to education flexibility, Figure 10 shows that the Americas and EME have remained broadly unchanged over the five years, with the latter showing a slight reduction (improvement), while the former has ticked up (a worsening).

Asia Pacific, however, has seen a more marked tightening in its position, with the region’s score having increased from 2.2 to 2.6 over the five years. Figure 10, however, puts this change into perspective, as the region’s score is still well below five and the score of either of the other two regions.

Conclusions

Across all 33 of the economies in which Hays operates, skilled labour markets appear to have tightened in 2016, with the overall average Index score increasing slightly from 2015. This reflects a strengthening of the demand for skilled labour, while at a global level the indicators of supply have remained unchanged on the year. The upshot of this is that overall wage pressures and the differential in wages between skilled occupations have increased in 2016 relative to the past. One of the reasons, wage pressures have increased is the increase in skills mismatch, as the attributes job seekers offer are not those employers want to hire. This has led to firms’ vacancies remaining unfilled for longer and job seekers taking longer to obtain employment.

Looking across the three big regions covered by the Index, it is EME that has driven the overall Index score higher. Some of the countries hit worst by the financial crisis, have enjoyed the fastest growth in economic activity across the continent. This has led to the differential in skilled labour market performance across the region closing somewhat. Skills mismatch and higher overall wage growth relative to prices have been the indicators that have increased the most in the year.

In 2016, the overall Index score for the Americas remained unchanged from its level in 2015. This masks considerable disparity across the region, North America has performed well, relatively, enjoying another year of growth, while Latin America has been dragged down by the severe recession in Brazil. Across the region labour market flexibility has improved in the majority of countries. Overall wage pressure and the differential between high‑ versus low‑skilled occupations have declined, despite an increase in talent mismatch.

The aggregate score for the Asia Pacific region is also unchanged on its level in the previous year. But this masks a weakening in the Big 3 of China, India, and Japan skilled labour markets. While elsewhere a more diverse picture emerges, as this group includes both the commodity exporters of Australia and New Zealand, together with the smaller trading nations of Hong Kong and Singapore. Total wage pressures and those in high versus soft skills eased in more countries than they increased.

The Index was created five years ago to present our understanding of skilled labour markets in the countries in which we operate. It combines an analysis of statistical indicators of the labour market performance with our in‑country experts’ views, informed by our staff’s interaction with thousands of HR departments looking to recruit skilled labour and candidates looking for jobs. While skilled labour markets will always be a complex puzzle, it is hoped the Index adds to the readers’ understanding of the latest developments.


“Skill shortages remain prevalent, particularly in technical engineering roles, specialist technology and qualified finance roles. In these areas businesses are struggling to attract sufficient numbers of qualified and skilled workers, which is impacting on productivity and business growth.”

Nigel Heap, Managing Director, Hays UK


 

SOURCES

1 The EME and global indices now include the United Arab Emirates in both 2016 and 2015 for the first time this year.

2 The Asia Pacific and global indices now include the Malaysia in both 2016 and 2015 for the first time this year.

3 International Labour Organization, “World employment and social outlook: Trends 2016”, 2016.

4 Carl Benedikt Frey, Michael A. Osborne, “The future of employment: how susceptible are jobs to computerisation?”, 17 September 2013.

5 These include David Clark, senior research scientist at MIT’s Computer Science and Artificial Intelligence. Laboratory, Gary Kreps, professor of communication and director of the Center for Health and Risk Communication at George Mason University, Daren C. Brabham, assistant professor at the Annenberg School for Communication & Journalism, University of Southern California, and many other interviewed by Pew Research Centre.

6 See for example World Economic Forum, “The Future of Jobs”. And CBRE, Genesis, “Emerging Trends Point to Workplace Revolution”, 6 November 2014.

7 Pew Research Centre, “AI, Robotics, and the Future of Jobs”, 6 August 2014.

DATA SOURCES FOR INDICATOR SCORES


The analysis on which the Hays Global Skills Index was based utilised data as of Q2 2016. Developments subsequent to this date are not reflected in the 2016 findings.

Labour freedom
Heritage Foundation, 2016 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 Organizaton (ILO)

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

Economic participation rate rank
International Labour Organizaton (ILO)

Output gap (% GDP)
International Monetary Fund (IMF)

Long-term unemployment rate
Organization for Economic Cooperation and Development (OECD), National statistical agencies

Vacancies (000s)
Organization for Economic Cooperation 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

Government balance
Oxford Economics Global Macro Model

Current account
Oxford Economics Global Macro Model

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

CPI inflation
Oxford Economics Global Macro Model

PPI inflation
Oxford Economics Global Macro Model

Imports + Exports (%GDP)
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)

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 more than 40 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 over 9,000 staff operating from 252 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 6 million CVs a year and conduct nearly 50,000 interviews per month. Last year Hays worked with clients, large and small, across the globe to find over 67,000 permanent employees and to fill 220,000 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 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 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 and 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. Oxford Economics employs over 250 full-time people, including more than 150 professional economists, together with a contributor network of over 500 economists, analysts, journalists and academics around the world.

Oxford Economics is a key adviser to corporate, financial and government decision-makers and thought leader with a global client base of over 850 international organisations, including leading multinational companies and financial institutions; key government bodies and trade associations; and top universities, consultancies, and think tanks.

For more information, visit www.oxfordeconomics.com