Labor, Labor Everywhere but Not With Enough of the Skills We Need
Stan Lepeak, Director, Research, SSOA
There is increasing evidence of a growing disparity between the available global labor pool and the available pool of labor with the skills required for many services and higher-end manufacturing jobs. The April, 2011 edition of KPMG’s High Growth Markets details rising wages and looming labor shortages in China as that country’s “seemingly endless supply of cheap, semi-skilled labor begins to run out.” Similarly, the April 5th edition of the Wall Street Journal examines growing skilled labor shortages in the India services industry concluding that “India Graduates Millions, but Too Few Are Fit to Hire”.
So what are the implications if India and China, the world’s two biggest labor markets, are experiencing skilled labor shortages? And in fact do shortages truly exist or is it more a function of businesses unwilling to pay a wage high enough to attract available talent?
Skilled labor shortages are nothing new to those that travel in the world of global sourcing. The simple rationale, excuse, or accusation for the growth of outsourcing is that greedy corporations and cash strapped governments are seeking the lowest per unit labor cost regardless of ramifications. The reality is that outsourcing is in fact often driven by a desire to access greater skills outside the walls of the sourcing organization. Lower costs are table stakes. Access to skills is the differentiator that wins the deal. EquaTerra research has consistently shown access to skills, for example, is a key driver in application development and maintenance (ADM) outsourcing. India-based service providers that have grown billion dollar businesses doing outsourced ADM have leveraged much lower wage rates than traditionally available in Western markets—but also higher capabilities levels as measured by standards such as CMMI (capability maturity model integration). The growing area of knowledge process outsourcing is another area that exemplifies the global search for highly skilled talent.
One issue at the core of global skilled labor shortages is the inadequacy that exists in many countries’ educational systems – from wealthy Western countries to emerging BRICs – in terms of producing graduates with the right skills needed for many jobs, including most that pay well, in manufacturing and services markets. Graduates have too few relevant skills, inadequate foreign language skills and (in too many cases) too little ambition, context and experience.
Employers are addressing this through more on the job training, but ultimately the education system needs to reform to better produce graduates with at least the core skills (basic literacy + sound fundamentals + skills required for jobs) required to enter the workforce. This is obviously easier said than done, a subject for huge and often hostile debate, and not something simply solved with more money, adding more hours to the school day or embracing a return to greater unionization in the workforce.
One implication of growing skilled labor shortages on a global vs. a regional scale is that it will hopefully force government, businesses, and other vested interest groups to more seriously (in action rather than just hubris), creatively and aggressively address problems in the education system. While there is still opportunity to cast the net wider (e.g., Brazil, Africa, Vietnam) in the search for talent, the ultimate fix is to improve the overall quality of the labor pool globally.
If Western countries hope to drive down unemployment levels and drive back up the standard of living of the “middle class”, they must work to improve the skill sets of that populace. If emerging markets like China and India want to continue to enjoy rapid growth and ensure stability, they must do the same. Creating greater employment opportunities via improved education as well as greater job creation is one key tool to address “unrest” in Africa and the Middle East. Finally, if big or small business wants to maintain profits and productivity gains and big government wants to be more part of the solution than the problem, truly addressing education reform is one great place to focus.
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