First the good news: China will be replaced by India and the young developing economies of South Asia and Africa as the leading source of new workers in the global market. The bad news: India will produce 58 million low-skilled workers, who will find it difficult to get jobs.
The mixed tidings come from a labour report by McKinsey and Co. that was released on Thursday and comes amid gloomy prognostications about the slowing Indian economy, including a warning that it risks becoming a laggard among the BRIC grouping that also comprises Brazil, Russia and China.
“While China will be eclipsed as the world’s major source of low-cost labour, it will assume a new and potentially more important role as the largest supplier of college-educated workers to the global labour force,” the report said. “Between them, China and India will contribute 57% to the world’s new workers with some college education through 2030.”
As for the countries of South Asia and Africa, “these nations will supply 60% of the more than 600 million net new workers that we project will be added to the global labour supply, bringing the total global labour force to 3.5 billion in 2030”, the McKinsey report added.
The report underlines the dichotomy that while there could be a surplus of nearly 94 million low-skilled workers across the world, global economies will need some 40 million skilled workers.
Also See | Growing Mismatch (PDF)
What is most striking about the report is that more than half of these 94 million workers will come from India. That could erode the country’s competitive advantage and undermine its bid to get the service economy to become an engine of growth. India currently has a pool of some 469 million workers and is adding at least 12 million new workers to the labour pool every year, according to official data.
From 1980 to 2010, the world’s labour force grew 1.2 billion to approximately 2.9 billion. Almost 90% of the growth occurred in developing economies, including 500 million new workers in China and India.
“If these trends persist—and absent a massive global effort to improve worker skills, they are likely to do so—there will be far too few workers with the advanced skills needed to drive a high productivity economy and far too few job opportunities for low-skill workers,” it said.
“Developing economies could have too few medium-skill workers to fuel further growth of labour-intensive sectors and far too many workers who lack the education and training to escape low-productivity and low-income work,” it added.
Also See | Workforce Dynamics (PDF)
The report is the latest reality check on the Indian economy, which is already struggling with slower growth, a widening deficit and political roadblocks to economic policymaking. On Tuesday, rating agency Standard and Poor’s warned India it could be the first among the BRIC nations to have its investment-grade rating slashed to junk status.
India is undergoing a demographic bulge, said Anu Madgavkar, senior fellow at McKinsey Global Institute, one of the lead authors of the report. In many advanced countries and even in China, additions to the the labour force are slowing, while in India, the overall pool is increasing. The problem is the lack of skills.
“By 2020, our report says the country will face a shortage of 13 million medium-skilled workers required to boost labour-intensive sectors,” she said.
The report stressed that industrialization will boost demand for workers with secondary education and vocational training in India and the developing economies of South Asia and Africa. “But because of low rates of high school enrolment and completion, India could have 13 million too few such workers,” it said.
Madgavkar said what “the country needs to do is build up on the good work that it has done in primary education (near 100% access). It needs to improve its secondary education as well as vocational education streams”.
This bulging workforce provides an opportunity as the “labour cost is growing and the labour pool is shrinking in China”, she said. “You will find many manufacturing semi-skilled jobs coming to India,” she added.
Retirement could mean the loss of some valuable skills unless adequate replenishment is ensured.
“Over same period (the next two decades), we project that the total population of people over 55 who are not in the labour force could reach 360 million,” the report said. “Some 40% of the expected retirees would be in the advanced economies and China, complicating the challenge of filling skill gaps in those nations. Of these retirees, approximately 38 million would be college-educated workers, who will take with them valuable skills.”
E. Balaji, managing director and chief executive officer of human resource firm Randstad India, said: “India is adding over 12 million people to the workforce every year and here the country needs to think how best they can be employed. All cannot get white-collar jobs, so the way ahead is to boost sectors such as manufacturing and organized retail.” That’s why the relaxation of rigid labour rules is critical, he said.
“Our labour policies are not conducive for manufacturing growth as there is little flexibility in labour laws and mobility of labour force is not encouraged,” he said. “Since the farm sector is not contributing much to our economy, people engaged in that sector are largely underemployed, which is a bigger problem than unemployment.”
Balaji said the country needs to look at an integrated solution, “which comprises reform in labour laws, incentivizing manufacturing, improved skill training and of course allowing more FDI (foreign direct investment) in retail. Walmart is one of the top recruiting firms in the world and if such companies enter our country, it will create jobs and that too in the organized sector”.