The long-term employment challenge – The productivity solution

Global employment growth has been slowing for more than two decades. By around 2050, our research finds, the global number of employees is likely to peak. In fact, employee headcounts are already declining in Germany, Italy, Japan, and Russia; in China and South Korea, they are likely to begin falling as early as 2024. While there is significant scope for policies that boost labor-market participation among women, young people, and those over the age of 65, that will be far from easy. Employment growth could double, to 0.6 percent, in the countries we studied: the G19 (the G20 without the European Union as a composite member) plus Nigeria—economies that account for 63 percent of the world’s population and 80 percent of global GDP. But that will happen only if each gender and age group, throughout these countries, closes the employment gap with the high-performing economies. In any case, even a doubling of employment growth won’t fully counter the erosion of the labor pool.

Capture d’écran 2015-01-16 à 12.19.03

So productivity growth must drive the expansion of GDP in the longer term. Indeed, it would have to reach 3.3 percent a year—80 percent faster than its average rate during the past half century—to compensate fully for slower employment growth. Is this possible? Actually, our case studies of five sectors (agriculture, automotive, food processing, healthcare, and retailing) found scope to boost annual productivity growth as high as 4 percent, more than enough to counter demographic trends.

The productivity solution

The world isn’t running out of technological potential for growth. But achieving the increase in productivity required to revitalize the global economy will force business owners, managers, and workers to innovate by adopting new approaches that improve the way they operate.

Our study found that about three-quarters of the potential productivity growth comes from the broader adoption of existing best practices, or catch-up improvements. The remaining one-quarter—counting only what we can foresee—comes from technological, operational, or business innovations that go beyond today’s best practices and push the frontier of the world’s GDP potential. Efforts to improve the traditionally weak productivity performance of the large and growing government and healthcare sectors around the world will be particularly important.

Chosen excerpts by Job Market Monitor. Read the whole story at  Can long-term global growth be saved? | McKinsey & Company.

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