In 1930, British economist John Maynard Keynes revealed a visionary essay referred to as “Financial Prospects for Our Grandchildren” (pdf). “It is not uncommon to listen to individuals say,” he wrote, “that the epoch of huge financial progress which characterised the nineteenth century is over.” This was, in spite of everything, the primary yr of a large world despair. However Keynes disagreed. As an alternative of decline, he predicted the world would expertise unparalleled financial development. In 100 years’ time, world financial output per particular person might, on common, be as much as eight instances as nice because it was in 1930. He urged that many individuals would wish to work much less because of this, and a three-hour day or a 15-hour week might turn out to be the norm.
In 1930, within the first yr of a large world despair, Keynes predicted unparalleled financial development by 2030. He was proper.
Right this moment, with solely 14 years left earlier than Keynes’s goal date of 2030, plainly he was broadly proper about financial development. Common revenue, at the least in superior economies such because the U.S. and the U.Ok., is already round six instances as nice because it was in 1930. However his crystal ball was foggier with reference to leisure time. Certainly, work has remained central to the lives and livelihoods of most individuals in industrialized society, at the same time as common incomes have risen.
Regardless of the progress, although, two prevailing traits have led to renewed fears about the way forward for financial development. The primary is the growing older populations of superior economies — specifically, these of the nations which can be members of the Organisation for Financial Co-operation and Improvement (OECD). This development has been linked to the grim prospect of “secular stagnation,” the speculation that and not using a regularly renewed younger labor power, there received’t be sufficient manufacturing or consumption to help a vibrant economic system, and GDP development might degree off indefinitely.
The second worrying development, at the least from a labor markets perspective, is know-how. Many consider that a military of more and more clever robots will take most jobs away from the younger, leaving a technology of unemployed and unemployable individuals with no alternatives to construct a broad and wholesome center class.
For greater ranges of prosperity, a rustic’s biggest leverage is a versatile, well-trained, and resilient workforce.
The labor market efficiency information, nevertheless, tells a really completely different story. It means that broad prosperity continues to be doable, however that the means for reaching it are pretty particular — and under no circumstances apparent. The clues lie within the variations amongst numerous nations within the OECD, significantly within the authorities insurance policies and enterprise practices associated to girls, schooling, and retirement. If the aim is to succeed in greater ranges of prosperity, a rustic might discover its biggest leverage in insurance policies and practices that encourage a versatile, well-trained, and resilient workforce.
Monitoring the Labor Market
At PwC, we’ve got developed three related labor market indexes, listed under. They permit us to match these insurance policies and practices, and their impact on financial development, in a variety of nations with a comparatively excessive degree of precision.
- The Girls in Work Index (pdf): a weighted common of 5 indicators masking feminine employment and unemployment charges, each in absolute phrases and relative to males, and the gender pay hole
- The Golden Age Index: a weighted common of seven indicators masking the employment, relative earnings, and coaching charges of individuals age 55 to 69
- The Younger Staff Index: a weighted common of eight indicators masking completely different elements of the labor market exercise and academic participation of individuals age 15 to 24.
The logic behind these indexes is that as a result of labor market efficiency is a multidimensional phenomenon, it’s higher to have a look at a spread of indicators than to only give attention to, say, employment or unemployment charges. In any nation, the gender pay hole — the distinction between female and male earnings for equal professions — is a revealing indicator of the alternatives accessible for ladies. However so is the cut up between full-time and part-time employment charges. For youthful individuals, participation in schooling and coaching is at the least as vital to long-run financial prospects as present employment charges are. For older staff, relative pay charges and participation in coaching, in addition to the typical ages at which individuals exit the labor power, are vital elements.
Our indexes mix these components and permit comparisons each amongst nations and over time. They cowl barely completely different units of nations relying on information availability (we’ve got solely partial outcomes for Iceland, Estonia, Chile, Mexico, Luxembourg, Slovenia, and Turkey). However even with partial outcomes, the comparisons are eye-opening (see Exhibit 1).
Paths to Prosperity
The Scandinavian nations carry out persistently effectively: Norway, Denmark, and Sweden are within the prime 5 of the general rankings, and Finland is within the prime 10. These nations rating significantly excessive on our Girls in Work index, reflecting their robust publicly funded child-care applications and their comparatively beneficiant parental depart preparations for each moms and dads. The indexes additionally present smaller gender pay gaps and excessive employment charges for older girls. Extra Nordic girls stay within the workforce after having youngsters than do girls of different nations. For Iceland and Estonia — which has robust financial and cultural hyperlinks with Finland — we lack the info wanted for the Girls in Work index, however these nations are additionally ranked excessive within the Younger Staff and Golden Age indexes. Among the many Nordic nations, there is just one considerably low rating, and that’s Sweden’s younger staff rating.
The financial advantages of emulating Nordic efficiency might be large. For instance, if the UK (a middling performer on the Golden Age index) might match Sweden’s employment charge for 55- to 69-year-olds, it might acquire a long-term financial advantage of about £100 billion (US$145 billion) per yr. That’s a GDP increase of greater than 5 p.c. For Southern European nations, the beneficial properties might be even greater as a share of GDP.
If the UK might match Sweden’s employment charge for 55- to 69-year-olds, its financial profit can be about £100 billion per yr.
One other high-ranking group of nations are Germany and its neighbors: Switzerland, Austria, and (to a lesser diploma) the Netherlands. These three are significantly robust on the Younger Staff index. They’ve long-standing traditions of high-quality technical and vocational schooling, usually within the type of apprenticeships that mix sensible and classroom coaching. In these nations, comparatively few younger individuals drop out of schooling and drift into youth unemployment; staying at school reduces the speed of crime, drug use, and different delinquent conduct. If all OECD nations might cut back the proportion of 20- to 24-year-old NEETs (“not in employment, schooling, or coaching”) to German ranges, the world would possibly acquire US$1.2 trillion in gross home product. The U.Ok. alone might acquire £55 billion (US$80 billion) (see Exhibit 2).
The German-speaking nations, nevertheless, have decrease rankings on the Girls in Work index. Their child-care techniques are usually much less developed than these in Scandinavia. Thus, girls with younger youngsters usually tend to take comparatively lengthy breaks from the workforce. Staff in these nations additionally are likely to retire at a youthful age than staff in Scandinavia. There’s vital potential to enhance in these areas, simply as Sweden might have one thing to study from Germany on tips on how to cut back its youth unemployment charge.
Different prime performers on the labor market indexes embody New Zealand, significantly for older staff, and Canada, significantly for youthful staff and ladies on the whole. New Zealand’s standing as a distant island nation with a restricted inhabitants could also be an element: This standing presumably encourages extra job flexibility and postponed retirements. Its youthful individuals, missing a full vary of profession alternatives, might migrate to different nations. Canada’s supportive public coverage regime for working girls in all probability contributes to its excessive scores. It outperforms the U.S. and the U.Ok., the place a extra market-led system results in a labor market that’s comparatively versatile, however not one which features as effectively for some teams, akin to lower-skilled women and men with youngsters.
Cultural attitudes about girls are a constant consider nation efficiency. For instance, the 2 East Asian nations in our pattern, Japan and South Korea, rank among the many prime seven nations for older staff, however within the backside 4 for ladies. This displays comparatively patriarchal social and cultural norms. Japanese and South Korean girls historically depart the labor power after having youngsters, with a powerful expectation that their husbands would be the foremost breadwinners within the household. Though this can be altering regularly, and many ladies do return to work when they’re older, Japan and South Korea nonetheless stand out on this regard from the opposite nations in our examine.
Jap European nations akin to Poland, Hungary, and the Slovak Republic (in addition to the Czech Republic to a lesser diploma) additionally stand collectively. They rating within the decrease half of the rankings on all indexes, however rank particularly low for older staff and ladies. They nonetheless comply with a few of the practices developed throughout Soviet bloc instances: prolonged maternity depart, comparatively restricted provision of kid care, and decrease common retirement ages.
Southern European nations akin to Greece, Italy, and Spain (and to a lesser diploma Portugal) additionally persistently seem close to the underside of our rankings. This will partially replicate the hostile cyclical results of the Eurozone monetary disaster since 2007, however it additionally displays the cultures and practices of those nations. For instance, these three nations have traditionally favored household care of youngsters and featured a relative shortage of formal baby care, which reduces feminine participation within the labor power. Their labor market laws make it tough for younger individuals to get jobs (at the least within the formal economic system). Beneficiant state pension and incapacity profit techniques have additionally lowered incentives for older individuals in Southern Europe to work — at the least till lately, when austerity measures have began to reduce these advantages. France and Belgium have equally low rankings on the Golden Age and Younger Employee indexes, however their state help for working moms provides them greater scores for Girls in Work.
Coverage Implications
For presidency leaders, these findings counsel that a couple of key coverage adjustments might enhance labor market efficiency, and thus long-term prosperity. The actions under have particularly high-leverage potential:
- Enhance the standard of vocational schooling and technical coaching for younger individuals, as exemplified by Germany, Switzerland, and Austria
- Take away labor market restrictions, akin to these in Southern Europe and France, that make it exhausting for younger individuals to get jobs
- Enhance state help for working dad and mom, as exemplified by the regimes in Norway, Denmark, and Sweden
- Shift the pension techniques to encourage later retirement, as exemplified by Scandinavia, Japan, South Korea, the U.Ok., and the U.S.
- Encourage broader cultural attitudes and social norms that strongly help working moms and gender pay equality, following the Scandinavian instance
Small tweaks can go a great distance. For instance, a gradual rise within the retirement age, some fundamental provision of kid care, a loosening of employment restrictions, and clever growth of apprenticeship and coaching applications for youth would possibly in themselves be sufficient to tip the scales in an in any other case moribund economic system and obtain sooner development.
In fact, it isn’t a fast or simple matter to shift public coverage in these areas. Sturdy political coalitions might help labor market laws that favor insiders over outsiders (for instance, many mainland E.U. nations favor their very own commerce union members) and that shield state pensions and different advantages for older staff. It might take a disaster to create the political will to behave. For instance, the Eurozone financial disaster has led to reform in some Southern European nations akin to Spain, simply as previous financial issues led to labor market reforms within the U.Ok. and the U.S. within the Nineteen Eighties, Sweden within the Nineteen Nineties, and Germany within the 2000s.
Expertise, Age, and Gender in Enterprise
The information contained in these indexes can be related for enterprise leaders. In case you are a senior govt in a enterprise working in a wide range of nations, you want to concentrate on how these nations’ labor market traits and related authorized and regulatory regimes differ. There could also be tensions to handle between adopting a uniform world method and a tailor-made native method on points like phrases and circumstances, coaching, gender pay equality, maternity depart, retirement age, firm pension provision, and commerce union participation in company governance.
Second, your location choices could also be influenced by labor market traits. In Germany, as in comparison with the UK, you might discover extra individuals with superior technical expertise — however fewer of them might be ready to work versatile shifts for comparatively low pay. These market attributes might change over time. For instance, U.Ok. authorities initiatives established in 2015 are supposed to maneuver nearer to the German mannequin. They intention to create 3 million new apprenticeships for younger individuals by 2020, funded by a brand new levy on bigger corporations.
Third, you will want to regulate your insurance policies for growing older populations in most OECD economies. Individuals over 50 will represent a better a part of your workforce, and plenty of might want to retire later than did earlier generations of staff. Quite a few employers have already begun to shift their method. BMW in Germany and the Vita Needle Firm (an industrial producer) within the U.S. have designed factories that higher swimsuit the bodily capabilities of older staff. The British-based residence enchancment retailer B&Q makes a degree of using older staff in its shops. Their private expertise with do-it-yourself tasks offers a excessive degree of information and reassurance for purchasers. Residence Depot and CVS Caremark have comparable practices. Within the U.S., the Nationwide Institutes of Well being (NIH) seeks out older scientists and researchers as a result of, as a Could 2014 New York Occasions article on the growing older workforce famous, “They usually produce precious analysis into their 60s and 70s.” In Japan, corporations searching for out older staff embody Daiwa Home Trade Firm, Trusco Nakayama Company, and Tokyu Livable Inc.
To comply with their instance, your HR division might want to downplay retirement plans that encourage early retirement, and make extra coaching and retraining accessible to older staff. Additionally, you will must fight implicit ageism in recruitment and development insurance policies, particularly in sectors akin to know-how, the place older staff are usually undervalued.
Fourth, you will want to embrace gender equality extra comprehensively by way of all elements of your recruitment, reward, promotion, and position allocation processes. In superior economies, on common, youthful girls are at the least as effectively educated as males and infrequently extra so. However gender pay and development gaps open up when staff are of their 30s and 40s, resulting from insufficient child-care and parental depart provisions, in addition to to ingrained enterprise norms. Scandinavian corporations, like their governments, have led the world on this space, however progress stays slower elsewhere. Firms based mostly in East Asia and Southern Europe are particularly liable to lag behind on this regard.
Lastly, you’ll have to succeed in out to the general public sector in unprecedented methods to get the workforce practices you want. Governments and companies must work collectively on these points if they’re take advantage of the financial potential of their individuals. Artistic policymakers in each the private and non-private sectors will discover many alternatives to design extra versatile and extra inclusive new workforce practices and tips. The long-term financial advantages from such efforts might be large.
Writer profile:
- John Hawksworth is chief economist of PwC in the UK. Based mostly in London, he edits the PwC Financial Outlook and directs the agency’s macroeconomic analysis program.