According to our analysis, Asia and North America will likely be the tightest labour markets in the next one-to-two- years—that is, if a global recession is avoided. With tight labour markets, it is also likely that North American and Asian economies will see strong wage growth during this period. A tight market also exacerbates issues related to talent scarcity, namely the inability to find enough people with the right skills for vacant jobs. The Davos panel noted how much this is an ongoing concern for many companies. Ellyn Shook, chief Leadership and human resources officer at Accenture, provided the example that in cloud computing, talent scarcity is beginning to bite.
The global pandemic, which upended labour markets, amplified the issue of talent scarcity. While some commentators have referred to this period as a great resignation in labour markets, a great realignment is a more apt phrase. A great resignation would be accurate if the only trends were that many people left their jobs during the pandemic. While this is true, many jobs have also been created as economies bounced back from the depths of a major recession in 2020 (the US market is an example). A great realignment captures this incredible churn and transformation in labour markets.
The great realignment resulting from the pandemic is likely to evolve into a decade-long transition in global labour markets. This is because we are currently living through a period of technological progress, sometimes referred to as the fourth industrial revolution, characterised by technologies such as artificial intelligence, machine learning and advanced robotics. With such profound changes afoot, job markets are likely to see significant shifts beyond the lingering effects of the global pandemic.
The twin threats of talent scarcity and technological progress on wage inequality
While talent scarcity is a legitimate concern in the short term, could we see an oversupply of workers in the medium term? That is the worry of Daron Acemoglu, professor of economics at the Massachusetts Institute of Technology. Shortages of talent and rising wages will inevitably lead companies to focus on productivity growth to offset these costs. Central to this focus will be the greater use of robotics and automation. For Mr Acemoglu, this trend could lead to an oversupply of workers that would push down wages. If we combine this outcome with the issue of talent scarcity in some sectors, this could lead to more significant wage inequalities between jobs. If talent scarcity continues, wages for skilled workers in selected industries will skyrocket. If automation leads to an oversupply of labour in other sectors for the remainder of the workforce, wages will fall, and the divergence of incomes will accelerate.
Consequently, the crucial challenge for policymakers is how to ensure that this transition does not lead to increases in inequality. In other words, how do policymakers ensure that technological progress is labour-augmenting rather than labour-replacing? Meanwhile, the critical challenge for companies is how to increase productivity in this decade of labour market realignment.
The case for optimism on productivity and job creation
Growing wage disparities and weak productivity are not inevitable. Progress in seven areas could lead to increased productivity, job creation and wage improvements in the 2020s:
Getting hybrid work right
Currently, many companies are experimenting with the various aspects of hybrid working conditions, such as where and how staff do their work. Of course, there is no one-size-fits-all approach to hybrid work, but the companies that take an inclusive approach to find the right fit for their employees will likely see a payoff in productivity and employee retention.
Talent scarcity will incentivise productivity
Companies facing talent scarcity will need to compete for workers. Consequently, they are likely to increase their focus on innovation to offset higher costs, which should, over time, lead to improvements in productivity.
New business models, new jobs
Mr Acemoglu rightly worries about how technological progress could displace workers. However, new business models enhanced by the servicification of manufacturing may create new jobs in sectors and markets that would absorb some workers.
The pandemic forced many companies to accelerate their digital strategies to deal with shocks to supply, demand, and working conditions. While resilience was the main driver of these shifts, enhanced digitalisation has increased efficiencies and should lead to productivity gains in the future. Erik Bynjolfsson, director of the Stanford Digital Economy Lab and Davos panellist, believes that we will see an acceleration in productivity resulting from technological progress (what he refers to as the productivity j-curve). To offset the potential job losses from these shifts, training, development and education policies will also need to change.
Getting job training and development right
It is beneficial to think of tasks within jobs rather than entire jobs that will be automated. Some companies are already working with staff to automate aspects of their work. Training programmes that focus on near-AI learning—where training in AI and other technologies is tailored to the skills of each employee—will complement this approach.
Making lifelong learning mainstream and widespread
Lifelong learning will require a significant shift in how countries structure their learning and development, education and training systems. Countries that successfully make this change will see the benefits in the productivity of their workforce.
Skills mapping for the jobs of the future
Mr Brynjolfsson spoke on the panel about the power of big data to help us understand the skills that are in demand and, what he calls, skills adjacencies which describe current skills that are similar to future skills that will be required.
Attendees at Davos will discuss the future of work for years to come. It will be critical for business leaders and policymakers to take measures that enhance productivity and wage growth. By doing so, both employers and employees stand to benefit from the great realignment of this decade.