What’s Wrong With Labour Markets?

Around the world, labour markets are in disarray. Unemployment is high in many countries, especially among the young. At the same time, many companies report having trouble finding qualified workers. Record numbers of people are going into retirement, but many would prefer to work, at least part-time. Information technology has displaced workers even as it has created new jobs.These conflicting signals and trends are a symptom of a series of fundamental mismatches between what employers need and the talents of those they would like to hire. There have never been so many highly educated people in the world; yet the crises in Europe, the slow recovery in the United States, and the rise of emerging economies are revealing previously hidden flaws in the labour market. Addressing them will require a broad range of policy interventions.
The problem begins with the education system, which used to be more effective at not only educating and training new generations, but also at sorting them into promising career paths. Unfortunately, schools and universities have not changed much over the last 30 years, even as the world of work has undergone epic upheaval. Online education and training has taken off in the corporate world, but universities continue to resist it. Cost inflation is also severely affecting the accessibility of high-quality education for most of the population.
Young people present two different sets of challenges. In most countries, the population between the ages of 16 and 30 is split into two very different groups. Some are highly educated, but, finding it hard to find jobs commensurate with their skills, join the ranks of the underemployed. Others have lacked educational opportunities or have dropped out of school. In some countries, an entire generation of young people could be lost because policymakers and companies are too shy about experimenting with new ideas, concepts, and schemes.
Meanwhile, rapid technological change, including distributed manufacturing and digital business, has put many people aged 50-65 out of work. As companies scramble to adapt to changing market circumstances, they are trying to reinvent themselves, which often means hiring new employees with different skills. After losing their relatively well-paying jobs, many older workers have either retired prematurely or gone into much less attractive occupations.
This represents an enormous challenge, because it is not easy to retrain large numbers of people displaced by new technology. Both governments and companies have a responsibility to produce solutions, which will entail spending on education and training and redesigning jobs to fit existing skills.
Finally, one of the most severe challenges facing contemporary societies is figuring out what to do with tens of millions of retirees as life expectancy continues to climb. People older than 65 may sometimes be affected by cognitive decline, but they often have useful skills and a wealth of experience. It does not make financial, social, or economic sense to exclude them from the workforce – especially when many of them would enjoy working part time. Governments must adapt laws and regulation to take full advantage of this pool of experienced labour, and companies need to think creatively about how to use part-time employees more effectively. Needless to say, addressing this problem would also ease some of the pressure on pension systems.
Immigration is another phenomenon that must be carefully managed. It is unfortunate that precisely when loosening restrictions on immigration would help labour markets, the world is experiencing a spike in xenophobic attitudes and politics. Governments and civil-society organisations must exercise leadership and help the public understand how immigration can – and does – drive social and economic progress. In an increasingly borderless global economy, the nation-state system that we have inherited imposes too many restrictions on the free movement of people, many of which are counterproductive.
One positive development is that the feminist revolution has finally started to have an effect on the labour market. Gender-based discrimination continues to be a problem, but one sees increasingly large numbers of women occupying important jobs. Women are either the primary or the sole earner in about 40Pct of US two-parent households with at least one child under the age of 18. It is imperative to continue capitalizing on this trend. A more diverse and deeper talent pool is the key to sustainable economic growth.
Labour-market chaos will not abate until governments and companies address a formidable set of issues involving education, opportunities for the young and the elderly, the virtues and challenges of immigration, and the aspirations of women. Unfortunately, these topics are often politically controversial. That is why well-functioning labour markets increasingly require both firm leadership and open minds.

4th Year • November 16 – December 15 2015 • No. 33

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