Over the next two decades, China will be eclipsed as the world's major source of low-cost labour by India and “young developing” economies of South Asia and Africa.
In other words, nearly 60 per cent of the 600 million net additions to the global labour force from 2010 to 2030 will occur in India, South Asia and Africa. This will bring the total global labour force to 3.5 billion in 2030, the McKinsey Global Institute said in a report titled “The world at work: Jobs, pay, and skills for 3.5 billion people.”
The report has proposed that unprecedented action will be required on education and training to address global mismatches in supply of workers with skills needed to drive 21{+s}{+t} century economies.
India's strength will lie in its capacity to supply college-educated workers with 85 million additional college-educated workers by 2030 — likely the second-largest supplier of net new college-educated workers after China.
Surge in Retirees
Between them, China and India will contribute 57 per cent of the world's new workers with some college education through 2030, the report says.
But at the same time, by 2030, the world will have as many as 1 billion workers without even a secondary education, concentrated in India, South Asia and Africa. Basic schooling and vocational training will lag the needs of expanding manufacturing and services sectors in these economies.
Over the same period, the institute projects that the total population of people over 55 who are not in the labour force, including a surge of retirees, could reach 360 million. Some 40 per cent 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 will be college-educated workers, who will take with them valuable skills. Raising the labour participation rate of workers over 55 and finding ways to keep retirement-age workers employed are obvious ways to narrow potential skill gaps.
Productivity growth
For India, the institute projects productivity growth of 5.9 per cent annually to 2030, which will account for about 80 per cent of forecast GDP growth of 7.4 per cent per year. Of this productivity growth, about 5.6 points are likely to come from historical drivers such as rising tertiary education rates and rising investments in capital.
In India, it anticipates that from 2010 to 2020, non-farm sectors will start to generate sufficient job growth to reduce farm employment on a net basis, providing additional productivity improvements for the economy.
The institute's projections suggest that India's manufacturing sector will add 36 million jobs in the next two decades compared with just 8 million from 2000 to 2010. This scenario assumes that India will capture a larger share of global manufacturing jobs. At the same time, India's service sector is likely to continue to grow jobs in line with the historic trend.
Share of income
Overall labour's share of income or the share of national income that goes to worker compensation have fallen, and income inequality is growing as low-skilled workers experience unemployment, underemployment and stagnating wages. The effects are particularly harsh for young workers — 75 million young people (15 to 24 years old) around the world who are not in school or college are unemployed.
The report says that there could be a potential shortage of nearly 45 million medium-skill workers in developing economies or about 15 per cent of the demand for such workers. Industrialisation will raise 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; younger developing economies could have 31 million too few.