Making labour markets inclusive

In this time of chronic unemployment, it is all too easy to lose sight of the single greatest trend underlying the long-term labour market: the demographic time bomb in the developed world. Indeed, the defining employment challenge of the future will be not the surplus, but the shortage, of appropriate labour.

In the US, 25 million extra workers will be needed by 2030 to sustain economic growth. In Europe, we are looking at a potential shortfall of around 35 million workers–15% of total labour demand–by 2050. On top of that we will see a serious decrease in the number of jobs in the mid-skilled labour segment, the so-called “squeezed middle”, by 2020. Labour shortages and surpluses of this magnitude will obviously have drastic consequences for growth; when considered alongside the public welfare costs of an ageing population, they begin to look like a sure-fire recipe for economic disaster.

Clearly, labour markets will need to adapt significantly if economies are to remain competitive. Pension reform is inevitable, and labour migration and real productivity rates will almost certainly need to be increased in order to reduce labour demand. But there is a further key piece of the puzzle requiring urgent and concerted attention: the need for a more inclusive labour market.

An inclusive labour market is a labour market that allows and encourages all people of working age to participate in paid work and provides a framework for their development. At present, groups such as women, young people, older workers and low-skilled workers remain underemployed in many sectors and economies. The goal, therefore, is to effectively mobilise the talents and resources of these underutilised groups so that they can participate in and benefit from the driving of economic growth. Building a more inclusive labour market is a key objective of the European Commission’s Europe 2020 Strategy to increase workforce participation. Its “inclusive, smart and sustainable” growth targets include reducing school dropout rates from 13.5% today to below 10% and increasing tertiary education completion rates to 40% among people aged 30–34, from the current 34.6%. The target is to increase the employment rate of people aged 20-64 from the current 68.6% to 75% by 2020.

Increased participation in itself, however, is not enough to ensure inclusive and sustainable growth. After all, an abundance of workers is of little consequence if they lack the high-level, sector-specific skills increasingly required by employers. As our 2012 research report Into the gap: exploring skills and mismatches found, qualitative mismatches in skills and educational levels abound in today’s globalised and constantly changing world, even with the present high rates of unemployment. Moving towards 2020, both Europe and the US will face increasing shortages of highly skilled labour, particularly in the healthcare, science, engineering, construction, business services, and trade and repair industries. Meanwhile, for the bulk of the 45 million people entering the global job market each year–many of them low-skilled and from developing nations–employability will continue to be a huge problem. Workers from declining traditional industries, such as manufacturing and agriculture, face similar employability hurdles in transitioning to skill-intensive emerging sectors such as IT and business services.

Obviously, this substantial qualitative mismatch of labour supply and demand is a tremendous waste of human resources, and a formidable barrier to truly inclusive growth. To drive sustainable economic growth, therefore, we need to bridge both the quantitative and the qualitative employment gaps. This calls for more than just increased participation–it requires enhanced participation, which makes the most effective and appropriate use of all of our diverse labour resources.

As the world’s second-biggest human resource services provider, with 4 700 locations, 28 700 corporate employees and 576 000 flex workers per day across 40 countries, Randstad is intimately acquainted with the growing disparity in labour supply and demand. Together with our partners at the University of Amsterdam/SEO Economic Research, we’ve conducted a range of in-depth studies into just this issue.

Our latest study, Into the gap, complements our two previous studies, Mind the gap and Bridging the gap, by investigating the extent, nature and causes of present–and future–qualitative and quantitative labour mismatches. This research indicates a number of barriers to more inclusive and effective mobilisation of labour resources, including the availability of information about jobs and jobseekers; the attitudes of employers and jobseekers; working life issues, such as working conditions and work-life balance; and mismatches between training and education and labour market needs.

Overcoming these barriers and enhancing participation therefore requires a multipronged approach. In addition to improving recruitment methods, reforming education and training, and encouraging more socially inclusive attitudes in the world of work, it is vital that we increase employment flexibility and mobility. Greater labour market flexibility will encourage more inclusive labour force participation, while high mobility between jobs, sectors and countries will lead to fewer unfilled vacancies and better matches between workers and jobs. On the other hand, research strongly indicates that the countries that have fared best throughout the financial crisis are those that balance flexibility in response to shocks and structural change with work security measures. For growth to be inclusive and sustainable, therefore, labour market reform must strike the right balance between increased employment flexibility and increased income security–the “flexicurity” concept.

Bridging the employment gaps of the future will require both structural reform and social investment. Educational and training provisions–including lifelong learning programs– are needed to address skills mismatches and to counter the looming shortage of highly skilled workers. In addition, we need to take a fresh look at labour market policies, including wage subsidies, employment protection regulation, unemployment benefit schemes and pension schemes– especially where they concern currently underemployed groups. Particular attention should be paid to the special role that modern labour relationships, such as temporary agency work, part-time work and self-employment, can play in stimulating job creation, increasing workforce participation, easing work-life balance and facilitating job-to-job mobility.

As a leading international staffing company, Randstad will have an important role to play in enabling this enhanced workforce participation and decreasing skills mismatches. Temporary agency work gives employers the flexibility to adapt quickly to changing market conditions–indeed, as the Ciett report Adapting to change revealed, companies that use agency work have tended to accelerate faster out of the economic crisis. It also gives workers the flexibility they need to balance work and family life, and can be an important stepping stone to greater workforce participation for chronically underemployed or inactive members of the labour market. Furthermore, by investing in training and improving the flow of employment information, Randstad can act as a transition manager, easing the education-towork, unemployment-to-work and job-to-job transitions that increase workforce participation and reduce skills mismatches. And as labour market experts, we already actively contribute to national programmes on inclusion issues such as active ageing, gender equality and integration of disabled workers.

Meeting the employment challenges of the future will undoubtedly be a difficult task, but in line with our mission of “shaping the world of work”, Randstad is poised to be a valuable partner in the journey towards a more inclusive, flexible and well-functioning labour market.

References and recommended sources

www.randstad.com

OECD work on employment

OECD Forum 2013 Issues

Employment

Making labour markets inclusive