Understanding the global war for talent

Managing your workforce has become ever more challenging. A rise in skill requirements faces a global labour market that does not offer talent at the same rate. A global war for talent is underway. Knowing where to find skilled labour, how to retain and motivate high potentials and how to prepare them for tomorrow’s challenges through proper training has become a key risk for companies, especially when they operate globally.

Understanding and managing that risk requires granular analysis. Looking at broad trends and aggregate information is no longer sufficient. Rather, your investment and hiring takes place at a local level, under a regulatory framework often set at the regional or national level, and with market conditions determined internationally. This interaction of different layers of risk forces you to dive deep into a range of multi-dimensional data sets, using information from various sources, variable quality and different scope.

In today’s digital era, such information is often available at the point of the fingertip. Large swath of data can be accessed with a couple of clicks using internet search engines or pre-assembled databases, most of them free of charge. Still, accessing some of the databases can be a challenge, as interfaces differ and access routes require different levels of authorization. However, the key problem is not so much to get the information but rather that the amount of data easily exceeds the capacity of even the most capable and trained analyst. In this environment, your challenge is to make sense of the amount of data, extracting only those trends and patterns that are relevant for your business and HR strategy.

Techniques vary. Sometimes, it suffices to present the data in a nice chart. The map above, for instance, gives a quick overview of the worldwide skills gap expected over the next five years. Often, however, more sophisticated approaches are necessary. Broadly speaking, these so-called data reduction techniques involve summarizing large amount of data into one or two indicators that reflect the underlying trends. In many cases, the analyst can use standard statistical techniques. Increasingly, however, the dynamic nature of the global economy and the constantly shifting patterns make it necessary to use the full power of today’s computers, letting the computer detecting underlying and possible shifting patterns: machine learning.

To introduce this topic and provide an overview of the key tools that you might need to consider in your quest for HR analytics excellence, I have posted a short webinar on BrightTalk. This webinar is meant to introduce to state-of-the-art tools for predictive HR analysis. HR experts will learn how to make use of a large and diverse source of publicly available data sources to better prepare their company for the challenges ahead. I introduce different sources and discuss their relative merits. The webinar also offers a short introduction in how to make best use of these tools, for instance through the presentation of dashboards or leading indicators.

I start off the webinar with a short overview of the current state of global labour markets, showing the diverging trends in talent supply and demand for high potentials. I will introduce a range of different indicators drawing on social media or other publicly available data and discuss how these can be made useful for HR predictions. Finally, I will give an overview over different tools to illustrate these predictions both for internal and external purposes.

The webinar is available here:

https://www.brighttalk.com/webcast/9059/180529

What drives hiring uncertainty?

Persistently low hiring with sky-rocketing unemployment rates have been the most striking consequence of the global economic crisis. Currently more than 18% of workers are out of a job in advanced economies, and the unemployment rate is only slowly receding. In European countries, unemployment is even expected to reach its peak only in 2014 before seeing some improvements. Clearly, low growth and the unresolved public and banking sector debt problems are largely responsible for this low employment growth. Recently, however, a new dimension has been added to low job creation rates in advanced economies: High and rising hiring uncertainty. Indeed, besides the weak overall outlook for growth, the uncertainty about new market opportunities for investment and difficulties to find job seekers with the right profile makes companies reluctant to advertise new vacancies and hire workers.

To measure the extent to which hiring uncertainty prevents companies from expanding their workforce, the ILO has developed an indicator which captures employers’ assessment of the uncertainty of the labour market outlook when taking hiring decisions. The ILO hiring uncertainty index makes use of an economy-wide indicator of hiring intentions of the ManpowerGroup which is calculated from a survey of employers. The indicator measures hiring intentions and is calculated as the difference between the percentage of employers that expect an increase of employment in their establishment for the next quarter and the percentage of employers that expect a decrease.

Hiring uncertainty and unemployment 

Hiring uncertainty and the unclear picture that firms have regarding their economic and the policy environment drives up unemployment over and above the effect of weak economic growth (see figure 1 below). Interestingly, among G7 countries hiring uncertainty affects mainly job destruction rather than job creation, with the exception of the United States. Overall, firms are not only concerned about the uncertainty regarding their potential new areas of growth but also about the general political environment that might affect the profitability of their investments. Both labour market and political uncertainty play an important role in explaining the strong and persistent uptick in unemployment rates in G7 countries. Moreover, it appears that changes in uncertainty precede changes in unemployment rates, indicating that additional information can be gained from such indicators to improve labour market forecasts.

What explains hiring uncertainty? 

In order to better understand what is driving hiring uncertainty, several potential factors were regressed on the evolution of the ILO hiring uncertainty index in G7 countries. Given the high correlation shown above between policy uncertainty and hiring uncertainty, a first candidate was to look at the evolution of public debt in these countries. As can be seen in panel A of figure 2 below, this is indeed a significant factor to explain the evolution of firms’ hiring uncertainty. In periods where countries are confronted with high levels of public debt, the hiring uncertainty of firms is more than 1 percentage point higher than in periods where it is low. In addition, as panel B demonstrates, standard economic factors also enter the hiring uncertainty. Indeed, when using unit labour costs as an indicator for firms’ competitiveness, it can be shown that higher levels of unit labour costs (i.e. lower levels of competitiveness) are correlated with higher levels of uncertainty, an intuitive result. In this case, the impact of changes in competitiveness on hiring uncertainty is even stronger, as firms face hiring uncertainty that is 2 percentage points higher when competitiveness is low in comparison to their competitors with high competitiveness. These two results suggest that on-going attempts in Europe to limit a further increase in public debt (or better to reduce the currently high levels of such debt) and a reform agenda to strengthen competitiveness, in particular among Southern European companies, might push up hiring significantly to the extent that it reduces hiring uncertainty. Such a positive contribution to job creation might compensate for the otherwise deflationary effects that austerity policies and structural reforms have in the short run. Ideally, the effects will be strong enough to make up fully for the reduction in aggregate demand that these measures have already brought and could help to smooth the transition to an improved outlook for European labour markets.

Emerging markets: Is the boom over?

Recent turmoil on forex markets in emerging economies such as Argentina, India or Turkey have raised concerns that the boom might be over. Capital is flowing out of these countries as investors fear increased risk for their investment. Central banks and public authorities have taken emergency measures but these are unlikely to be sustainable over longer periods if market sentiments are not turning again.

For the women and men working in these countries, a key concern now is to live through yet another boom-bust crisis of which they have seen all too many in the past already:

• For instance, Argentina saw its rate of working poverty increase by 10 percentage points during the early 2000s, after the peso had to be delinked from the dollar parity (see chart). 
• Similar developments took place in Mexico during the peso crisis in the 1990s. 
• India seems more immune but the still high rate of working poverty really does not leave a lot of room for adjustment policies. So the interest hike that the Reserve Bank of India implemented last week is really bad news for the Indian labour market.

Source: ILO, Global Employment Trends database

Some observers have called for belt-tightening. However, in the current situation with already high levels of poverty and unemployment, the focus should lie on focussing public policies on generating jobs. Currently, the emerging world represents the bulk of the increase in global unemployment. As I have insisted in an interview I gave at Deutsche Welle (see below), if the turmoil in Argentina, India and Turkey continues, unemployment rates might increase much faster than anticipated in the ILO's recent Global Employment Trends report.

(In German: Perspektiven für Schwellenländer)

Does innovation destroy jobs?

In my recent Reddit session there were quite a number of questions about job destruction due to technological change:

http://www.reddit.com/r/IAmA/comments/1vy4u7/i_am_ekkehard_ernst_economist_jobs_expert_of_the/

This is a serious question, and many economists have dismissed it too easily by pointing out that in an ideal world, those who lose a job today will find another one tomorrow in a different sector. Unfortunately, life is never ideal.

But, consider these facts:

• An unmanned air drone that replaces a F16 fighter aircraft, requires about 300 people to stay in the air for 24 hours. An airplane only requires 100 (T. Cowen, Average is over, 2013). Technological progress and mechanization does not necessarily require less jobs, but different ones, and not everyone is prepared to get these.
• Job destruction has declined over time. Fewer workers move straight into unemployment than before. This is partly related to demographics as older workers tend to have more secure jobs. But it also has something to do with the fact that we aren’t as innovative as we think we are (ILO Global Employment Trends 2014).
• Productivity growth has slowed over the last two decades at least in advanced economies where it barely reached half the growth rates of the 1990s. The pace of innovation has slowed as well. In itself, this is something we should worry about, because it means, collectively we are growing richer less rapidly than before. And there are still plenty of people who need to improve their standard of living, even in developed economies.....

So whether technological progress has actually accelerated or not is still a matter of debate. But even if it has, the problem is not the lack of work to be done but rather making sure workers possess the right skills to get the jobs available. Even in countries where labour markets are generating a lot of jobs, the mismatch between skills in demand and skills in supply has increased, as I have shown in another recent report (ILO GlobalEmployment Trends 2013):

The new Global Employment Trends Report 2014 is out!

http://www.ilo.org/global/research/global-reports/global-employment-trends/2014/lang--en/index.htm

Almost 202 million people have been looking for a job last year, 5 million up from 2012. More unemployment is expected this year, as the current recovery is not strong enough to create more jobs.
I did a Reddit to discuss some issues in more detail, you can find the summary here:

http://www.reddit.com/r/IAmA/comments/1vy4u7/i_am_ekkehard_ernst_economist_jobs_expert_of_the/

ILO releases new global unemployment projections

Today, we published our new global and regional unemployment projections:

http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_elm/---trends/documents/publication/wcms_179663.pdf

The slowdown in growth has started to push up global unemployment: This year we expect 202 million jobseekers global, with further increases over the coming years through 2016. This is a significant worsening of the outlook and we do not see any reverting happening any time soon.

US unemployment rate edges down, hiring remains difficult

Last Friday provided good news for the US labor market. Unemployment edged down to 8.6% in November, the first time for three years that the rate fell below 9%.

http://www.bls.gov/news.release/empsit.nr0.htm

Not everything is rosy, though. Half of the fall in the unemployment rate is due to discouraged jobseekers leaving the labour force. This people typically face higher hurdles for re-entry should the economic situation improve.

Looking forward, more difficult times can be expected. The help-wanted index online, provided by the Conference Board, indicate a further drop in job openings in November:

http://www.conference-board.org/press/pressdetail.cfm?pressid=4349

Also, long-term unemployment remains elevated, with people out of employment for more than 6 months finding it increasingly difficult to find alternative employment opportunities.

In this environment, further stimulus is the only thing that helps. Cutting down on government programs now is not helping a quick turnaround in job creation. That doesn't mean the current programs should not be carefully examined and spending re-oriented towards activation measures (rather than having unemployment idly sitting around at home). But an austerity-led job recovery simply does not exist.