Asia’s emerging economies face a severe skill shortage as demand increases, says new report
October 2016: A new report from the Workforce Analytics Institute (WAI), a partnership between The Conference Board and Mercer, titled Deciphering Labor and Skill Shortages in Asia with Workforce Analytics, states that emerging economies in the region face a severe lack of supply of skilled labor in the near and medium term on account of less-than-adequate skills-based education and changing workforce demographics despite the availability of large working-age populations.
· Emerging economies face severe lack of skilled labor compared to advanced economies
· The Conference Board developed ‘skill momentum index’ to measure preparedness of emerging economies
· Companies will have to deploy evidence-based workforce strategies and robust upskilling processes to be able to address the skill shortage
Skilled labor is in high demand across Asia but workforce preparedness varies widely across the region. Singapore has the highest proportion of high-skilled workers in Asia, representing more than 50 percent of the employment share, and at the other end of the spectrum Bangladesh has one of the highest proportions of low-skilled labor, with over 40 percent of the population involved in low-skilled work. Comparisons between relatively advanced economies (Singapore, Hong Kong, Japan, and Korea) and the emerging economies (Malaysia, Thailand, the Philippines, Indonesia, China, India, Vietnam, Nepal, Bangladesh, Cambodia, Pakistan, and Myanmar) show that the share of the educated population, particularly the share of the tertiary- or postsecondary educated population, is considerably lower in emerging economies despite a considerable proportion of the GDP being invested in education. This dichotomy across the region has also resulted in supply-side imbalances, with increased mobility of skilled workforce when compared with the larger low-skilled populations in the emerging economies.
The Conference Board illustrates the large variations in workforce preparedness across 12 economies in Asia with the development of the skill momentum index (the index), by combining expected trends in the urban labor force with trends in several educational and technology indicators. The index provides insight of whether a country is moving in the right direction to address its future skill challenges. According to the index, Thailand and the Philippines are relatively better prepared and are moving in the right direction to address their skill challenges while Myanmar, Pakistan and India currently have weak skill preparedness and will likely experience challenges in the coming years.
Dion Groeneweg, Partner and HR Transformation & Workforce Planning Leader for Growth Markets, Mercer commented on the report, “Multinational organizations continue to set their sights on expansion and growth in Asia. To do this they need to understand the nuances of the different markets – including the specific talent concerns. Our research shows, for example, that among Chinese and Indian workers, career advancement is the main reason motivating employees to leave their organization. Yet on the other hand, base pay heavily impacts attrition rates in advanced economies such as Singapore and Hong Kong.” Groeneweg continues, “Using workforce analytics can better equip organizations with internal and external factors such as country demographics, compensations, training opportunities to manage and enhance their talent decisions which indirectly impacts business’ bottom line. We are seeing more firms turning to workforce analytics to better understand employees in order to create lasting competitive advantage versus their competitors.”
Caitlin Pan, Ph.D., Senior Researcher, Asia Region of The Conference Board and the author of the report said, “The best way to address talent challenges is to find local solutions suited for the specific organizational context. Within the report we included case studies from leading organizations in Asia that have already embarked on addressing their labor shortage concern. Organizations need to understand their key challenges and make their decisions based on evidence and facts. Through this internal data, human resources are better able to justify their decisions and garner key stakeholder support. Successful organizations marry internal data with external sources of data to aid their decision making. Only with comprehensive knowledge of both of these can organizations make effective strategies to suit their firms.”
CHINA
Over the next decade, the working-age population will decline, partially due to China’s one-child policy implemented from the late 1970s till 2015. The lifting of the one-child policy may increase the size of China’s working population, although it will take years for the full effects of the policy reversal to become apparent. Although the movement of the workforce from rural to urban regions will add to the overall availability of workers in urban centers, highly skilled labor will remain scarce. This is because migrant workers from rural areas, lacking both technical and soft skills, usually fill menial, low paying jobs in cities rather than skilled ones.
Moreover, as China’s economy matures, it will no longer be able to depend on cheap labor to fuel its growth, but will require skilled workers that demand higher wages. The demand for skilled labor is set to grow over the next few years, with the demand for workers with a university education or vocational training far exceeding supply. Although higher salaries are desired by workers, higher pay may not necessarily be the only means of enticing workers to stay. Organizations need to focus on alternative means of retaining workers by providing career advancement or training opportunities.
INDIA
Unlike China, India’s working-age population is set to grow over the next decade. Although India has a young population, only about 2 percent of the workforce is skilled, in contrast to countries like South Korea and Japan, where skilled workers represent 96 and 80 percent of the population respectively. This lack of skilled labor is likely to severely hinder India’s ability to develop. To deal with labor issues, employers in India may need to consider recruiting more female employees. At the moment, the Indian female labor participation rate is only 25 percent, one third that of males. Improvements in tertiary and vocational education infrastructure are much needed too.
INDONESIA
Similar to India, Indonesia has a young population set to grow over the next decade with more than 63 percent of its population below age 35. Like many other emerging nations in Asia, Indonesia lacks skilled labor. At present, only 4.1 percent of the population has postsecondary or tertiary education. From 2012 to 2030, the need for skilled workers in Indonesia is forecasted to grow from 55 to 113 million. This step-up in demand for approximately 58 million workers will put immense pressure on organizations seeking to build their talent pool in Indonesia. Organizations seeking to address skill shortages in Indonesia should put a greater focus on employee training. However, organizations should recognize that highly trained internal talent will be sought after by other firms, and hence, the organization will need to put in place additional incentives to retain their trained workforce.
PHILIPPINES
Over the next decade, the working-age population of the Philippines will continue to grow, and its current position on the skill momentum index suggests that the country will be able to effectively deal with upcoming skill and talent challenges. Unlike Indonesia, the Philippines has been more successful in providing access to education. But similar to China, India, and Indonesia, it too faces a shortage in highly skilled labor. High migration rates may have contributed to its skilled labor shortage. Thus, organizations seeking to address their talent needs may try to expand their talent sources by attracting migrant workers returning from overseas and local workers considering migration.
