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February 7, 2008
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The Global Demographics of Talent

Hurricane Change
   
The demographics of talent have been changing at an astonishing rate. The United States, long the world leader in talent and innovation, now teeters on the brink of a talent shortage. In today’s knowledge economy, which is driven by innovation and service, success hinges on the leadership abilities of knowledge workers, the individuals whose work revolves around information. Such work requires a new set of skills. Unfortunately, current trends show that the United States will struggle to compete with the rest of the world to create a competitive edge with these skills.

    Four key factors are among those contributing to this predicament: education, the decline of men in the academic and professional worlds in the United States, outsourcing and offshoring, and an aging American work force.

Education
United States
    Success in today’s knowledge-based economy requires talented knowledge workers, but current trends indicate that the United States is not educating enough of them. According to the BusinessWeek article "America the Uneducated," today 85 percent of American adults possess at least a high school diploma (up from 25 percent in 1940), and 28 percent have earned a college degree. While these numbers seem impressive, they do not tell the whole story. According to BusinessWeek, the number of high school and college graduates will not only grind to a standstill; it may actually decrease over the next fifteen years. If so, this puts the American economy at great risk.

    In addition, those who are graduating from colleges and universities in the United States are not entering the fields so crucial to our economic success. The United States needs more people to fill high-tech jobs, such as engineering and IT, in order to compete in the new global economy. However, according to theBusinessWeek article "More Visas for High-Tech Workers May Be Inevitable," the U.S. Department of Education has reported that bachelor degrees awarded in electrical engineering declined 46 percent from 1987 to 1997. Obviously, this leaves the United States with a major shortage of critical talent.

Asia
   
While American students are losing ground academically, students in Asia are reaping the benefits of educational improvements in their countries. In the U.S. News and World Report article "Can America Keep Up?" David Calhoun, vice chairman of General Electric, issues this challenge to American students: "There are huge populations out there who are motivated beyond your imagination. That’s what you’re going to contend with. They didn’t grow up with what you had, but they want it. And you can’t believe how much studying goes on in those families." Unlike their American counterparts, Asian students hunger for success, and they will work tirelessly to achieve it. As Roy Singham, CEO of ThoughtWorks, says in the same article: "When you’re in college drinking beer and watching the Super Bowl, your counterpart in China is on his fourth book."

    More and more Asian countries particularly stress science and math, the two areas that drive cutting-edge new products and technological innovation. American eighth-graders rank ninth in science proficiency and fifteenth in math proficiency among forty-five countries, including Malaysia. In addition, according to "Can America Keep Up?" India, China, and South Korea now house many world-class schools, quite often affiliated with and under the guidance of top American institutions. This means fewer Asian students will attend school in the United States, where in the past they often remained to work.

    According to the BusinessWeek article "Outsourcing Hasn’t Hit Its Peak," government mandates and reforms also account for increased educational improvements in such countries as India. The literacy rate in India has risen from 20 percent in the 1980s to 70 percent today. In addition, according to the McKinsey Quarterly article "Ensuring India’s Offshoring Future," India boasts 14 million university graduates, adding 2.5 million new ones every year, 1.5 times the number of China’s graduates and almost twice that of the United States.

Europe
    Every year, the European Union heads of government convene for the Lisbon agenda, a summit to discuss economic reform. According to the Economist article "Back to School," in 2006 the Lisbon agenda agreed that by 2010, the EU should strive to become the world’s "most competitive and dynamic knowledge-based economy." However, Europe must implement major reforms in its school systems before it can possibly hope to achieve that goal.

    According to "Back to School," Europe’s problem starts at the secondary school level. A study run by the Organization for Economic Cooperation and Development (OECD) rated the mathematics performance of an average fifteen-year-old from a big European country at or below the international average in a field where Hong Kong, South Korea, and Japan lead the pack.

    When it comes to higher education, Europe also gets a failing grade. According to Shanghai’s Jiao Tong University, currently seventeen of the top twenty universities in the world are American, and 32 percent of students who study outside of their home countries study in the United States. Although a recent report by the Organization for Economic Cooperation and Development (OECD) titled "Education at a Glance: OECD Indicators" shows that three European nations—Norway, Britain, and the Netherlands— have surpassed the United States in the proportion of young people who graduate from college, you can’t take this at face value.

    According to the Chronicle of Higher Education article "Falling Behind," the report indicates that from 1990 to 1997, the number of students enrolled in postsecondary education increased by more than 20 percent in all but five OECD-member countries, and by 50 percent in six OECD-member countries (Portugal, Poland, Hungary, Turkey, Britain, and the Czech Republic). However, these increases do not translate into large numbers of students because the countries operate such small college systems. For example, Portugal leads in enrollment growth, but only 7 percent of its population between the ages of twenty-five and sixty-four has attended college. In actual number of graduates, South Korea now surpasses Europe.

    In terms of technical degrees, essential ingredients to any recipe to become the world’s "most competitive and dynamic knowledge-based economy," the article "Back to School" reveals that China and India are producing more graduate engineers than the entire European Union. This puts Europe at a distinct disadvantage in today’s knowledge-based economy.

Gender
United States
   
A startling new trend toward fewer and fewer men in the educational system also affects the talent pool. According to College Enrollment and Work Activity of 2004 High School Graduates, issued by the Bureau of Labor Statistics, of the 1.8 million youths attending college in October of 2004, young women accounted for 61.4 percent. In addition, the young women who enrolled in college were more likely than were the young men to graduate within six years. This trend, which does not appear to be slowing down, could have a major impact on America’s economic and social structure. According to the AACRAO article "Colleges and Universities Attempt to Improve the Gender Gap," the severity of the gender gap has led many colleges and universities to consider affirmative action for men in order to achieve a greater gender balance. This means that if a male candidate and a female candidate possess equal qualifications, or, in some cases, even if the female possesses higher qualifications, a university will admit the male.

    However, some universities have found other ways to attract men to their campuses. According to David Hawkins, director of public policy for the National Association for College Admission Counseling, "Now most four-year colleges work with their own internal marketing department or contract out to an independent agency that tailors their marketing plan to young men—and they are very, very aggressive."

    Although the gender gap affects colleges and universities, it starts long before that.

    A recent study by the U.S. Department of Education revealed that the gender gap in education starts as early as elementary school. According to the study, in elementary school, female fourth-graders outperformed their male peers in reading (2003) and writing (2002) assessments, and then have been getting closer in mathematics and science achievement. The gender differences in the National Assessment of Educational Progress (NAEP) reading achievement grew from 10 points in 1999 to 16 points in 2002 at the secondary school level. These statistics speak to the need for more support for boys in the American educational system. U.S. Secretary of Education Rod Paige says, "It is clear that girls are taking education very seriously and that they have made tremendous strides. The issue now is that boys seem to be falling behind. We need to spend some time researching the problem so that we can give boys the support to succeed academically."

    Ironically, although more women are graduating from college, they are underrepresented in many crucial fields of study, such as engineering, computer science, and the physical sciences. In fact, according to a survey of 385 colleges by the Higher Education Research Institute, University of California, Los Angeles, only 2.6 percent of this year’s female college freshmen expect to major in engineering, compared to 15.6 percent of freshmen males. If more women majored in technical subjects, the United States would fare much better in competition with Asian countries.

Asia
   
According to the BusinessWeek article "America the Uneducated," while education declines in the United States, "education is exploding in countries such as China and India." (In India, the literacy rate in the 1980s was 20 percent; today it is 70 percent.) U.S. high school math and reading scores rank below those of most European and Asian economies, and now almost as many students attend college in China as in the United States. The Conference Board projects that within a decade, students in these countries will be as likely to get a high school education as will be their American counterparts, and due to their countries’ populations, they will probably produce more college graduates. National Center for Public Policy and Higher Education president Patrick M. Callan warns that more U.S. white-collar jobs will move off shore. "For the U.S. economy, the implication of these trends is really stark."

    In contrast to the United States, men continue to dominate both education and the work force in Asian countries such as China and India. Men outnumber women in secondary schools and higher education, a trend that will continue for many years to come, according to the Reading Today article "Bridging the Gender Gap." This under representation of women in higher education and the work force stems largely from deep-seated cultural ideas about gender identity and the greater importance of education for boys.

    In fact, according to the Science article "China Debates Big Drop in Women Physics Majors," an alarming trend is taking place in China: The number of women majoring in physics has sharply decreased. In the 1970s, more than one in three physics students at two of China’s top universities were women, whereas today they make up fewer than one in ten. At Beijing University and Nanjing University, women accounted for an average of 42 percent and 37 percent of physics majors, respectively, but by the 1990s, those numbers plummeted to 9 percent and 8 percent.

    This trend derives from the government’s attitude toward technical workers. In the 1970s, when the government needed to produce large numbers of technical workers, it dictated what students should study. One Beijing University physics graduate, who originally planned to major in mathematics, recalls, "Many students who scored the highest marks in entrance examinations were assigned to study physics even if they did not apply for it." Thus, many women were forced into physics. Today, however, they are discouraged from doing so. Wu Ling’an, a senior physicist with the Chinese Academy of Sciences, observes: "It’s better to choose a good husband and take care of the kids at home rather than working as a man’s equal in the office or lab."

    In order for women in Asian countries to enjoy the same educational and economic advantages as men, the existing societal views of women must change. This, however, will prove very difficult because, as Li Fanghua warns, "It’s not so much discrimination as it is a legacy of feudal stereotypes."

Europe
   
The transition from industrial to knowledge economies has also created a gender gap in the European workplace.

    According to the U.S. News and World Report article "Gender, Jobs and Economic Survival," in Britain, France, and Germany, "nonemployment" (the total number of registered unemployed workers plus those too discouraged to look for jobs) has tripled for men between the ages of twenty-five and fifty-five since 1970. From 1973 to 1992, male participation in the British work force decreased from 93 percent to 84 percent, with female participation rising from 53 percent to 65 percent. Seventy percent of the jobs created in Europe in the second half of the 1980s went to women and new entrants in the labor market, and by 1991, one-third of unskilled males were jobless in Britain. Furthermore, a study conducted by Warwick University’s Institute of Employment Research projects that jobs performed by women in Britain will increase by 700,000, and those carried out by men will decrease by 200,000.

    The increase in part-time jobs dramatically contributes to the gender gap. Two-thirds of all positions in OECD countries are service-sector jobs in areas such as health care, retail, travel, office, and telecommunications. Unfortunately, an increasing proportion of the work for these jobs requires only an average of fifteen hours of labor per week. In Britain, the number of full-time jobs recently decreased by 287,000, while the number of part-time jobs increased by 215,000. More women than men fill part-time positions, with women accounting for 85 percent of part-time workers in Britain.

    These changes provide some disturbing short- and long-term implications. According to "Gender, Jobs and Economic Survival," part-time jobs allow employers to cut costs by reducing permanent payrolls, and women earn less per hour than the men in each of the OECD nations. Due to the rise in female part-time employment, the average earning growth in Britain has dropped to thirty-year lows. And, as John Tomaney of Newcastle University’s Center for Urban and Regional Development Studies warns: "We’ve created a huge male underclass in which crime and unemployment are a way of life. Our new economic base is very fragile."


Outsourcing and Offshoring
United States
    With the American economy suffering a critical shortage of people trained in technology, more and more U.S. companies look elsewhere for that talent, outsourcing functions to such countries as China and India. Initially, companies outsourced to take advantage of what the BusinessWeek article "The Future of Outsourcing" calls "labor arbitrage," the wage gap between industrialized and developing nations. Now, however, companies often outsource to obtain better talent for less money.

    This phenomenon completely alters the way the world does business. Given so many technology graduates in such countries as India and China, many companies now outsource their IT and other technology needs to them. The McKinsey Global Institute estimates that $18.4 billion in global IT work and $11.4 billion in business-process services has been shifted abroad so far, and this represents only one-tenth of the potential offshore market. But it goes far beyond IT work. According to Lakshmi Narayanan, chief executive of Cognizant Technology Solutions, many companies are outsourcing financial analysis to MBAs in India.

    Two of the companies currently reaping the benefits of these services are GE and McKinsey. According to the BusinessWeek article "Outsourcing: Spreading the Gospel," McKinsey realized that it could create a world of "remote services" in which providers as far away as India and China could work for customers in the United States. In 1995, the company established the Knowledge Center in Delhi, where researchers would crunch numbers, analyze trends, and create PowerPoint presentations for McKinsey consultants worldwide. In 1996, when GE Capital experienced a shortage of talent needed to sustain the growth of its mortgage refinance business, the firm set up a small support office in Delhi. Once consultants and executives from these two organizations saw the benefits of outsourcing, they began leaving to start their own businesses, using offshore talent.

    According to "The Future of Outsourcing," "it is becoming possible to buy, off the shelf, practically any function you need to run a company." For example, if you want to start an airline but you don’t want to invest in a huge back office, a company called Navitaire will handle reservations, plan routes, assign crew, and calculate prices for each seat. Or, if you have developed a new product but you don’t employ any market researchers, you can hire Evalueserve Inc., a New Delhi–based analytics outfit, to assemble a team of Indian patent attorneys, engineers, and business analysts who will mine global databases and call dozens of U.S. experts and wholesalers to provide an independent appraisal, all for just $5,000 a day.

    However, despite the fear that the United States will lose jobs to offshoring, many experts now believe that the United States can benefit from the development. As stated in "The Future of Outsourcing," many executives now favor "transformational outsourcing," a more strategic view of global sourcing. Here, executives tap offshoring to fuel corporate growth, making better use of skilled staff in the United States and creating jobs here. Many companies now offshore work in order to free up their analysts, engineers, and salespeople from routine tasks, liberating them to focus their talent on innovating and dealing with customers. This approach to offshoring relies less on saving money than on growing the organization.

    While the effects of offshoring on the United States’s economy remain to be seen, one thing seems certain: This trend does not show any sign of slowing down; in fact, it has been gaining momentum.

Asia
    No region has benefited more from outsourcing and offshoring than Asia, particularly India. American businesses seeking talented technical specialists have looked abroad to such Asian countries as China and India, both of which produce more technical workers than other countries. Not only that, but these workers bring strong credentials and a stronger work ethic to their jobs than do many American technical workers.

    According to the McKinsey Quarterly article "Ensuring India’s Offshoring Future," India ranks as the world’s largest and fastest growing offshoring sector. In low-level jobs? No, in IT services, which play a major role in the country’s overall economic growth. According to the article, in 2004–2005, India’s offshore IT and business-process outsourcing industry generated approximately $17.3 billion in revenue and employed around 695,000 people. By 2007–2008 that work force may include 1,450,000 to 1,550,000 people, accounting for 7 percent of India’s GDP. Although India’s dominance of offshoring will not wane soon, some analysts think that India’s talent pool may be shrinking. According to "Ensuring India’s Offshoring Future," when rated for their suitability for employment by multinational companies, a significant number of India’s huge supply of graduates fail to make the grade because they lack significant English language skills. Due to customer complaints about communication with Indian operators, many U.S. companies have shifted their call centers from India to the Philippines.

    Additionally, only 1.2 million Indians (4 percent of the total university-educated work force) hold engineering degrees, compared with 33 percent in China. India may well experience a shortage of engineers within the next few years. However, India does offer a large talent pool for non-IT services, such as R & D, finance and accounting, call centers, and back-office administration.

Europe
    In order to remain competitive on a global scale, European countries have also rushed into outsourcing and offshoring. According to the VNUNET article "Europe Outsourcing Capital of the World," Europe has now overtaken the United States as the world’s leading market for outsourcing contracts. The dramatic rise in offshoring in Europe has come about because Europe must keep up with other multinationals that earlier took the outsourcing path.

    In the BusinessWeek article "Job Exports: Europe’s Turn," Chris Gentle, European research director for Deloitte, says, "If you’re competing against someone like Citigroup, which has grown revenues three times faster than costs [through extensive outsourcing to India], you really don’t have a choice. It’s changing the operating model of European institutions." Thus, Deloitte Research estimates that about 800,000 financial-services and high-tech jobs will migrate from Western Europe to cheaper labor markets, principally India, but also Eastern Europe and China.

    According to the BusinessWeek article "Offshoring: The Pros and Cons for Europe," offshoring can enable European countries to slash service costs by 50–60 percent. And many companies can offshore half or more of their sales, general, and administrative expenses. With offshoring, many European companies can raise profits and reduce prices and become more competitive, which will help keep inflation in check.

    Although many people in the United States fear losing jobs to outsourcing and offshoring, Europeans face even graver consequences. According to "Offshoring: The Pros and Cons for Europe," two critical components determine a nation’s offshoring benefits: redeployment (or what percentage of workers who lose jobs can find new ones), and recapture (or what percentage of the wages paid in lost jobs are recaptured by the wages paid in new ones). Unfortunately, with the exception of Britain, whose flexible economy could quickly create new jobs, Europe’s rigid employment practices and labor rules mean very few new jobs created for displaced workers. Because of this, the overall unemployment rate may increase, with a consequent reduction of overall income.

Aging Work Force
United States

    Gone are the days when companies offered early-retirement packages to older employees so they could make way for newer, younger workers, largely because the United States will soon face a serious labor shortage. The baby-boom generation, the 76 million Americans born between 1946 and 1964, is poised to retire within the next ten years. According to the BusinessWeek article "Keep
Boomers on the Job," that’s a full 43 percent of the U.S. workforce. This many people retiring over such a short time span will adversely affect the American work force as it loses the talent, skills, and practical judgment this generation has gained from a lifetime of working.

    Adding to the problem, the next two generations of workers are each 15 percent smaller than the baby-boom generation. According to the Microsoft article "Shifting Workplace Demographics and Delayed Retirement," the portion of the work force aged twenty-five to thirty-nine will decline 5.7 percent by 2010. Also, according to the Employment Policy Foundation, the workforce will experience a shortfall of 7.4 million baccalaureate degree holders by 2012.

    The good news: due to increased life expectancy (up from forty-seven years in 1900 to seventy-seven years today), more people are delaying retirement. A Merrill Lynch retirement survey of 3,000 baby boomers found that 83 percent intend to remain in the workforce. The article "Shifting Workplace Demographics and Delayed Retirement" claims that by 2010, more than 51 percent of the workforce will be forty or older. These people either need the income or wish to remain professionally active, maintain mental alertness, and keep engaged in their communities. Some opt to keep or modify their existing jobs, some choose to work full- or part-time at new jobs, and some elect to become mentors to younger workers. More people remaining in the work force will alleviate the effects of a talent shortage in the United States. In addition, the younger generation of workers will reap the benefits of the skills, knowledge, and values of more experienced workers.

Asia
    Like the United States, Asia will soon feel the effects of a rapidly aging population. Countries there will also be facing the fact that while so many of their workers are aging and retiring, fewer young workers will come along to take their place, creating a critical shortage of talent.

    According to a report by IBM Business Consulting Services titled "Challenges of an Aging Workforce," Japan may fall victim to the most severe demographic crisis in Asia. Within the next ten years, more than 33 million people (26 percent of the population) will be over sixty-five years old. Due to the low birthrate in Japan (1.3 children for each woman), by 2050 Japan’s population will drop from 127 million to about 100 million, eliminating a third of the country’s labor force.

    According to the report, China’s situation may not be as grave as Japan’s, but it too will suffer the effects of an aging talent pool. Today, only 11 percent of the population is over sixty, but the United Nations projects that by 2040 it will increase by 28 percent. This means 397 million people over sixty-five, which exceeds the current populations of France, Germany, Italy, Japan, and the United Kingdom combined. Because of the transformation from state-run enterprises with generous benefits to private corporations with few, if any, retirement benefits, hundreds of millions of workers may not fare well in their retirement years. However, as with the United States, Asian nations can benefit from their aging work force: attracting and retaining older workers on a part-time or flex-time basis, mentoring, and updating aging workers’ skills.

Europe
    While many economies around the globe will feel the effects of an aging work force, none will feel it more than Europe. Just as in the United States and Asia, Europe is experiencing an increase in life expectancy and a decrease in birthrates. However, Europe’s disparity makes theirs pale by comparison.

    According to the Washington Post article " ‘Old Europe’ and Getting Older," a person born today in Germany, France, or Italy will live to seventy-eight years, compared to sixty-seven years in the 1950s. Additionally, the number of births per woman has decreased dramatically: in France, 1.7; in Germany, 1.4; in Italy, 1.2; and in Spain, 1.16, the lowest recorded in human history. According to "Addressing the Challenges of an Aging Workforce," over the next two decades the number of people aged fifty to sixty-four will increase by 25 percent, whereas those aged twenty to twenty-nine will decrease by 20 percent, meaning not enough people will enter the work force to replace the older workers.

    Generous state pensions offered by many European countries exacerbate the problem. For example, according to the BusinessWeek article "Global Aging," Jenny Francois has worked in data entry for insurer Macif in Agen, France, for twenty years. For the past three years, she has been in "pre-retirement," working just two days a week and still collecting $1,500 a month (more than 70 percent of her previous full-time salary). When she reaches sixty, her pay will decline only slightly. However, with the combination of an aging population and a low birthrate, workers like Francoise will not be able to enjoy such lavish benefits much longer. Because many economists fear that this combination will lead to bankrupt pensions and lower living standards by midcentury, many countries have begun cutting back on once-lucrative retirement benefits.

    Europe’s aging work force will lead to a talent shortage. According to the IBM report "Addressing the Challenges of an Aging Workforce," in a 2002 study of more than 500 German companies, 23 percent stated that the aging population represented a problem for their organizations, and 39 percent indicated they were facing challenges due to shortages of qualified labor. The loss of older workers from the European work force means a loss of expertise when knowledge does not pass on to the next generation of workers. This loss of expertise includes insights on managing key customer relationships and handling exceptions to critical processes, which cost organizations time, energy, and resources to replace.

    In order to alleviate the situation, Europe, like the United States and Asia, has begun to implement many new strategies to keep people in the work force longer, including an increased retirement age, and stricter criteria for workers earning pensions. Many individual companies hope to retain current older workers and attract new older workers by allowing them to work part-time or flexible schedules, and giving them the opportunity to update their skills. They are also taking the time to preserve the knowledge of older workers before they leave the company so that their knowledge can be passed on to other generations of workers. These initiatives, and others, will help Europe keep its economy afloat in the wake of its changing population.

Source: Talent IQ: Identify Your Company's Top Performers, Improve or Remove Underachievers, Boost Productivity and Profit by Emmett C. Murphy. Copyright (c) 2007, Emmett C. Murphy. Used by permission of Adams Media. All rights reserved.

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