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BW Businessworld

Falling Short On Skills

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Newspaper headlines around the world, especially in the West, warn of a serious job crisis. Unemployment hovers stubbornly in the double digits but this obvious crisis masks another, perhaps more significant predicament, that of skill shortage. To alleviate the recession gripping the world, and for the industrial recovery to stabilise, one needs welders and mechanics to electronic engineers. The unified labour market is already exerting pressure on wages and labour migration. Government and industry will have to step up to the plate to generate enough skilled workers to keep running the long-heralded ‘knowledge economy'.

The numbers are startling. The US has lost 5.6 million manufacturing jobs to low-cost production areas in Mexico and Asia over the past nine years. Overall, unemployment stands near 10 per cent. Yet, what is less well known is that more than 3 million jobs remain unfilled because employers are unable to find workers with the right skill sets.

Companies took advantage of the recession to prune their staff of aged workers and to reduce payroll costs, but have so far been unable to replace them with younger workers with either the technical qualifications or experience to operate leaner and more automated machines. Thirty-two per cent of companies reported "moderate to serious" skill shortages. A lot of workers are needed — for example in the healthcare sector — but they don't have the requisite IT skills. Biomedical companies or energy firms are struggling to find employees with the necessary scientific or math skills. Even companies that are doing well now are looking at great skill shortages when the baby boomers retire. Over the next five years, Boeing's US operations will see some 40 per cent of its workers retire, leaving the aerospace giant to replace some 60,000 skilled employees.

The European Union, too, is beset with a staggering 22.90 million jobless people but is unable to find the right kind of workers for millions of vacancies. A European Commission study — New Skills for New Jobs: Action Now — was released earlier this year and says that Europe lacks 20 million skilled workers and that shortages are acute in the information, communication and health care technology sector. It warned that this trend will only worsen if workers are not retrained quickly enough to fill some 16 million more high-skilled jobs that will need to be filled by 2020. The problem is even more acute in Germany, one of Europe's growing economies. German firms face a shortfall of more than 60,000 skilled workers, including 36,000 engineers. The industry is seeking a short-term solution by encouraging immigration on a points system based on criteria such as educational qualification, language ability and professional experience.

The skill shortage has now emerged as one of the biggest challenges in the rising economies of China and India. As China seeks to graduate its industries to high value-added levels, its efforts are being hobbled by a shortage of skilled labour. In China's booming south, skilled technicians now demand 65 per cent bonuses. Salaries in China are expected to rise 20 per cent across the board. And upward pressure on wages might encourage foreign investors to relocate their operations away from China.

India's ambition to grow is also being stymied by an acute skill shortage. While on paper, India is graduating 450,000 engineers a year, but management consultant Tholons considers that only 25 per cent of them are employable by technology companies. (In China, this figure is just 10 per cent.) Shortages are also evident in bluecollar skills such as high-tech welding, bricklaying, and electrical and carpentry work. The revival of the Middle-East economy has led to a greater demand for such blue-collar skills and that has in turn pushed up wages.

Private corporations are trying to meet the growing skill gap by setting up their own training facilities. From Infosys University, which is set to train 10,000 software engineers, to Larsen and Tubro's training facilities for engineering and construction work, examples abound of corporate efforts to rise to the challenge.

But these token efforts do little to quench the insatiable thirst brought on by the huge structural shift in the world economy. Only a concerted and sustained effort to increase vocational training — and not just in high science and engineering — can begin to address the challenge.

The author is director of publications at the Yale Center for the Study of Globalisation, and Editor of YaleGlobal Online.

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