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Report: China and India in McKinsey Labor Report

By Joshua Gill

Jul. 20 – A June 2012 report from the McKinsey Global Institute entitled “The World at Work: Jobs, Pay, and Skills for 3.5 Billion People” details the dramatic long-term shifts in the demographics and occupations of people in the world and forecasts trends set to take place over the next 20 years.

For short-term predictions, it summarizes its findings in three points that it predicts will be present in 2020:

  1. A potential shortage of about 38 million to 40 million high-skill workers
  2. A potential surplus of 90 million to 95 million low-skill workers around the world
  3. A potential shortage of nearly 45 million medium-skill workers in developing economies

However, these trends will affect each country at different rates and times. Below, we distil the results as they apply to India and China.

Despite representing one of the countries that produces the most college graduates in the world, China will still face a shortage of around 23 million college-educated workers by 2020. In the same time period, there will potentially be a surplus of as much as 58 million low-skilled workers in India. Because of a lack of education, this could even affect India’s medium-skill worker segment, producing a shortage of 13 million workers.

A shortage of highly-educated workers in China could slow its shift in focus from manufacturing to high value-added industries. China’s growth would be negatively affected as productivity gains slow. For India, poverty could further increase due to a surplus of low-skilled workers.

Summary of the labor force in China
China’s recent focus, both on educating rural and urban workers alike, and on shifting workers into the non-labor force, has had the following impact:

  • From 1980 to 2010, China’s non-farm labor force grew by 315 million workers (current total: 475 million workers)
  • In the past decade, China added 121 million non-farm jobs in manufacturing and service sectors (80 million workers came from low-productivity agriculture)
  • In the past decade, 33 million jobs were created in manufacturing

Summary of the labor force in India
India, meanwhile, has also put in a strong performance, as evidenced by the below statistics:

  • In the past decade, India’s non-farm labor force grew by 67 million workers
  • In the past decade, the number of farm workers remained steady at 240 million, however as a percentage of the total labor market, farm jobs fell from 62 percent in 2000 to 53 percent in 2010

The two countries together have contributed a huge quantity of workers to the world’s labor force. From 1980 to 2010, the world’s labor force gained 1.2 billion workers to reach a total of 2.9 billion people. Of the 1.2 billion worker increase, China and India collectively contributed 500 million workers.

However, despite their growth, the potential imbalance between available jobs and the skill level of the labor force could prove destabilizing. The McKinsey report concludes that at the global level, business leaders and policy-shapers need to respond to both the supply side and the demand side of the labor market.

For governments, this means attracting jobs that are suitable for their workforce as well as expanding education opportunities in sectors that require more workers. For business leaders, this means investing in countries that have the workforce that suits their needs.

Related Reading

Minimum Wage Comparisons Between China and India

Report: India Looks to Be Global Source of Mid-Level Workers

Report: India Most Preferred Investment Destination after China and U.S.

Report: Economic and Social Survey of Asia-Pacific Region 2012

Report: China Top Economy in 2020, India in 2050

Report: 2012 Asia-Pacific Regional Economic Outlook

Report: China and India Most Cost-Competitive Countries

Report: Mumbai Tops Shanghai as Least Affordable City

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2 Responses to Report: China and India in McKinsey Labor Report

  1. The_Observer says:

    This is probably one of the more objective articles about demographics and its implications for the world’s two most populous countries.
    It could be argued that without population control in China from the 1970s onwards, China may not have developed so fast as resources would have had to be spread thinner. On the other hand, the single child syndrome has created present day distortions in personal expectations and family dynamics. How that plays out for China will be an interesting experiment.
    On the other hand, the Indian glee that soon they will be te most populous nation in the world with a demographic dividend may also be misplaced. Unless you develop the young with clean water, adequate nutrition, education and jobs then you are no better off and possible worse off. Again, this will be an interesting experiment.
    I just hope I live long enough to see what the results are in 2025 for both nations. In the mean time here in Australia, the latest immigration report has the biggest group for 2011 being the Indians, followed by the Chinese with the Brits in tow.

  2. Thanks Observer. I made demographic comparisons and the effect of the economic changes these bring and will have on China, India and Emerging Asia, including the shift in business dynamics and new opportunities that result at a recent webinar on the subject here: http://www.2point6billion.com/news/2012/03/29/china-india-asean-hot-markets-watch-live-webinar-download-10911.html

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