By 2030, the global supply of skilled labour could fall short of demand by 16%. According to a new study, the expected talent deficit of 85.2 million workers across 20 economies will make "wage premiums" the norm. Left unchecked, it could result in an additional $2.5 trillion or more in annual labour costs. Wage premiums are the additional amount that employers will need to shell out to secure the right talent, over and above the normal inflation-adjusted pay increases.
According to Korn Ferry's The Salary Surge study, the United States faces the biggest wage premium, estimated to reach $296.48 billion as early as 2020, and rising to $531.25 billion by 2030. The other worst-affected countries on the list are Japan, which could see an additional salary increase of $468 billion, China ($343 billion), Germany ($176 billion) and Brazil ($174 billion).
In Asia Pacific, the salary surge could add more than $1 trillion to annual payrolls by 2030. Put another way, the average pay premium across Asia Pacific per worker is $14,710 per year, jeopardising corporate profitability and threatening business models if kept unchecked.
Where does India fit in this picture? We are likely to actually buck the trend in the long term. "India is the only country in our study that can expect to avoid a spiralling wage bill since it is the only country we project to have a highly skilled talent surplus at each milestone, meaning that the vast Asian nation is unlikely to witness significant wage inflation," said the report.
However, India features in the report's Top 10 biggest wage premiums by economy list in the short term. The study predicts the domestic salary surge at $22 billion in 2020, coming in at the 9th spot on the list just ahead of Hong Kong ($19 billion).
The study assessed wage increases by mapping the firm's proprietary global pay data against the skilled labour shortage revealed in their early study - The Global Talent Crunch - to estimate its impact at three future milestones: 2020, 2025, and 2030. The model focussed on three knowledge-intensive sectors within each market that act as critical drivers of global economic growth, namely financial and business services, technology, media and telecommunications (TMT), and manufacturing.
The 20 markets covered in the study span developed and developing global economies across the Americas (Brazil, Mexico, the US), Europe, the Middle East, and Africa or EMEA (France, Germany, the Netherlands, Russia, Saudi Arabia, South Africa, UAE, and the UK), and the Asia Pacific (Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, and Thailand).
"The new era of work is one of scarcity in abundance, there are plenty of people, but not enough with the skills their organisations will need to survive. While overall wage increases are just keeping pace with inflation, salaries for in-demand workers will skyrocket if companies choose to compete for the best and brightest on salary alone," said Dhritiman Chakrabarti, Korn Ferry's Head of rewards and benefits for the APAC region.
The study also found that while major economies can expect the highest wage premiums, it is the smaller markets with limited workforces that will feel the most pressure. For instance, by 2030, Singapore and Hong Kong could expect salary premiums equivalent to more than 10% of their 2017 GDP.
The financial sector is by far the most significantly impacted by the global salary surge. With an expected deficit of 10.7 million workers by 2030, it faces a potential wage increase of more than $440 billion by 2030 - more than double the wage premium of the other sectors examined in the study.
The study added that the manufacturing sector will also be hit hard, as it faces an additional wage bill of $197.35 billion by 2030. "Manufacturing's role as a critical growth driver for many emerging economies may be stalled by the huge impact of the salary surge," said the report, adding, "Although China is not expected to suffer shortages in the first half of the decade, the highly skilled worker shortage is expected to exceed 1 million by 2030. As a result, the wage premium could total more than $50 billion by that time, higher than any other country analysed."
Mushrooming wage premiums are not the only fallout of the talent crunch predicted in the study. World economies could also fail to generate $8.452 trillion in revenues by 2030 in the bargain. Interestingly, the report added that the "movement of Indian workers [India's brain drain] is likely to make only a small difference to the talent shortages in other countries".
In tomorrow's workplace, buying needed talent from the market will become too costly to remedy the situation alone. "Companies will need to focus on retaining and reskilling existing workers instead," said the study, adding, "For companies that make the effort to upskill their existing workforces, there is an added bonus: Employees who are connected to an organization's purpose and feel they can make a meaningful contribution are much more likely to stay, even if they're offered a higher salary elsewhere."(With PTI inputs)