Global labour markets are at a critical turning point, with significant structural changes underway that will create future labour shortages, inflation and headwinds to economic growth. New research from PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU), explores how macroeconomic forces are reshaping the global workforce and economy.
In “The Transformation of Labour Markets: Winners and losers in a new era,” the latest in PGIM’s Megatrends research series, PGIM examines the drivers transforming global labour markets and the impact for investors determining future leaders and laggards across industries, regions and countries.
“Profound structural changes to labour markets were already underway prior to COVID-19,” said Shehriyar Antia, head of thematic research for PGIM. “The combined effects of tighter labour supply, growing labour market mismatches, the rise of AI and the pushback on globalisation will have a major impact on growth and inflation around the world.”
KEY FORCES DRIVING GLOBAL LABOUR MARKETS
In the report, PGIM identifies four forces underpinning structural change in labour markets:
- Demographic trends reshaping global workforce: Notably the “dual aging” of companies and older, settled workers is dampening entrepreneurship and innovation, with the US, for example, seeing a decline in startups.
- Structural mismatch in labour demand and supply: Labour mismatches are being amplified by technology, reshoring and industrial policy. For example, by 2030 the US semiconductor industry expects more than half of the roles they need will be unfilled due to a lack of workers with the technical skills to manufacture chips.
- AI brings automation from the factory floor to the office: Labour and tech have a complex relationship — AI both enhances productivity and replaces jobs. While it may eventually displace workers — especially in service industries such as law, finance, pharma research, and education — this won’t happen imminently and to the scale current headlines are suggesting.
- Fraying globalisation impact on labour patterns: With the “golden era” of globalisation over, there are paradigm shifts underway which are being overlooked by investors. Migration, onshoring of global supply chains and the resurgence of labour bargaining power are all factors investors must consider given their potential to reshape growth, inflation, and monetary policy in this new era of labour markets.
“Technology and trends like the reshoring of supply chains are increasingly creating labour mismatches across advanced economies,” added Taimur Hyat, PGIM’s chief operating officer. “This research points investors to where companies will find the skills they need to grow — an important factor to consider when making long-term investment decisions.”
TODAY’S REGIONAL LEADERS FACE CHALLENGES IN THE NEW ERA
“The reshaping of labour markets will create a new set of winners and losers by industry and region, added Taimur Hyat, PGIM’s chief operating officer. “It’ll be essential for investors to understand the far-reaching implications of these new dynamics” In the report, PGIM creates a framework for evaluating labour supply, labour quality and policy environment.
The study finds that many of the current leaders will struggle to meet future demands for labour. Meanwhile, new and unexpected nations are better placed to take advantage of the labour transformation. The findings include:
- In Asia, China will be greatly challenged to meet their future demand for labour. China’s steep demographic drop-off and net negative migration means it scored poorly on labour supply.
- Largest economies in Europe will be challenged while smaller countries like Sweden and Switzerland are better positioned. Germany, Italy and Spain will be challenged in the new era by a steep demographic drop-off that is not likely to be resolved by current immigration policies.
- In the Americas, current regional leaders Mexico and Brazil will be challenged as both face steep demographic challenges that are unlikely to be mitigated by current trends in migration or female labour participation. In addition to Canada and the US, Chile and Costa Rica are well positioned for the new era of labour.
- While African leaders South Africa, Egypt and Nigeria have favourable demographics relative to nations in other regions, they scored poorly on labour quality and ease of doing business.
For more, read “The Transformation of Labour Markets” and visit PGIM’s Megatrends 360 for investment insights categorised across asset classes, themes and regions.
