A global shortage of highly skilled employees could dramatically drive up salaries for the most in-demand workers, adding more than $2.5 trillion in annual labor costs by 2030 for organizations around the world. Korn Ferry’s latest report, The Salary Surge, finds that the largest economies, including the United States, China, and Germany, can expect rapidly escalating employee costs.
The Salary Surge, finds that world-leading economies, including the United States, China, and Germany, can expect rapidly escalating employee costs. World economies could also fail to generate $8.452 trillion in annual revenue by 2030 due to talent shortages. The combined effect of these twin pressures could jeopardize profitability and threaten business models.
The study examined talent supply and demand, delineating between high-, mid-, and low-skilled workers and categorized by highest educational level achieved. While many economies can expect a surplus of mid- and low-skilled workers, the study found that all but one country— India—can expect a deficit of highly skilled workers. More precisely, by 2030 we can expect a talent deficit of 85.2 million workers across these economies—greater than the current population of Germany. The future of work is one of scarcity in abundance: there are plenty of people, but there are not enough who currently have the skills organizations need. In this environment, companies that focus on upskilling, engagement, and retention have a competitive advantage.
Organizations cannot compete for talent on salary alone. This would incentivize workers to chase ever-bigger pay packets, creating a vicious cycle of rising costs. Organizations are already facing constrained growth due to talent shortages, so the imperative to increase wages puts yet another pressure on their margins. Some companies may be tempted to turn to contingent workers to fill gaps, but this is an unsustainable and expensive solution to a longterm problem.
Korn Ferry study further reveals company payrolls across Asia Pacific could soar long-term due to skilled talent shortages. India is the only country to buck the trend, as it will have a highly skilled talent surplus till 2030. The Study shows that by 2030, a deficit of in-demand employees could cost Asia Pacific companies billions of dollars.
By 2030 average pay premium for skilled workers in Asia Pacific could be more than $14,500 per worker per year. Salaries for highly skilled workers could boom as talent shortages take hold across Asia Pacific, according to a new study by Korn Ferry (NYSE: KFY). Left unchecked, the salary surge could add more than $1 trillion to annual payrolls in the region by 2030, jeopardizing companies’ profitability and threatening business models.
As technological developments continue, employers are increasingly automating routine tasks, decreasing demand for lower-skilled workers. But highly skilled workers who can harness technology advances and lead change are in ever-greater demand. This is driving the emergence of two labor markets:
- An employees’ market of skilled workers who can command high salaries,
- An employers’ market for low-skilled labor, where there’s no shortage of workers and little pressure on wages as a result.
The shallow pool of skilled workers relative to demand is driving the Salary Surge. The larger a country’s talent shortfall, the more we can expect wage costs to rise.
“The new era of work is one of scarcity in abundance: there are plenty of people, but not enough with the skills their organizations will need to survive,” says Dhritiman Chakrabarti, Korn Ferry Head of Rewards and Benefits for the APAC region. “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,” he adds.
Korn Ferry’s Salary Surge study estimates the impact of the global talent shortage, identified in Korn Ferry’s recent Global Talent Crunch study, on payrolls in 20 major global economies at three milestones: 2020, 2025 and 2030, and across three sectors: financial and business services; technology, media and telecommunications (TMT); and manufacturing. It measures how much more organizations could be forced to pay workers, above normal inflation increases.
The study reveals the huge impact the salary surge could have on countries across the region:
- Japanese companies can expect to pay the most: Japan is predicted to pay approximately an additional $468 billion by 2030.
- However, smaller markets with limited workforces are likely to feel the most pressure. By 2030, Singapore and Hong Kong could expect salary premiums equivalent to more than 10 percent of their 2017 GDP**.
- By 2030, China could see an additional wage bill of more than $342 billion.
- India is the only economy that can expect to avoid upward spiralling wages, as unlike any other country in the study it will have a highly skilled talent surplus at each milestone.
- By 2030, the average pay premium (what employers could have to pay over and above the amount that salaries would rise over time due to normal inflation) across the region per worker is $14,710 per year. However, Hong Kong could face a staggering $40,539 per year per highly skilled worker; Singapore could expect to pay an extra $29,065; and Australia $28,625 more by 2030.
- At a sector level, manufacturing, a critical driver of growth for emerging economies, may be stalled by the huge impact of the salary surge. In China the highly skilled worker shortage is expected to exceed one million workers by 2030, meaning that the wage premium could reach nearly $51 billion by the same date – higher than any other country analysed.
Top 10 biggest wage premiums by economy –
|Japan: +$301bn||USA: +$400bn||USA: +$531bn|
|USA: +$296bn||Japan: +$388bn||Japan: +$468bn|
|Germany: +$96bn||Germany: +$135bn||China: +$343bn|
|Brazil: +$66bn||Brazil: +$116bn||Germany: +$176bn|
|Australia: +$60bn||Australia: +$101bn||Brazil: +$174bn|
|France: +$37bn||France: +$65bn||Australia: +$141bn|
|Indonesia: +$31bn||Indonesia: +$53bn||UK: +$121bn|
|Thailand: +$22bn||Singapore: +$34bn||Russia: +$102bn|
|India: +$22bn||Hong Kong: +$30bn||France: +$91bn|
|Hong Kong: +$19bn||UK: +$29bn||Indonesia: +$76bn|
Globally the talent crunch could add $2.5 trillion to company payrolls annually, revealing the huge impact the salary surge could have at a country level:
- US. companies can expect to pay the most globally: facing a wage premium of more than $531 billion by 2030.
- Germany is the worst affected in EMEA, facing a potential wage premium of approximately $176 billion by 2030.
- While the U.K. and France can expect a better short-term outlook, by 2030 the U.K.’s wage premium may be equivalent to 5 percent of its 2017 GDP and France’s may reach 4 percent of its 2017 GDP.
The average pay premium per worker across the 20 economies is $11,164 per year.
As the skills shortage worsens over the next few years, companies can expect their budgets to come under increasing strain as they compete for a limited pool of highly skilled workers, particularly in areas with low unemployment levels and in highly-skilled professions like engineering and finance. China, Russia, and some other countries may be lulled into a false sense of security by the delayed onset of their skilled-labour shortages. But if they don’t take action soon, they could rank among the most severely affected by 2030.
While China’s highly skilled worker shortage won’t hit until after 2025, it could see an additional wage bill of $342.54 billion by 2030, the third most costly of all economies analyzed. Russia can expect to pay an additional $102.13 billion in wages by 2030, as the highly skilled labour deficit leaps from zero in 2025 to 7% of total demand just five years later.
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.