Category Archives: Employment

Latin America reignite growth by connecting

The region needs to build a more diversified and sustainable economic base, focusing on consumers as the pivotal driver of growth both globally and at home.

With turmoil and recession in Brazil and Venezuela in the headlines, the rest of the world too often assumes the news from Latin America is uniformly bad. But there are bright spots of momentum from Colombia to Mexico and Peru. Chile is maintaining modest but steady growth, while Argentina, enjoying renewed access to the world’s capital markets, is beginning to stage a comeback.

These green shoots are good news, but the region needs a strategy with firm roots that can begin raising living standards for all citizens. To turn this start into sustainable growth, the region needs to take a hard look at the changing global economy and at its homegrown economic challenges.

A great deal of Latin America’s momentum over the past decade was built on the world’s seemingly limitless appetite for the region’s commodities. Today it’s a far different picture; not only have once-soaring commodity prices plummeted, but investment is also down across much of the world. China is the harbinger of change, as it attempts to shift to a model of slower but more sustainable growth driven by consumption, services, and innovation. In this new landscape, Latin America cannot afford simply to wait for the next commodities supercycle to restore growth.

The region needs to build a more diversified and sustainable economic base, focusing on consumers as the pivotal driver of growth both globally and at home. It is critical to know which segments will have the purchasing power and the inclination to spend, as well as where they are and what they want to buy.

Economic opportunity

Investing in access to essential services and reducing the gap in labor-force participation rates could significantly expand the global economy by 2025.

In 2015, the McKinsey Global Institute published The power of parity: How advancing women’s equality can add $12 trillion to global growth. This report, which focused on the enormous potential associated with narrowing the gender gap, found that if every country did so at the same historical rate as the fastest-improving country in its regional peer group, the world could add $12 trillion to annual gross domestic product in 2025. That’s some 11 percent higher than it would be under the business-as-usual scenario.

So what will it actually take to turn this potential into reality? Our new discussion paper, Delivering the power of parity: Toward a more gender-equal society, provides an agenda for action and investment, quantifying the progress needed on 15 gender-inequality indicators. It finds that while much of the $12 trillion opportunity comes from advancing gender equality in the world of work, progress there is closely tied to tackling gender gaps in society more broadly. In particular, improved access to services in six areas could unlock economic opportunities for women: education, family planning, maternal health, financial inclusion, digital inclusion, and assistance with unpaid care.

A new perspective on income inequality

The real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014. Without action, this phenomenon could have corrosive economic and social consequences.

Most people growing up in advanced economies since World War II have been able to assume they will be better off than their parents. For much of the time, that assumption has proved correct: except for a brief hiatus in the 1970s, buoyant global economic and employment growth over the past 70 years saw all households experience rising incomes, both before and after taxes and transfers. As recently as between 1993 and 2005, all but 2 percent of households in 25 advanced economies saw real incomes rise.

Yet this overwhelmingly positive income trend has ended. A new McKinsey Global Institute report, Poorer than their parents? Flat or falling incomes in advanced economies, finds that between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70 percent of households, or more than 540 million people (exhibit). And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.

The power of parity

Bridging the gender gap in the United Kingdom could increase GDP by billions of pounds over the next decade and add 840,000 female employees to the workforce.

Moving toward gender equality is not only a moral and social issue; it is also important to future economic growth in the United Kingdom. A new report from the McKinsey Global Institute, The power of parity: Advancing women’s equality in the United Kingdom, explores the economic potential of narrowing gender gaps at the national level as well as across UK regions; it also examines the opportunity to address gender disparities within various occupations and sectors of the economy. Gender equality in work necessitates gender equality in society, so this research adopts a holistic view, assessing how gender inequality impacts a woman through her life and identifying a comprehensive set of interventions to help UK stakeholders take action on gender inequality in the short and longer terms. Here’s a look at some of the main findings of our research:

  • Bridging the UK gender gap in work has the potential to create an extra £150 billion on top of business-as-usual GDP forecasts in 2025, and could translate into 840,000 additional female employees.1In this scenario, every one of the United Kingdom’s 12 regions has the potential to gain 5–8 percent in GDP, with the largest opportunities in London, the North West, and South East.
  • Some 38 percent of this extra GDP could come from increased female participation in the labor force—with the rate rising from 76 percent for business-as-usual forecast in 2025 to 79 percent in 2025; 35 percent from more women working in the more productive sectors; and 27 percent from a rise in women’s working hours by an average of 25 to 30 minutes a day.
  • Today, women work in less productive sectors and are concentrated in lower-paid occupations, which affects their financial stability. They are least represented in high-productivity sectors—including science, technology, engineering, and math (STEM)—and higher-salaried occupations, including skilled trades and managerial and leadership positions, which report the highest densities of skill shortages. Paving the way for women to occupy such roles could support productivity gains and act as one of the levers for the United Kingdom to narrow the productivity gap to its peers.
  • Data from the past decade indicate there has been little improvement in work indicators on a national level; at current rates, the United Kingdom will not achieve parity within the next three decades. MGI’s global Power of parity report also showed that, worldwide, enhancing women’s economic potential has gone hand in hand with achieving greater gender equality in society.
  • Analysis of UK indicators of gender parity in work and society shows that inequality most affects women as they enter the workforce or take on a parenting role (exhibit). Areas of extreme inequality include STEM careers,2single parenthood, and political representation. There is high disparity in relation to leadership and managerial positions, unpaid care work, entrepreneurship, breadwinning ratio, teenage pregnancy, and access to credit. This picture varies only slightly between UK regions.

The time for growth is now

The driving forces of the country’s growth—including urbanization, a rising middle class, and increasing consumer spending—are ripe for companies to seize upon.

India stands to become one of the largest growth engines in the world, according to research in a new McKinsey Global Institute (MGI) report, India’s ascent: Five opportunities for growth and transformation. In this episode of the McKinsey Podcast, McKinsey senior partners Noshir Kaka and Alok Kshirsagar and MGI partner Anu Madgavkar talk with McKinsey’s Cecilia Ma Zecha about the way forward in a growth- and productivity-powered India.

Cecilia Ma Zecha: Hello and welcome to this edition of the McKinsey Podcast. I’m Cecilia Ma Zecha, an editor with McKinsey Publishing in Singapore. Twenty-five years ago, India embarked on a journey of economic liberalization, opening its doors to globalization and market forces. The IMF [International Monetary Fund] expects GDP to grow more than 7 percent this year, making India the world’s fastest-growing large economy. Powered by a rising middle class that’s expected to more than triple to 89 million households by 2025, India has an attractive long-term future and compares favorably with other emerging markets.

What’s the road ahead? Our guests today are Noshir Kaka, a senior partner in McKinsey’s Mumbai office, and Anu Madgavkar, a partner of the McKinsey Global Institute. They are the authors of a new MGI report on India’s ascent, which outlines five opportunities for India’s growth and transformation. Also joining us to look at the implications for domestic and multinational companies is Alok Kshirsagar, a senior partner and leader of McKinsey’s Asia Risk Practice. Welcome, everyone. Noshir, let me start with you. What is the road ahead for India’s economy?

Noshir Kaka: Thank you, Cecilia. First, as you outlined, we are in an exciting time for India and companies in India, both multinational as well as domestic. India’s going to be the third-largest incremental GDP growth engine for the planet by 2030. That’s significant if you think about India’s size relative to the other massive geographies out there, like China or the US.

What’s powering that growth is two or three things that are pretty unshakable. First is the trend toward urbanization, which is going to increase consumption power massively, as well as economic leverage. The demographic changes that India’s going to go through are, again, unshakable and undeniable. But I think powering those two or three things, along with changes in the way the government is functioning as well as changes in technology, are ensuring that this growth engine has several more cylinders than the few that we used to originally think about.

Capturing China

It won’t be easy, but shifting to a productivity-led economy from one focused on investment could add trillions of dollars to the country’s growth by 2030.

After three decades of sizzling growth, China is now regarded by the World Bank as an upper-middle-income nation, and it’s on its way to being one of the world’s advanced economies. The investment-led growth model that underpinned this extraordinary progress has served China well. Yet some strains associated with that approach have become evident.

In 2015, the country’s GDP growth dipped to a 25-year low, corporate debt soared, foreign reserves fell by $500 billion, and the stock market dropped by nearly 50 percent. A long tail of poorly performing companies pulls down the average, although top-performing Chinese companies often have returns comparable with those of top US companies in their industries. More than 80 percent of economic profit comes from financial services—a distorted economy. Speculation that China could be on track for a financial crisis has been on the rise.

The nation faces an important choice: whether to continue with its old model and raise the risk of a hard landing for the economy, or to shift gears. A new McKinsey Global Institute report, China’s choice: Capturing the $5 trillion productivity opportunity, finds that a new approach centered on productivity could generate 36 trillion renminbi ($5.6 trillion) of additional GDP by 2030, compared with continuing the investment-led path. Household income could rise by 33 trillion renminbi ($5.1 trillion), as the exhibit shows.

The challenges independent work presents

Working nine to five for a single employer bears little resemblance to the way a substantial share of the workforce makes a living today. Millions of people assemble various income streams and work independently, rather than in structured payroll jobs. This is hardly a new phenomenon, yet it has never been well measured in official statistics—and the resulting data gaps prevent a clear view of a large share of labor-market activity.

To better understand the independent workforce and what motivates the people who participate in it, the McKinsey Global Institute surveyed some 8,000 respondents across Europe and the United States. We asked about their income in the past 12 months—encompassing primary work, as well as any other income-generating activities—and about their professional satisfaction and aspirations for work in the future.

The resulting report, Independent work: Choice, necessity, and the gig economy, finds that up to 162 million people in Europe and the United States—or 20 to 30 percent of the working-age population—engage in some form of independent work. While demographically diverse, independent workers largely fit into four segments (exhibit): free agents, who actively choose independent work and derive their primary income from it; casual earners, who use independent work for supplemental income and do so by choice; reluctants, who make their primary living from independent work but would prefer traditional jobs; and the financially strapped, who do supplemental independent work out of necessity.

Fueling the next 20 percent productivity

Business needs to raise productivity more than ever. Thanks to innovations in digitization and analytics, four new methodologies can yield the productivity breakthroughs organizations need.

Business is now in the midst of the most significant disruption in decades. This epochal transformation has been driven largely by technological changes—big data and advanced analytics, additive manufacturing, the Internet of Things, robotics, and artificial intelligence—collectively described as the fourth industrial revolution. Arriving at dizzying speed (see sidebar “Lewis Carroll on the pace of change”), its consequences are already evident across sectors: competition is intensifying not just within industries but also between them. Think of Apple assembling an autonomous-vehicle business or Tesla moving into power supply. And then there are the aggressive, agile start-ups, with business models that ignore conventional constraints.

Together, these pressures are both intensifying the long-standing imperative to raise productivity (see sidebar “What is productivity?”) and leaving much less room for error. Yet they also involve novel tools and methods—for example, vastly increased connectivity and the Internet of Things—with a huge potential for realizing new levels of productivity across the entire value chain.

In 2016, about 17.6 billion devices were connected to the Internet. By 2025, that figure will probably jump to about 80 billion, at a rate of 152,000 a minute.

The difficulty, of course, is to take advantage of these technological breakthroughs in ways that lead to comparable performance breakthroughs. This has never been easy to do. In 1987—more than 30 years after businesses started using mainframes—Nobel Prize–winning economist Robert Solow famously noted, “You can see the computer age everywhere but in the productivity statistics.”

Businesses—indeed, societies—cannot afford another 30-year wait for significantly better productivity. They need gains on the order of 20 percent or more, and they need them much sooner. But the problem now, as a generation ago, is that organizations too often overinvest in technology while underinvesting in the human capabilities needed to make it useful.

Fundamentals of workplace automation

As the automation of physical and knowledge work advances, many jobs will be redefined rather than eliminated—at least in the short term.

The potential of artificial intelligence and advanced robotics to perform tasks once reserved for humans is no longer reserved for spectacular demonstrations by the likes of IBM’s Watson, Rethink Robotics’ Baxter, DeepMind, or Google’s driverless car. Just head to an airport: automated check-in kiosks now dominate many airlines’ ticketing areas. Pilots actively steer aircraft for just three to seven minutes of many flights, with autopilot guiding the rest of the journey. Passport-control processes at some airports can place more emphasis on scanning document bar codes than on observing incoming passengers.

What will be the impact of automation efforts like these, multiplied many times across different sectors of the economy?1Can we look forward to vast improvements in productivity, freedom from boring work, and improved quality of life? Should we fear threats to jobs, disruptions to organizations, and strains on the social fabric?2

Earlier this year, we launched research to explore these questions and investigate the potential that automation technologies hold for jobs, organizations, and the future of work.3Our results to date suggest, first and foremost, that a focus on occupations is misleading. Very few occupations will be automated in their entirety in the near or medium term. Rather, certain activities are more likely to be automated, requiring entire business processes to be transformed, and jobs performed by people to be redefined, much like the bank teller’s job was redefined with the advent of ATMs.

More specifically, our research suggests that as many as 45 percent of the activities individuals are paid to perform can be automated by adapting currently demonstrated technologies.4In the United States, these activities represent about $2 trillion in annual wages. Although we often think of automation primarily affecting low-skill, low-wage roles, we discovered that even the highest-paid occupations in the economy, such as financial managers, physicians, and senior executives, including CEOs, have a significant amount of activity that can be automated.

The organizational and leadership implications are enormous: leaders from the C-suite to the front line will need to redefine jobs and processes so that their organizations can take advantage of the automation potential that is distributed across them. And the opportunities extend far beyond labor savings. When we modeled the potential of automation to transform business processes across several industries, we found that the benefits (ranging from increased output to higher quality and improved reliability, as well as the potential to perform some tasks at superhuman levels) typically are between three and ten times the cost. The magnitude of those benefits suggests that the ability to staff, manage, and lead increasingly automated organizations will become an important competitive differentiator.

Our research is ongoing, and in 2016, we will release a detailed report. What follows here are four interim findings elaborating on the core insight that the road ahead is less about automating individual jobs wholesale, than it is about automating the activities within occupations and redefining roles and processes.

Technology and the future of work

Automation, digital platforms, and other innovations are changing the fundamental nature of work. Understanding these shifts can help policy makers, business leaders, and workers move forward.

The world of work is in a state of flux, which is causing considerable anxiety—and with good reason. There is growing polarization of labor-market opportunities between high- and low-skill jobs, unemployment and underemployment especially among young people, stagnating incomes for a large proportion of households, and income inequality. Migration and its effects on jobs has become a sensitive political issue in many advanced economies. And from Mumbai to Manchester, public debate rages about the future of work and whether there will be enough jobs to gainfully employ everyone.

The development of automation enabled by technologies including robotics and artificial intelligence brings the promise of higher productivity (and with productivity, economic growth), increased efficiencies, safety, and convenience. But these technologies also raise difficult questions about the broader impact of automation on jobs, skills, wages, and the nature of work itself.

Many activities that workers carry out today have the potential to be automated. At the same time, job-matching sites such as LinkedIn and Monster are changing and expanding the way individuals look for work and companies identify and recruit talent. Independent workers are increasingly choosing to offer their services on digital platforms including Upwork, Uber, and Etsy and, in the process, challenging conventional ideas about how and where work is undertaken.

For policy makers, business leaders, and workers themselves, these shifts create considerable uncertainty, alongside the potential benefits. This briefing note aims to provide a fact base on the multiple trends and forces buffeting the world of work drawing on recent research by the McKinsey Global Institute and others.