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byline-share-container"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-8 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-8 mdc-u-ts-9"><span> </span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/anu-madgavkar" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Anu Madgavkar</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/olivia-white" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Olivia White</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/sven-smit" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Sven Smit</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/chris-bradley" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Chris Bradley</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j">Ryan Luby<span> </span></span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j">Michael Neary</span></span></div><div class="mdc-u-grid-col-md-start-8 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-8 mdc-u-grid-col-lg-end-11 ArticleContent_mck-c-article-content__share-tools__kWRRw"></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-5"><div class="mck-u-links-inline">For almost two decades, labor markets across advanced economies have tightened—and the trend is set to continue. This article provides a data-driven look via charts to understand the implications.</div></div></div></section><main data-layer-region="article-body" class="mdc-u-grid mdc-u-grid-gutter-xxl"><div class="mdc-u-grid mdc-u-grid-col-1 mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div class="mdc-o-content-body mck-u-dropcap"> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="DownloadsSidebar_mck-c-downloads-sidebar__iFmyt mck-o-xs-right-span"><div data-layer-region="downloads-right-rail"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f"></h3><div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f"><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Fmckinsey%20global%20institute%2Four%20research%2Fhelp%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies%2Fhelp-wanted-charting-the-challenge-of-tight-labor-markets-in-advanced-economies.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="help-wanted-charting-the-challenge-of-tight-labor-markets-in-advanced-economies" data-layer-report-name="help-wanted-charting-the-challenge-of-tight-labor-markets-in-advanced-economies>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (31 pages)</span></a></div></div></div></div> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-o-md-center mck-c-module-wrapper"><div class="mck-u-screen-only" id="interactive-bespoke-charting-labor-markets" aria-label="" role="document"></div></div> <h4>At a glance</h4> <ul> <li><strong>Labor markets in advanced economies today are among the tightest in two decades,</strong> not merely a pandemic-induced blip but rather a long-term trend that may continue as workforces age.</li> <li><strong>Tightness means forgone economic output.</strong> We estimate that GDP in 2023 could have been 0.5 percent to 1.5 percent higher across these economies if employers had been able to fill their excess job vacancies.</li> <li><strong>Companies and economies will need to boost productivity and find new ways to expand the workforce.</strong> Otherwise, they will struggle to exceed—or even match—the relatively muted economic growth of the past decade.</li> <li><strong>Actions for companies and policy makers include:</strong></li> <ul> <li>Focus on skilling and reskilling, including attracting talent from unconventional pools, offering more flexible work, and internal mobility.</li> <li>Encourage foreign-born workers with programs to properly integrate them into the workforce.</li> <li>Shape retirement policies to encourage people to work beyond standard retirement ages and take steps to attract more women into the workforce, for example, by offering elder or childcare infrastructure.</li> <li>Prioritize investment in labor-complementing and labor-substituting AI and automation to unlock productivity.</li> </ul> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-disruptor1up mck-o-md-center mck-u-inline-module-border-top mck-u-inline-module-border-bottom mck-u-screen-only" data-layer-region="disruptor-1up"><div class="mdc-u-grid mdc-u-grid-gutter-md mdc-u-grid-col-lg-12 mdc-u-grid-col-md-12 "><div class="mdc-u-grid-col-lg-span-4 mdc-u-grid-col-md-span-5 Disruptor1Up_mck-c-disruptor1up__image___2Gc4"><picture data-component="mdc-c-picture"><img alt="A picture of a puzzle with different faces on each pieces, with a missing piece in the middle and another flying off." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20the%20long%20term%20labor%20tightening%20trend%20by%20country/help-wanted-by-country-170958970-hero-1536x864.jpg?cq=50&mh=145&car=16:9&cpy=Center" loading="lazy"/></picture></div><div class="mdc-u-grid-col-lg-span-8 mdc-u-grid-col-md-span-7"><header data-component="mdc-c-header" class="mdc-c-header"><div class="mdc-c-header__block___i1Lg-_2734c4f"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f"><div><strong>Explore labor market tightness in eight countries in depth</strong></div></h3></div></header><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f mck-c-disruptor1up__content Disruptor1Up_mck-c-disruptor1up__content--links__VV4lE mdc-u-grid-gutter-md"><a data-component="mdc-c-link" href="/mgi/our-research/help-wanted-the-long-term-labor-tightening-trend-by-country" class="mdc-c-link-cta___NBQVi_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">View all country data snapshots</span><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mck-link-arrow-right-icon"></span></a></div></div></div></div> <hr/> <p><strong>Labor market tightness</strong> is a persistent challenge. Though loosening somewhat since their 2022 peaks, labor markets in advanced economies remain tighter than at any other time over the past two decades. This is not a pandemic-induced phenomenon. Rather, it continues a long-term trend that started in 2010, when advanced economies began their protracted recovery from the 2008 financial crisis.</p>  <p>Shifting demographic forces could intensify this trend in the future. As workforces age and population growth decelerates, countries cannot count on excess workers to power economic growth. Absent concerted efforts to boost productivity or increases in the workforce through higher participation or immigration, many advanced economies will struggle to exceed—or even match—the relatively muted economic growth of the past decade.</p> <p>So far, the impact of the labor market squeeze has been unevenly distributed. Job vacancies have climbed most steeply in sectors that traditionally have low productivity, such as healthcare and hospitality, as well as those with stagnant productivity, like construction. Without action, labor shortages may continue to hit sectors that struggle to increase productivity.</p> <p>Tight job markets present both challenges and opportunities. Job seekers find work more easily and may garner higher wages. Yet upward wage pressure can spur inflation and stress businesses, particularly smaller ones. For instance, companies may need to turn down orders because they can’t hire enough workers to satisfy demand. At the economy level, we estimate that GDP in 2023 could have been 0.5 to 1.5 percent higher in the biggest advanced economies if employers had been able to fill their job vacancies.</p> <p>Businesses large and small will need strategies to confront persistent labor shortages. Deploying and adopting technologies is one way they can power productivity growth. Retraining programs can help workers gain new skills needed as technologies shift, and matching programs can pair people with jobs. Businesses also can expand their hiring pools, including by seeking to attract immigrants and people who might otherwise sit on the sidelines.</p> <p>Against this backdrop, this article examines labor markets in advanced economies, using 20 charts to illustrate conditions in labor markets today, future prospects, and actions to address shortages. These labor markets range across 30 economies in Asia, Europe, and North America, with a particular focus on the eight largest: Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.</p> <hr/> <h2 id="tightness-trend">Tightness is the trend</h2> <p>Today’s <a href="/mgi/our-research/help-wanted-the-long-term-labor-tightening-trend-by-country">tight labor markets</a> reflect longer-term trends in vacancy and unemployment rates across advanced economies.</p> <p>Since 2010, labor markets have tightened across all 30 advanced economies we analyzed.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="26a43e0f-13d8-47df-b79d-44aa13c4b52d"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="26a43e0f-13d8-47df-b79d-44aa13c4b52d" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">The 30 countries are Australia, Austria, Belgium, Canada, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and the United States.</span></span></span></a></span> Comparing job vacancies with numbers of unemployed job seekers provides one measure of labor market tightness. The number of job vacancies per unemployed person increased by more than four times on average across these economies between 2010 and 2023, and by almost seven times in the United States.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex01-vacancy-rates.svgz?cq=50&cpy=Center"/><img alt="Labor markets in most advanced economies have been tightening since 2010." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex01-vacancy-rates.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A line chart plots 30 lines, starting on the left with mostly low up-and-down volatility and rising upward to the right with higher volatility. Each line represents an advanced economy, and the 8 countries featured in the text are highlighted. The vertical axis shows the number of job vacancies per unemployed person, starting at 0 on the bottom and rising to 2.5. The horizontal axis shows years, from 2000 on the left to 2023 on the right. The lines stay below 1 on the vertical axis until about 2015, when many of the lines rise closer to 1, with 8 of them surpassing 1, including the US, Japan, and Germany. Annotations next to the graph note that in aggregate, the job vacancy rate rose by a multiple of 4.2, and the individual multiples for the 8 highlighted countries ranged from 2.3 to 6.7. End of image description</div></div> <p>Labor shortages have appeared across a diverse group of countries that have no apparent common features other than their stage of development. Tightness is particularly acute in seven countries—the Czech Republic, Germany, Japan, the Netherlands, Norway, Singapore, and the United States—that have more vacancies than unemployed workers. Together these countries account for 53 percent of the total labor supply of the 30 advanced economies in our research, and 64 percent of collective GDP. In another seven countries, the number of job vacancies is 0.5 to 1.0 times the number of unemployed workers. Australia, Canada, and the United Kingdom are in this group.</p> <p>But not all large economies have labor shortages. For example, labor markets in France and Italy remain relatively slack, as they do in 14 other countries among the 30. This group collectively accounts for 31 percent of total labor supply and 20 percent of total GDP. Yet even in most of these places, labor markets have tightened. Vacancies per unemployed person have increased by five times in Italy and by almost four times in France.</p> <p>The tightening trend began after the 2008 financial crisis, when job vacancies were dwarfed by a vast number of unemployed people. The recovery was slow: labor markets in these 30 economies took 8.2 years on average to reach the degree of tightness they had before the crisis.</p> <p>The desire to hire carried on apace, and labor markets continued to tighten until the COVID-19 pandemic took hold in early 2020. During the pandemic, many labor markets oscillated, first to extreme looseness and then to extreme tightness. Generous fiscal stimulus measures during the crisis fueled a comparatively fast job recovery, and by 2022, labor markets had achieved the highest ratio of job vacancies to unemployed people in two decades. Today, labor markets remain historically tight but have cooled somewhat from that peak. For instance, as of April 2024, the vacancy-to-unemployment ratio in the United States had dropped to 1.2 from 1.4 at the end of the prior year.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>The devil is in the details: Decoding the labor data</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>In the internet era, posting job listings is easy and motivation to take them down is low, raising questions about the reliability of data on job openings.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="99b9742d-3af5-42bc-b7aa-b637284ab3e2"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="99b9742d-3af5-42bc-b7aa-b637284ab3e2" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Measuring job openings in the U.S. labor market,” Congressional Research Service, February 28, 2024.</span></span></span></a></span> In this research, we examined trends in labor market tightness using a variety of data that economists typically employ to understand labor market dynamics, drawing data from multilateral and country statistical agencies. These included the following:</p> <ul> <li>Labor supply, or all the people seeking work, is the sum of the people with jobs (employed people) and people looking or recently looking for jobs (unemployed people).</li> <li>Labor demand, or all jobs that need workers, is the sum of filled positions (equal to employed people) and unfilled positions (vacancies or job openings).</li> <li>Unemployment rate, or the percentage of people seeking work who haven’t found jobs, is unemployed people divided by labor supply (the sum of employed and unemployed people).</li> <li>Vacancy rate, or the percentage of jobs that remain unfilled, is job vacancies divided by labor demand (the sum of filled jobs and job vacancies).</li> </ul> <p>We focus on measuring labor market tightness as the ratio of vacancy rates to unemployment rates, but our conclusions hold if we examine unemployment rates only (exhibit). In 2023 in all countries but Denmark, Luxembourg, Norway, and Sweden, the unemployment rate was lower than the median observed since 2000, and the average unemployment rate across 30 advanced economies was among the lowest one-fifth of unemployment rates observed since 2000.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><div class="flourish-chart flourish-embed" data-src="visualisation/17961349?956372"></div></div><div class="mck-u-sr-only">Image description: A dot plot chart shows horizontal lines with dots at either end to show the range of the unemployment rate over 2000–23. The lines are stacked in 30 rows, each representing a country, and the horizontal axis starts at 0% on the left and goes to 28% on the right. Rows are arranged from top to bottom by countries’ latest unemployment rate, with Singapore, Japan, Czech Republic, and South Korea at the top at about 3%, and Spain, Greece, France, and Italy at the bottom, at 8–12%. End of image description</div></div> <p>To explore the micro underpinnings of labor shortages, we analyzed vacancy and employment data at the sector level in seven of the eight focus countries. (We were unable to extract the same data for Japan.) Additionally, we combined US occupational data from the Bureau of Labor Statistics with McKinsey Global Institute’s skills taxonomy to understand the types of jobs and workers most affected by the labor shortage.</p> <p>We also tested whether labor market tightness was a result of mismatches between workers and available jobs. This happens when vacancy rates rise without a commensurate decline in unemployment rates or vice versa. While we found evidence of such mismatches in Australia, Canada, and the United States during the COVID-19 pandemic, by the end of 2022 they were resolving, and so that analysis is absent from this report.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="d612cae0-db8c-437b-b0c2-04a905f0e4ee"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="d612cae0-db8c-437b-b0c2-04a905f0e4ee" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">This can be seen on the Beveridge curve, which illustrates the relationship between unemployment rates and job opening rates. For an example, see <em>The Beveridge curve (job openings rate vs. unemployment rate), seasonally adjusted</em>, US Bureau of Labor Statistics, accessed May 20, 2024; Gadi Barlevy et al., <em>The shifting reasons for Beveridge-curve shifts</em>, IZA discussion paper number 16517, IZA Institute of Labor Economics, October 2023.</span></span></span></a></span></p></div></div></div></div></div></div> <p>Across the eight focus economies, labor markets have retreated from peak tightness during the COVID-19 pandemic toward conditions more similar to the rising prepandemic trend. Only Italy, which had one of the loosest labor markets among developed economies before the pandemic, shows no signs of declining tightness yet. This could be the result of the Italian government’s fiscal response to COVID-19, which the International Monetary Fund estimates exceeded 45 percent of the country’s GDP, making it the most generous relief package among advanced economies.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="34e6a22a-7b81-4c1e-a7ce-f7dda8650aaf"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="34e6a22a-7b81-4c1e-a7ce-f7dda8650aaf" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Database of Fiscal Policy Responses to COVID-19, International Monetary Fund, accessed May 28, 2023.</span></span></span></a></span> Japan, where the labor market was among the tightest before the pandemic, lags its prepandemic trend, in part because a weakening yen increased costs in the import-dependent economy. Nonetheless, job vacancies remain 1.2 times the number of job seekers.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex2-vacancy-trend-v2.svgz?cq=50&cpy=Center"/><img alt="Labor market tightness is returning to trend in many markets after a period of disruption during the COVID-19 pandemic." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex2-vacancy-trend-v2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>Eight line charts, 1 for each of the highlighted countries, plot the same data from the previous exhibit, job vacancies per unemployed person, from 2015 to 2023. The lines mostly rise from left to right, with a sudden plunge and recovering rise over the initial pandemic years of 2020–21. Each graph includes a second line that starts in 2019 and rises steadily upward to the right, plotting the continuation of each country’s 2015–19 trend. The first lines plotting the actual post-2019 data mostly show a return to the trend illustrated by the second set of lines.</p> <p>End of image description</p></div></div> <p>Overall, the appetite to hire continues along a rising trend line, outpacing the number of workers seeking jobs.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-edge-to-edge StoryContainer_mck-c-story-container__TLkZC mck-c-module-wrapper"><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Increased labor input drove economic growth in many countries</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>What was behind the robust appetite for labor?</p> <p>Since 2010, countries that have increased GDP fastest have done so primarily by adding more workers rather than by improving productivity. In markets such as Australia, the United Kingdom, and the United States, where labor has been relatively plentiful and consequently easier to hire, companies had a business rationale to add hours and employment rather than tackling the harder job of improving productivity. Countries where labor wasn’t so plentiful—Germany and Japan, for example—relied more on productivity growth to propel their economies, although that did not fully compensate for low labor force growth. In fact, labor productivity has stagnated in many advanced economies, as documented in previous McKinsey Global Institute reports.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="76a0af99-f004-426a-b295-dbdec126fe30"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="76a0af99-f004-426a-b295-dbdec126fe30" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">For more, see <em><a href="/mgi/our-research/investing-in-productivity-growth">Investing in productivity growth</a></em>, McKinsey Global Institute, March 2024, and <em><a href="/mgi/our-research/rekindling-us-productivity-for-a-new-era">Rekindling US productivity for a new era</a></em>, McKinsey Global Institute, February 2023.</span></span></span></a></span></p> <p>Even though all countries experienced a productivity slowdown after the financial crisis, some countries were more negatively affected than others. In Australia, productivity benefited from a commodity boom, while in the United Kingdom, underinvestment in regions other than the southeast may have exacerbated stagnating productivity.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="bc512674-a2ae-4643-a2ec-252bb6d3de90"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="bc512674-a2ae-4643-a2ec-252bb6d3de90" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Angelina Bruno, Jessica Dunphy, and Fiona Georgiakakis, <em>Recent trends in Australian productivity</em>, Reserve Bank of Australia, September 2023; <em>Productivity in the UK: Evidence review</em>, UK Productivity Commission, National Institute of Economic and Social Research, June 2022.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex04-hours-worked-vs-productivity.svgz?cq=50&cpy=Center"/><img alt="Increased labor input drove economic growth in many countries" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex04-hours-worked-vs-productivity.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Eight waterfall-style vertical bar charts show each of the highlighted countries’ compound annual growth rate of GDP over 2010–22, with a vertical axis starting at –0.5% at the bottom and rising to 3%. Each chart shows 2 bar segments — change in growth due to hours worked and change due to productivity — summing to the country’s total. The charts are ordered from left to right according to hours worked, with Australia, US, Canada, UK, and France in one group on the left with an annotation noting they had average GDP growth of 1.9%. The three remaining countries grouped to the right — Germany, Italy, and Japan — have annotations noting that productivity contributed more than hours worked and that their GDP growth averaged 0.7%. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>The excess supply of labor has dwindled</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>In the wake of the financial crisis, many people struggled to find work. In 2010, there were roughly 24 million excess workers, as measured by comparing the number of job seekers with the number of job openings across the eight countries. Today the number of job seekers is close to the number of job vacancies.</p> <p>However, the degree of excess supply (or no excess supply at all, in some cases) varies at the country level. Labor demand exceeded supply in Germany, Japan, and the United States at the end of 2023. Recently, Germany enacted a law aimed at increasing immigration of highly skilled workers, and in the United States efforts are under way to establish a federal commission to study labor shortages and find ways to address them.</p> <p>The excess supply of unemployed workers relative to job openings in France and Italy was two million and one million, respectively. While these economies have meaningful slack in their labor markets today, even they have tightened. Their excess labor figures are 7.1 and 5.7 percent, respectively, down from prepandemic peaks well above 10 percent.</p> <p>The factors that drove labor market tightness also varied across countries. Unemployment rates in Germany, the United Kingdom, and the United States came down from highs in 2010, while Australia never had very high unemployment. Italy continued to have a relatively high rate of unemployment but also increased vacancies, suggesting either a mismatch or a higher natural rate of unemployment. Meanwhile, demand increased markedly in Japan while its shrinking population constrained its labor supply.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex5-excess-supply-vf.svgz?cq=50&cpy=Center"/><img alt="The excess supply of labor has dwindled." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex5-excess-supply-vf.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>Nine area charts, 1 for each of the highlighted countries plus an 8-country aggregate chart, show mostly positive but descending values with some small dips into negative territory in 4 of the charts. The vertical axes show surplus workers in relation to labor demand, going from -4% at the bottom to 15% at the top for the individual country charts and from –5 million to 25 million workers for the aggregate chart. The countries’ horizontal axes show years from 2000 on the left to 2023 on the right. The aggregate chart begins at 2010, starting at about 24 million at the top left and shrinking to 1 million on the right in 2023. The country charts all end in 2023 between –1.5% and 7.1% of demand, each value lower than where the plot started.</p> <p>End of image description</p></div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>The labor surplus has fallen from 24 million to 1 million since 2010 in eight advanced economies</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>The number of excess workers dwindled as growth in labor demand outpaced growth in labor supply. Labor forces in these eight countries grew between 2010 and 2023. Propelled by population growth and increased labor force participation that outweighed the impact of aging, 33 million workers in total joined their labor forces.</p> <p>Over the same period, labor demand grew strongly, fueled by expansive monetary and fiscal policies as these countries recovered from the financial crisis. Employers needed to fill some 57 million additional jobs over the same period, or 24 million more than the number of available workers. Most advanced economies avoided subsequent downturns. This uninterrupted growth in demand not only drove average unemployment down from 8 percent to 4 percent but also created an additional ten million unfilled jobs across the eight economies.</p> <p>During that time, people worked fewer hours on average, but the imbalance between job seekers and available jobs wasn’t due to that change. From 2010 to 2023, the average number of hours worked per employee fell from 37 to 36, a 3 percent decline roughly equivalent to just 33,000 workers in 2023. Declining working hours affect labor supply and labor demand equally, meaning the net effect is negligible.</p> <p>Countries today have fewer than one million excess workers in aggregate: the number of job seekers is close to the number of job vacancies. What appears to be a perfectly matched labor market is in reality an extremely tight one, since some degree of excess supply is always the norm—matching is never perfect, and demand and supply are always in flux as workers switch jobs and employers shift strategies.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>GDP could have been higher by 0.5 to 1.5 percent in 2023 if excess vacancies had been fewer</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Increased job vacancies can constrain real economic output; they represent demand for goods and services that businesses are unable to fulfill. In seven of the eight countries—Japan is the exception—unfilled job vacancies in 2023 were higher than in 2019, before the onset of COVID-19, when they were in turn higher than their median levels from 2010 to 2019.</p> <p>Unmet demand for labor can be addressed by finding additional new workers or by raising the productivity of existing workers. This can restore balance to labor supply and demand while creating additional output.</p> <p>We estimate the additional output that would have been produced if labor markets were not so tight by examining the degree to which vacancy rates are higher than a structural or natural rate of vacancies. Structural vacancy rates vary across industries and countries and can even vary over time. To account for this, we compared sector-level vacancy rates in 2023 to vacancy rates in 2019 as well as to the median rate from 2010 to 2019. We find that, depending on the country, GDP could have been 0.5 percent to 1.5 percent higher in 2023 if that unmet labor demand had been filled.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="b458daff-3bdb-417b-9c5c-a2317c31f2e3"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="b458daff-3bdb-417b-9c5c-a2317c31f2e3" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">To estimate how much GDP might have been generated absent increased labor market tightness, we determined how many additional workers would be employed if 2023 job vacancy rates by sector fell to their historical level in 2019, or to their median vacancy rate level from 2010 to 2019, in each country. The output was estimated based on that number of workers and the average productivity per worker, at 2023 levels, for each sector. It is sensitive to the productivity assumption; we assume average productivity, but the potential productivity of unfilled vacancies could be lower than the sector average.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex07-historical-vacancy-levels.svgz?cq=50&cpy=Center"/><img alt="GDP could have been higher by 0.5 to 1.5 percent in 2023 if excess vacancies had been fewer" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex07-historical-vacancy-levels.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A vertical bar chart shows 7 pairs of bars, one for each of the highlighted countries, arranged in descending height from left to right. The vertical scale is the percentage GDP gains in 2023 if employers had filled their job vacancies to historic levels. For each country, the first bar represents if 2023 vacancies matched 2019 levels, with values ranging from 0.3% to 1.1%. The second bar, taller than the first for every country, represents if 2023 vacancies matched 2010–19 median levels, with values ranging from 0.5% to 1.6%. The countries ranked from left to right are: the US, Germany, France, Australia, Italy, Canada, and the UK. End of image description</div></div></div></div></div></div> <hr/> <div class="nav-bar-anchor" id="tightness-trend-bottom"> </div> <h2 id="feeling-crunch">Who’s feeling the crunch?</h2> <p>Employers in some sectors have felt the impact of the labor shortage more than others, and the appetite for physical and manual skills has unexpectedly intensified.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-edge-to-edge StoryContainer_mck-c-story-container__TLkZC mck-c-module-wrapper"><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>All sectors have higher job vacancy rates today than in 2010</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Across economies, average vacancy rates, or job vacancies as a share of total labor demand, increased by more than two percentage points from 2010 to 2023 in the healthcare, leisure and hospitality, and construction sectors.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="0502625f-79b7-48e1-bae0-fbc8112bba7d"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="0502625f-79b7-48e1-bae0-fbc8112bba7d" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Includes seven of the eight focus countries. This data was not available for Japan.</span></span></span></a></span> Conversely, job vacancy rates in the financial and real estate sector and the information sector, both high-productivity sectors with well-paid jobs, changed by less than one percentage point on average.</p> <p>The pandemic hit the leisure and hospitality sector particularly hard as travel and tourism slowed. As restaurants and hotels reopened, they struggled to restaff. In Europe, some hotels hired people with little or no experience, and fast-food restaurants in the United States raised wages and shortened hours to cope with a shortage of staff.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="d74ec8be-55a3-4cc5-ba1c-254899596694"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="d74ec8be-55a3-4cc5-ba1c-254899596694" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Ryan Mann, Esteban Ramirez, and Matthew Straus, “<a href="/industries/travel-logistics-and-infrastructure/our-insights/three-innovations-to-solve-hotel-staffing-shortages">Three innovations to solve hotel staffing shortages</a>,” McKinsey, April 2023; Carol Kahn, “Sedona hotels cope with staffing shortages,” <em>Sedona Red Rock News</em>, October 29, 2021; Andrew Mills, Corina Pons, and Catarina Demony, “No experience, no resume, you’re hired! Hotels fight for staff,” Reuters, July 4, 2022; Joanna Fantozzi, “Restaurants are still dramatically decreasing their hours, new study shows,” <em>Nation’s Restaurant News</em>, October 28, 2022.</span></span></span></a></span> Aggregate employment levels indicate that previous restaurant and hotel workers have rejoined the workforce, but they appear to have taken jobs in other sectors.</p> <p>The healthcare sector has been strained as aging populations have driven demand for these services. The sector had the highest number of job vacancies among the sectors in our research, or 16.9 percent of all vacancies in 2023.</p> <p>Vacancy rates also markedly increased in the construction sector, in part due to its cyclicality. Demand in the sector began climbing in 2010 after dropping sharply during the financial crisis. Today, strong demand for housing and government spending on large infrastructure projects, such as a €45 billion construction relief package in Germany and a $1.2 trillion package for infrastructure in the United States, have propelled vacancies.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex08-sector-vacancy-rates.svgz?cq=50&cpy=Center"/><img alt="All sectors have higher job vacancy rates today than in 2010" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex08-sector-vacancy-rates.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A dot plot chart shows horizontal lines with a dot on the left end marking job vacancy rates in 2010, and a dot on the right end showing 2023. The lines are stacked in 12 rows, each representing an occupational sector, and the horizontal axis starts at 0% on the left and goes to to 5% on the right. Rows are arranged from top to bottom by the highest 2023 values, with leisure and hospitality, healthcare, and professional services at the top at about 3.75–4.5%, and government, private education, and mining at the bottom, at 1.5–2.5%. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Vacancies have not grown in lockstep with employment </div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Sectors fall into four groups depending on how vacancies grew in relation to employment: “labor hungry,” “labor attracting,” “labor disrupting,” and “labor efficient”.</p> <p>Labor shortages have had the biggest impact on labor-hungry sectors, such as healthcare and construction, as previously noted. Demand for labor has risen faster than the sector’s ability to attract workers. Vacancies have increased in public and private healthcare systems despite efforts in countries such as the United Kingdom to attract immigrants to the sector, and construction is booming in most advanced economies due to housing shortages and infrastructure needs. Typically less capital intensive and more difficult to automate, these sectors added jobs at or faster than the average clip but not fast enough to keep pace with demand. In Canada, for instance, a recent House of Commons committee report acknowledged that the country has “longstanding issues with lack of supply of health professionals,” in part due to mental health issues and burnout exacerbated by the COVID-19 pandemic, which have led to retention issues.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="5f82bb88-5cf7-4e92-9ed4-405f79ab2089"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="5f82bb88-5cf7-4e92-9ed4-405f79ab2089" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Sean Casey,<em> Addressing Canada’s healthcare workforce crisis</em>, Report of the Standing Committee on Health, House of Commons, Canada, March 2023.</span></span></span></a></span> And some Italian construction companies are turning to workforce development programs and partnerships with African universities to recruit and train new workers.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="1d2bb686-3392-42cf-804e-b2a8e443c55c"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="1d2bb686-3392-42cf-804e-b2a8e443c55c" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Webuild CEO Pietro Salini: Ready to hire about 10,000 people in next three years to develop infrastructure in Italy,” Webuild Group, September 18, 2023.</span></span></span></a></span></p> <p>Conversely, labor-attracting sectors like financial and real estate, information, and professional services have also added employment faster than average—they have attracted workers at a faster pace than their demand for labor has grown. In this group, only the professional services sector increased its share of overall vacancies.</p> <p>Manufacturing is a labor-disrupting sector. Although the sector accounted for a smaller part of the workforce in 2023 than in 2010 across the eight countries, its job vacancies nonetheless increased significantly, especially after 2019. Research by economist Richard Baldwin found that since 2013, the manufacturing sector has lost 20 million jobs globally due to productivity gains from increasing automation.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="362f19c4-91e4-4395-8eb5-73b201e135eb"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="362f19c4-91e4-4395-8eb5-73b201e135eb" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Richard Baldwin, “Where in the world are manufacturing jobs going?” Factful Friday with Richard Baldwin, LinkedIn, December 22, 2023.</span></span></span></a></span> The mix of workforce skills has been changing, as some manufacturing jobs require more customer relations or analytics, and as corporate manufacturing footprints are themselves changing. For example, areas such as semiconductors and electric vehicle manufacturing are demanding more workers as a result of shifts in industrial policy and “friendshoring.”</p> <p>Trade is a labor-efficient sector, in which productivity enhancements have eased the pressure to hire. As consumer demand has shifted, the retail segment of the trade sector has increasingly automated and digitized, increasing productivity and mitigating the impact of labor shortages. In Japan, for example, convenience stores are responding to staff shortages not only by relying on immigrant labor but also by rolling out technology like self-checkout and cleaning robots.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="9f332507-07a6-42e7-af8d-9b2941a960b5"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="9f332507-07a6-42e7-af8d-9b2941a960b5" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">For immigrant labor, see “For a glimpse of Japan’s future, see its convenience stores,” <em>Economist</em>, April 4, 2024. For automation, see “Promotion of digitization to improve convenience,” FamilyMart, accessed May 20, 2024. For cleaning robots, see Fumika Nakashima, “Japan’s FamilyMart to roll out cleaning robots at 300 convenience stores,” Nikkei Asia, February 13, 2024.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex9-static-vacancy-vs-employment-share-v2.svgz?cq=50&cpy=Center"/><img alt="Vacancy and unemployment share, 2010-23." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-laborshortage-ex9-static-vacancy-vs-employment-share-v2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"><p>Image description:</p> <p>A scatterplot graph shows 12 dots, 1 for each occupational sector. The vertical axis shows the 2010–23 change in vacancy share, going from –5 percentage points at the bottom to 5 at the top. The horizontal axis shows the 2010–23 change in employment share, going from –5 points on the left to 5 on the right. The 5 labor-hungry sectors described in the text are in the top-middle of the plot, with almost all positive values. The 3 labor-attracting sectors are in the right-middle, with increasing employment share and mostly decreasing vacancy share. The one labor-disrupting sector, manufacturing, is in the middle-left, with decreasing employment share. And the one labor-efficient sector, trade, is in the bottom left, with shares all decreasing.</p> <p>End of image description</p></div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Sectors struggling with productivity contributed disproportionately to vacancy growth</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>What explains the differences between the shifting employment share and the shifting share of vacancies? Productivity and productivity growth are crucial factors: sectors with lower productivity and productivity growth had steeper increases in vacancy share. In a growing economy with a tight labor market, low-productivity sectors requiring the most labor per unit of additional output are likely to be most constrained.</p> <p>Opportunities exist to boost productivity across sectors. The leisure and hospitality sector in the United States provides a case study. In 2021, the sector accounted for 16 percent of all job vacancies, a comparatively big share that was three percentage points higher than its average from 2010 to 2020. The sector responded to challenges posed by the COVID-19 pandemic by automating more processes and raising wages by an average of 29 percent from mid-2019 to mid-2023. Those steps increased the sector’s productivity by 6.4 percent over that period, decreasing pressure to hire and reducing its share of vacancies as its vacancy rate fell to 6 percent in 2023 from a decade high of 11 percent in 2021.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex10-sector-productivity-growth-vs-output.svgz?cq=50&cpy=Center"/><img alt="Sectors struggling with productivity contributed disproportionately to vacancy growth" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex10-sector-productivity-growth-vs-output.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A scatterplot graph shows 12 dots, 1 for each occupational sector. The vertical axis shows productivity CAGR for the 7 highlighted countries, going from –2% at the bottom to 5% at the top. The horizontal axis shows productivity output per employee, going from $0 on the left to $225,000 on the right. Highlighted are the half of the dots toward the bottom left of the graph, which indicates lower CAGR and lower output. An annotation notes that these sectors — leisure and hospitality, healthcare, professional services, transportation, construction, and private education — had an increasing share of job vacancies. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Spotlight: Physical and manual skills in demand</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Demand for skill types is another lens through which the impact of a labor shortage can be examined. Our skills taxonomy comprises five broad categories—technological, social and emotional, higher cognitive, basic cognitive, and physical and manual skills, mapped to detailed occupations.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="a1f6a66a-2f1d-4e68-bdc6-bb6d039e9f0f"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="a1f6a66a-2f1d-4e68-bdc6-bb6d039e9f0f" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See <em><a href="/mgi/our-research/a-new-future-of-work-the-race-to-deploy-ai-and-raise-skills-in-europe-and-beyond">A new future of work: The race to deploy AI and raise skills in Europe and beyond</a></em>, McKinsey Global Institute, May 2024.</span></span></span></a></span> Here we analyze skills to understand increased job vacancies in the United States. While some conclusions could be extrapolated to other peer countries, they may not be universally true.</p> <p>In an era of technological change, the most significant absolute shortage is in technological skills. Occupations relying on these skills, like software developers and other IT-related jobs, have been the hardest to fill since 2015, although the advent of generative AI may restore some balance. The changing skill mix <em>within</em> occupations has already shown up in the United Kingdom in increased references to the need for technological skills in occupational postings.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="b5d6db6d-66dc-4323-aac4-b78d0e1d5ac9"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="b5d6db6d-66dc-4323-aac4-b78d0e1d5ac9" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Rui Costa et al., “Old skills, new skills—what is changing in the UK labour market” <em>The Pissarides Review into the Future of Work and Wellbeing</em>, Institute for the Future of Work, February 2024.</span></span></span></a></span></p> <p>However, a shortage of physical and manual skills has likely exacerbated recent labor market tightness. Jobs requiring these skills had the lowest vacancy rate among the five broad skill categories, and job vacancies seeking these skills increased most since 2015. This reflects growing demand for manufacturing and repair workers as well as for some types of healthcare workers, like nursing assistants. For instance, Delaware has begun offering tuition assistance and other incentives to attract workers to study nursing in an effort to address a shortage of trained nurses.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="70f8ae80-1ac1-45ef-981a-fc901bbd2b93"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="70f8ae80-1ac1-45ef-981a-fc901bbd2b93" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See Johnny Perez-Gonzalez, “Delaware responds to nursing shortage with ‘Tuition Incentive Program,’” WHYY, December 13, 2023.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><div class="flourish-chart flourish-embed" data-src="visualisation/17507244?946647?956372"></div></div><div class="mck-u-sr-only"></div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>The occupations with the biggest increase in share of vacancies are associated with labor-hungry sectors such as food service, healthcare, and construction. Workers in these occupations mostly use physical and manual skills, which in many cases are challenging to automate and, in the case of healthcare occupations, likely to face unabated increases in demand as populations age.</p> <p>Workers in occupations in which the share of vacancies declined most, by contrast, use physical and manual skills for only a small part of their work. Instead, these occupations, which include management, sales, financial operations and computing, rely most heavily on social and emotional skills. Across all sectors, such occupations are often more highly paid; in some cases, they are likely to be a shrinking slice of the total workforce. Office support occupations could shrink as basic cognitive skills are increasingly automated, while sales is already a shrinking occupational category as e-commerce becomes a bigger part of retail trade and technological changes shift marketing dollars to other channels and assets.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="47f028cf-b84d-49c5-abd2-0f91a4927b69"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="47f028cf-b84d-49c5-abd2-0f91a4927b69" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Michael Riely, <em>Inside the decline of sales occupations</em>, US Bureau of Labor Statistics Beyond the Numbers series, May 2020.</span></span></span></a></span> Research by McKinsey has found that generative AI might accelerate the trend of automation in both of these occupational categories.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ee5582ef-0940-4828-81e5-9eed8666ab84"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ee5582ef-0940-4828-81e5-9eed8666ab84" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See <em><a href="/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier">The economic potential of generative AI: The next productivity frontier</a></em>, McKinsey Global Institute, June 2023.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex12-occupational-skills-vs-vacancy-share.svgz?cq=50&cpy=Center"/><img alt="In the United States, occupations with the biggest increases in job vacancies disproportionately require physical and manual skills." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex12-occupational-skills-vs-vacancy-share.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A horizontal bar chart is organized in 22 rows from highest to lowest value, with two thirds of the bars having positive values extending to the right, and the rest at the bottom with negative values extending to the left. The chart plots the percentage point change in job vacancy share by occupational group. At the top increasing by 1.1 to 2.1 points are food preparation and serving related occupations; installation, maintenance, and repair occupations; and building and grounds cleaning and maintenance occupations. At the bottom decreasing by 1.5 to 3.7 points are computer and mathematical occupations; sales and related occupations; and business and financial operations occupations. Next to the first chart is a horizontal stacked bar chart with an arrow connecting it to the top three bars from the first chart, plotting the distribution of the 5 occupational skills associated with those occupations, which represent a quarter of the US workforce. Physical and manual skills are the largest segment at 66%, indicating that those skills are prevalent in occupations with the largest increase in job vacancy share. Another horizontal stacked bar chart connects to the bars at the bottom of the first chart, representing another quarter of the workforce. Physical and manual skills are the smallest segment at 5%, indicating that those skills are not prevalent in occupations with the greatest decrease in job vacancy share. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Jobs requiring a high proportion of physical and manual skills often have lower wages. In tight labor markets, wage dynamics shift based on workers’ changing opportunity costs, including options to move into higher-paying jobs. As US labor markets tightened, wages grew across the board, especially among workers in the lowest-paying occupations, and the biggest beneficiaries were workers who switched jobs.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="fa041e9d-49d2-480c-8d64-c6fd8f614879"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="fa041e9d-49d2-480c-8d64-c6fd8f614879" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"> David Autor, Arindrajit Dube, and Annie McGrew, <em>The unexpected compression: Competition at work in the low wage labor market</em>, National Bureau of Economic Research working paper number 31010, November 2023.</span></span></span></a></span> Given that the labor share of production is about 60 percent across advanced economies, rising labor costs are highly relevant for employers and policy makers.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="1a764985-7d87-456a-8d44-2ef5c0aa7415"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="1a764985-7d87-456a-8d44-2ef5c0aa7415" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Based on data through 2013 for Germany, Japan, and the United States. See Loukas Karabarbounis and Brent Neiman, <em>The global decline of the labor share</em>, National Bureau of Economic Research working paper number 19136, June 2013.</span></span></span></a></span></p> <p>Grouping US occupations based on average salaries, the occupations in the bottom half of the income range require physical and manual skills more than 40 percent of the time. Those lower-paying occupations in the third and fourth quartiles by income had the fastest wage growth from 2015 to 2022. The top half of occupations by income require physical and manual skills much less, and just 5 percent of the time among the top quartile of occupations by pay.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex13-occupational-skills-vs-wages.svgz?cq=50&cpy=Center"/><img alt="In the United States, wages are growing faster in lower-paid occupations that rely more on physical and manual skills." src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex13-occupational-skills-vs-wages.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: A set of horizontal stacked bar charts is organized into four rows, each representing a quarter of US employment, ranked by average occupational wage, with the lowest earning group at the top. The charts plot the percentage distribution of time spent using the 5 occupational skills, specially highlighting the physical and manual skills segment, which is largest in the top chart at 46% and smallest in the bottom chart at 5%, indicating that these skills are more prevalent in lower-wage occupations. An adjacent table lists the 2015–23 CAGR in average wages for each employment grouping, with the lowest-wage segment increasing the most at 4.5% and the highest-wage segment with 2.9%. End of image description</div></div></div></div></div></div> <hr/> <div class="nav-bar-anchor" id="feeling-crunch-bottom"> </div> <h2 id="growing-pie">Growing the supply-side pie</h2> <p>Labor supply has struggled to keep up with overall demand due to shifts in demographics—and that’s unlikely to change, according to projections to 2030.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-edge-to-edge StoryContainer_mck-c-story-container__TLkZC mck-c-module-wrapper"><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Higher participation rates mitigated the impact of aging on labor supply </div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Even as labor markets have tightened, labor supply has grown. From 2010 to 2023, 34 million additional people joined the workforces across the eight countries, an average growth rate of 0.6 percent a year. The first factor influencing this growth is the expansion of population, both from so-called natural growth, or the net of new births and deaths, and from immigration. The second factor is linked to an aging mix of workers and had the opposite impact, pushing supply lower. The third factor is increased participation in the labor force, which helps mitigate the impact of aging.</p> <p>The independent contribution of each of these three factors is clear. Had population alone grown, it would have accounted for 31 million of the 34 million added workers. Aging alone would have led to 18 million<em> fewer </em>workers as more seniors dropped out of the labor force. However, at the same time, labor force participation has increased, particularly among workers 55 years and older. The combined effects of these three factors net to 34 million additional workers.</p> <p>The dynamics of these three factors varied greatly by country. Labor supply grew fastest in Australia and Canada, driven by strong population growth. Population growth also drove increased labor supply in the United Kingdom and the United States, though more moderately than in Australia and Canada. Germany’s labor supply growth was due largely to increased participation rates, while France’s growth came from both population growth and more participation. In Japan and Italy, the impact of aging has been much more pronounced than in other countries, although for now increased participation has allowed for continued modest labor force growth.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex14-labor-force-growth-factors.svgz?cq=50&cpy=Center"/><img alt="Higher participation rates mitigated the impact of aging on labor supply" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex14-labor-force-growth-factors.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Nine waterfall-style vertical bar charts, 1 for each of the highlighted countries plus an 8-country aggregate chart, show 3 bar segments arranged left to right with positive and negative values representing the 2010–23 CAGR in labor force. Each chart’s net total is positive, with the aggregate chart totaling 0.62% and the country chart totals ranging from 0.3% for Japan and Italy to 1.8% for Australia. The 3 bar segments in each chart include population growth, which is positive for all but Japan and Italy; aging, which is negative in each chart; and participation growth, which is positive in each chart. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Population growth slowed, despite being buoyed by immigration</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>A major challenge to labor force growth in the future is that the population growth rate has slowed in all eight countries since 2010 and is projected to continue to decline. In fact, populations in Japan and Italy are shrinking, and, according to United Nations estimates, the German population will begin to shrink by 2030.</p> <p>Falling birth rates in many advanced economies largely explain their slower population growth. In some countries, immigration has also declined, exacerbating the trend. Immigration could have compensated for natural population decline, or when deaths exceed births, since 2015—if it had been roughly 1.5 to 3.0 times higher than current levels in Australia, Canada, Germany, the United Kingdom, and the United States. In France, Italy, and Japan, it would have needed to be even higher.</p> <p>Immigration enables short-term labor supply growth. By contrast, it takes perhaps 20 years for natural increase in a population to affect the labor market, because a baby born today cannot meaningfully work for roughly 20 years. Many immigrants are of working age and so can participate in the labor force today.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="cd906fdd-ec1e-435a-ae71-49126cfa995d"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="cd906fdd-ec1e-435a-ae71-49126cfa995d" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Foreign-born workers: Labor force characteristics—2023,” US Bureau of Labor Statistics press release, May 21, 2024.</span></span></span></a></span> For instance, the Congressional Budget Office estimates that the US labor force in 2033 will be larger by 5.2 million people, mostly because of higher net immigration.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="13d18cee-617a-49e9-87c3-4b8de18db8b4"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="13d18cee-617a-49e9-87c3-4b8de18db8b4" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Phillip L. Swagel, <em>Director’s statement on the budget and economic outlook for 2024 to 2034</em>, Congressional Budget Office, February 2024.</span></span></span></a></span> Research by the Brookings Institution suggests that an unexpectedly high level of net immigration explains the recent fast pace of added employment in the United States.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ab4c1342-88f5-4421-9fba-9054b4a4f901"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ab4c1342-88f5-4421-9fba-9054b4a4f901" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Wendy Edelberg and Tara Watson, <em>New immigration estimates help make sense of the pace of employment</em>, Brookings Institution, March 2024.</span></span></span></a></span></p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex15-population-growth-factors.svgz?cq=50&cpy=Center"/><img alt="Population growth slowed, despite being buoyed by immigration" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex15-population-growth-factors.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Eight waterfall-style vertical bar charts, 1 for each of the highlighted countries, show pairs of bar segments arranged left to right with positive and negative values representing the CAGR in overall population over four chronological periods, from 2010–15 on the left to a UN projection for 2023–30 on the right. The total bars get steadily shorter from left to right across nearly all of the charts, indicating a shrinking population across all 8 countries. The 2 bar segments for each time period include births minus deaths, which are positive for all countries except Japan, Italy, and Germany; and net migration, which are positive across every chart. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Older workers are an increasing share of populations</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Beyond their slowing population growth, all the countries in our sample are aging, a trend that will intensify as members of the baby boom generation become older. This creates an obstacle to labor force growth because older people often work at much lower rates, especially past the age of 65.</p> <p>The proportion of the working-age population, or people over 15 years old, that is 55 years and older increased from 2010 to 2023, and the United Nations projects that that share will grow even more by 2030. At that time, about half of the working-age populations of Germany, Italy, Japan, and the United Kingdom will be older than 55, and almost one-third will be older than 65. Populations are younger in Australia, Canada, and the United States, where by 2030 roughly two-fifths of the working-age populations will be older than 55.</p> <p>As countries aged overall, labor force participation among older cohorts of the working-age population increased.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex16-aging-population-growth.svgz?cq=50&cpy=Center"/><img alt="Older workers are an increasing share of populations" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex16-aging-population-growth.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Eight sets of vertical stacked bar charts, 1 for each of the highlighted countries, plot the share of the age 15-plus population that is 55 years and older in three different years: 2010, 2023, and a UN projection for 2030. The bars increase in height across each chart, with 2030 totals ranging from 37% in Australia to 52% in Japan. The bar segments split the totals into two age groups: 55–64 and 65-plus, with the 65-plus segments accounting for more than half of the height of nearly all of the bars. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Older workers fueled growth in the labor supply</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Even as aging populations pose a potential drag on labor force growth, people have been working more at almost every stage of life in all eight countries. (The exceptions are 15- to 24-year-olds in Canada, Italy, and the United Kingdom, who are working less; similarly, 25- to 54-year-olds in France are working slightly less.) For example, in the United States, shifts in the overall age mix pushed the aggregate labor force participation rate lower from 2010 to 2023, yet the participation rate grew, albeit marginally, in every age cohort over the period.</p> <p>Everywhere, older people are working longer. The largest increases in labor force participation have been among those 55 years and older (with the notable exception of the United States, where work in that cohort increased only modestly). From 2010 to 2023, participation among this cohort grew 23 percentage points in Italy, 15 points in Germany and France, and 12 points in Japan. This increase in participation rates reflected shifting pension policies and attitudes toward retirement. For instance, Italy switched to a defined-contribution retirement system and increased its retirement age in 2011.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="e72ff34f-c523-4759-9809-181091531503"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="e72ff34f-c523-4759-9809-181091531503" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Margherita Borella and Flavia Coda Moscarola, <em>The 2011 pension reform in Italy and its effects on current and future retirees</em>, working paper number 151/15, Center for Research on Pensions and Welfare Policies, September 2015.</span></span></span></a></span> And long before the COVID-19 pandemic put labor market tightness onto the global radar, Japanese companies struggling to find workers in an aging society were tapping the country’s Silver Jinzai Centers. These community centers for older people traditionally found retirees to help maintain parks or manage parking lots, but more recently, a wide variety of Japanese corporations are enlisting them to find workers for jobs they can’t otherwise fill.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="f2f52a54-ac23-45c3-a1ae-11cbdc4427a5"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="f2f52a54-ac23-45c3-a1ae-11cbdc4427a5" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Ippei Hoshi, Shinichiro Yamaguchi, and Nobuaki Takada, <em>Changes in elderly employment: New roles of “Silver” Human Resources Centers</em>, Nomura Research Institute, March 2017; Daisuke J. Nakajima and Jeffrey D. Korzenik, “How America can bring the Japanese economic miracle stateside,” <em>Wall Street Journal</em>, June 5, 2023.</span></span></span></a></span></p> <p>The shaded bars in the accompanying exhibit illustrate how labor force participation rates might grow if trends in participation rates for each age cohort continue to 2030 in line with the trend set from 2012 to 2023. In the United States, labor force participation rates didn’t change much over that period, but in countries like Italy and Japan, where participation rates have shifted markedly, achieving the past trend could yield significant increases in labor force participation rates.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex17-labor-force-participation-rates.svgz?cq=50&cpy=Center"/><img alt="Older workers fueled growth in the labor supply" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex17-labor-force-participation-rates.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Eight sets of vertical bar charts, 1 for each of the highlighted countries, plot the labor force participation rate across 4 age cohorts: 15–24, 25–54, 55–64, and 65-plus. Each cohort has three bars, showing the rate across 3 years: 2010, 2023, and a 2030 scenario assuming continued growth at historical rates. The bars increase in height for the 2 older age cohorts across all countries. The bars mostly increase for the younger age cohorts, with some decreases in 4 of the countries. End of image description</div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Spotlight: Increasing female labor force participation boosted labor supply </div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>One component of rising participation rates is the narrowing gender gap. We compared the ratio of female and male labor force participation rates and average hours worked per week to approximate the gender gap in the workforces of our focus countries. We found the gender gap has been shrinking since 2010, more significantly in labor force participation than in hours. About 60 percent of the workers who joined the labor force from 2010 to 2023 were women. In Italy, Japan, and Germany, the narrowing gender gap is due entirely to women participating in the labor force more. In other countries, the ratio climbed as women increased their labor force participation while participation among men declined, by as much as three percentage points in some places.</p> <p>Currently more women work part-time than men, likely due to different responsibilities in the household. Improving labor force participation among women may therefore be encouraged by flexible working arrangements and access to care support. For example, Japan has made progress on its gender gap in part through a set of policies called Womenomics that include providing daycare support and tax incentives to encourage married women to join the labor market.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="033bdb68-6782-46d3-8b0e-5fe4dbe2c260"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="033bdb68-6782-46d3-8b0e-5fe4dbe2c260" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“Japan introduces ‘womenomics’ to counter the country’s aging workforce and boost GDP,” Council on Foreign Relations, accessed May 20, 2024.</span></span></span></a></span> Such interventions could increase the contribution of women to labor supply growth and reduce tightness in the labor market.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><div class="flourish-chart flourish-embed" data-src="visualisation/17946187?946647?956372"></div></div><div class="mck-u-sr-only"></div></div></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="StoryContainer_mck-c-story-container__item__YhXnX"><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-col-md-12 StoryContainer_mck-c-story-container__content-item__fg74z"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md StoryContainer_mck-c-story-container__content-text__DEQ4O StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-4"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>Labor supply growth is expected to slow further</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Looking ahead, we examined two possible scenarios for labor force participation rates in 2030. In both cases, labor force growth slows.</p> <ul> <li>A <strong>stable</strong> scenario, in which labor force participation rates in each age cohort remain constant at 2023 levels between now and 2030</li> <li>A <strong>growth</strong> scenario assuming that trends in 2010–23 participation rate growth for each age cohort continue to 2030</li> </ul> <p>In the stable scenario, France, Italy, Germany, and Japan may have smaller labor supplies by 2030. In fact, even if labor participation rates continue to grow at the same rate as in the past in Germany, Italy, and Japan, their labor forces won’t increase. By contrast, Australia, Canada, the United Kingdom, and the United States are likely to see increases in labor supply under either scenario, although at a slower pace than over the past 13 years, due to stronger expected rates of immigration.</p></div></div></div><div class="StoryContainer_mck-c-story-container__content-media__o8N4Z StoryContainer_mck-c-story-container__container-sticky__EK8hB StoryContainer_mck-c-story-container__container-sticky--extra-spacing__uDmVE mdc-u-grid-col-md-span-8"><div class=""><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex19-labor-force-growth.svgz?cq=50&cpy=Center"/><img alt="Labor supply growth is expected to slow further" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex19-labor-force-growth.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only">Image description: Eight line charts, 1 for each of the highlighted countries, plot labor force growth, with lines mostly sloping upward from left to right and then forking into 2 branches, indicating 2 future projections. The vertical axis is an index going from 75 at the bottom to 110 at the top, with a 100 value equaling the country’s labor force level in 2023. The horizontal axis shows years from 2010 to 2030, with annotations noting that data to the right of 2023 is projected. The forked lines represent stable and growing participation rate scenarios. The growing scenario lines are higher across all countries, exceeding 100 on the right for all countries except Italy and Germany. The stable scenario lines are lower for all countries, with the US, UK, Canada, and Australia lines exceeding 100, and Japan, Italy, Germany, and France dropping below 100. End of image description</div></div></div></div></div></div> <hr/> <div class="nav-bar-anchor" id="growing-pie-bottom"> </div> <h2 id="gearing-up">Gearing up for continued tightness</h2> <p>Given shifting demographics, advanced economies will need to find ways to grow labor supply and increase productivity in order to maintain their current level of economic growth, and employers and policy makers can help by taking action.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class="mck-o-edge-to-edge mdc-u-container-padding-primary mdc-u-container-margin-primary mck-c-module-wrapper mck-c-default-scrolly DefaultScrolly_mck-c-default-scrolly--top-spaced__FZxVL" data-module-name="scrolly-container"><div class="mck-o-container"><div class="mck-o-container--wrapped"><div class="DefaultScrolly_mck-c-default-scrolly__scrolly-content__a5dCJ DefaultScrolly_mck-c-default-scrolly__scrolly-content--three-columns__Yxplk"><div class="DefaultScrolly_mck-c-default-scrolly__scrolly-text-content__epRca mck-o-container--mobile-spacing"><div class="DefaultScrolly_mck-c-default-scrolly__text-container__YYFld"><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="62ED602AEDF149B1A5428A7BA0282ED8" data-react-scrollama-id="react-scrollama-0"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"><div>To maintain GDP growth, all countries need additional labor supplies or productivity growth—and some need both</div></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>We quantify four scenarios of economic growth using two alternative rates of productivity growth along with our two possible scenarios of future labor force participation rates. For each economic growth scenario, we assume adequate demand for labor—in other words, that no recession occurs that would curb employment. This assumption may be reasonable in the short term, though recessions are notoriously hard to predict. The United States has so far navigated an economic soft landing, but any economic downturn could crimp job demand. Meanwhile, Germany and Japan have experienced only tepid demand growth, calling into question the underlying strength of demand in those countries.</p> <p>By contrast, new technologies offer the potential for more robust productivity growth that could dispel some of those concerns. Our two productivity growth scenarios include a higher estimate that uses average productivity growth from 1999 to 2007, a period of robust productivity growth before the financial crisis, and a lower estimate that uses productivity growth from 2012 to 2022. These scenarios suggest that, absent productivity acceleration or growth in labor force participation rates, GDP will increase at a slower pace than the 2012 to 2022 trend in the eight countries.</p></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="D21F33DBB31E4C01B242234250F94A7E" data-react-scrollama-id="react-scrollama-1"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>If labor force participation continues to grow or there is an increase in productivity back to pre-2007 levels in Australia and Japan, the countries would maintain their 2012–22 trend of GDP growth.</p></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="7CED1F051AA34AF5BB34B7E331723AE8" data-react-scrollama-id="react-scrollama-2"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Four of the six other countries—Canada, France, the United Kingdom, and the United States—would need productivity to return to pre-2007 levels in order to maintain their economic growth. Continued growth of the labor force participation rate is relatively less important to maintaining economic growth for these countries.</p></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="3C7CE7B8B85240059A861FFD09072DF9" data-react-scrollama-id="react-scrollama-3"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>Germany would need continued labor force participation rate growth and a return to pre-2007 levels of productivity to maintain its level of economic growth.</p></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="68E1BE0633944CD48F66893804408A31" data-react-scrollama-id="react-scrollama-4"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>By constrast, even if Italy continued its high rate of growth in labor force participation, it would still need to increase productivity growth by an additional 0.1 percent each year above its 0.4 percent pre-2007 annual productivity growth.</p></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__content-text__lFvee mck-c-default-scrolly__content-text--three-columns text-content-AA88C44B23A241E0A384599DEA5FBB2A" data-id="C4685BA129D348B48F146FC0579538C0" data-react-scrollama-id="react-scrollama-5"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-md"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-5"></h2><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mck-u-links-inline"><div><p>All of these countries have the potential to reach a higher level of productivity growth in the future. Previous MGI research documents the promise of technologies like artificial intelligence, which has the potential to deliver more than enough added productivity to keep their economies growing even in a future with a declining labor supply. To be sure, the path to realize that opportunity is far from certain. Implementing any new technology requires complicated adaptation of business processes and extensive retraining of workforces. However, employed correctly, these tools offer a way forward to economic prosperity despite labor supply constraints.</p> <p>These projections are not predictions of the future, but they do illustrate the demographic constraints on economies over the next decade, casting a cloud on the prospects of durably resolving labor shortages. For economies to maintain stability or grow, they will need to go beyond business as usual to boost productivity or find additional workers in new ways.</p></div></div></div></div></div></div><div class="DefaultScrolly_mck-c-default-scrolly__scrolly-media-content__PFuk7" data-module-background="white" data-module-theme="light"><div class="DefaultScrolly_mck-c-default-scrolly__container-sticky__vuA_2"><div class="media-container-AA88C44B23A241E0A384599DEA5FBB2A DefaultScrolly_mck-c-default-scrolly__media-container__IFEZ5"><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA DefaultScrolly_mck-c-default-scrolly__media--visible__hDr4Z mck-u-animation-fade-in"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (1 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20a-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The first of 6 panels shows 8 vertical bar charts, 1 for each of the highlighted countries. Each chart has 4 bars, mostly increasing in height from left to right, representing different scenarios for GDP growth over 2023–30. The vertical axis is an index going from –150 at the bottom to 325 at the top, with a 100 value representing the country’s 2012–22 average. The first bar on the left is the lowest, representing a scenario in which the labor participation rate remains stable and productivity growth follows the current trend. The second bar is the next tallest for most countries, representing a scenario in which labor participation grows. The third bar is next tallest for most countries, going back to a scenario with stable labor participation but with productivity growth following the pre-2007 trend. The fourth bar is the tallest for all countries, representing a scenario of growing labor participation and pre-2007 productivity. End of image description</div></div><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA mck-u-animation-fade-out"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (2 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20b-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The second of 6 panels shows the same exhibit but highlighting Japan and Australia, the first 2 bar charts on the left. For both countries, 3 of the 4 bars exceed 100, indicating above-average growth in the scenarios involving either growing labor participation or pre-2007 productivity. End of image description</div></div><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA mck-u-animation-fade-out"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (3 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20c-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The third of 6 panels shows the same exhibit but highlighting the next 4 charts from the left: France, UK, US, and Canada. For these countries, 2 of the 4 bars exceed 100, indicating above-average growth in the scenarios with pre-2007 productivity. End of image description</div></div><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA mck-u-animation-fade-out"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (4 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20d-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The fourth of 6 panels shows the same exhibit but highlighting the chart for Germany, where 1 of the 4 bars exceeds 100, indicating above-average growth in the scenario with both growing labor participation and pre-2007 productivity growth. End of image description</div></div><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA mck-u-animation-fade-out"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (5 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20e-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The fifth of 6 panels shows the same exhibit but highlighting the chart for Italy, where none of the bars reaches 100, and two of them extend downward past –125 for the scenarios involving stable labor participation. End of image description</div></div><div class="DefaultScrolly_mck-c-default-scrolly__media__7OJZA mck-u-animation-fade-out"><picture data-component="mdc-c-picture"><img alt="To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (6 or 6)" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/help%20wanted%20charting%20the%20challenge%20of%20tight%20labor%20markets%20in%20advanced%20economies/mgi-helpwanted-ex20f-gdp-growth-scenarios.svgz?cq=50&cpy=Center" loading="eager"/></picture><div class="mck-u-sr-only">Image description: The last of 6 panels shows the original view same exhibit. End of image description</div></div></div></div></div></div></div></div></div> <hr/> <div class="nav-bar-anchor" id="gearing-up-bottom"> </div> <h2>Concerted actions can improve labor supply and productivity and better match people to jobs.</h2> <p>All labor market stakeholders—employers, market influencers, policy makers, training institutions, and other workforce development organizations—can address labor shortages. Each can act by improving supply, productivity, or matching. Action employers can take include the following:</p> <ul> <li><em>Improve their value proposition for prospective talent and talent they already employ.</em> Prior McKinsey research has found that some of the most sought-after talent values flexibility and meaningful work.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="f4e76789-8c55-471f-abeb-5105f7d93e81"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="f4e76789-8c55-471f-abeb-5105f7d93e81" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Aaron De Smet, Bonnie Dowling, Marino Mugayar-Baldocchi, and Bill Schaninger, “‘<a href="/capabilities/people-and-organizational-performance/our-insights/great-attrition-or-great-attraction-the-choice-is-yours">Great attrition’ or ‘great attraction’? The choice is yours</a>,” <em>McKinsey Quarterly</em>, September 8, 2021.</span></span></span></a></span> Providing flexibility, like hybrid working arrangements or flexible hours, and evaluating performance based on output rather than hours worked allow top talent to create more sustainability in work. Training and career advancement opportunities could attract workers to hard-to-fill occupations typically plagued by vacancies. Indeed, companies that excel at training and internal mobility achieve better talent retention as well as top-tier financial performance and more consistent and resilient performance.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="eb3c129f-3ede-409f-920b-6310dc66a24b"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="eb3c129f-3ede-409f-920b-6310dc66a24b" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">See <em><a href="/mgi/our-research/performance-through-people-transforming-human-capital-into-competitive-advantage">Performance through people: Transforming human capital into competitive advantage</a></em>, McKinsey Global Institute, February 2023.</span></span></span></a></span> Companies can also double down on retaining talent they already have by, say, improving internal social connections and investing in and developing high-quality managers.</li> <li><em>Seek talent outside traditional hiring pools.</em> Companies should seek talent in broader, more unconventional pools, including by shifting from credentials-based to skills-based hiring. They can offer more flexible work arrangements for parents and seniors contemplating retirement. Employers could also consider looking at often-overlooked groups, like recently incarcerated workers and those with gaps in their résumés, as potential sources of untapped talent.</li> <li><em>Unlock talent in their own organizations through internal mobility. </em>Employers can address skill mismatches by actively shaping career pathways to help employees acquire new skills and by making mobility and rotation a vital part of company strategy. Fostering a culture of collaboration is essential to helping employees discover and build cross-functional skills, with the triple benefits of improved innovation, fewer skill gaps, and higher employee retention.</li> <li><em>Invest in labor-complementing and labor-substituting technology and operations to unlock productivity.</em> Technology adoption can take center stage on company agendas in a tight labor environment, including a full assessment of the potential for augmentation and automation with artificial intelligence and other technologies at the level of specific occupations and work processes. Occupations in administrative support or food services, for instance, have high potential for automation, while healthcare and management occupations have little potential. Companies can then develop short- and long-term strategies to deploy technology and other process improvements to improve the efficiency and attractiveness of jobs that can be enhanced with automation. To capture the full productivity benefit of new technologies, companies also can invest in reskilling, for example through on-the-job training and coaching, creating centers of excellence to better harness skills within their workforces, and identifying skill gaps.</li> </ul> <p>Policy makers and other market-making participants can take the following steps to address tight markets:</p> <ul> <li><em>Make it easier for older workers, women, and foreign-born talent to find work.</em> To increase labor force participation among older workers, policy makers can implement more flexible retirement policies that encourage workers to continue working beyond standard retirement ages. They also can design policies to support working parents, such as establishing a minimum leave and improving access to childcare, two policies that have improved female participation in some countries. The supply of workers outside of the developed world remains large, but foreign-born workers can be an immediate and significant source of labor only if properly integrated into the workforce.</li> <li><em>Support the building of human capital across the workforce.</em> Scaling up reskilling programs and improving access to and the capacity of career-oriented schools will help improve the human capital of the workforce. Policy makers can develop incentives to support retraining and other programs needed to facilitate occupational transitions that often accompany continued technological improvement. This approach could be accelerated by artificial intelligence in some countries.</li> <li><em>Reduce labor market barriers to help match job seekers to job openings.</em> Discouraging barriers to employment, like credentialing and noncompete agreements, as well as improving housing affordability in high-productivity, job-rich regions would allow talent to migrate to where it is most needed and most valuable. Universities and workforce development programs can also work hand in glove with employers to help future employees build skills and find the right job opportunities in an ever-evolving labor market.</li> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>Acknowledgments</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p>This research was led by <strong><a href="/our-people/anu-madgavkar">Anu Madgavkar</a></strong>, a McKinsey Global Institute partner in New Jersey; <strong><a href="/our-people/olivia-white">Olivia White</a></strong>, a McKinsey senior partner and director of MGI based in San Francisco; <strong><a href="/our-people/sven-smit">Sven Smit</a></strong>, a McKinsey senior partner and chair of MGI based in Amsterdam; <strong><a href="/our-people/chris-bradley">Chris Bradley</a></strong>, a McKinsey senior partner and director of MGI based in Sydney; and <strong>Ryan Luby</strong>, a senior knowledge expert and associate partner based in New York. <strong>Michael Neary</strong> led the working team, which included Claire Le Barbenchon, Maclaine Fields, Emma Forde, Clio Hancock, Young Kim, Brendan Mackie, Robert Malongo, Shaibyaa Rajbhandari, Noah Welgoss, Simone Tai, Rohan Vora, Samantha Wang, Noah Welgoss, and Daisong Zhang.</p> <p>This project benefited immensely from the perspectives of McKinsey colleagues. Our thanks go to Marc Canal, Gurneet Singh Dandona, Marco Dondi (alumni), Bonnie Dowling, Bryan Hancock, Maya Horii, Roland Huyghues-Despointes, Tasuku Kuwabara, Deepa Mahajan, Dana Maor, Jan Mischke, Michael Park, and Lauren Yayboke. </p> <p>We are grateful to the academic advisers who challenged our thinking and sharpened our insights: Martin Baily, senior fellow emeritus in economic studies at the Brookings Institution; Christopher Pissarides, Nobel Prize winner and Regius Professor of Economics at the London School of Economics; and Matthew Slaughter, Paul Danos Dean of the Tuck School of Business and the Earl C. Daum 1924 Professor of International Business, Dartmouth College.</p> <p>This report was edited and produced by Stephanie Strom, senior editor, together with senior data visualization editor Chuck Burke. We also thank David Batcheck, Nienke Beuwer, Rishabh Chaturvedi, Shannon Ensor, Paromita Ghosh, Julie A. Macias, Rebeca Robboy, Rachel Robinson, and Amanda Soto for their support.</p> <p>We thank McKinsey Global Publishing for designing this visual narrative, including team members Mary Gayen, Katrina Parker, Charmaine Rice, Diane Rice, Dana Sand, and Nathan R. Wilson.</p> <p>As with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we gathered a variety of perspectives, our views have been independently formed and articulated in this report. Any errors are our own.</p></div></div></div></div></div></div> <p>Tight job markets are challenging for businesses, yet they also present opportunities to improve productivity and livelihoods. Efforts to engage more workers in fulfilling jobs matched to their skills and enriched with new technologies that improve productivity can yield broad-based prosperity and boost economic growth. </p></div><div class="container-placeholder"></div></div></div></main></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="StandalonePromo" class="RelatedArticle_mck-c-article-related__GGA76 mck-u-screen-only" data-layer-region="related-articles"><div class="mdc-o-container__wrapper is-wrapped mdc-u-spaced-mobile"><h5 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-u-align-center">Related Articles</h5><div class="mdc-u-grid mdc-u-grid-col-md-3 RelatedArticle_items-container__s2uD0"><div class="mdc-u-grid mdc-u-grid-gutter-lg Card_card__diA2r Card_hover-effect__RGb9b"><div class="Card_wrapper-image__8b4P6"><a data-component="mdc-c-link" href="/mgi/our-research/investing-in-productivity-growth" class="mdc-c-link___lBbY1_2734c4f"><picture data-component="mdc-c-picture" class="Card_wrapper-image__8b4P6"><style>.picture-uniqueKey-inves-0 { aspect-ratio: 16/9 }</style><img alt="Maintenance engineer working in a factory using robotic arm" class="picture-uniqueKey-inves-0" src="/~/media/mckinsey/mckinsey%20global%20institute/our%20research/investing%20in%20productivity%20growth/mgi-investing-in-productivity-growth-1500373494-thumb-1536x1536.jpg?cq=50&mw=767&car=16:9&cpy=Center" loading="lazy"/></picture></a></div><div class="Card_wrapper-text__U6Y3k"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f Card_content-block__pF6Z1"><span>Report - 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This article provides a data-driven look via charts to understand the implications."}},"sEODescription":{"value":"We explore the challenges of tight labor markets in advanced economies, and offer actions for companies and policymakers to address these issues."},"displayDate":{"jsonValue":{"value":"2024-06-26T00:00:00Z"}},"body":{"value":"[[Audio 1]]\n[[DownloadsSidebar]]\n[[BespokeInteractive 1]]\n\u003ch4\u003eAt a glance\u003c/h4\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cstrong\u003eLabor markets in advanced economies today are among the tightest in two decades,\u003c/strong\u003e not merely a pandemic-induced blip but rather a long-term trend that may continue as workforces age.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eTightness means forgone economic output.\u003c/strong\u003e We estimate that GDP in 2023 could have been 0.5 percent to 1.5 percent higher across these economies if employers had been able to fill their excess job vacancies.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eCompanies and economies will need to boost productivity and find new ways to expand the workforce.\u003c/strong\u003e Otherwise, they will struggle to exceed\u0026mdash;or even match\u0026mdash;the relatively muted economic growth of the past decade.\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eActions for companies and policy makers include:\u003c/strong\u003e\u003c/li\u003e\n \u003cul\u003e\n \u003cli\u003eFocus on skilling and reskilling, including attracting talent from unconventional pools, offering more flexible work, and internal mobility.\u003c/li\u003e\n \u003cli\u003eEncourage foreign-born workers with programs to properly integrate them into the workforce.\u003c/li\u003e\n \u003cli\u003eShape retirement policies to encourage people to work beyond standard retirement ages and take steps to attract more women into the workforce, for example, by offering elder or childcare infrastructure.\u003c/li\u003e\n \u003cli\u003ePrioritize investment in labor-complementing and labor-substituting AI and automation to unlock productivity.\u003c/li\u003e\n \u003c/ul\u003e\n\u003c/ul\u003e\n[[disruptor1up dis1]]\n\u003chr /\u003e\n\u003cp\u003e\u003cstrong\u003eLabor market tightness\u003c/strong\u003e is a persistent challenge. Though loosening somewhat since their 2022 peaks, labor markets in advanced economies remain tighter than at any other time over the past two decades. This is not a pandemic-induced phenomenon. Rather, it continues a long-term trend that started in 2010, when advanced economies began their protracted recovery from the 2008 financial crisis.\u003c/p\u003e\n[[MostPopularArticles 5]]\n\u003cp\u003eShifting demographic forces could intensify this trend in the future. As workforces age and population growth decelerates, countries cannot count on excess workers to power economic growth. Absent concerted efforts to boost productivity or increases in the workforce through higher participation or immigration, many advanced economies will struggle to exceed\u0026mdash;or even match\u0026mdash;the relatively muted economic growth of the past decade.\u003c/p\u003e\n\u003cp\u003eSo far, the impact of the labor market squeeze has been unevenly distributed. Job vacancies have climbed most steeply in sectors that traditionally have low productivity, such as healthcare and hospitality, as well as those with stagnant productivity, like construction. Without action, labor shortages may continue to hit sectors that struggle to increase productivity.\u003c/p\u003e\n\u003cp\u003eTight job markets present both challenges and opportunities. Job seekers find work more easily and may garner higher wages. Yet upward wage pressure can spur inflation and stress businesses, particularly smaller ones. For instance, companies may need to turn down orders because they can\u0026rsquo;t hire enough workers to satisfy demand. At the economy level, we estimate that GDP in 2023 could have been 0.5 to 1.5 percent higher in the biggest advanced economies if employers had been able to fill their job vacancies.\u003c/p\u003e\n\u003cp\u003eBusinesses large and small will need strategies to confront persistent labor shortages. Deploying and adopting technologies is one way they can power productivity growth. Retraining programs can help workers gain new skills needed as technologies shift, and matching programs can pair people with jobs. Businesses also can expand their hiring pools, including by seeking to attract immigrants and people who might otherwise sit on the sidelines.\u003c/p\u003e\n\u003cp\u003eAgainst this backdrop, this article examines labor markets in advanced economies, using 20 charts to illustrate conditions in labor markets today, future prospects, and actions to address shortages. These labor markets range across 30 economies in Asia, Europe, and North America, with a particular focus on the eight largest: Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.\u003c/p\u003e\n\u003chr /\u003e\n\u003ch2 id=\"tightness-trend\"\u003eTightness is the trend\u003c/h2\u003e\n\u003cp\u003eToday\u0026rsquo;s \u003ca href=\"/mgi/our-research/help-wanted-the-long-term-labor-tightening-trend-by-country\"\u003etight labor markets\u003c/a\u003e\u0026nbsp;reflect longer-term trends in vacancy and unemployment rates across advanced economies.\u003c/p\u003e\n\u003cp\u003eSince 2010, labor markets have tightened across all 30 advanced economies we analyzed.[[footnote 1]] Comparing job vacancies with numbers of unemployed job seekers provides one measure of labor market tightness. The number of job vacancies per unemployed person increased by more than four times on average across these economies between 2010 and 2023, and by almost seven times in the United States.\u003c/p\u003e\n[[exhibit 1]]\n\u003cp\u003eLabor shortages have appeared across a diverse group of countries that have no apparent common features other than their stage of development. Tightness is particularly acute in seven countries\u0026mdash;the Czech Republic, Germany, Japan, the Netherlands, Norway, Singapore, and the United States\u0026mdash;that have more vacancies than unemployed workers. Together these countries account for 53 percent of the total labor supply of the 30 advanced economies in our research, and 64 percent of collective GDP. In another seven countries, the number of job vacancies is 0.5 to 1.0 times the number of unemployed workers. Australia, Canada, and the United Kingdom are in this group.\u003c/p\u003e\n\u003cp\u003eBut not all large economies have labor shortages. For example, labor markets in France and Italy remain relatively slack, as they do in 14 other countries among the 30. This group collectively accounts for 31 percent of total labor supply and 20 percent of total GDP. Yet even in most of these places, labor markets have tightened. Vacancies per unemployed person have increased by five times in Italy and by almost four times in France.\u003c/p\u003e\n\u003cp\u003eThe tightening trend began after the 2008 financial crisis, when job vacancies were dwarfed by a vast number of unemployed people. The recovery was slow: labor markets in these 30 economies took 8.2 years on average to reach the degree of tightness they had before the crisis.\u003c/p\u003e\n\u003cp\u003eThe desire to hire carried on apace, and labor markets continued to tighten until the COVID-19 pandemic took hold in early 2020. During the pandemic, many labor markets oscillated, first to extreme looseness and then to extreme tightness. Generous fiscal stimulus measures during the crisis fueled a comparatively fast job recovery, and by 2022, labor markets had achieved the highest ratio of job vacancies to unemployed people in two decades. Today, labor markets remain historically tight but have cooled somewhat from that peak. For instance, as of April 2024, the vacancy-to-unemployment ratio in the United States had dropped to 1.2 from 1.4 at the end of the prior year.\u003c/p\u003e\n[[sidebar 1]]\n\u003cp\u003eAcross the eight focus economies, labor markets have retreated from peak tightness during the COVID-19 pandemic toward conditions more similar to the rising prepandemic trend. Only Italy, which had one of the loosest labor markets among developed economies before the pandemic, shows no signs of declining tightness yet. This could be the result of the Italian government\u0026rsquo;s fiscal response to COVID-19, which the International Monetary Fund estimates exceeded 45 percent of the country\u0026rsquo;s GDP, making it the most generous relief package among advanced economies.[[footnote 2]] Japan, where the labor market was among the tightest before the pandemic, lags its prepandemic trend, in part because a weakening yen increased costs in the import-dependent economy. Nonetheless, job vacancies remain 1.2 times the number of job seekers.\u003c/p\u003e\n[[exhibit 2]]\n\u003cp\u003eOverall, the appetite to hire continues along a rising trend line, outpacing the number of workers seeking jobs.\u003c/p\u003e\n[[story 1]]\n\u003chr /\u003e\n\u003cdiv id=\"tightness-trend-bottom\" class=\"nav-bar-anchor\"\u003e\u0026nbsp;\u003c/div\u003e\n\u003ch2 id=\"feeling-crunch\"\u003eWho\u0026rsquo;s feeling the crunch?\u003c/h2\u003e\n\u003cp\u003eEmployers in some sectors have felt the impact of the labor shortage more than others, and the appetite for physical and manual skills has unexpectedly intensified.\u003c/p\u003e\n[[story 2]]\n\u003chr /\u003e\n\u003cdiv id=\"feeling-crunch-bottom\" class=\"nav-bar-anchor\"\u003e\u0026nbsp;\u003c/div\u003e\n\u003ch2 id=\"growing-pie\"\u003eGrowing the supply-side pie\u003c/h2\u003e\n\u003cp\u003eLabor supply has struggled to keep up with overall demand due to shifts in demographics\u0026mdash;and that\u0026rsquo;s unlikely to change, according to projections to 2030.\u003c/p\u003e\n[[story 3]]\n\u003chr /\u003e\n\u003cdiv id=\"growing-pie-bottom\" class=\"nav-bar-anchor\"\u003e\u0026nbsp;\u003c/div\u003e\n\u003ch2 id=\"gearing-up\"\u003eGearing up for continued tightness\u003c/h2\u003e\n\u003cp\u003eGiven shifting demographics, advanced economies will need to find ways to grow labor supply and increase productivity in order to maintain their current level of economic growth, and employers and policy makers can help by taking action.\u003c/p\u003e\n[[scrolly 1]]\n\u003chr /\u003e\n\u003cdiv id=\"gearing-up-bottom\" class=\"nav-bar-anchor\"\u003e\u0026nbsp;\u003c/div\u003e\n\u003ch2\u003eConcerted actions can improve labor supply and productivity and better match people to jobs.\u003c/h2\u003e\n\u003cp\u003eAll labor market stakeholders\u0026mdash;employers, market influencers, policy makers, training institutions, and other workforce development organizations\u0026mdash;can address labor shortages. Each can act by improving supply, productivity, or matching. Action employers can take include the following:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eImprove their value proposition for prospective talent and talent they already employ.\u003c/em\u003e Prior McKinsey research has found that some of the most sought-after talent values flexibility and meaningful work.[[footnote 3]] Providing flexibility, like hybrid working arrangements or flexible hours, and evaluating performance based on output rather than hours worked allow top talent to create more sustainability in work. Training and career advancement opportunities could attract workers to hard-to-fill occupations typically plagued by vacancies. Indeed, companies that excel at training and internal mobility achieve better talent retention as well as top-tier financial performance and more consistent and resilient performance.[[footnote 4]] Companies can also double down on retaining talent they already have by, say, improving internal social connections and investing in and developing high-quality managers.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eSeek talent outside traditional hiring pools.\u003c/em\u003e Companies should seek talent in broader, more unconventional pools, including by shifting from credentials-based to skills-based hiring. They can offer more flexible work arrangements for parents and seniors contemplating retirement. Employers could also consider looking at often-overlooked groups, like recently incarcerated workers and those with gaps in their r\u0026eacute;sum\u0026eacute;s, as potential sources of untapped talent.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eUnlock talent in their own organizations through internal mobility. \u003c/em\u003eEmployers can address skill mismatches by actively shaping career pathways to help employees acquire new skills and by making mobility and rotation a vital part of company strategy. Fostering a culture of collaboration is essential to helping employees discover and build cross-functional skills, with the triple benefits of improved innovation, fewer skill gaps, and higher employee retention.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eInvest in labor-complementing and labor-substituting technology and operations to unlock productivity.\u003c/em\u003e Technology adoption can take center stage on company agendas in a tight labor environment, including a full assessment of the potential for augmentation and automation with artificial intelligence and other technologies at the level of specific occupations and work processes. Occupations in administrative support or food services, for instance, have high potential for automation, while healthcare and management occupations have little potential. Companies can then develop short- and long-term strategies to deploy technology and other process improvements to improve the efficiency and attractiveness of jobs that can be enhanced with automation. To capture the full productivity benefit of new technologies, companies also can invest in reskilling, for example through on-the-job training and coaching, creating centers of excellence to better harness skills within their workforces, and identifying skill gaps.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003ePolicy makers and other market-making participants can take the following steps to address tight markets:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eMake it easier for older workers, women, and foreign-born talent to find work.\u003c/em\u003e To increase labor force participation among older workers, policy makers can implement more flexible retirement policies that encourage workers to continue working beyond standard retirement ages. They also can design policies to support working parents, such as establishing a minimum leave and improving access to childcare, two policies that have improved female participation in some countries. The supply of workers outside of the developed world remains large, but foreign-born workers can be an immediate and significant source of labor only if properly integrated into the workforce.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eSupport the building of human capital across the workforce.\u003c/em\u003e Scaling up reskilling programs and improving access to and the capacity of career-oriented schools will help improve the human capital of the workforce. Policy makers can develop incentives to support retraining and other programs needed to facilitate occupational transitions that often accompany continued technological improvement. This approach could be accelerated by artificial intelligence in some countries.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eReduce labor market barriers to help match job seekers to job openings.\u003c/em\u003e Discouraging barriers to employment, like credentialing and noncompete agreements, as well as improving housing affordability in high-productivity, job-rich regions would allow talent to migrate to where it is most needed and most valuable. Universities and workforce development programs can also work hand in glove with employers to help future employees build skills and find the right job opportunities in an ever-evolving labor market.\u003c/li\u003e\n\u003c/ul\u003e\n[[sidebar 2]]\n\u003cp\u003eTight job markets are challenging for businesses, yet they also present opportunities to improve productivity and livelihoods. Efforts to engage more workers in fulfilling jobs matched to their skills and enriched with new technologies that improve productivity can yield broad-based prosperity and boost economic growth. \u003c/p\u003e"},"isFullScreenInteractive":{"boolValue":false},"hideStickySocialShareBar":{"boolValue":false},"desktopID":{"value":""},"mobileID":{"value":""},"desktopURL":{"value":""},"mobileURL":{"value":""},"desktopPaddingPercentage":{"value":""},"mobilePaddingPercentage":{"value":""},"desktopOverrideHeight":{"value":""},"mobileOverrideHeight":{"value":""},"cerosOembedURL":{"value":""},"cerosRenderMode":{"targetItem":null},"cerosBackgroundColor":{"targetItem":null},"hideByLine":{"boolValue":false},"tableOfContentsTitle":{"value":"TABLE OF CONTENTS"},"accessStatus":{"targetItem":{"key":{"value":"RegisteredUsers"},"value":{"value":"Registered Users"}}},"articleType":{"targetItem":{"displayName":"Article"}},"hasSpecialReport":{"boolValue":false},"contentType":{"targetItem":{"displayName":"Article"}},"sourcePublication":{"targetItem":{"name":"MGI Research","displayName":"MGI Research","title":{"value":"MGI Research"},"relatedlinks":{"url":"/mgi/overview"},"landinglinks":{"jsonValue":{"value":[]}}}},"externalPublication":{"value":""},"mobileReady":{"boolValue":false},"forClientsOnly":{"boolValue":false},"excludeFromClientLink":{"boolValue":false},"originalPublishDate":{"jsonValue":{"value":"2024-06-26T00:00:00Z"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eThe 30 countries are Australia, Austria, Belgium, Canada, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and the United States.\u003c/li\u003e\n \u003cli\u003eDatabase of Fiscal Policy Responses to COVID-19, International Monetary Fund, accessed May 28, 2023.\u003c/li\u003e\n \u003cli\u003eAaron De Smet, Bonnie Dowling, Marino Mugayar-Baldocchi, and Bill Schaninger, \u0026ldquo;\u0026lsquo;\u003ca href=\"/capabilities/people-and-organizational-performance/our-insights/great-attrition-or-great-attraction-the-choice-is-yours\"\u003eGreat attrition\u0026rsquo; or \u0026lsquo;great attraction\u0026rsquo;? The choice is yours\u003c/a\u003e,\u0026rdquo; \u003cem\u003eMcKinsey Quarterly\u003c/em\u003e, September 8, 2021.\u003c/li\u003e\n \u003cli\u003eSee \u003cem\u003e\u003ca href=\"/mgi/our-research/performance-through-people-transforming-human-capital-into-competitive-advantage\"\u003ePerformance through people: Transforming human capital into competitive advantage\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, February 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"contributoryPractice":{"targetItems":[{"displayName":"McKinsey Global Institute"}]},"aboutTheAuthors":{"value":""},"authors":{"targetItems":[{"template":{"id":"3FBABDB63A094F68B1F8E1BBE1BA124E","name":"Author"},"id":"D26DABBDC878438F97C7F6F6585FE342","name":"Anu Madgavkar","authorTitle":{"value":"Anu Madgavkar"},"description":{"value":""},"thumbnailImage":{"alt":"","src":null},"profile":{"targetItems":[{"standardImage":{"src":"/~/media/mckinsey/our people/anu madgavkar/anu-madgavkar_profile_1536x1152 august 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Each line represents an advanced economy, and the 8 countries featured in the text are highlighted. The vertical axis shows the number of job vacancies per unemployed person, starting at 0 on the bottom and rising to 2.5. The horizontal axis shows years, from 2000 on the left to 2023 on the right. The lines stay below 1 on the vertical axis until about 2015, when many of the lines rise closer to 1, with 8 of them surpassing 1, including the US, Japan, and Germany. Annotations next to the graph note that in aggregate, the job vacancy rate rose by a multiple of 4.2, and the individual multiples for the 8 highlighted countries ranged from 2.3 to 6.7.\nEnd of image description"},"mobileImage":{"alt":"","src":null},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"flourishDataVisualizationID":{"value":""},"pNGImage":{"src":null,"alt":""},"height":{"value":""},"width":{"value":""},"mobileSVGImage":{"src":null,"alt":""},"mobilePNGImage":{"src":null,"alt":""}},{"id":"A09BFEC19F7D4A9F9D8735EE3EDD5DC2","displayName":"Exhibit 2","mediaID":{"value":"2"},"includeTheAccessibilityDisclaimerText":{"boolValue":true},"headline":{"jsonValue":{"value":""}},"hideBottomBorder":{"boolValue":false},"hideEyebrow":{"boolValue":true},"eyebrow":{"jsonValue":{"value":""}},"displayNumber":{"value":""},"description":{"jsonValue":{"value":""}},"desktopImage":{"alt":"Labor market tightness is returning to trend in many markets after a period of disruption during the COVID-19 pandemic.","src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-laborshortage-ex2-vacancy-trend-v2.svgz","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eEight line charts, 1 for each of the highlighted countries, plot the same data from the previous exhibit, job vacancies per unemployed person, from 2015 to 2023. 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These included the following:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eLabor supply, or all the people seeking work, is the sum of the people with jobs (employed people) and people looking or recently looking for jobs (unemployed people).\u003c/li\u003e\n \u003cli\u003eLabor demand, or all jobs that need workers, is the sum of filled positions (equal to employed people) and unfilled positions (vacancies or job openings).\u003c/li\u003e\n \u003cli\u003eUnemployment rate, or the percentage of people seeking work who haven\u0026rsquo;t found jobs, is unemployed people divided by labor supply (the sum of employed and unemployed people).\u003c/li\u003e\n \u003cli\u003eVacancy rate, or the percentage of jobs that remain unfilled, is job vacancies divided by labor demand (the sum of filled jobs and job vacancies).\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eWe focus on measuring labor market tightness as the ratio of vacancy rates to unemployment rates, but our conclusions hold if we examine unemployment rates only (exhibit). In 2023 in all countries but Denmark, Luxembourg, Norway, and Sweden, the unemployment rate was lower than the median observed since 2000, and the average unemployment rate across 30 advanced economies was among the lowest one-fifth of unemployment rates observed since 2000.\u003c/p\u003e\n[[exhibit 3]]\n\u003cp\u003eTo explore the micro underpinnings of labor shortages, we analyzed vacancy and employment data at the sector level in seven of the eight focus countries. (We were unable to extract the same data for Japan.) Additionally, we combined US occupational data from the Bureau of Labor Statistics with McKinsey Global Institute\u0026rsquo;s skills taxonomy to understand the types of jobs and workers most affected by the labor shortage.\u003c/p\u003e\n\u003cp\u003eWe also tested whether labor market tightness was a result of mismatches between workers and available jobs. This happens when vacancy rates rise without a commensurate decline in unemployment rates or vice versa. While we found evidence of such mismatches in Australia, Canada, and the United States during the COVID-19 pandemic, by the end of 2022 they were resolving, and so that analysis is absent from this report.[[footnote 2]]\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"The devil is in the details: Decoding the labor data"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e\u0026ldquo;Measuring job openings in the U.S. labor market,\u0026rdquo; Congressional Research Service, February 28, 2024.\u003c/li\u003e\n \u003cli\u003eThis can be seen on the Beveridge curve, which illustrates the relationship between unemployment rates and job opening rates. For an example, see \u003cem\u003eThe Beveridge curve (job openings rate vs. unemployment rate), seasonally adjusted\u003c/em\u003e, US Bureau of Labor Statistics, accessed May 20, 2024; Gadi Barlevy et al., \u003cem\u003eThe shifting reasons for Beveridge-curve shifts\u003c/em\u003e, IZA discussion paper number 16517, IZA Institute of Labor Economics, October 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"showShareTools":{"boolValue":true},"backgroundColor":{"targetItem":null},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":false},"background":{"targetItem":null},"image":{"src":null,"alt":""}},{"mediaID":{"value":"2"},"description":{"jsonValue":{"value":"\u003cp\u003eThis research was led by \u003cstrong\u003e\u003ca href=\"/our-people/anu-madgavkar\"\u003eAnu Madgavkar\u003c/a\u003e\u003c/strong\u003e, a McKinsey Global Institute partner in New Jersey; \u003cstrong\u003e\u003ca href=\"/our-people/olivia-white\"\u003eOlivia White\u003c/a\u003e\u003c/strong\u003e, a McKinsey senior partner and director of MGI based in San Francisco; \u003cstrong\u003e\u003ca href=\"/our-people/sven-smit\"\u003eSven Smit\u003c/a\u003e\u003c/strong\u003e, a McKinsey senior partner and chair of MGI based in Amsterdam; \u003cstrong\u003e\u003ca href=\"/our-people/chris-bradley\"\u003eChris Bradley\u003c/a\u003e\u003c/strong\u003e, a McKinsey senior partner and director of MGI based in Sydney; and \u003cstrong\u003eRyan Luby\u003c/strong\u003e, a senior knowledge expert and associate partner based in New York. \u003cstrong\u003eMichael Neary\u003c/strong\u003e led the working team, which included Claire Le Barbenchon, Maclaine Fields, Emma Forde, Clio Hancock, Young Kim, Brendan Mackie, Robert Malongo, Shaibyaa Rajbhandari, Noah Welgoss, Simone Tai, Rohan Vora, Samantha Wang, Noah Welgoss, and Daisong Zhang.\u003c/p\u003e\n\u003cp\u003eThis project benefited immensely from the perspectives of McKinsey colleagues. Our thanks go to Marc Canal, Gurneet Singh Dandona, Marco Dondi (alumni), Bonnie Dowling, Bryan Hancock, Maya Horii, Roland Huyghues-Despointes, Tasuku Kuwabara, Deepa Mahajan, Dana Maor, Jan Mischke, Michael Park, and Lauren Yayboke. \u003c/p\u003e\n\u003cp\u003eWe are grateful to the academic advisers who challenged our thinking and sharpened our insights: Martin Baily, senior fellow emeritus in economic studies at the Brookings Institution; Christopher Pissarides, Nobel Prize winner and Regius Professor of Economics at the London School of Economics; and Matthew Slaughter, Paul Danos Dean of the Tuck School of Business and the Earl C. Daum 1924 Professor of International Business, Dartmouth College.\u003c/p\u003e\n\u003cp\u003eThis report was edited and produced by Stephanie Strom, senior editor, together with senior data visualization editor Chuck Burke. We also thank David Batcheck, Nienke Beuwer, Rishabh Chaturvedi, Shannon Ensor, Paromita Ghosh, Julie A. Macias, Rebeca Robboy, Rachel Robinson, and Amanda Soto for their support.\u003c/p\u003e\n\u003cp\u003eWe thank McKinsey Global Publishing for designing this visual narrative, including team members Mary Gayen, Katrina Parker, Charmaine Rice, Diane Rice, Dana Sand, and Nathan R. Wilson.\u003c/p\u003e\n\u003cp\u003eAs with all MGI research, this work is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. While we gathered a variety of perspectives, our views have been independently formed and articulated in this report. Any errors are our own.\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"Acknowledgments"}},"footnotes":{"value":""},"showShareTools":{"boolValue":false},"backgroundColor":{"targetItem":null},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":false},"background":{"targetItem":null},"image":{"src":null,"alt":""}}]},"boxout":{"results":[]},"globalsidebar":{"results":[]},"video":{"results":[]},"scrollycontainer":{"results":[{"id":"AA88C44B23A241E0A384599DEA5FBB2A","mediaID":{"value":"1"},"scrollySettings":{"targetItem":{"key":{"value":"two-column"},"value":{"value":"two-column"}}},"edgeToEdge":{"boolValue":false},"collapseTopSpace":{"boolValue":false},"collapseBottomSpace":{"boolValue":false},"desktopTextColumnWidth":{"targetItem":null},"mediaPlacement":{"targetItem":null},"backgroundTheme":{"targetItem":null},"eyebrow":{"value":""},"displayNumber":{"value":""},"mobileTwoColumnStacked":{"boolValue":false},"scaleBackgroundImageOneColumn":{"boolValue":false},"children":{"results":[{"id":"62ED602AEDF149B1A5428A7BA0282ED8","name":"Exhibit 20a for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":"To maintain GDP growth, all countries need additional labor supplies or productivity growth—and some need both"},"description":{"value":"\u003cp\u003eWe quantify four scenarios of economic growth using two alternative rates of productivity growth along with our two possible scenarios of future labor force participation rates. For each economic growth scenario, we assume adequate demand for labor\u0026mdash;in other words, that no recession occurs that would curb employment. This assumption may be reasonable in the short term, though recessions are notoriously hard to predict. The United States has so far navigated an economic soft landing, but any economic downturn could crimp job demand. Meanwhile, Germany and Japan have experienced only tepid demand growth, calling into question the underlying strength of demand in those countries.\u003c/p\u003e\n\u003cp\u003eBy contrast, new technologies offer the potential for more robust productivity growth that could dispel some of those concerns. Our two productivity growth scenarios include a higher estimate that uses average productivity growth from 1999 to 2007, a period of robust productivity growth before the financial crisis, and a lower estimate that uses productivity growth from 2012 to 2022. These scenarios suggest that, absent productivity acceleration or growth in labor force participation rates, GDP will increase at a slower pace than the 2012 to 2022 trend in the eight countries.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20a-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (1 or 6)","description":"Image description:\nThe first of 6 panels shows 8 vertical bar charts, 1 for each of the highlighted countries. Each chart has 4 bars, mostly increasing in height from left to right, representing different scenarios for GDP growth over 2023\u0026ndash;30. The vertical axis is an index going from \u0026ndash;150 at the bottom to 325 at the top, with a 100 value representing the country\u0026rsquo;s 2012\u0026ndash;22 average. The first bar on the left is the lowest, representing a scenario in which the labor participation rate remains stable and productivity growth follows the current trend. The second bar is the next tallest for most countries, representing a scenario in which labor participation grows. The third bar is next tallest for most countries, going back to a scenario with stable labor participation but with productivity growth following the pre-2007 trend. The fourth bar is the tallest for all countries, representing a scenario of growing labor participation and pre-2007 productivity.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}},{"id":"D21F33DBB31E4C01B242234250F94A7E","name":"Exhibit 20b for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":""},"description":{"value":"\u003cp\u003eIf labor force participation continues to grow or there is an increase in productivity back to pre-2007 levels in Australia and Japan, the countries would maintain their 2012\u0026ndash;22 trend of GDP growth.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20b-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (2 or 6)","description":"Image description:\nThe second of 6 panels shows the same exhibit but highlighting Japan and Australia, the first 2 bar charts on the left. For both countries, 3 of the 4 bars exceed 100, indicating above-average growth in the scenarios involving either growing labor participation or pre-2007 productivity.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}},{"id":"7CED1F051AA34AF5BB34B7E331723AE8","name":"Exhibit 20c for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":""},"description":{"value":"\u003cp\u003eFour of the six other countries\u0026mdash;Canada, France, the United Kingdom, and the United States\u0026mdash;would need productivity to return to pre-2007 levels in order to maintain their economic growth. Continued growth of the labor force participation rate is relatively less important to maintaining economic growth for these countries.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20c-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (3 or 6)","description":"Image description:\nThe third of 6 panels shows the same exhibit but highlighting the next 4 charts from the left: France, UK, US, and Canada. For these countries, 2 of the 4 bars exceed 100, indicating above-average growth in the scenarios with pre-2007 productivity.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}},{"id":"3C7CE7B8B85240059A861FFD09072DF9","name":"Exhibit 20d for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":""},"description":{"value":"\u003cp\u003eGermany would need continued labor force participation rate growth and a return to pre-2007 levels of productivity to maintain its level of economic growth.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20d-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (4 or 6)","description":"Image description:\nThe fourth of 6 panels shows the same exhibit but highlighting the chart for Germany, where 1 of the 4 bars exceeds 100, indicating above-average growth in the scenario with both growing labor participation and pre-2007 productivity growth.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}},{"id":"68E1BE0633944CD48F66893804408A31","name":"Exhibit 20e for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":""},"description":{"value":"\u003cp\u003eBy constrast, even if Italy continued its high rate of growth in labor force participation, it would still need to increase productivity growth by an additional 0.1 percent each year above its 0.4 percent pre-2007 annual productivity growth.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20e-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (5 or 6)","description":"Image description:\nThe fifth of 6 panels shows the same exhibit but highlighting the chart for Italy, where none of the bars reaches 100, and two of them extend downward past \u0026ndash;125 for the scenarios involving stable labor participation.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}},{"id":"C4685BA129D348B48F146FC0579538C0","name":"Exhibit 20f for Scrolly","template":{"name":"ExhibitForScrolly"},"title":{"value":""},"description":{"value":"\u003cp\u003eAll of these countries have the potential to reach a higher level of productivity growth in the future. Previous MGI research documents the promise of technologies like artificial intelligence, which has the potential to deliver more than enough added productivity to keep their economies growing even in a future with a declining labor supply. To be sure, the path to realize that opportunity is far from certain. Implementing any new technology requires complicated adaptation of business processes and extensive retraining of workforces. However, employed correctly, these tools offer a way forward to economic prosperity despite labor supply constraints.\u003c/p\u003e\n\u003cp\u003eThese projections are not predictions of the future, but they do illustrate the demographic constraints on economies over the next decade, casting a cloud on the prospects of durably resolving labor shortages. For economies to maintain stability or grow, they will need to go beyond business as usual to boost productivity or find additional workers in new ways.\u003c/p\u003e"},"textComponentPlacement":{"targetItem":{"key":{"value":"Left"},"value":{"value":"left"}}},"textComponentBackgroundColor":{"targetItem":null},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex20f-gdp-growth-scenarios.svgz","alt":"To maintain GDP growth, all countries need additional labor supply or productivity growth—and some need both (6 or 6)","description":"Image description:\nThe last of 6 panels shows the original view same exhibit.\nEnd of image description"},"mobileExhibit":{"src":null,"alt":"","description":null},"footnotes":{"value":""}}]}}]},"bespokeinteractive":{"results":[{"id":"4BF38023F3B344F4874BD39AA52CCB3C","template":{"name":"BespokeInteractive"},"mediaID":{"value":"1"},"renderMode":{"targetItem":{"key":{"value":"Medium content column width"},"value":{"value":"medium"}}},"showDividerLine":{"boolValue":false},"bespokeInteractiveID":{"value":"bespoke/charting-labor-markets"},"header":{"jsonValue":{"value":""}},"description":{"jsonValue":{"value":""}},"displayNumber":{"value":""},"eyebrow":{"jsonValue":{"value":""}},"accessibilityDescription":{"value":""}}]},"storycontainer":{"results":[{"id":"1373965DA8AF4B459AAABDC15428B942","mediaID":{"value":"1"},"collapseTopSpace":{"boolValue":false},"collapseBottomSpace":{"boolValue":false},"desktopTextColumnWidth":{"targetItem":null},"children":{"results":[{"id":"506277F3AFCD47739416FFD70BC6B28E","name":"Exhibit 4","template":{"name":"StoryItem"},"title":{"value":"Increased labor input drove economic growth in many countries"},"description":{"value":"\u003cp\u003eWhat was behind the robust appetite for labor?\u003c/p\u003e\n\u003cp\u003eSince 2010, countries that have increased GDP fastest have done so primarily by adding more workers rather than by improving productivity. In markets such as Australia, the United Kingdom, and the United States, where labor has been relatively plentiful and consequently easier to hire, companies had a business rationale to add hours and employment rather than tackling the harder job of improving productivity. Countries where labor wasn\u0026rsquo;t so plentiful\u0026mdash;Germany and Japan, for example\u0026mdash;relied more on productivity growth to propel their economies, although that did not fully compensate for low labor force growth. In fact, labor productivity has stagnated in many advanced economies, as documented in previous McKinsey Global Institute reports.[[footnote 1]]\u003c/p\u003e\n\u003cp\u003eEven though all countries experienced a productivity slowdown after the financial crisis, some countries were more negatively affected than others. In Australia, productivity benefited from a commodity boom, while in the United Kingdom, underinvestment in regions other than the southeast may have exacerbated stagnating productivity.[[footnote 2]]\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex04-hours-worked-vs-productivity.svgz","alt":"Increased labor input drove economic growth in many countries","description":"Image description:\nEight waterfall-style vertical bar charts show each of the highlighted countries\u0026rsquo; compound annual growth rate of GDP over 2010\u0026ndash;22, with a vertical axis starting at \u0026ndash;0.5% at the bottom and rising to 3%. Each chart shows 2 bar segments \u0026mdash; change in growth due to hours worked and change due to productivity \u0026mdash;\u0026nbsp;summing to the country\u0026rsquo;s total. The charts are ordered from left to right according to hours worked, with Australia, US, Canada, UK, and France in one group on the left with an annotation noting they had average GDP growth of 1.9%. The three remaining countries grouped to the right \u0026mdash;\u0026nbsp;Germany, Italy, and Japan \u0026mdash;\u0026nbsp;have annotations noting that productivity contributed more than hours worked and that their GDP growth averaged 0.7%.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eFor more, see \u003cem\u003e\u003ca href=\"/mgi/our-research/investing-in-productivity-growth\"\u003eInvesting in productivity growth\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, March 2024, and \u003cem\u003e\u003ca href=\"/mgi/our-research/rekindling-us-productivity-for-a-new-era\"\u003eRekindling US productivity for a new era\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, February 2023.\u003c/li\u003e\n \u003cli\u003eAngelina Bruno, Jessica Dunphy, and Fiona Georgiakakis, \u003cem\u003eRecent trends in Australian productivity\u003c/em\u003e, Reserve Bank of Australia, September 2023; \u003cem\u003eProductivity in the UK: Evidence review\u003c/em\u003e, UK Productivity Commission, National Institute of Economic and Social Research, June 2022.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"15C8E115E2FD436B8FB535EA16ADC58D","name":"Exhibit 5","template":{"name":"StoryItem"},"title":{"value":"The excess supply of labor has dwindled"},"description":{"value":"\u003cp\u003eIn the wake of the financial crisis, many people struggled to find work. In 2010, there were roughly 24 million excess workers, as measured by comparing the number of job seekers with the number of job openings across the eight countries. Today the number of job seekers is close to the number of job vacancies.\u003c/p\u003e\n\u003cp\u003eHowever, the degree of excess supply (or no excess supply at all, in some cases) varies at the country level. Labor demand exceeded supply in Germany, Japan, and the United States at the end of 2023. Recently, Germany enacted a law aimed at increasing immigration of highly skilled workers, and in the United States efforts are under way to establish a federal commission to study labor shortages and find ways to address them.\u003c/p\u003e\n\u003cp\u003eThe excess supply of unemployed workers relative to job openings in France and Italy was two million and one million, respectively. While these economies have meaningful slack in their labor markets today, even they have tightened. Their excess labor figures are 7.1 and 5.7 percent, respectively, down from prepandemic peaks well above 10 percent.\u003c/p\u003e\n\u003cp\u003eThe factors that drove labor market tightness also varied across countries. Unemployment rates in Germany, the United Kingdom, and the United States came down from highs in 2010, while Australia never had very high unemployment. Italy continued to have a relatively high rate of unemployment but also increased vacancies, suggesting either a mismatch or a higher natural rate of unemployment. Meanwhile, demand increased markedly in Japan while its shrinking population constrained its labor supply.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-laborshortage-ex5-excess-supply-vf.svgz","alt":"The excess supply of labor has dwindled.","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eNine area charts, 1 for each of the highlighted countries plus an 8-country aggregate chart, show mostly positive but descending values with some small dips into negative territory in 4 of the charts. The vertical axes show surplus workers in relation to labor demand, going from -4% at the bottom to 15% at the top for the individual country charts and from \u0026ndash;5 million to 25 million workers for the aggregate chart. The countries\u0026rsquo; horizontal axes show years from 2000 on the left to 2023 on the right. The aggregate chart begins at 2010, starting at about 24 million at the top left and shrinking to 1 million on the right in 2023. The country charts all end in 2023 between \u0026ndash;1.5% and 7.1% of demand, each value lower than where the plot started.\u003c/p\u003e\n\u003cp\u003eEnd of image description\u003c/p\u003e"},"scaleToFit":{"boolValue":false},"footnotes":{"value":""},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"1044D6B6FF73400BBA0579E155026369","name":"Ceros Exhibit 6","template":{"name":"CerosForStory"},"title":{"value":"The labor surplus has fallen from 24 million to 1 million since 2010 in eight advanced economies"},"description":{"value":"\u003cp\u003eThe number of excess workers dwindled as growth in labor demand outpaced growth in labor supply. Labor forces in these eight countries grew between 2010 and 2023. Propelled by population growth and increased labor force participation that outweighed the impact of aging, 33 million workers in total joined their labor forces.\u003c/p\u003e\n\u003cp\u003eOver the same period, labor demand grew strongly, fueled by expansive monetary and fiscal policies as these countries recovered from the financial crisis. Employers needed to fill some 57 million additional jobs over the same period, or 24 million more than the number of available workers. Most advanced economies avoided subsequent downturns. This uninterrupted growth in demand not only drove average unemployment down from 8 percent to 4 percent but also created an additional ten million unfilled jobs across the eight economies.\u003c/p\u003e\n\u003cp\u003eDuring that time, people worked fewer hours on average, but the imbalance between job seekers and available jobs wasn\u0026rsquo;t due to that change. From 2010 to 2023, the average number of hours worked per employee fell from 37 to 36, a 3 percent decline roughly equivalent to just 33,000 workers in 2023. Declining working hours affect labor supply and labor demand equally, meaning the net effect is negligible.\u003c/p\u003e\n\u003cp\u003eCountries today have fewer than one million excess workers in aggregate: the number of job seekers is close to the number of job vacancies. What appears to be a perfectly matched labor market is in reality an extremely tight one, since some degree of excess supply is always the norm\u0026mdash;matching is never perfect, and demand and supply are always in flux as workers switch jobs and employers shift strategies.\u003c/p\u003e"},"footnotes":{"value":""},"desktopID":{"value":"experience-66462e1f527a7"},"desktopURL":{"value":"//view.ceros.com/mckinsey/mgi-labor-shortage"},"desktopPaddingPercentage":{"value":"88.02"},"desktopOverrideHeight":{"value":""},"mobileID":{"value":"experience-66462e1f527a7"},"mobilePaddingPercentage":{"value":"88.02"},"mobileOverrideHeight":{"value":""},"mobileURL":{"value":"//view.ceros.com/mckinsey/mgi-labor-shortage"},"cerosOembedURL":{"value":""},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""},"scaleToFit":{"boolValue":false}},{"id":"8C7E87050E464521BD5D8493DF202643","name":"Exhibit 7","template":{"name":"StoryItem"},"title":{"value":"GDP could have been higher by 0.5 to 1.5 percent in 2023 if excess vacancies had been fewer"},"description":{"value":"\u003cp\u003eIncreased job vacancies can constrain real economic output; they represent demand for goods and services that businesses are unable to fulfill. In seven of the eight countries\u0026mdash;Japan is the exception\u0026mdash;unfilled job vacancies in 2023 were higher than in 2019, before the onset of COVID-19, when they were in turn higher than their median levels from 2010 to 2019.\u003c/p\u003e\n\u003cp\u003eUnmet demand for labor can be addressed by finding additional new workers or by raising the productivity of existing workers. This can restore balance to labor supply and demand while creating additional output.\u003c/p\u003e\n\u003cp\u003eWe estimate the additional output that would have been produced if labor markets were not so tight by examining the degree to which vacancy rates are higher than a structural or natural rate of vacancies. Structural vacancy rates vary across industries and countries and can even vary over time. To account for this, we compared sector-level vacancy rates in 2023 to vacancy rates in 2019 as well as to the median rate from 2010 to 2019. We find that, depending on the country, GDP could have been 0.5 percent to 1.5 percent higher in 2023 if that unmet labor demand had been filled.[[footnote 1]]\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex07-historical-vacancy-levels.svgz","alt":"GDP could have been higher by 0.5 to 1.5 percent in 2023 if excess vacancies had been fewer","description":"Image description:\nA vertical bar chart shows 7 pairs of bars, one for each of the highlighted countries, arranged in descending height from left to right. The vertical scale is the percentage GDP gains in 2023 if employers had filled their job vacancies to historic levels. For each country, the first bar represents if 2023 vacancies matched 2019 levels, with values ranging from 0.3% to 1.1%. The second bar, taller than the first for every country, represents if 2023 vacancies matched 2010\u0026ndash;19 median levels, with values ranging from 0.5% to 1.6%. The countries ranked from left to right are: the US, Germany, France, Australia, Italy, Canada, and the UK.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eTo estimate how much GDP might have been generated absent increased labor market tightness, we determined how many additional workers would be employed if 2023 job vacancy rates by sector fell to their historical level in 2019, or to their median vacancy rate level from 2010 to 2019, in each country. The output was estimated based on that number of workers and the average productivity per worker, at 2023 levels, for each sector. It is sensitive to the productivity assumption; we assume average productivity, but the potential productivity of unfilled vacancies could be lower than the sector average.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}}]}},{"id":"4B61F01E485E4CEDB5E5F249E2E4FAE6","mediaID":{"value":"2"},"collapseTopSpace":{"boolValue":false},"collapseBottomSpace":{"boolValue":false},"desktopTextColumnWidth":{"targetItem":null},"children":{"results":[{"id":"B4A4DA6451F14869AAE99544AD6D2880","name":"Exhibit 8","template":{"name":"StoryItem"},"title":{"value":"All sectors have higher job vacancy rates today than in 2010"},"description":{"value":"\u003cp\u003eAcross economies, average vacancy rates, or job vacancies as a share of total labor demand, increased by more than two percentage points from 2010 to 2023 in the healthcare, leisure and hospitality, and construction sectors.[[footnote 1]] Conversely, job vacancy rates in the financial and real estate sector and the information sector, both high-productivity sectors with well-paid jobs, changed by less than one percentage point on average.\u003c/p\u003e\n\u003cp\u003eThe pandemic hit the leisure and hospitality sector particularly hard as travel and tourism slowed. As restaurants and hotels reopened, they struggled to restaff. In Europe, some hotels hired people with little or no experience, and fast-food restaurants in the United States raised wages and shortened hours to cope with a shortage of staff.[[footnote 2]] Aggregate employment levels indicate that previous restaurant and hotel workers have rejoined the workforce, but they appear to have taken jobs in other sectors.\u003c/p\u003e\n\u003cp\u003eThe healthcare sector has been strained as aging populations have driven demand for these services. The sector had the highest number of job vacancies among the sectors in our research, or 16.9 percent of all vacancies in 2023.\u003c/p\u003e\n\u003cp\u003eVacancy rates also markedly increased in the construction sector, in part due to its cyclicality. Demand in the sector began climbing in 2010 after dropping sharply during the financial crisis. Today, strong demand for housing and government spending on large infrastructure projects, such as a \u0026euro;45 billion construction relief package in Germany and a $1.2 trillion package for infrastructure in the United States, have propelled vacancies.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex08-sector-vacancy-rates.svgz","alt":"All sectors have higher job vacancy rates today than in 2010","description":"Image description:\nA dot plot chart shows horizontal lines with a dot on the left end marking job vacancy rates in 2010, and a dot on the right end showing 2023. The lines are stacked in 12 rows, each representing an occupational sector, and the horizontal axis starts at 0% on the left and goes to to 5% on the right. Rows are arranged from top to bottom by the highest 2023 values, with leisure and hospitality, healthcare, and professional services at the top at about 3.75\u0026ndash;4.5%, and government, private education, and mining at the bottom, at 1.5\u0026ndash;2.5%.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eIncludes seven of the eight focus countries. This data was not available for Japan.\u003c/li\u003e\n \u003cli\u003eRyan Mann, Esteban Ramirez, and Matthew Straus, \u0026ldquo;\u003ca href=\"/industries/travel-logistics-and-infrastructure/our-insights/three-innovations-to-solve-hotel-staffing-shortages\"\u003eThree innovations to solve hotel staffing shortages\u003c/a\u003e,\u0026rdquo; McKinsey, April 2023; Carol Kahn, \u0026ldquo;Sedona hotels cope with staffing shortages,\u0026rdquo; \u003cem\u003eSedona Red Rock News\u003c/em\u003e, October 29, 2021; Andrew Mills, Corina Pons, and Catarina Demony, \u0026ldquo;No experience, no resume, you\u0026rsquo;re hired! Hotels fight for staff,\u0026rdquo; Reuters, July 4, 2022; Joanna Fantozzi, \u0026ldquo;Restaurants are still dramatically decreasing their hours, new study shows,\u0026rdquo; \u003cem\u003eNation\u0026rsquo;s Restaurant News\u003c/em\u003e, October 28, 2022.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"759F49C6DABD462A9C38D2895144512C","name":"Exhibit 9","template":{"name":"StoryItem"},"title":{"value":"Vacancies have not grown in lockstep with employment "},"description":{"value":"\u003cp\u003eSectors fall into four groups depending on how vacancies grew in relation to employment: \u0026ldquo;labor hungry,\u0026rdquo; \u0026ldquo;labor attracting,\u0026rdquo; \u0026ldquo;labor disrupting,\u0026rdquo; and \u0026ldquo;labor efficient\u0026rdquo;.\u003c/p\u003e\n\u003cp\u003eLabor shortages have had the biggest impact on labor-hungry sectors, such as healthcare and construction, as previously noted. Demand for labor has risen faster than the sector\u0026rsquo;s ability to attract workers. Vacancies have increased in public and private healthcare systems despite efforts in countries such as the United Kingdom to attract immigrants to the sector, and construction is booming in most advanced economies due to housing shortages and infrastructure needs. Typically less capital intensive and more difficult to automate, these sectors added jobs at or faster than the average clip but not fast enough to keep pace with demand. In Canada, for instance, a recent House of Commons committee report acknowledged that the country has \u0026ldquo;longstanding issues with lack of supply of health professionals,\u0026rdquo; in part due to mental health issues and burnout exacerbated by the COVID-19 pandemic, which have led to retention issues.[[footnote 1]]\u0026nbsp; And some Italian construction companies are turning to workforce development programs and partnerships with African universities to recruit and train new workers.[[footnote 2]]\u003c/p\u003e\n\u003cp\u003eConversely, labor-attracting sectors like financial and real estate, information, and professional services have also added employment faster than average\u0026mdash;they have attracted workers at a faster pace than their demand for labor has grown. In this group, only the professional services sector increased its share of overall vacancies.\u003c/p\u003e\n\u003cp\u003eManufacturing is a labor-disrupting sector. Although the sector accounted for a smaller part of the workforce in 2023 than in 2010 across the eight countries, its job vacancies nonetheless increased significantly, especially after 2019. Research by economist Richard Baldwin found that since 2013, the manufacturing sector has lost 20 million jobs globally due to productivity gains from increasing automation.[[footnote 3]] The mix of workforce skills has been changing, as some manufacturing jobs require more customer relations or analytics, and as corporate manufacturing footprints are themselves changing. For example, areas such as semiconductors and electric vehicle manufacturing are demanding more workers as a result of shifts in industrial policy and \u0026ldquo;friendshoring.\u0026rdquo;\u003c/p\u003e\n\u003cp\u003eTrade is a labor-efficient sector, in which productivity enhancements have eased the pressure to hire. As consumer demand has shifted, the retail segment of the trade sector has increasingly automated and digitized, increasing productivity and mitigating the impact of labor shortages. In Japan, for example, convenience stores are responding to staff shortages not only by relying on immigrant labor but also by rolling out technology like self-checkout and cleaning robots.[[footnote 4]]\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-laborshortage-ex9-static-vacancy-vs-employment-share-v2.svgz","alt":"Vacancy and unemployment share, 2010-23.","description":"\u003cp\u003eImage description:\u003c/p\u003e\n\u003cp\u003eA scatterplot graph shows 12 dots, 1 for each occupational sector. The vertical axis shows the 2010\u0026ndash;23 change in vacancy share, going from \u0026ndash;5 percentage points at the bottom to 5 at the top. The horizontal axis shows the 2010\u0026ndash;23 change in employment share, going from \u0026ndash;5 points on the left to 5 on the right. The 5 labor-hungry sectors described in the text are in the top-middle of the plot, with almost all positive values. The 3 labor-attracting sectors are in the right-middle, with increasing employment share and mostly decreasing vacancy share. The one labor-disrupting sector, manufacturing, is in the middle-left, with decreasing employment share. And the one labor-efficient sector, trade, is in the bottom left, with shares all decreasing.\u003c/p\u003e\n\u003cp\u003eEnd of image description\u003c/p\u003e"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eSean Casey,\u003cem\u003e Addressing Canada\u0026rsquo;s healthcare workforce crisis\u003c/em\u003e, Report of the Standing Committee on Health, House of Commons, Canada, March 2023.\u003c/li\u003e\n \u003cli\u003e\u0026ldquo;Webuild CEO Pietro Salini: Ready to hire about 10,000 people in next three years to develop infrastructure in Italy,\u0026rdquo; Webuild Group, September 18, 2023.\u003c/li\u003e\n \u003cli\u003eRichard Baldwin, \u0026ldquo;Where in the world are manufacturing jobs going?\u0026rdquo; Factful Friday with Richard Baldwin, LinkedIn, December 22, 2023.\u003c/li\u003e\n \u003cli\u003eFor immigrant labor, see \u0026ldquo;For a glimpse of Japan\u0026rsquo;s future, see its convenience stores,\u0026rdquo; \u003cem\u003eEconomist\u003c/em\u003e, April 4, 2024. For automation, see \u0026ldquo;Promotion of digitization to improve convenience,\u0026rdquo; FamilyMart, accessed May 20, 2024. For cleaning robots, see Fumika Nakashima, \u0026ldquo;Japan\u0026rsquo;s FamilyMart to roll out cleaning robots at 300 convenience stores,\u0026rdquo; Nikkei Asia, February 13, 2024.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"11CFAC22F4B14892B4C785C96EC6867A","name":"Exhibit 10","template":{"name":"StoryItem"},"title":{"value":"Sectors struggling with productivity contributed disproportionately to vacancy growth"},"description":{"value":"\u003cp\u003eWhat explains the differences between the shifting employment share and the shifting share of vacancies? Productivity and productivity growth are crucial factors: sectors with lower productivity and productivity growth had steeper increases in vacancy share. In a growing economy with a tight labor market, low-productivity sectors requiring the most labor per unit of additional output are likely to be most constrained.\u003c/p\u003e\n\u003cp\u003eOpportunities exist to boost productivity across sectors. The leisure and hospitality sector in the United States provides a case study. In 2021, the sector accounted for 16 percent of all job vacancies, a comparatively big share that was three percentage points higher than its average from 2010 to 2020. The sector responded to challenges posed by the COVID-19 pandemic by automating more processes and raising wages by an average of 29 percent from mid-2019 to mid-2023. Those steps increased the sector\u0026rsquo;s productivity by 6.4 percent over that period, decreasing pressure to hire and reducing its share of vacancies as its vacancy rate fell to 6 percent in 2023 from a decade high of 11 percent in 2021.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex10-sector-productivity-growth-vs-output.svgz","alt":"Sectors struggling with productivity contributed disproportionately to vacancy growth","description":"Image description:\nA scatterplot graph shows 12 dots, 1 for each occupational sector. The vertical axis shows productivity CAGR for the 7 highlighted countries, going from \u0026ndash;2% at the bottom to 5% at the top. The horizontal axis shows productivity output per employee, going from $0 on the left to $225,000 on the right. Highlighted are the half of the dots toward the bottom left of the graph, which indicates lower CAGR and lower output. An annotation notes that these sectors \u0026mdash;\u0026nbsp;leisure and hospitality, healthcare, professional services, transportation, construction, and private education \u0026mdash;\u0026nbsp;had an increasing share of job vacancies.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":""},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"9202BB3896D5401DAADA5081D6414149","name":"Flourish 11","template":{"name":"FlourishForStory"},"title":{"value":"Spotlight: Physical and manual skills in demand"},"description":{"value":"\u003cp\u003eDemand for skill types is another lens through which the impact of a labor shortage can be examined. Our skills taxonomy comprises five broad categories\u0026mdash;technological, social and emotional, higher cognitive, basic cognitive, and physical and manual skills, mapped to detailed occupations.[[footnote 1]] Here we analyze skills to understand increased job vacancies in the United States. While some conclusions could be extrapolated to other peer countries, they may not be universally true.\u003c/p\u003e\n\u003cp\u003eIn an era of technological change, the most significant absolute shortage is in technological skills. Occupations relying on these skills, like software developers and other IT-related jobs, have been the hardest to fill since 2015, although the advent of generative AI may restore some balance. The changing skill mix \u003cem\u003ewithin\u003c/em\u003e occupations has already shown up in the United Kingdom in increased references to the need for technological skills in occupational postings.[[footnote 2]]\u003c/p\u003e\n\u003cp\u003eHowever, a shortage of physical and manual skills has likely exacerbated recent labor market tightness. Jobs requiring these skills had the lowest vacancy rate among the five broad skill categories, and job vacancies seeking these skills increased most since 2015. This reflects growing demand for manufacturing and repair workers as well as for some types of healthcare workers, like nursing assistants. For instance, Delaware has begun offering tuition assistance and other incentives to attract workers to study nursing in an effort to address a shortage of trained nurses.[[footnote 3]]\u003c/p\u003e"},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eSee \u003cem\u003e\u003ca href=\"/mgi/our-research/a-new-future-of-work-the-race-to-deploy-ai-and-raise-skills-in-europe-and-beyond\"\u003eA new future of work: The race to deploy AI and raise skills in Europe and beyond\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, May 2024.\u003c/li\u003e\n \u003cli\u003eRui Costa et al., \u0026ldquo;Old skills, new skills\u0026mdash;what is changing in the UK labour market\u0026rdquo; \u003cem\u003eThe Pissarides Review into the Future of Work and Wellbeing\u003c/em\u003e, Institute for the Future of Work, February 2024.\u003c/li\u003e\n \u003cli\u003eSee Johnny Perez-Gonzalez, \u0026ldquo;Delaware responds to nursing shortage with \u0026lsquo;Tuition Incentive Program,\u0026rsquo;\u0026rdquo; WHYY, December 13, 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"flourishVisualisationID":{"value":"visualisation/17507244?946647"},"scaleToFit":{"boolValue":false},"backgroundTheme":{"targetItem":{"key":{"value":"Gray"},"value":{"value":"-bg-lightest-grey"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"4F9412A7F1F14787AE9A0152A18D7F44","name":"Exhibit 12","template":{"name":"StoryItem"},"title":{"value":""},"description":{"value":"\u003cp\u003eThe occupations with the biggest increase in share of vacancies are associated with labor-hungry sectors such as food service, healthcare, and construction. Workers in these occupations mostly use physical and manual skills, which in many cases are challenging to automate and, in the case of healthcare occupations, likely to face unabated increases in demand as populations age.\u003c/p\u003e\n\u003cp\u003eWorkers in occupations in which the share of vacancies declined most, by contrast, use physical and manual skills for only a small part of their work. Instead, these occupations, which include management, sales, financial operations and computing, rely most heavily on social and emotional skills. Across all sectors, such occupations are often more highly paid; in some cases, they are likely to be a shrinking slice of the total workforce. Office support occupations could shrink as basic cognitive skills are increasingly automated, while sales is already a shrinking occupational category as e-commerce becomes a bigger part of retail trade and technological changes shift marketing dollars to other channels and assets.[[footnote 1]] Research by McKinsey has found that generative AI might accelerate the trend of automation in both of these occupational categories.[[footnote 2]]\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex12-occupational-skills-vs-vacancy-share.svgz","alt":"In the United States, occupations with the biggest increases in job vacancies disproportionately require physical and manual skills.","description":"Image description:\nA horizontal bar chart is organized in 22 rows from highest to lowest value, with two thirds of the bars having positive values extending to the right, and the rest at the bottom with negative values extending to the left. The chart plots the percentage point change in job vacancy share by occupational group. At the top increasing by 1.1 to 2.1 points are food preparation and serving related occupations; installation, maintenance, and repair occupations; and building and grounds cleaning and maintenance occupations. At the bottom decreasing by 1.5 to 3.7 points are computer and mathematical occupations; sales and related occupations; and business and financial operations occupations. Next to the first chart is a horizontal stacked bar chart with an arrow connecting it to the top three bars from the first chart, plotting the distribution of the 5 occupational skills associated with those occupations, which represent a quarter of the US workforce. Physical and manual skills are the largest segment at 66%, indicating that those skills are prevalent in occupations with the largest increase in job vacancy share. Another horizontal stacked bar chart connects to the bars at the bottom of the first chart, representing another quarter of the workforce. Physical and manual skills are the smallest segment at 5%, indicating that those skills are not prevalent in occupations with the greatest decrease in job vacancy share.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eMichael Riely, \u003cem\u003eInside the decline of sales occupations\u003c/em\u003e, US Bureau of Labor Statistics Beyond the Numbers series, May 2020.\u003c/li\u003e\n \u003cli\u003eSee \u003cem\u003e\u003ca href=\"/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier\"\u003eThe economic potential of generative AI: The next productivity frontier\u003c/a\u003e\u003c/em\u003e, McKinsey Global Institute, June 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"Gray"},"value":{"value":"-bg-lightest-grey"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"37BDA7B8CCA149328B6A64A1AA9FB906","name":"Exhibit 13","template":{"name":"StoryItem"},"title":{"value":""},"description":{"value":"\u003cp\u003eJobs requiring a high proportion of physical and manual skills often have lower wages. In tight labor markets, wage dynamics shift based on workers\u0026rsquo; changing opportunity costs, including options to move into higher-paying jobs. As US labor markets tightened, wages grew across the board, especially among workers in the lowest-paying occupations, and the biggest beneficiaries were workers who switched jobs.[[footnote 1]] Given that the labor share of production is about 60 percent across advanced economies, rising labor costs are highly relevant for employers and policy makers.[[footnote 2]]\u003c/p\u003e\n\u003cp\u003eGrouping US occupations based on average salaries, the occupations in the bottom half of the income range require physical and manual skills more than 40 percent of the time. Those lower-paying occupations in the third and fourth quartiles by income had the fastest wage growth from 2015 to 2022. The top half of occupations by income require physical and manual skills much less, and just 5 percent of the time among the top quartile of occupations by pay.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex13-occupational-skills-vs-wages.svgz","alt":"In the United States, wages are growing faster in lower-paid occupations that rely more on physical and manual skills.","description":"Image description:\nA set of horizontal stacked bar charts is organized into four rows, each representing a quarter of US employment, ranked by average occupational wage, with the lowest earning group at the top. The charts plot the percentage distribution of time spent using the 5 occupational skills, specially highlighting the physical and manual skills segment, which is largest in the top chart at 46% and smallest in the bottom chart at 5%, indicating that these skills are more prevalent in lower-wage occupations. An adjacent table lists the 2015\u0026ndash;23 CAGR in average wages for each employment grouping, with the lowest-wage segment increasing the most at 4.5% and the highest-wage segment with 2.9%.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e David Autor, Arindrajit Dube, and Annie McGrew, \u003cem\u003eThe unexpected compression: Competition at work in the low wage labor market\u003c/em\u003e, National Bureau of Economic Research working paper number 31010, November 2023.\u003c/li\u003e\n \u003cli\u003eBased on data through 2013 for Germany, Japan, and the United States. See Loukas Karabarbounis and Brent Neiman, \u003cem\u003eThe global decline of the labor share\u003c/em\u003e, National Bureau of Economic Research working paper number 19136, June 2013.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"Gray"},"value":{"value":"-bg-lightest-grey"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}}]}},{"id":"EBD46429F2E646D5A62581DEDC210C9D","mediaID":{"value":"3"},"collapseTopSpace":{"boolValue":false},"collapseBottomSpace":{"boolValue":false},"desktopTextColumnWidth":{"targetItem":null},"children":{"results":[{"id":"D930092282EE49BE9699008F6AA5B689","name":"Exhibit 14","template":{"name":"StoryItem"},"title":{"value":"Higher participation rates mitigated the impact of aging on labor supply "},"description":{"value":"\u003cp\u003eEven as labor markets have tightened, labor supply has grown. From 2010 to 2023, 34 million additional people joined the workforces across the eight countries, an average growth rate of 0.6 percent a year. The first factor influencing this growth is the expansion of population, both from so-called natural growth, or the net of new births and deaths, and from immigration. The second factor is linked to an aging mix of workers and had the opposite impact, pushing supply lower. The third factor is increased participation in the labor force, which helps mitigate the impact of aging.\u003c/p\u003e\n\u003cp\u003eThe independent contribution of each of these three factors is clear. Had population alone grown, it would have accounted for 31 million of the 34 million added workers. Aging alone would have led to 18 million\u003cem\u003e fewer \u003c/em\u003eworkers as more seniors dropped out of the labor force. However, at the same time, labor force participation has increased, particularly among workers 55 years and older. The combined effects of these three factors net to 34 million additional workers.\u003c/p\u003e\n\u003cp\u003eThe dynamics of these three factors varied greatly by country. Labor supply grew fastest in Australia and Canada, driven by strong population growth. Population growth also drove increased labor supply in the United Kingdom and the United States, though more moderately than in Australia and Canada. Germany\u0026rsquo;s labor supply growth was due largely to increased participation rates, while France\u0026rsquo;s growth came from both population growth and more participation. In Japan and Italy, the impact of aging has been much more pronounced than in other countries, although for now increased participation has allowed for continued modest labor force growth.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex14-labor-force-growth-factors.svgz","alt":"Higher participation rates mitigated the impact of aging on labor supply","description":"Image description:\nNine waterfall-style vertical bar charts, 1 for each of the highlighted countries plus an 8-country aggregate chart, show 3 bar segments arranged left to right with positive and negative values representing the 2010\u0026ndash;23 CAGR in labor force. Each chart\u0026rsquo;s net total is positive, with the aggregate chart totaling 0.62% and the country chart totals ranging from 0.3% for Japan and Italy to 1.8% for Australia. The 3 bar segments in each chart include population growth, which is positive for all but Japan and Italy; aging, which is negative in each chart; and participation growth, which is positive in each chart.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":""},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"A11550F06B7841E59A4130A11BAFE901","name":"Exhibit 15","template":{"name":"StoryItem"},"title":{"value":"Population growth slowed, despite being buoyed by immigration"},"description":{"value":"\u003cp\u003eA major challenge to labor force growth in the future is that the population growth rate has slowed in all eight countries since 2010 and is projected to continue to decline. In fact, populations in Japan and Italy are shrinking, and, according to United Nations estimates, the German population will begin to shrink by 2030.\u003c/p\u003e\n\u003cp\u003eFalling birth rates in many advanced economies largely explain their slower population growth. In some countries, immigration has also declined, exacerbating the trend. Immigration could have compensated for natural population decline, or when deaths exceed births, since 2015\u0026mdash;if it had been roughly 1.5 to 3.0 times higher than current levels in Australia, Canada, Germany, the United Kingdom, and the United States. In France, Italy, and Japan, it would have needed to be even higher.\u003c/p\u003e\n\u003cp\u003eImmigration enables short-term labor supply growth. By contrast, it takes perhaps 20 years for natural increase in a population to affect the labor market, because a baby born today cannot meaningfully work for roughly 20 years. Many immigrants are of working age and so can participate in the labor force today.[[footnote 1]] For instance, the Congressional Budget Office estimates that the US labor force in 2033 will be larger by 5.2 million people, mostly because of higher net immigration.[[footnote 2]] Research by the Brookings Institution suggests that an unexpectedly high level of net immigration explains the recent fast pace of added employment in the United States.[[footnote 3]]\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex15-population-growth-factors.svgz","alt":"Population growth slowed, despite being buoyed by immigration","description":"Image description:\nEight waterfall-style vertical bar charts, 1 for each of the highlighted countries, show pairs of bar segments arranged left to right with positive and negative values representing the CAGR in overall population over four chronological periods, from 2010\u0026ndash;15 on the left to a UN projection for 2023\u0026ndash;30 on the right. The total bars get steadily shorter from left to right across nearly all of the charts, indicating a shrinking population across all 8 countries. The 2 bar segments for each time period include births minus deaths, which are positive for all countries except Japan, Italy, and Germany; and net migration, which are positive across every chart.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e\u0026ldquo;Foreign-born workers: Labor force characteristics\u0026mdash;2023,\u0026rdquo; US Bureau of Labor Statistics press release, May 21, 2024.\u003c/li\u003e\n \u003cli\u003ePhillip L. Swagel, \u003cem\u003eDirector\u0026rsquo;s statement on the budget and economic outlook for 2024 to 2034\u003c/em\u003e, Congressional Budget Office, February 2024.\u003c/li\u003e\n \u003cli\u003eWendy Edelberg and Tara Watson, \u003cem\u003eNew immigration estimates help make sense of the pace of employment\u003c/em\u003e, Brookings Institution, March 2024.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"62F474EE9623487BBC57415A8223AA03","name":"Exhibit 16","template":{"name":"StoryItem"},"title":{"value":"Older workers are an increasing share of populations"},"description":{"value":"\u003cp\u003eBeyond their slowing population growth, all the countries in our sample are aging, a trend that will intensify as members of the baby boom generation become older. This creates an obstacle to labor force growth because older people often work at much lower rates, especially past the age of 65.\u003c/p\u003e\n\u003cp\u003eThe proportion of the working-age population, or people over 15 years old, that is 55 years and older increased from 2010 to 2023, and the United Nations projects that that share will grow even more by 2030. At that time, about half of the working-age populations of Germany, Italy, Japan, and the United Kingdom will be older than 55, and almost one-third will be older than 65. Populations are younger in Australia, Canada, and the United States, where by 2030 roughly two-fifths of the working-age populations will be older than 55.\u003c/p\u003e\n\u003cp\u003eAs countries aged overall, labor force participation among older cohorts of the working-age population increased.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex16-aging-population-growth.svgz","alt":"Older workers are an increasing share of populations","description":"Image description:\nEight sets of vertical stacked bar charts, 1 for each of the highlighted countries, plot the share of the age 15-plus population that is 55 years and older in three different years: 2010, 2023, and a UN projection for 2030. The bars increase in height across each chart, with 2030 totals ranging from 37% in Australia to 52% in Japan. The bar segments split the totals into two age groups: 55\u0026ndash;64 and 65-plus, with the 65-plus segments accounting for more than half of the height of nearly all of the bars.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":""},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"A1C09624B0D94BDA8A96AC11403307CA","name":"Exhibit 17","template":{"name":"StoryItem"},"title":{"value":"Older workers fueled growth in the labor supply"},"description":{"value":"\u003cp\u003eEven as aging populations pose a potential drag on labor force growth, people have been working more at almost every stage of life in all eight countries. (The exceptions are 15- to 24-year-olds in Canada, Italy, and the United Kingdom, who are working less; similarly, 25- to 54-year-olds in France are working slightly less.) For example, in the United States, shifts in the overall age mix pushed the aggregate labor force participation rate lower from 2010 to 2023, yet the participation rate grew, albeit marginally, in every age cohort over the period.\u003c/p\u003e\n\u003cp\u003eEverywhere, older people are working longer. The largest increases in labor force participation have been among those 55 years and older (with the notable exception of the United States, where work in that cohort increased only modestly). From 2010 to 2023, participation among this cohort grew 23 percentage points in Italy, 15 points in Germany and France, and 12 points in Japan. This increase in participation rates reflected shifting pension policies and attitudes toward retirement. For instance, Italy switched to a defined-contribution retirement system and increased its retirement age in 2011.[[footnote 1]] And long before the COVID-19 pandemic put labor market tightness onto the global radar, Japanese companies struggling to find workers in an aging society were tapping the country\u0026rsquo;s Silver Jinzai Centers. These community centers for older people traditionally found retirees to help maintain parks or manage parking lots, but more recently, a wide variety of Japanese corporations are enlisting them to find workers for jobs they can\u0026rsquo;t otherwise fill.[[footnote 2]]\u003c/p\u003e\n\u003cp\u003eThe shaded bars in the accompanying exhibit illustrate how labor force participation rates might grow if trends in participation rates for each age cohort continue to 2030 in line with the trend set from 2012 to 2023. In the United States, labor force participation rates didn\u0026rsquo;t change much over that period, but in countries like Italy and Japan, where participation rates have shifted markedly, achieving the past trend could yield significant increases in labor force participation rates.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex17-labor-force-participation-rates.svgz","alt":"Older workers fueled growth in the labor supply","description":"Image description:\nEight sets of vertical bar charts, 1 for each of the highlighted countries, plot the labor force participation rate across 4 age cohorts: 15\u0026ndash;24, 25\u0026ndash;54, 55\u0026ndash;64, and 65-plus. Each cohort has three bars, showing the rate across 3 years: 2010, 2023, and a 2030 scenario assuming continued growth at historical rates. The bars increase in height for the 2 older age cohorts across all countries. The bars mostly increase for the younger age cohorts, with some decreases in 4 of the countries.\nEnd of image description"},"scaleToFit":{"boolValue":false},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eMargherita Borella and Flavia Coda Moscarola, \u003cem\u003eThe 2011 pension reform in Italy and its effects on current and future retirees\u003c/em\u003e, working paper number 151/15, Center for Research on Pensions and Welfare Policies, September 2015.\u003c/li\u003e\n \u003cli\u003eIppei Hoshi, Shinichiro Yamaguchi, and Nobuaki Takada, \u003cem\u003eChanges in elderly employment: New roles of \u0026ldquo;Silver\u0026rdquo; Human Resources Centers\u003c/em\u003e, Nomura Research Institute, March 2017; Daisuke J. Nakajima and Jeffrey D. Korzenik, \u0026ldquo;How America can bring the Japanese economic miracle stateside,\u0026rdquo; \u003cem\u003eWall Street Journal\u003c/em\u003e, June 5, 2023.\u003c/li\u003e\n\u003c/ol\u003e"},"backgroundTheme":{"targetItem":{"key":{"value":"White"},"value":{"value":"-bg-white"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"2DCEC5FDC24B41D89A685AC1A9DD8E4F","name":"Flourish 18","template":{"name":"FlourishForStory"},"title":{"value":"Spotlight: Increasing female labor force participation boosted labor supply "},"description":{"value":"\u003cp\u003eOne component of rising participation rates is the narrowing gender gap. We compared the ratio of female and male labor force participation rates and average hours worked per week to approximate the gender gap in the workforces of our focus countries. We found the gender gap has been shrinking since 2010, more significantly in labor force participation than in hours. About 60 percent of the workers who joined the labor force from 2010 to 2023 were women. In Italy, Japan, and Germany, the narrowing gender gap is due entirely to women participating in the labor force more. In other countries, the ratio climbed as women increased their labor force participation while participation among men declined, by as much as three percentage points in some places.\u003c/p\u003e\n\u003cp\u003eCurrently more women work part-time than men, likely due to different responsibilities in the household. Improving labor force participation among women may therefore be encouraged by flexible working arrangements and access to care support. For example, Japan has made progress on its gender gap in part through a set of policies called Womenomics that include providing daycare support and tax incentives to encourage married women to join the labor market.[[footnote 1]] Such interventions could increase the contribution of women to labor supply growth and reduce tightness in the labor market.\u003c/p\u003e"},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e\u0026ldquo;Japan introduces \u0026lsquo;womenomics\u0026rsquo; to counter the country\u0026rsquo;s aging workforce and boost GDP,\u0026rdquo; Council on Foreign Relations, accessed May 20, 2024.\u003c/li\u003e\n\u003c/ol\u003e"},"flourishVisualisationID":{"value":"visualisation/17946187?946647"},"scaleToFit":{"boolValue":false},"backgroundTheme":{"targetItem":{"key":{"value":"Gray"},"value":{"value":"-bg-lightest-grey"}}},"mediaPlacement":{"targetItem":{"key":{"value":"Right"},"value":{"value":"is-align-right"}}},"eyebrow":{"value":""},"displayNumber":{"value":""}},{"id":"25F47A6F8A8344558CEEC8D944BDBC43","name":"Exhibit 19","template":{"name":"StoryItem"},"title":{"value":"Labor supply growth is expected to slow further"},"description":{"value":"\u003cp\u003eLooking ahead, we examined two possible scenarios for labor force participation rates in 2030. In both cases, labor force growth slows.\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eA \u003cstrong\u003estable\u003c/strong\u003e scenario, in which labor force participation rates in each age cohort remain constant at 2023 levels between now and 2030\u003c/li\u003e\n \u003cli\u003eA \u003cstrong\u003egrowth\u003c/strong\u003e scenario assuming that trends in 2010\u0026ndash;23 participation rate growth for each age cohort continue to 2030\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eIn the stable scenario, France, Italy, Germany, and Japan may have smaller labor supplies by 2030. In fact, even if labor participation rates continue to grow at the same rate as in the past in Germany, Italy, and Japan, their labor forces won\u0026rsquo;t increase. By contrast, Australia, Canada, the United Kingdom, and the United States are likely to see increases in labor supply under either scenario, although at a slower pace than over the past 13 years, due to stronger expected rates of immigration.\u003c/p\u003e"},"exhibitImage":{"src":"/~/media/mckinsey/mckinsey global institute/our research/help wanted charting the challenge of tight labor markets in advanced economies/mgi-helpwanted-ex19-labor-force-growth.svgz","alt":"Labor supply growth is expected to slow further","description":"Image description:\nEight line charts, 1 for each of the highlighted countries, plot labor force growth, with lines mostly sloping upward from left to right and then forking into 2 branches, indicating 2 future projections. The vertical axis is an index going from 75 at the bottom to 110 at the top, with a 100 value equaling the country\u0026rsquo;s labor force level in 2023. The horizontal axis shows years from 2010 to 2030, with annotations noting that data to the right of 2023 is projected. The forked lines represent stable and growing participation rate scenarios. The growing scenario lines are higher across all countries, exceeding 100 on the right for all countries except Italy and Germany. 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