Belfast Telegraph

Skills mismatch and red tape hits job creation policy

By Hamish McRae

Today 40 million workers across advanced economies are unemployed. At the same time, businesses in those nations say that they often can't find workers with the skills they need.

That is the introduction to a new paper, Help Wanted: The future of work in advanced economies, by McKinsey Global Institute, which tackles this sad paradox of our times. It is a thorough bit of work and deserves a wider audience.

Technology is changing the nature of work. McKinsey divides jobs into interaction, transaction, and production. Production is self-evident and it is here that the biggest job losses are being incurred. Machines replace people. Transaction jobs are the routine ones involving a human being. These are being replaced by the new technologies. The other area where there have been increases are those involving a complex interaction between two people and needing problem-solving skills and experience. Examples would be a lawyer or a nurse.

Now the pressure is on to try to improve the efficiency of this interaction segment, by shifting part of the tasks of the highly skilled to lower-skilled co-workers and bringing in more part-time workers.

The second big shift in the labour market is the skill mismatch: the rising premium on high skills. There remains a strong demand for people with high problem-solving and specialist skills and their pay has continued to rise. There is also demand for low-skilled people in jobs that cannot be traded internationally, such as food preparation. Between the two, job opportunities have been squeezed.

Over the past 25 years there are only four countries where the income of the bottom 10% of households increased significantly faster than that of the top 10%: Ireland, Spain, Portugal and Greece. We now know they followed paths that were not sustainable.

So what's to be done? One way is to develop infrastructure, foster entrepreneurship, and cut regulation with an eye on job creation. One of the reasons why Spain has such high unemployment is that it is very cumbersome to start a business there. But it is not just Spain. McKinsey adds: "Even the most business-friendly countries have regulatory barriers that stand in the way of job creation."

Footnote to that: our Chancellor's new Finance Bill, at 686 pages, is the largest in history.

It's not easy to simplify, is it?