What It All Means
Shrinking and aging populations, increasing talent shortages, and lower productivity should concern everyone in Europe, the United States, China, and Japan. These countries produce most of the world’s services and goods and are where most inventions, discoveries, and medical advances occur. As these countries become less productive and older, it signals significant shifts in the global economy.
An older population is a problem as it leads to slower economic growth, decreased productivity, increased government spending on retirement programs, higher healthcare costs, and reduced tax revenues. Older people tend to buy and consume less than younger people and consequently do not contribute as much to the economy, while they take more from it in pensions and health care.
The talent shortages and recruiting problems we face are partially caused by fewer workers in the workforce because of the rise in retirements among baby boomers. These were the most productive and experienced employees firms had, and there are fewer skilled younger employees to replace them.
At the same time, the populations of all European countries, as well as China, the United States, and Japan, are declining. Birthrates in the developed world are at historic lows (see the chart below) while they continue to grow in developing countries. The replacement level fertility rate refers to the average number of children women need to have for that population to remain stable over time, assuming no changes due to migration.
Typically, this value is estimated to be around 2.1 children per woman. The birth rate in developed countries is well below replacement levels and has been for some time. This means that the population of these countries is shrinking and will continue to do so without a corresponding increase in immigration. And immigration, as we know, has become a political and social issue that is far from resolved. And even if resolved, the supply of skilled immigrants is finite, and many lack the skills that organizations need or are limited in their ability to emigrate.
Productivity
Economists use productivity rates to measure how much output is produced by an hour of work. It is a crucial indicator of the health of an economy. A slow productivity rate leads to slower economic growth, lower wages, and increased inequality. It also makes it more challenging to compete with other countries.
The productivity growth rate for the United States over the past 20 years has been slow. The average annual growth rate of labor productivity was 1.4% from 2003 to 2022, compared to 2.1% from 1947 to 2003. Slow productivity growth has also occurred in the E.U. at 1.2% and China at 0.8%.
Many factors have contributed to the slowdown in productivity growth, including the aging workforce. As the workforce ages, it becomes less productive, as older workers tend to be less physically capable and have less experience with new technologies. They also tend to work fewer hours and demand more time for holidays. And even with the continued growth of computer use and automation, productivity has remained stubbornly low.
Innovation has also slowed due to a combination of factors, including the high cost of research, the complexity of new technologies, and the lack of enough young and creative workers. Many of Silicon Valley’s entrepreneurs and founders of major technology and pharmaceutical companies are aging.
Generative A.I. and Productivity
Generative A.I. can write software and create content and graphics without human involvement. Many professions have already felt the impact of this technology on employment. A.I. increasingly writes advertising copy. Even sports and news reporting can be generated by A.I. The recent writer’s strike in Hollywood was partially caused by writers fearing that studios are using A.I. to write scripts and create graphics and videos. Other professions, from data analysts to human resource and recruiting professionals, are feeling the impact of A.I. on their careers.
Economists see generative A.I. as the way to increase productivity despite fewer and older workers. Goldman Sachs predicts productivity will grow by 1.5% per year because of the adoption of generative A.I. alone. Still, McKinsey is even more aggressive, saying this technology and other forms of automation will usher in the “next productivity frontier,” pushing it as high as 3.3% a year by 2040.
The Impact of Generative A.I. on Work and Diversity
The growth of A.I. has other potentially negative consequences besides taking away jobs. It may hurt diversity because African American and Hispanic workers are overrepresented in the occupations most likely to be impacted by A.I. They are also underrepresented in the occupations with the lowest exposure. A.I. may improve the productivity of some workers, but it may also replace many workers. Amazon, for example, is vastly increasing its use of robots using A.I. to read labels and pick and package products in its many warehouses. While they claim that very few workers will be replaced, logic tells us that there will be less hiring and increased productivity and profits when A.I. and robots can take over. But at the expense of many of those who are the least educated and able to find alternative employment.
But not all is doom for workers. The predictions about A.I. and its impact on work may prove wrong if history is a guide. Most predictions, including the well-known Oxford study of 2013 that predicted 47% of American jobs would be eliminated in twenty years, are not faring well. In the ten years since that study was published, the U.S. has added over 16 million jobs. While A.I. has eliminated some jobs, many more have been created.
Many jobs will not be eliminated by A.I. but augmented by it, as is happening in recruiting. Many tools that communicate with candidates or assess their skills are helping recruiters to make better decisions without eliminating their jobs.
Remote Work and AI May Save Us
Although governments have tried to increase birthrates through tax incentives or, in China’s case, by rescinding the one-child policy, it has made little difference. Women are deciding not to have children for many reasons, including the cost and availability of childcare, A desire to continue to thrive in their profession, or simply the desire to be independent.
As mentioned above, the developing world, especially Africa, has a growing, well-educated, English-speaking population. Their ability to work is limited by a lack of local jobs, the difficulty, and cost of immigrating, or because they do not want o leave their family. Firms could help alleviate their talent shortages if they were willing to hire, develop, and allow these young people to work remotely.
A.I., robots, and automation will continue to grow in importance to fill in for or replace missing workers to keep our factories running and provide the services we need. A.I. may be the primary way we overcome the limitations of an aging workforce and a declining worker base.
What All This Means for Recruiters
It will be important for recruiters to influence and promote hiring from and in the developing world. We will not have enough people to fill all our needs in our usual talent pool. These young people have the creativity, imagination, and energy to increase productivity and keep our economy going.
A.I. and Automation will also continue to become more and more embedded in what we do. Almost every talent technology vendor is finding ways to build A.I. into their products. Over the next five years, many people whose skills we rely on, such as sourcers, screening and interviewing experts, content creators, and marketing and branding specialists, will be heavily augmented or automated. As I have written before many times, we will continue to need recruiters but those with skills to enable them to communicate effectively with candidates, influence decisions, explain the culture of their organizations, and build relationships.
There will be fewer recruiters needed, and they will have different skills than we have today. We need to embrace a broader, more global talent pool and use A.I. as a tool to make us more productive.
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