What’s Wrong With Labor Markets?

PHILADELPHIA – Around the world, labor markets are in disarray. Unemployment is high in many countries, especially among the young. At the same time, many companies report having trouble finding qualified workers. Record numbers of people are going into retirement, but many would prefer to work, at least part-time. Information technology has displaced workers even as it has created new jobs.

These conflicting signals and trends are a symptom of a series of fundamental mismatches between what employers need and the talents of those they would like to hire. There have never been so many highly educated people in the world; yet the crises in Europe, the slow recovery in the United States, and the rise of emerging economies are revealing previously hidden flaws in the labor market. Addressing them will require a broad range of policy interventions.

The problem begins with the education system, which used to be more effective not only at educating and training new generations, but also at sorting them into promising career paths. Unfortunately, schools and universities have not changed much over the last 30 years, even as the world of work has undergone epic upheaval. Online education and training has taken off in the corporate world, but universities continue to resist it. Cost inflation is also severely affecting the accessibility of high-quality education for most of the population.

Young people present two different sets of challenges. In most countries, the population between the ages of 16 and 30 is split into two very different groups. Some are highly educated, but, finding it hard to find jobs commensurate with their skills, join the ranks of the underemployed. Others have lacked educational opportunities or have dropped out of school. In some countries, an entire generation of young people could be lost because policymakers and companies are too shy about experimenting with new ideas, concepts, and schemes.