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The world at work:Matching jobs and skills

in Asia

McKinsey Global Institute

December 2012

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

ADB International Forum on Skills for Inclusive andSustainable Growth in Developing Asia-Pacific

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A billion non-farm jobs were created globally since 1980, 30% of thesecame from China and another 55% from other developing countries

1 Includes 43 countries with GDP per capita less than $20,000 at 2005 PPP levels in 2010.2 Includes 25 countries GDP per capita greater than $20,000 at 2005 PPP levels in 2010.Note: Numbers may not sum due to rounding.

SOURCE: United Nations Population Division (2010 revision); ILO Key Indicator of Labor Market index; local statistics for China and India;McKinsey Global Institute analyses

157

Non-farmjob creation

473(60%)

316

Farmjob creation

-34

2010

1980

783310

501344

Farm Non-farm

299663

(69%)

438

88

962

436211 22592

473227(48%)

135

82

256

246

164 73 440

30

-43

164

604(95%)

635

513

Evolution of labor force, 1980-2010Million workers (% of total)

Other Developing1 Advanced2China India

1

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19

28 26

-1

5

70619902010

13

20 18 1133

India ChinaYoung

Middle-IncomeAdvancedeconomies1

201030E 615-2 30

100%

YoungDeveloping

Russia& CEE

SOURCE: United Nations population division (2010 revision); ILO; Global Insight; Oxford Economics; Economist; local statistics for China and India;McKinsey Global Institute analysis

Through 2030, Chinas contribution to global labor force growth will drop;India and Young Developing economies will lead labor force growth

1 Includes Young Advanced, Aging Advanced and Southern Europe clusters.NOTE: Numbers may not sum due to rounding.

Net new additions to labor force%; million workers

China and Indiacontributed morethan a third of global

labor force growth

Young Developingeconomies and Indiawill contribute almost60 percent of globallabor force growth;ASEAN countries willcontribute 10%

2

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China and India are likely to contribute more than half of the worlds

supply of new workers with a college education through 2030

SOURCE: United Nations Population Division (2010 revision); ILO; IIASA; local statistics for China and India; McKinsey Global Institute analysis

1 Includes Young Advanced, Aging Advanced and Southern Europe clusters.NOTE: Numbers may not sum due to rounding.

12

27

Advanced economies

Young Middle-Income

China

India

Young Developing

Russia & CEE

19902010

325

210

30

18

14

201030E

197

48

26

23

26

Net labor force additions with college education%; million workers

Share of the developedworld is likely to decline

China and India togetherare likely to contribute57% of the growth inworkers with some collegeeducation

ASEAN nations willcontribute ~8% of the

growth in workers withsome college education

3

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In the momentum case, the world is likely to have too few

high-skill workers and not enough jobs for low-skill workers

In China 23

Inadvancedeconomies2

1618

Totalshortage

3841

SOURCE: McKinsey Global Institute analysis

1 Low-skill defined in advanced economies as no post-secondary education; in developing, low skill is primary education or less2 25 countries from the analyzed set of 70 countries, that have GDP per capita greater than US$ 20,000 at 2005 purchasing power parity (PPP) levels

in 20103 11 countries from the analyzed set of 70 countries, from South Asia and sub-Saharan Africa, with GDP per capita less than $3,000 at 2005 PPP levels

in 2010

13

10

16

Gap between demand and supply of workers by educational attainment, 2020EMillion workers

31

13

45

In YoungDeveloping

economies3

InIndia

Totalshortage

15

10

19

In India andYoungDevelopingeconomies

58

Inadvancedeconomies

3235

Totalsurplus

8994

10

11

10

% of supply ofskill cohort

% of demand forskill cohort

Surpluses

High-skill workers Medium-skill workers Low-skill workers1

Shortages

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Filling the gap implies need for a steep increase intertiary graduation rates for example, to 85% inChina, especially in technical and scientific fields

SOURCE: UN Population Database, China National Bureau of Statistics, McKinsey Global Institute analysis

1 Defined as ratio of output of tertiary graduates in year n to output of secondary graduates in year n-2.2 Includes projected addition of 18.6 million tertiary graduates over 2011-2020 through adult education under both momentum case and accelerated case,

compared to addition of 15 million over 2001-2010

Case

010

20

30

40

50

60

70

80

90

2000 2005 2010 2015 2020

Accelerated case

Momentum case

Historical

Stock of tertiarygraduates2

Million, 2020

168

191Accelerated

Momentum

Projected deficit of23 million in supplyof tertiary educatedlabor force in 2020

Projected

Tertiary graduation rate1

Percentage of students

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Educational attainmentPercent of working age population; million people, 2010

Several developing Asian countries have low rates of secondaryschooling

72

5864

56 58

46

29 30 3125

19

28

32

3235

46

49 54

61

61

100% =

Primaryor lower

Secondary

Tertiary

China

1,125

8

Sri Lanka

16

16

Philippines

60

22

Indonesia

175

8

Pakistan

112

7

Bangladesh

102

12

Vietnam

67

5

Thailand

55

14

India

850

8

Malaysia

13

20

SOURCE: United Nations Population Division (2010 revision); IIASA; ILO; local statistics for India and China, McKinsey Global Institute analyses

NOTE: Numbers may not sum due to rounding.

7

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Economies like India are likely to have too few mid-skilled workersand not enough job opportunities for low-skill workers

SOURCE: National Sample Survey Organisation; India Census; Ministry of Human Resources and Development; McKinseyGlobal Institute analysis

Million workers

1 Gaps are percent of demand for shortages, and percent of supply for surpluses.NOTE: Numbers may not sum due to rounding.

%1

Comparison of projected labor demand and supply, 2020EMillion workers

133

120

346319

Primaryor lower

Secondary

Tertiary

Supply

540

74

Demand

520

68

Gap

+6 +8

-13 -10

+27 +7

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Across a range of countries, 39% of employers say a skills shortage is aleading reason for entry-level vacancies

12

3032

3840

45

48

5356

Brazil Mexico SaudiArabia

39%

Germany UnitedKingdom

MoroccoUnitedStates

IndiaTurkey

Lack of skills is a common reason for entry-level vacancies% of employer respondents

36% of employers also reported a lack ofskills caused significant problems in terms ofcost, quality, and time or worse

SOURCE: McKinsey survey, Aug-Sept 2012, Education to Employment: Making the system work, McKinsey & Company, 2012

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But educational providers, employers and youth live in parallel universes -for example, providers do not systematically estimate job-placement rates

SOURCE: McKinsey survey, Aug-Sept 2012, Education to Employment: Making the system work, McKinsey & Company, 2012

1 On average, what percentage of graduates from your institution find employment within 3 months of program completion?2 74% of employers said that over half of their graduates found jobs within 3 months, as compared with 54% of youth who did find jobs who said it took

them 3 months .

Provider perspective on job-placement rates and length of time to find a job1

% of respondents able to estimate theirgraduates placement rates

% of respondents

54

74

% who

findjobs inunder3 months

Youthrespondentswho foundjobs

Providerrespondentsestimate2

17

22

29

30

33

38

39

46

75

83

78

71

70

67

62

61

54

25

Noestimate

Able toestimate

Morocco

UnitedKingdom

Germany

Turkey

SaudiArabia

Mexico

UnitedStates

India

Brazil

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Young people prefer hands-on learning, but not many providers aregeared to deliver this

30

30

46

54

58

62

Online/distance learning

Traditional lecture

Seminars

Multimedia

Hands-on learning

On-the-job training

1 Now Im going to read out a number of different instructional techniques. I want you to rate how effective each technique is for your learning, using a11-point scale, where 0 means the technique is not at all effective and 10 means the technique is very effective. If you have not been exposed to thistechnique, please respond no exposure.

2 On average, how much time did you spend in your academic program engaged in practical, hands-on learning versus theoretical learning? Please thinkabout this in the context of every 10 hours you spent learning and indicate how many of those hours were practical (e.g., on-the-job training,

simulations, etc.) and how many were theoretical (in the classroom).

SOURCE: McKinsey survey, Aug-Sept 2012, Education to Employment: Making the system work, McKinsey & Company, 2012

Most effective instructional techniques1% of respondents saying technique is effective

Use of hands-on learning in academic andvocational institutions2% of respondents indicating a majority ofhours spent in learning methodology

2437

76

63

VocationalCollegegrad or somecollege

Hands onTheoretical

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As a result, only half of youth believe that their post-secondary studiesimproved their employment opportunities

1 My post-high-school education improved my chances of getting a job.

SOURCE: McKinsey survey, Aug-Sept 2012, Education to Employment: Making the system work, McKinsey & Company, 2012

Students who believe their postsecondary studies improved their employment opportunities1

% of respondents % of respondents

54

53

46

44

40

44

51

59

60

50

UnitedKingdom

UnitedStates

Morocco

Turkey

Mexico

Germany

India

Brazil

SaudiArabia

47

51

54

56

50

Public openaccess

Publicselective

Privatefor profit

Private notfor profit

48

44

55

50

Vocational

Somecollege/AA

Collegegrad

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Per capita GDP000 2005 $ PPP

Singapore

Norway

USA

Ireland

Denmark

FranceFinland

Japan

UAE

Spain

Portugal

Saudi Arabia

Argentina

Croatia

Chile

MalaysiaMexico

Turkey

Romania

Iran

Botswana

South Africa

Peru

Algeria

Thailand

Morocco

S Korea

Colombia

China

Ukraine

Egypt

Jordan

IndonesiaPhilippines

Pakistan

Sri Lanka

Bangladesh

Vietnam

Cte dIvoire

Ghana

Nicaragua

Nigeria

Ethiopia

Uganda

India

13SOURCE: United Nations population division; ILO; Global Insight; local statistics for China and India; MGI analyses

1 Per cap GDP < 10K 2 10 K < Per cap GDP < 20K 3 Per cap GDP < 20KNote: Values for both per capita GDP and female participation plotted on log scales

Womens workforce participation would potentially rise if the

education-to-employment continuum worked well

Developed 3

Developing high income 2

Developing low income 1

50531

Prime Female Labor Force Participation Rate, 201025-54 year old female labour-force as % of 25-54 year old female population

30

40

50

60

70

80

90

100

25

2 4 7 10 2015 30 40

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Two parts to a critical labor agenda for policy-makers (1/2)

Raise secondary school capacity and attainment in developing

countries by leveraging private investment for school construction andradical new models for teacher hiring and training (e.g., Korea)

Align education with employment demand e.g. more STEMdegrees, certification programs in high-demand occupations such as

health-care

A global education revolution

Make intersections happen along the education-to-employmentcontinuum Employers to design curricula and offer faculty, educationproviders to ensure students spend more time on job sites and securehiring guarantees; employers to commit to hiring youth before they areenrolled in programs to build skills.

Adopt a new technology of education to increase productivity,reach and quality through online, open access and free educationmodels (e.g., Harvard/MITs edX)

1

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Two parts to a critical labor agenda for policy-makers (2/2)

Marketize informal sector jobs (e.g., home production and elder care)

to bring these jobs into the formal labor market (e.g., Swedens tax deductionfor household services, Germanys mini-jobs)

Create more jobs for low-and medium-skill workers

Increase employment in labor-intensive manufacturing in developingeconomies by moving from raw materials to finished goods, and reformingthe business environment to improve export competitiveness (e.g.,Bangladesh)

Encourage frugal innovation that stimulates demand and penetration inrural, low-income markets, creating sales and service jobs(e.g., telecom in India and Africa)

Lower barriers to growth and job creation e.g., time and cost of startingbusiness, restrictions on kind of work that can be performed by less-skilledworkers

Reduce barriers to housing and infrastructure projects to directly create

low-skill construction jobs, as well as jobs in feeder industries such ascement

2