Monday, September 10, 2007

The Global Hunt for Talent

Will the global hunt for talent shift the balance of power in favor of companies or employees? Are North American and Western European worries about losing jobs and talent justified?

First, we must look at the fundamental of supply and demand. What is a “global hunt for talent”? It is in essence, a right-ward shift in the demand curve for skill labors. Secondly, we must all realize that the labor market is unique from the products market, and that supplies cannot as readily adjust to demand. The increase demand for highly skilled labors take time and monetary investment to acquire in the long run because education and training, similar to other form of investment, take time to mature. This means that in the short-run, the stock of skill labors is some what limited; hence, we are left with a supply-side shortage. These two points together will push up wages as companies compete to acquire skills workers. Therefore, the global hunt for talent should shift the balance of power in favor of employees. This is because these employees now have more options, more offers, and they gain the abilities to say, “I’m going elsewhere.” This, however, is not the same case for less skill labors, and instead, it could be a long and painful period of unemployment or working at much lower wages.

The wage inflation in India’s IT sector is about 16% a year, and annual wage increase for project managers in IT average about 23% a years over the past four years are example of the wages increase due to increase demand for skills workers. (Economist, Pg 9.) We can farther see the war for talents by looking at the raising important of the Human Resource department in most large companies. A survey by Aon identified that among their top five best-paid managers in their companies were HR executives. (Economist, Pg 5.) Companies are also increasing training budget to meet this new demand for trained worker such as Infosys budget increase from $100m to $125m. (Economist, Pg 9.) Economic survey also shows that a huge percentage of employees have been contacted by other organization trying to capture their talent. From survey in The Economist, we see that India's companies has over 50% of its employees being contact by another organization. This farther shows how fierce the competition for talents is globally. Economist survey on talent shortage in organizations also show that there is over 80% shortage in Growth markets, over 80% in Specialised skills, and over 60% in Business leaders. This farther go to show the shortage, and why such a competition for skills workers is going on all over the world. This again show why the balance of power is shifting toward talented employees as they are now gaining more options, and as demand increase, competition will just get that much more fierce, and these employees will have that much more options and paid.

However, this does not mean that all employees are gaining power, especially when it comes to less skills employments. As countries develop and technologies develop, the less skills workers lost their market demand as their sector of the economy become obsolete or replaced. And, as stated above, training and improving a person stock of human capital take time and monetary investment that also take time to mature. Which mean for many, the market no long want to paid very much for their labors if at all, and due to the nature of the short-run, these people cannot improve their skills overnight, which all together is a shift in the demand left-ward plus a demand shortage. An example of the pain of unskilled labors would be India 17% graduate unemployment during the tech boom in India. (Economist, Pg 16.)

So, should America worries about the competition for brain, or is our worries even justified? The answer is no. We should pay close interest on the competition and tries to stay on top of the competition, but there are no real worries. America soak up about 30% of the world global supply of foreign students, America has some of the highest quality of universities, a quality and growing business environment, a stable economy, and a lot of wealthy companies that can paid a lot for talents everywhere. Sure, there are jobs being lost as it move to more productive place such as India, but these are jobs that are slowly becoming less and less compatible with our economy, jobs that requires much less skills. Secondly, we must realize that a lot of jobs are being destroyed daily, while a lot are being created. These jobs losses due to it being more cost effective elsewhere can just be added into the whole job creations and destruction process, and as a whole, job creations and destruction tend to balance it self out.

Europe, though, is not as lucky. European colleges are not what they use to be, the business environment is ridden with rigidities and regulations, and R&D investment is 30% less than America with many researcher oversea not wanting to return. (Economist, pg16) Jobs and wages rigidities make it harder for European employers to hire and fire employees, leaving them less flexible in competing with the rest of the world for talents. Also, a stronger EU will farther break down more barriers which will lead to an increase in labor mobility. The EU, though, is more of a confederation of states, which mean that rule and regulation are vastly different everywhere, which mean that certain area can be more attractive to labors than other, creating farther competition among themselves. This will mean that some EU countries will be losing labors while other will be gaining too much labor that it cannot support. However, on the global scale, Europe still isn’t doing to poorly. It is doing a lot to reform its immigration to better suit the time, unlike the US, and it still retain a lot of skills that are highly demanded in knowledge economies, such as German engineering expertise to Italy in Design.

Finally, North America and Europe might not have to worries as much when it looks at its competition in the area of creating skilled workers. The example of the 17% graduate unemployment for India from above is one of the reasons why there should be less worries. Yes, there are a lot of people graduating from various colleges all over the world in much larger number than the US, but a lot of these people does not graduates with the skills that employers demand, which mean that those graduating from the US or Europe will still have the advantages.

Source:"A Survey of Talent." The Economist. October 7th, 2006.

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