Unemployment in the US and UK is over 8% and in many eurozone countries is far higher. We can’t just blame the recession—this is also symptomatic of long-term trends that, without concerted policy efforts, will continue to stunt growth and deepen income inequality
Richard Dobbs & Anu Madgavkar
Three years after the official end of the ‘Great Recession’, millions of workers across advanced economies remain unemployed. The US and UK unemployment rates remain above 8%; among eurozone countries, unemployment exceeds 10% (US Bureau of Labour Statistics 2012). This reflects not only the weakness of the recovery—and renewed recession in parts of Europe—it is also symptomatic of long-range trends that will continue to prevent a return to full employment and, left unaddressed, could inhibit growth in the advanced economies and, very soon, in China as well.
In a recent report with colleagues at the McKinsey Global Institute, we analyse the global labour market, and the trends and challenges that policymakers and business leaders need to tackle (Dobbs et al. 2012).
There are growing mismatches between skills that employers demand and skills available in the labour market. For the past three decades, technological advances and business process improvements have reduced demand for low-skill labour in advanced economies. Factories have many more machines and far fewer workers. Routine transaction and office tasks have been automated or eliminated. Yet, even in a soft job market, employers in the US and Europe say they can’t find enough high-skill workers to fill some open positions.
This imbalance is seen in today’s unemployment numbers and in the long-term divergence of income growth between high- and low-skill workers. Unemployment rates for US university graduates only briefly exceeded the 5% ‘full employment’ level in the wake of the worst recession in the postwar period. Unemployment for workers with only high school diplomas is still above 8%.
Not only do university graduates find more jobs, but they enjoy faster wage growth. From the 1960s to 2008, real wages of US workers with university degrees rose at about 1.1% annually; for high school graduates pay rose by 0.4% annually; for high school dropouts real wages have not risen at all. As MIT economists Daron Acemoglu and David Autor reported last year in the Handbook of Labor Economics, the wage premium that a university graduate commands over a high school graduate is paid has jumped from 1.7 times to 2.8, helping to widen the