Published on All About Finance

An Economy that Works: Creating jobs for the 40+ million unemployed

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Editor’s Note: The following is a guest contribution by Susan Lund, Director of Research at the McKinsey Global Institute. She will be speaking at the World Bank on the topic of job creation on January 24 as part of the FPD Chief Economist Talk series.

Perhaps no topic is more pressing today than the growing jobs and employment problem. We estimate that there are 40 million unemployed in high-income countries and tens of millions more who have dropped out of the workforce or are under-employed. Not only does this exact a toll in human misery and dampen lifetime economic prospects, but it also places a drag on aggregate demand and tax receipts at a time when both are sorely needed.

Unfortunately, these 40 million may just be the foretaste of what could be in store. Increasingly, the job market in developed economies is bifurcating: full-time employment, job security and rising incomes for high-skill, technically trained, and entrepreneurial workers—and the opposite for almost everyone else. Factories are becoming places of many robots and a few high-skill technicians. The modern office is becoming more virtual—a network of task specialists who may work remotely and are increasingly likely to be part-time or contract labor. Shops are online; those made of brick and mortar increasingly are self-serve and self-checkout.

Policy makers and business leaders cannot halt the march of technology and they should not block the advances in productivity that raise living standards and generate prosperity. But they can—and indeed they must—work together to head off the growing crisis in employment. Given the enormity of today’s employment challenge and the dire potential of the long-term trend, it is essential to stop treating job creation as a byproduct of other policy choices.

Today this is true in high-income countries, but increasingly we will see it at work in middle- and low-income countries as well.

The critical first step is to make job creation an explicit national priority. The long “jobless” recovery in the United States stands as testament to the perils of assuming that GDP growth will bring jobs: although US GDP has recovered to pre-recession levels, the US economy has almost 7 million fewer jobs than in 2007. Companies now use downturns to rethink how work is done. They implement permanent layoffs and invest in new technology; the old jobs do not reappear. This is a reality that, in most countries, policy fails to acknowledge.

To ensure workers have the skills needed for these new jobs, we need innovative new approaches to training that match the pace of creative destruction in the global economy. Waiting a decade for a new generation of young people to complete school is not enough. Nations must not only produce job-ready university graduates in the sciences and technical fields, but also must find ways to provide job-specific skills for all young people in a matter of months, not years, and to retrain older workers whose skills are out of date. One solution that is gaining traction in the United States is tighter collaboration between employers and community colleges on job-specific curricula. These programs should include credentialing that will ensure that skills are transferable. Another promising option is increasingly sophisticated distance learning programs.  

Complicating the skill issue is geographic mismatching: jobs are often created where qualified workers are in short supply and not where jobs are most needed. In the United States, unemployment is 13 percent in Nevada and 4 percent in Nebraska, but the imbalance persists because US labor mobility is at its lowest rate in 50 years. And, even though unemployment in southern Europe is twice as high as in northern Europe, Germany, Norway, and Austria report that they can’t find qualified workers.

Technology provides one solution to geographic mismatches. A growing number of companies use remote and home-based workers. With targeted incentives, employers could be encouraged to fill remote jobs with workers from hard-hit areas—so that the homeowner in Nevada who can’t move can still get work. Virtual work is not a cure-all; we also need greater mobility of labor, particularly high-skill labor.

To maximize demand for labor, policy makers must remove obstacles that limit the capacity of companies to expand and hire. Take Spain: There are many complex reasons behind its 21.5 percent unemployment rate, but there’s a very simple one: starting a new business is so cumbersome that Spain is ranked 133rd out of 183 countries in the ease of opening a new business by the World Bank. In the United States, companies must wrestle with multiple agencies and with overlapping jurisdictions to get a new factory or warehouse approved. Meanwhile archaic craft rules limit how professional jobs can be redesigned, preventing the re-assignment of routine medical tasks that could lead to new middle-income employment. When job creation is an explicit goal, it becomes clear in every country which regulations need to be overhauled first.

Inevitably, job creation still requires demand growth. However, growth must be concentrated where it will create employment, if jobs are the priority. The best approach will vary by country, but the need can be seen across the advanced economies. Creative reform of our institutions of investment, innovation, training, and employment can help to restore robust job growth. The alternative is a future in which 40 million unemployed will seem like the good old days.

For more detail, see our research on global labor markets at


Susan Lund

Vice President of Economics and Private Sector Development at IFC

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