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Global Labour Crisis: Exploring the Demographic Drought

Access to talent
Industry Resources & Trends
CXC Global8 min read
CXC GlobalDecember 22, 2023
CXC Global

Understand how falling birth rates, early retirements and other factors will soon cause a deficit of millions of employees worldwide — and what to do about it.

By 2035, there will be 50 million fewer people of working age in Europe than there were in 2010.  This shortage will represent $1.2 trillion in lost revenue in Germany, the UK and France alone.

And the situation across the pond is no better. A 2019 report predicted that by 2030, the US will be facing a deficit of 8.5 million college-educated workers. This could cost around $1.2 trillion in lost economic output.

In this article, we’ll discuss some of the forces shaping this global labour shortage — and what smart businesses can do to combat it in 2024.

Exploring the demographic drought around the world

At its core, the problem the labour market is facing is simple. There’s a record number of job openings, and not enough people to fill them. Some economists are calling this a ‘demographic drought’ — and it’s about to get much worse.

So, where have all the workers gone? It’s complicated. Read on to learn about some of the major drivers of this concerning trend.

The ‘Great Retirement’

To understand what’s going on in 2024, we have to go back in time. Just after the Second World War, there was a huge surge in births in Europe and the US. The result was the Baby Boomers: the generation born between 1946 and 1964, who entered the workforce in the 1960s and ‘70s.

Baby Boomers were the largest living adult generation until 2019, and the largest generation in the workforce for many years. But, now in their 60s and 70s, huge numbers of Baby Boomers are getting ready to retire.

Of course, older workers being replaced by younger generations is nothing new. But there are a lot of Baby Boomers compared to other generations. The average Boomer was born into a family with 4 children, but Boomers themselves only have an average of 1.8 children.

That means their departure from the workforce was always going to have a big impact. Add to this the fact that Baby Boomers are likely to hold senior positions and have years of accumulated knowledge and experience, and it’s easy to see that this generation of workers will be almost impossible to replace.

And there’s something else going on here too. Over the past few years, we’ve seen an unprecedented number of older people leaving the workforce. In the US, an extra million Baby Boomers retired in 2020 alone. And there are signs of something similar happening in the UK too.

That means the need to replace retiring Baby Boomers has just got a lot more urgent — but we still don’t have enough people.

Declining birth rates

For a stable population, a country needs to have a total birth rate (TBR) of roughly 2.1. That means that, on average, each woman should have 2.1 babies during her lifetime.

But here’s the problem: the TBR in the US has been below this level since the early 1970s. While the population is still growing for now, growth has slowed significantly. And by 2062, the population will start to shrink.

The situation in Europe is a bit further along. Birth rates have been steadily declining since the 1960s, and the latest data suggests that the TBR is below the replacement rate in every one of the 27 member states.

There are many reasons for this, from urbanisation to the growth of women’s education and employment. But whatever is behind it, one thing is certain. In the years to come, we won’t just be seeing a shortage of talent with the right skills and experience, but a shortage of people altogether.

Ageing populations

As we’ve covered, birth rates are stagnating or falling in many major economies. At the same time, major advances in healthcare mean that people are living longer on average than ever before.

The result is that many countries have ageing populations, with a much higher ratio of elderly people to people of working age. And the ratio is likely to continue to grow over the next few decades.

But what does an ageing population actually mean for a country? For one thing, it usually translates to more reliance on pensions, healthcare and entitlement programmes. And, because there are fewer working people in proportion to those who can’t work, there’s less tax available to pay for all of this.

This situation also creates a big demand for products and services. That means more jobs will be created — but there won’t be enough people to fill them. 

Lower labour force participation

The number of working-age people in a country has a big impact on its economy. But it’s also important to remember that not all of those people can (or want to) work. 

In the US, labour force participation dropped to 60.1 in 2020 — a low we haven’t seen since the recession of the mid-1970s. It has since climbed back up to 62.8%, but it has been on a downward trend since the early 2000s.

And, as of September 2023, the UK’s ‘economic inactivity’ rate was estimated at 21.1%. That’s 0.1% higher than the previous quarter, and 0.9% higher than before the pandemic.

So, what’s going on? A few things — here are a few of the most important factors:

  • Early retirement: As we’ve already discussed, many older employees chose (or were forced) to take early retirement during the pandemic.
  • Illness: In the UK, the rise in economic inactivity has been at least partially driven by people leaving the workforce due to long-term illness or disability. It’s possible that at least some of this can be attributed to the lingering effects of COVID.
  • Childcare challenges: For some people (particularly women) the rising cost of childcare means it’s simply no longer financially worthwhile to go back to work after having a child.
  • Spike in personal savings: In the US, personal savings actually spiked during the pandemic. That means that some people who left work in 2020 or 2021 found they didn’t need to go back. We may see some of those people return to work now that their savings have been depleted.  

Can immigration fill the gap?

A country only has two sources of labour: the people it already has, and those it can gain through immigration. That means that, when populations are declining, countries often rely on immigrant labour.

But immigration can’t fully solve the demographic drought problem, partly because many of the countries that supply immigrants are seeing the same trends as the rest of the world.

According to the UN, two-thirds of the world’s population lives in a country or an area where the total fertility rate is lower than the replacement rate of 2.1 — showing that the demographic drought is truly a global issue.

The pandemic: accelerating an existing problem

It’s tempting to blame the demographic drought on the pandemic. After all, it’s likely a major factor in many Baby Boomers’ early retirements and could be behind the rise in economic inactivity in countries around the world.

But the pandemic was simply an accelerator for a trend that was already well underway before 2020. Birth rates in more than a dozen OECD countries have been below the replacement rate since at least the early 1970s. And economists and academics have been writing about the impact of shrinking populations for years.

How smart businesses can combat the global labour shortage

Most employers can’t influence their governments’ immigration policies or force their employees to have more babies. Even if they could, these things likely wouldn’t have an impact on the workforce for several decades.

So, what can businesses do now to mitigate the impact of the demographic drought and the resulting labour shortage? Here are a few ideas:  

Increase focus on employee retention

Employee turnover has always been a problem. But in the past, it was relatively easy to replace an employee when they decided to move on. These days, the talent pool is much shallower and full of risk. And, as we’ve discussed, it’s likely to get worse over the coming decades.

That means that retaining the people you have is more important than ever. Exactly what this looks like depends on your business, but offering competitive pay and benefits, investing in career development and providing flexible working arrangements will likely become the baseline.

Adopt on-the-job training and development

As employers struggle to replace Baby Boomers with decades of experience, they’re also facing another problem: fewer people are graduating from college or university.

For this reason, many employers are switching their focus from those with pre-existing qualifications and experience to people they can train on the job. According to a recent survey, 45% of American employers plan to remove bachelor’s degree requirements in 2024.

As it becomes more difficult to source new talent from outside of the business, many employers will also work on upskilling and reskilling their current employees to fill gaps in their workforce.

Look for innovations in talent acquisition

With talent so hard to come by, tomorrow’s employers will need to look in unexpected places for their new hires.

That might include exploring parts of the world that are experiencing population growth. For example, the working-age population in Africa is set to grow by nearly 70% (or more than 450 million people) by 2035. Employers that tap into these unexplored markets will be able to reap the rewards — and big players like Google, Meta and Microsoft are already leading the way.

And there’s another interesting talent source that companies including Axa, McDonald’s and EasyJet are already exploring: those early retirees we talked about earlier. Employers who are willing to put in the extra effort to recruit senior talent will be able to benefit from their years of experience and expertise.

Embrace alternative workforce solutions

Employers will also need to be flexible in their approach to employment to meet the changing needs of today’s workers. After all, if the demographic drought continues as expected, it’s going to be one hell of a candidate’s market.

That might mean being open to part-time work, job-sharing or remote work, or embracing the gig economy and opting for flexible workers like contractors, freelancers and consultants.

It could also mean hiring employees from abroad, using an Employer of Record (EoR) to circumvent rigid immigration and employment laws.  This will help struggling employers to access talent for less, all while providing employment and income to those living in less developed areas.

Learn more

Want to learn more about the biggest trends shaping the workforces of today and tomorrow? Check out these recent articles:

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