1. The Global Skills ConvergenceIssues and ideas for the management of an international workforceADVISORY by Bernard Salt September 2008

2. Report steering committee The steering committee would also like The steering committee would alsoThis report represents the culminationto acknowledge the contribution of the like to recognize the contribution toof 7 months work for a global following people who provided feedback this study made by Sally Mikkelsen,steering committee including theand direction on the study.Senior Adviser at KPMG in Australia andfollowing people.Ashima Bist, Graduate Trainee at KPMG inMr Ben Garfunkel Australia. The steering committee wouldMs Rosheen Garnon Partnerlike to thank the partners and staff of KPMG(Steering Committee Chair)International Executive Services member firms who contacted and set upPartner KPMG in the United Statesthe interviews with industry executives.International Executive ServicesMr Nicholas BaconIf you have any queries regardingKPMG in AustraliaPartneraccess to further copies of this reportMs Mary Kay Woods International Executive Services please contact the nominated KPMGPartner KPMG in the United Kingdom member firm representative in theInternational Executive Services relevant country as indicated on theMs Jill StoreyKPMG in the United Statesinside back cover.PartnerMs Stephanie Bolakowski International Executive Services KPMG in Australia partner and reportSenior ManagerKPMG in the United Kingdom author Bernard Salt is based in MelbourneInternational Executive Services and is the author of two best-selling booksMr Peter DolanKPMG in the United Stateson demographic trends. He is a columnistPartnerMr Bernard Salt International Executive Services with The Australian newspaper, a regular(Author)KPMG in the United Stateson the corporate speaking circuit, andPartnermanages a dedicated group of advisersMr Andy Hutt within the Melbourne office specializingNational MarketsPartnerin commercial demographic research. SeeKPMG in AustraliaInternational Executive Services www.bernardsalt.com.auMr Joel Bevin KPMG in Australia(Principal Researcher) Principal Researcher Joel Bevin works asMr Achim Mossmanna senior adviser at KPMG in Australia.Senior AdviserManaging DirectorJoel is an economist with a specialRisk Advisory ServicesInternational Executive Services interest in demographics at anKPMG in AustraliaKPMG in the United Statesinternational level. He is also interestedMs Sarah Readin the evolving nature of globalization andMr Ren PhilipsDirector the connection between demographicsPartnerRisk Advisory Services and social and economic development.International Executive ServicesKPMG in AustraliaKPMG in BelgiumFor further comment regarding the content or the conduct of theMs Kathy Thompson research, contact Bernard Salt in theConsultant Melbourne office of KPMG in AustraliaInternational Executive Services on +61 3 9288 5513 or by email atKPMG in the United Kingdom bsalt@kpmg.com.au 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 3. ContentsForeword ........................................................................................................................ 1Executive summary ....................................................................................................... 21Introduction ............................................................................................................ 52Labor market outlook for selected countries ...................................................... 7 2.1 Outlook for the US ....................................................................................... 7 2.2 Outlook for other nations ............................................................................. 93Strategic and policy responses .......................................................................... 13 3.1The rise of skilled migration ....................................................................... 13 3.2The role of corporate expatriates ............................................................... 144Migration in a flat and creative world ............................................................... 16 4.1 Reasons for globalization of the labor market ...........................................16 4.2 Thomas Friedmans world .........................................................................17 4.3 Corporate responses .................................................................................. 18 4.4 The rise of the creative class ..................................................................... 195Global migration flows ....................................................................................... 206Measures of skills convergence ......................................................................... 24 6.1Convergence in literacy .............................................................................. 24 6.2Migrant integration and labor market outcomes ........................................ 257Global migration and cultural deference .......................................................... 27 7.1 Reasons for the brain drain ...................................................................... 27 7.2 Why losing skilled young labor is an important tax issue ..........................28 7.3 The workforce Diaspora ............................................................................. 308Fertility and the demographic faultline .............................................................31 8.1 What is the demographic faultline? ........................................................... 31 8.2 Why fertility rates dropped suddenly causing the faultline ........................32 8.3 The solution of increasing labor force participation ................................... 33 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 4. 9 A global perspective ............................................................................................ 359.1 Global economic convergence and divergence ......................................... 359.2 The spread of the multinational corporation .............................................. 3610Business response to the global labor market .................................................3910.1 Background to interviewed corporations ................................................... 4010.2 The rising demand for talent ......................................................................4110.3 Recruiting strategies .................................................................................. 4210.4 Challenges of global mobility .....................................................................4410.5 Demand for international assignments ......................................................4510.6 Managing the expectations of Generation Y .............................................4510.7 Emerging regions and labor challenges .....................................................4610.8 Looking to the future .................................................................................4710.9 The global economic environment .............................................................4910.10 Common themes ....................................................................................... 4911Implications for managing a global workforce ................................................. 50What does it all mean? ............................................................................................... 52Bibliography ................................................................................................................. 54 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 5. The Global Skills Convergence ForewordIn The Global Skills Convergence KPMG The Global Skills Convergence presents of interviewees: here is a generationpresents the thought-provoking notion the demographic case for an imminent that requires perhaps even demandsthat growth in the supply of skilled andglobal skills convergence. It also transparency of leadership and theunskilled labor in the developed world maycanvasses the views of some of the development of individually tailoredslow in the next decade as Baby Boomers worlds leading corporate practitionerscareer plans.exit the workforce. More people exiting on the subject of managing a globalthen entering the workforce leads toworkforce in an era of increased demandWhatever your views on the subjectwhat author Bernard Salt describes as for skills and talent. of an imminent global skills and labora demographic faultline. shortage or on the challenges of managingAnd nowhere is this issue more prevalent Generation Y, this study presents freshSuch a development would prompt than in KPMGs own workforce. With moreideas that will surely test the thinking ofchanges in the way in which talentthan 123,000 staff and 7,100 partnersmany global corporations. And, it is foris managed globally by multinationalworldwide we are constantly adjusting to this very reason that I believe The Globalcorporations. For example, skilled labor in changes in client demand. These changesSkills Convergence should be mandatoryone region might be transferred to a region must be managed against a background ofreading for anyone involved in managing awith a skills deficit. And while this process shifts in the availability of talent.global workforce in the 21st century.sounds simple enough, the process ofmoving staff from place to place requires Interestingly, one of the common themescareful management based on sound emerging from the interviews in this Tim Flynnadvice. This is where KPMGs Internationalstudy was the challenge of recruiting andChairmanExecutive Services practice has built its retaining 20-somethings otherwise knownKPMG Internationalsuccessful global practice and it is why this as Generation Y. And I am pleased to saygroup commissioned this study.that I concur with the broad response 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 6. The Global Skills ConvergenceExecutive summaryThe Global Skills Convergence argues that where the fertility rate remained high for mid-1970s which impacts labor marketsthere is a demographic faultline runningmuch of the 20th century. The baby boomprecisely 40 years later. Could this be thethrough much of the developed world neither started nor ended in the Latinoissue that knocks China off its currentwhich will impact negatively on the supplyChristian, African, Indian or Arab worlds. growth trajectory?of labor and talent during the next decade. The end of the western baby boom wasThe faultline is the time at which more signaled in the 1960s by the arrival of, KPMGs global International ExecutiveBaby Boomers (born 1946-1961) exit theand access to contraception and by the Services (IES) practice has accessed, withworkforce than Generation Ys (bornchanged expectations and priorities of permission, unpublished data from the1976-1991) and Millenniums (bornwomen. Again, these developments United Nations Population Division which1991-2006) enter the workforce at age applied in some countries and not others.shows the net flow of migrants between15. The delayed entry into the workforce a range of countries this decade and againcaused by a longer engagement withThe demographic faultline applies at ten years earlier. Unfortunately, this dataeducation means that the faultline is different times in different countries. Theset does not include information for thelargely an interplay between retiring Babypool of people from which Japan drawsUS. However, what it does show is theBoomers and newly arriving Generation Ysits labor force began to contract in the recent outflow of Poles to developedwith Generation X caught in between.mid-1990s. In the United States (US) European Union nations as well as ofthe slowdown in the rate of growth inRomanians to Italy and of PakistanisThe demographic faultline is caused bythe productive population begins at theto the United Kingdom (UK). There werethe sudden jump in fertility that followedend of this decade. In China the faultline also net outflows from the UK to Spainthe end of World War II. This initial jumpapplies from the middle of next decade.and Australia.in 1946 was the beginning of the baby The diminution in the number of peopleboom and it applied largely to westernin China aged 15-64 results from theeconomies with the exception of Ireland application of the one-child policy in the 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 7. The Global Skills Convergence The point being, that changes to theHere is a generation that is highlyInterview subjects confirmed theirgeo-political landscape facilitated the floweducated and has been global inexperience with the skills shortageof labor from an area of surplus (Poland) their thinking from an early age. This although they often described this asto areas of demand such as the UK.is a generation that has postponed a lack of talent in the right location.The other driver of migration is thecommitment to relationships and that Interviewees were especially challengedpursuit of lifestyle. values travel. Educated Generation Ysby Generation Y whom they almostare especially predisposed to workinguniversally described as less loyalThe argument advanced in this study isfor branded global corporations, suchthan previous generations. The counterthat in the 21st century, labor and talent is as BNP Paribas and other businessesargument to this lack of loyalty displayedincreasingly able to flow seamlessly across interviewed, that have the capacity to by Generation Y has in fact been createdthe globe. This concept of thepropel them into a global career. This by the employers themselves. Businessesfree-flow of the elements of business means that skill shortages in one countryat the top of the business cycle offerwas first put forward by US journalist andcan be addressed by transferring talentemployees opportunities and rewardsauthor Thomas Friedman in his 2005 book out of another country. On the other however as the market moves towardsThe World is Flat. Friedman argued that the hand, it also means that a skills shortage the base of the cycle, employers tend todismantling of political barriers, evolutioncaused by a demographic faultline caneliminate surplus labor and cut retirementof technology and the globalization ofbe exacerbated by the flighty values ofand other benefits.business is leading to a flat world where todays 20-somethings.capital, technology and information flow Interviewees also commented thatbetween markets. It can be argued thatAs part of this study interviews wereGeneration Y has an expectation ofFriedman stopped one step short of aconducted with key personnel at global longevity and of having an internationallogical extension to this argument. In acorporations who have, or have had,career. While interviewees weretruly flat world, labor and talent will alsoresponsibility for managing a global concerned about the skills shortage,flow from market to market. The free flow workforce. In many cases interview many believed they could manage theof talent and labor is more feasible this subjects had more than 25 yearssituation by improving the retention ofcentury than it was last century due to experience. The interviews wereolder workers and by encouraging greaterpolitical change and greater accessibilitycompleted with executives basedparticipation by women who may wantto cheap airfares, although it must be said in Australia, France, Germany, the to return to work after having children.that the dynamics of mobility may changeUK and the US. They were drawn Interviewees were especially challengedas a result of rising energy costs. from global businesses in energy and by the difficulty in securing the right talentnatural resources, financial services, and inserting them into often isolated andThe newest arrivals into the global manufacturing, retail and technology. Thedifficult locations. This process requiredprofessional workforce aresame line of discussion was followed withleading edge remuneration packages andGeneration Y otherwise known as each interviewee. There was a surprising other support including language andthe children of the Baby Boomers. commonality to the responses. Threeculture training. Several intervieweesGeneration Y in the developed world,formal interviews were also conductedtalked of the need to increasingly tailorand even in China where they are oftenwith representatives of KPMGs IES career paths for staff.referred to as little emperors, havepractice to provide a broad overview ofgenerally been raised in an era industry trends over the last 25 years.of prosperity. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 8. The Global Skills Convergence Manage the expectations of staff before, but especially after completion of an international assignment: sometimes it can seem a bit mundane returning to head office after the excitement and exotica of an international posting. Manage Generation Ys expectations and provide them with constant feedback as they progress towards career goals. Benchmark best practice in remuneration and ensure that the most effective tax arrangements are in place for staff, for the corporation, and to meet official requirements. The Global Skills Convergence is a study that was commissioned by KPMGs global IES practice. The research was directed and authored by KPMG in Australia Demographer, Bernard Salt and Principal Researcher, Joel Bevin andThe interviews, combined with the Ensure, as far as possible, that local supported by numerous staff. The studydemographic research, provide a uniquestaff manage the groups operations in was completed over 7 months toperspective on the current skills and labor each country.August 2008; it comprises bothshortage. It shows that there will be ademographic research as well as aslow-down, if not a contraction, in the Tailor career paths and remuneration series of interviews with the Heads ofpool from which the labor force will be packages and consider concepts Human Resources and Global Mobility atdrawn at the end of this decade in theincluding delayed bonuses andglobal businesses. The report is intendedUS and by the middle of next decade inperformance-based pay. to be distributed globally to KPMGsmany other developed markets. Some Understand the inter-relationships IES practice clients as part of the thoughtof the key learnings that flow from the between business and politics, and leadership program. Soft copies ofinterviews are as follows.the strength of familial relationships inthe report can be downloaded fromsome emerging markets. www.kpmg.com/globalskillsconvergence Establish a leadership group and investin that groups development. Make sure they have exposure to The international mobility of talent deliversforeign markets and understand localculture and sensitivities.diversity of viewpoint our business, allbusiness, needs different viewpoints.Brian Ambrose, Global Mobility, KPMG 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 9. The Global Skills Convergence 1 IntroductionThis report presents original research onThe proposition behind this study is thatbetween countries, escalate the flowthe issue of the global skills convergence the rate of growth in the labor market of migrant workers to address labor andas measured by migration and labor in much of the developed world willskills shortages.mobility. It focuses specifically on the slow over the next decade as the Babymanagement and policy issues associatedBoomer generation exit the workforce. It But whereas the developed world iswith these trends for global businessesis argued that in many nations the supplyentering a phase of diminished growthand government.of new workers in Generation X and in the worker population, the developing Generation Y is insufficient to offset the world is quite different. There wasThe report was commissioned by KPMGscale of the exiting Baby Boomers. no baby boom in much of the LatinoInternational via its global IES practice Christian, African and Arab worlds wherewhich provides advice to global companiesAs a consequence it is argued that the the fertility rate* remained high for moremoving staff between countries.rate of workforce growth will decelerate or less the whole of the 20th century. and in some nations actually decline overThere is no imminent diminution in theThe study involves demographic researchthe next decade. At the very least, this supply of labor coming through theaccessing previously unpublished datademographic faultline based on the workforce in these nations.sourced (with approval) from the Unitedbaby boom generation moving beyondNations. It also draws on a number ofthe workforce will place downwardinterviews with key executives who havepressure on labor force participationeach had in excess of 25 years experiencerates and, again to varying degreesin managing a global workforce includingmembers of the leadership team ofKPMGs global IES practice.* The fertility rate is the number of children that would be born per woman and is a better indicator of fertility than the birth rate, which measures births per 1,000 people, as it is not affected by the age distribution of the population. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 10. The Global Skills ConvergenceIn addition, the advent of Generation Y It is argued that the stage is being setinto the developed worlds workforce is over the next decade for the flow of talentprompting different behaviors with regard and labor between the developed and theto career mobility. Todays 20-somethings developing worlds. In some cases theseare generally far better educated and flows have already started and they areconnected into the global economy expected to escalate as growth in thethan any previous generation and as a pool of labor diminishes in theconsequence, they are predisposed to thedeveloped world.concept of an international career.Migration flows will however be limitedThis predisposition by educated elementsby political barriers in some areas, but inof Generation Y is being acknowledged byother places labor will be aggressivelyglobal businesses that now actively pursuepursued and transacted between bothpolicies of global mobility. And not simply developed and developing countries.for the purpose of holding on to flightyGeneration Y workers but because they see In an increasingly flat world, labor andcommercial benefits in the cross-fertilizationtalent will flow from where it is in excess,of talent and labor on a global scale.to where it is required, as a result of bothpush (domestic conflict forcing migrantsWhile Generation Y will be a key focusto flee) and pull (higher wages drawingof businesses in the coming decades,migrants in) factors.understanding the motivations of futuregenerations, the Millenniums (those bornThis study documents these flows andafter 1991), will be an important factortheir impacts, and considers the responsegoing forward. Born into a technologicallyof global corporations to these shifts. Itintegrated world, this generation willalso articulates the way in which somehave the technical and conceptual skillsaspects of the global workforce mightto adapt to occupations of the future. Theunfold in the second and third decadesMillenniums are likely to demand a career of the 21st century.that provides a flexible transition betweenideas and will expect location andtraditional working hours to be irrelevantto their success. I know its very popular to talk about theAnd finally beyond the demographic,generational and corporate policy factorsworld being flat but people arent flat.that seem to be driving trends in globalMatt Burns, Lockheed Martin Corporationworkforce mobility, there is the impact ofrecent geo-political shifts. Political changeat the highest global level is opening newterritories for western-styled developmentwhich permits and even encourages anassociated inflow of workers and talent. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 11. The Global Skills Convergence 2 Labor market outlook forselected countriesIn the developed world generally around 65to the US. But again, without a deep shift This analysis revealed a range of outlookspercent of the population aged over 16 is in the way that a society reproduces and for the labor market population in both theengaged within the labor force. In the US,cares for children, there is little scope fordeveloped and the developing world.the participation rate has increased from a further increase in the participation rate.around 55 percent in the 1960s to around . Outlook for the USthe 65 percent over the last 20 years asThis means that both the US and China andFigure 1a shows the results of thiswomen remained in or returned to thenations ranging between these extremes analysis for the US between 1950 andworkforce after having and raising children.will increasingly rely on population growth2050. Over the 55 years to 2005 thein the working-age group to support future number of people added to the poolHowever, as the participation rate hasexpansion of the workforce.from which the US labor force is drawnapproached the mark of 65 percent, the hovered around the two million mark.capacity for even further gains is limitedAs part of this study, data and forecasts And the reason is that during this phase,without a fundamental reorganization of have been accessed from the United the number of people exiting the pool atthe method of family creation and genderNations Population Division (the World 65 was always exceeded by the numberroles. This means that the outlook for laborPopulation Prospects are revised on a entering at 15.market growth in many developed nations biennial schedule) and other nationalis largely dependent upon the inflow of a statistics bodies in order to examine netmigrant population in the working group.annual change in the population aged15-64 year over a 100-year timeframe inThe participation rate in China, on the 195 countries.other hand, has remained between 75percent and 80 percent over the last twodecades reflecting a very different society 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 12. The Global Skills ConvergenceFigure a Net annual change in the population of the US aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce3,000,0002,500,000United States2,000,0001,500,0001,000,000 500,000 01950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, US Census BureauHowever, between 2012 and 2026 theand unskilled labor into the labor marketThe reverse might apply to generationsannual rate of growth is expected toplaces upward pressure on the rate of(such as Generation Y and possibly thecontract by half, which will result in less remuneration and migrant workers are Millenniums) where because of a shift inthan one million being added to the labor increasingly drawn to the higher wages the underlying demographics, they areforce each year.offered in the US. confident their skills and labor will always be in demand. Generation Y is unfazed by,The issue here, is that over the last 40Superimposed over the 100-year and even challenging of, authority at anyears, the US economy has becomelabor force population growth charts isage when most Baby Boomers and manyaccustomed to accessing a labor force the era in which each of the four working Generation X would have accepted thefrom a population pool that has expandedgenerations entered the labor market. status quo.at a predictable rate of two million peryear. But by the end of this decade, theBaby Boomers in the US (and elsewhere) The other issue is that in todays globaltransitioning of the Baby Boomers beyondentered the workforce in the late 1960slabor market both skilled and unskilled laborthe workforce results in a diminution inand 1970s during a period of risingwith the means and ambition, can flowthis pools rate of expansion.population growth. Generation X enteredfrom one country to another. And especiallythe workforce in the 1980s and early 1990s if there have been recent changes toAll of a sudden the economy must adjust when the rate of growth in the working-age geo-political barriers. The rapid globalizationto accessing labor from a pool that ispopulation had flattened out. Generation Y of business, combined with a predispositionexpanding at a much-reduced rate. Thison the other hand, entered the workforce by educated under-35s to think globally,is the so-called demographic faultlinein the late 1990s and in the current decadeand regional variation in the value of labor,caused by more people exiting thanwhich has been an era of falling rates ofis leading to the evolution of a globalentering the labor force. growth in the working-age population.workforce. Managing that workforce andThe initial response to this situationIn broad terms, this demographic context the expectations of its participants is now ais likely to be a tightening of the suggests that generations entering the major issue for global businesses.unemployment rate although many workforce in an era of a rising laborThe demographic context in whichof the skills required may not be insupply (such as Baby Boomers and someworkers, and indeed generations enter thesufficient supply domestically. A skillsGeneration X) regard the balance of powerworkforce, can have a profound impact onshortage therefore ensues and, as a in the workplace as remaining with the employee values.consequence, there are heightened calls employer. Indeed, this experience mightfor an expansion of the migration program.be expressed as a deep respect for (andThe slowdown in the supply of skilled possibly even fear of) authority. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 13. The Global Skills Convergence 9For example, the Baby Boomers might in the 1950s and 1960s, household. Outlook for other nationshave been born in the 1950s but theyformation in the 1970s and 1980s, andThe 100-year perspective on the laborentered the labor market in the 1970s peak consumerism in the 1990s and in market pool for the US is repeated inwhen it was rising. This led to a set ofthis decade, will also underpin a labor andother developed nations such as Australiabehaviors in the workplace where if thatskills shortage next decade. (see Figure 1b) and Canada (Figure 1c)Baby Boomer did not perform as required, where there is also a projected diminutionthen dump them, reach into the laborThis is not to say that the US labor market in the rate of growth in the laborpool bucket and recruit another worker. will contract. Rather, it is to say that the market population.economy must adapt quickly to a laborGeneration X entered the labor market market that is increasingly constrained by However, in other developed nations thein the late 1980s and early 1990s whena reduced number of people entering theimmediate outlook is for the labor marketthe rate of growth in the labor pool had15-64 age group. population to transition from recentreached a plateau. growth to contraction as early as nextThe long-term outlook for the labor force decade. Indeed in Japan the labor marketGeneration Y, on the other hand, began to population shows a recovery in the 2030s, population has been in decline since theenter the labor market early this decade andwhich has been labelled the Latino Lift. mid-1990s (see Figure 1d).in a different paradigm altogether. Yes, theThis results from differential fertilitylabor market is expanding but it is expanding rates in the US. The Latino fertility rate inOver the 40 years to 1990, the number ofat a reducing rate: if that Generation Y does the US is almost three times the white people aged 15-64 in Japan had increasednot perform as required, then you cant fertility rate. This shift is already impactingevery year by between 500,000 and onereach into the bucket and recruit another,consumer trends and is especially evidentmillion underpinning a rising workforcebecause the bucket is shallower.in the youth market: the world is likely and consumer base. This was good newsto see less white kids frolicking on thefor the Japanese economy: not only doesThis demographic shift transfers thebeach in Coca Cola advertisements an increase in 15-64 year olds contributebalance of power in the workplace from theand more hip-hop, street and grungeto depth in the workforce, and to the taxemployer (up to the 1990s) to the employeeinfluences coming out of urban and base, but it also supports a rising demand(from the current decade onwards).Hispanic environments in the future. for consumer goods and services.The US is entering a phase over the nextdecade that is quite unlike any period inthe late 20th century. The baby boom thatunderpinned the rise of the youth-marketFigure b Net annual change in the population of Australia aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce250,000200,000Australia150,000100,000 50,000 01950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, Australian Bureau of Statistics 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 14. 0 The Global Skills ConvergenceGlobalization is forcing us to invest in emerging markets and skill up thepopulations of developing countries who will be our future labor force.Rodney Scaife, AOLFigure c Net annual change in the population of Canada aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce400,000350,000300,000250,000Canada200,000150,000100,00050,000 0 -50,0001950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, Statistics CanadaFigure d Net annual change in the population of Japan aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce2,000,0001,500,0001,000,000Japan500,0000 -500,000 -1,000,000-1,500,0001950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, Statistics Bureau of JapanFigure e Net annual change in the population of China aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce 20,000,000 15,000,000 10,000,000China5,000,0000 -5,000,000 -10,000,0001950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, UN Statistics Division 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 15. The Global Skills Convergence However, from 1994 onwards the number Japan might increase its workforce In the two key developing nations, Chinaof people aged 15-64 in Japan began participation rate, but this figure currentlyand India, population growth trends differto contract. All of a sudden, there werestands at 60 percent, compared to amarkedly. In China (see Figure 1e), themore people exiting the labor marketparticipation rate in the US of 66 percent.rate of growth is expected to slow as thepool at the age of 65 than entering at 15. effects of the one-child policy are realized.There are now fewer consumers, andIn order for Japan to lift its participation From 2016 onwards, the number oftherefore taxpayers, in Japan today thanrate 6 percentage points to a level that people aged 15-64 will actually contract.there were in 1994. But this is only part ofis commensurate with the US and otherthe problem. Japan must now support a developed nations, there would haveMeanwhile, in India (see Figure 1f)greater population base aged 65 years and to be a fundamental change in thegrowth in the working-age population isover from a diminishing pool of workers engagement of (married) women in expected to remain elevated over theaged 15-64. the workforce. next 40 years as a result of less restrained population strategies and improvedJapan does not have a culture ofIn other words, cultural constraints limit economic growth that has supportedimmigration and so any diminution in theJapans response to its demographiclarger families.scale of the worker base is unlikely to problems. In Japan, the labor forcebe offset by an increase in the migrant participation rate for males is close to In the developed nations of westernworker intake.85 percent while it remains at around 60 Europe such as Germany (Figure 1g), thepercent for females. UK (Figure 1h), France (Figure 1i), andFigure f Net annual change in the population of India aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce16,000,00014,000,00012,000,00010,000,000 8,000,000India 6,000,000 4,000,000 2,000,000 0-2,000,0001950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, UN Statistics DivisionFigure g Net annual change in the population of Germany aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce 800,000 600,000 400,000Germany 200,000 0-200,000-400,000-600,000-800,0001950 1955 1960 19651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, Eurostat 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 16. The Global Skills Convergencethe Netherlands (Figure 1j), the trend is In some countries this manifests as aupward pressure on labor costs and ansimilar to Japan. Over the next decadeslowdown in the rate of growth; in othersacceleration in the demand for talent andthere will be a broad downturn in the it is apparent through a contraction in thelabor. And in a globalized labor market,rate of growth, of what can be broadlynumber of people in the productive age that talent and labor will increasingly flowdefined as the productive age group group. The speculation is that the impactinto markets where skilled and unskilledof the national population, in the majority on the economy, and on the labor market, workers are in highest demand.of developed countries. will be the same: this will lead toFigure h Net annual change in the population of the UK aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce 300,000 250,000 200,000 150,000 100,000UK 50,0000-50,000-100,000-150,000-200,000 1950 1955 196019651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, EurostatFigure i Net annual change in the population of France aged -, 90-00 Baby Boomers enter Generation X enter Generation Y enterMillenium generationthe workforce the workforcethe workforce enters the workforce 600,000 500,000 400,000 300,000France 200,000 100,000 0-100,000-200,00019501955 196019651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, EurostatFigure j Net annual change in the population of the Netherlands aged -, 90-00Baby Boomers enterGeneration X enter Generation Y enterMillenium generation the workforcethe workforcethe workforce enters the workforce200,000150,000Netherlands100,000 50,000 0 -50,000-100,00019501955 196019651970 1975 19801985 19901995 2000 20052010 2015 20202025 20302035 20402045 2050Source: KPMG International 2008, Eurostat 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 17. The Global Skills Convergence 3 Strategic and policy responsesThe total number of international migrantsBut by the 1980s these flows in many, butThe inclusion of a series of Easternhas increased from close to 90 million in not all, destination countries were beingEuropean nations into the European1975, to over 190 million 30 years later, filtered to focus on skilled migration. It isUnion at the turn of the century,in 2005. While global populations haveafter all, more efficient for a host nationresulted in Poles flowing to Ireland andgrown steadily, international migrants stillto attract skilled young workers who can Lithuanians and Bulgarians to the UK.account for an increasing proportion of easily and immediately enter the workforce British retirees and lifestylers movedthe population, rising from 2 percent and begin making a contribution by to the kinder climate of Spain. And within 1975, to 3 percent 30 years later. consuming, reproducing and paying tax. the demise of the Soviet Union at the end(United Nations population division).of last century, Russians flowed out ofResponses to these flows have differed. The rise of skilled migrationtheir homeland to opportunities in otherbetween countries based on geo-politicalTowards the end of the 20th century, European nations.circumstances and cultural attitudes. new flows of immigration opened up.Traditional flows such as from the UK toIn the later decades of the 20th century, Australia and from Mexico to the US werethere were shifts in attitudes towardsaugmented by new flows made possibleinternational migration flows. In the by geo-political as well as lifestyle shifts.immediate post-war period, economicmigrants with few or no skills flowedout of Europe into countries like the US,Canada and Australia. at a global level the competition forknowledge-based employees is intense.Rodney Scaife, AOL 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 18. The Global Skills ConvergenceCorporations need to have the confidence to And there is something to be said for this approach. After all, while the firstthink the unthinkable: where are we going to generation of unskilled migrants may struggle financially and even culturally,be in a decades time, long after I am gone, and they inevitably work hard so as to propel their children into the mainstream usuallywhat is necessary for us to get there? thisvia the education system. Indeed manywill inevitably lead to the case for globalization of todays most successful participants in western business and society are theand in that case, there is a need to start now tooffspring, particularly the grandchildren, of the unskilled migrants who arrived in theset in place an international mindset.first two decades of the 20th century. The same success is becoming visible withIan Donald, Abbeywell Associates the children of the migrants who arrived after the end of World War II.But there were also new flows at this Amid this multiplication of education, However, there are a number of countriestime out of Asia and especially fromlabor and lifestyle migrants, many favored that continue to limit to free flow ofVietnam and China to the US and destination countries began to implement migrants of all abilities. Some westernAustralia. Indians too began to movea points-based system which award points European countries including Germanymore freely away from the sub-continent for age, skills and language capabilitiesand France currently impose certainat about this time. In the Middle East, in order to filter-in the most desirable requirements on potential immigrantsthe rise of sovereign states such as themigrants. A threshold of points is requiredsuch as requiring immigrants receive a jobUnited Arab Emirates, Kuwait and Qatar in to achieve migrant status which allows offer before they can enter the country.the late 1990s, and the early years of thethe host nation to monitor and controlnew century, attracted unskilled labor outinflow based on the skills required by the . The role of corporateof Pakistan and the Philippines, as welllocal economy. expatriatesas highly skilled talent from across the But the flow of permanent migrants is justEnglish-speaking business world.Some nations have even introduced part of the story of modern global labora culture test for candidate migrants mobility. Skilled non-permanent workers,And from the early 1990s onwards, to ensure they appreciate the history, more commonly known as corporatethere was also acceleration in the flow ofgeography and culture of the host nation. expatriates, are playing an increasing roleinternational students from the developingThe points-based approach to immigration in the spread of global business. Especiallyworld largely to the west. Student flowshas been adopted over the last two so, as geo-political shifts open up neware not counted in permanent migrationdecades by countries such as Australia, territories requiring the infrastructure, themovements and so these are in additionthe UK, Canada and New Zealand. technology and the range of consumerto the flow of skilled and unskilled labor.The US on the other hand continues goods and services that are already wellDrawn by greater opportunities for a higherto focus on family rather than skillsestablished in the west.level of education (and ultimately higherwages) students in developing countries migration, although the focus is beginning One role of the developed world isare increasingly aiming for positions into shift to place greater emphasis on the to introduce the systems and theprestigious tertiary institutions in theskilled component. The argument for infrastructure necessary to elevate theUS and parts of Europe and often more family as opposed to a skills migration quality of life and the standard of living inaccessible institutions in countries such is often ideological in that a nation that newly opened countries. Not only doesas Australia, Canada and New Zealand. accepts unskilled migrants truly presents this add to global political and economicitself as a land of opportunity. stability, but also opens up new markets 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 19. The Global Skills Convergence for global business. Corporate expatriatesin finance, accounting, property, energy,resources and manufacturing industriesoften play a major role in this stabilizingphase and facilitation of the free andsmooth flow of this talent is a keychallenge for global business.Later in the study, there is a summaryof a series of interviews conductedwith experienced managers of humanresources for global corporations. Oneconstant theme evident during theseinterviews was the need for globalbusinesses to introduce corporateexpatriates into developing countries fora period of time (many said 3-5 years) tomanage and direct the introduction of newservices and in many cases, to identifyand nurture local talent.The historical flow of labor becamemore strategic in the period followingWorld War II. As companies began toexpand overseas, the movement ofcorporate expatriates became morepronounced. This was most evidentwith companies based in the US whosent employees on internationalassignment overseas to manageexpansion and company subsidiaries.It took another major geo-political event, thebreak-up of the former USSR, to providefurther stimulation as skilled corporateexpatriates flowed into former Sovietstates in the 1990s, in order to assist thosenations in upgrading the local built-forminfrastructure and support services.Operating in the global market, we manage talent between regionsand across borders to enable effective knowledge transfer.Rodney Scaife, AOL 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 20. The Global Skills Convergence4 Migration in a flat andcreative worldThe proposition being put forward by this . Reasons for globalizationIn addition to these political and economicstudy is that demographic change in the of the labor marketdevelopments, there is also the argumentdeveloped world will lead to a labor andSome events which facilitated these flowsthat todays younger generation ofskills shortage next decade as the Baby include the dismantling of the formerworkers under the age of 30 theBoomers move beyond the workforce.USSR, the expansion of the Europeanso-called Generation Y are more likelyThis shift is coupled with historically low Union membership base, the opening to be predisposed to a global career thanfertility rates in the late 1990s that will failup of China and India and the rise ofpreceding generations. Part of this logicto offset this phenomenon, at least in thesovereign states in the Middle East. is the expansion of global businessesshort term.providing more opportunities to think andEven the late 2007 sub-prime crisis in work globally.Coinciding with this demographic the US, which has also affected thefaultline are a number of other factorseconomies of the UK and westernBut there is also the argument that thisleading to a heightened demand for, and Europe during 2008, is having the effect generation raised on the Internet isincidence of, cross-border migration. of transferring surplus skills out of thesesimply better exposed to global issuesInternational migration trends reveal anmarkets into the still-booming markets than previous generations. In addition,increasing number of labor migrants asof Hong Kong, Singapore and Shanghai.there has been a shift in the prioritiescountries open up their borders to addressThis development has been confirmedof Generation Y away from finding alooming labor and skill shortages.by discussions with multinationallong-term partner, buying a house andcorporations who are constantlystarting a family in their 20s. (These lifemonitoring both the geo-political andgoals are typically postponed to the 30seconomic environment to ensure thatby educated and skilled Generation Ys.)global labor requirements are met. Instead, Generation Y seems to be living a much less structured life where a sense 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 21. The Global Skills Convergence We have no difficulty in attracting Generation YThey have totrust us that movement to a particular location can be good for theirprofessional and personal development.Bruno Carlier, BNP Paribasof adventure and a satisfying career areopening up of China, Russia and the1 The Fall of the Berlin Wall (1989).the focus, with the belief that the restengagement of India, it is more likely thatwill follow once the fundamentals are set the global geo-political paradigm is shifting2 Software that allows digital applicationsin train. in favor of even greater migration flows of to bridge the physical divide (1990s).talent and labor in the future.3 The advent of outsourcing whichIn either case, the evidence from theinterviews (as discussed later) is that allows anyone with the skills to do any. Thomas Friedmans world job (1990s).skilled and educated members of The demand outlook for labor and talentGeneration Y have elevated expectations is positive and in many respects was 4 The advent of offshoring which allowsabout opportunities for global placements.hinted at by best-selling author, Thomascompanies to maximize the benefitsNot only does Generation Y want work-life Friedman in his 2005 book The World isof operating in other countries (frombalance, access to the latest technology, Flat. Friedman developed the idea thatmid-1990s).as well as the capacity to integratethe world is flat when barriers to trade,their technology with their workplace innovation and information are levelled. 5 The mainstream arrival of thetechnology (which can translate as beingFriedman argues that the dismantling of Internet (1995).able to access Facebook during work timethe USSR, for example, was a levelling 6 The focus on supply chains which havevia a work laptop) but many also want the process which allowed trade, informationincreased inter-connectedness andopportunity to travel and to work abroad. and innovation to flow into and out ofinnovation (from the late 1990s).former Soviet states. However, FriedmanAnd so it is for all of these reasons thatstopped one step short of a more 7 The advent of open sourcing whichthe outlook for the increased global flowcomplete assessment of the flat world:allows anyone to contribute toof both skilled and unskilled workers isthe movement of capital, technology and,technological innovation (early 2000s).likely to continue. Indeed the only factorthe ultimate expression of a flat world,that could seriously diminish the trend8 The concept of insourcing that allowshuman talent and labor.towards greater global mobility, is a one business to perform the functionsshift in geo-political thinking or a change Friedman identifies 10 events and of another (early 2000s).in the facilitating factors of migration, developments that have recentlywith recent speculation that sustainedflattened the world. With the advent 9 The concept of informing that allowselevated oil prices may restrict air travel,of each of these flatteners there isanyone to learn and share anythinga key facilitating factor in migration. But a heightened demand for the migratory (early 2000s).the likelihood of developing countriesflow of talent and labor. Approximate10 The development of flattening steroidssuddenly eschewing western ideals ofdates have been inserted wheresuch as iPods, VoIP, and Wi-Fi whichconsumerism and limiting opportunitiesappropriate with the majority of dateshave accelerated the flattening processfor expansion by multinationalrelating to mainstream acceptance rather(from the mid-2000s).corporations is slim. Indeed, since the fallthan early adoption.of the Berlin Wall in 1989 and the steady 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 22. The Global Skills Convergence For example, in order to establish a factory in Guangzhou or to set up a call center in Bangalore there needs to be a flow of information, or know-how, as well as capital, and therefore skilled people from the developed to the developing world to facilitate this process. This management expertise cannot be downloaded or reproduced via cad-cam technology. It must be transported, managed, remunerated and provided with a support network. In other words, prior to Friedmans notion of an American job being replicated in the developing world, there are a series of tasks that must be completed to facilitate the international outflow of low-skilled jobs. . Corporate responses The importance of shifting both physical operations and human capital offshore isFriedman argues that ultimately it is the and Paris as well as into rising economicshowing up in some of the most globallyincreased level of connectivity between centers such as Mumbai, Shanghai and present multinationals. Claudia Deutsch,individuals, companies and countries that Abu Dhabi. writing in the International Herald Tribunecreates a truly flat world. But Friedman in February 2008, highlights exactly thisdid not fully take this process to theIn highlighting the notion that in a trend by identifying both General Electricnext step. He did not explain that in a flat world there is no such thing as an and IBM as companies that are not simplyflat and highly inter-connected world,American job, Friedman explains that running operations from a centralizedwhere barriers to trade and innovationjobs, or rather the output of a labor (usually US-based) location, but areare being dismantled, the flow of ideas process, can be performed anywhere. In actually setting up business structuresand management skills, as well as cheap other words, the output of an American in selected foreign locations. There is alabor, are in many respects the ultimateworker could be performed in India, China growing recognition by multinationals ofexpression of the flat world. or in Eastern Europe. In this view of a flat the importance of maintaining a strategicworld, it is the output of the job that is global presence to benefit from shifts inAnd, more importantly, in a flat world, mobile and not the job. geo-political power.a surge in the demand for labor andtalent in one market will naturally lead to This is also probably true for the Indeed, it is understood by multinationalsthe free flow of migrants from anothermanufacturing industry and for that an important component of a trulymarket where their skills are less well some aspects of the technology and global presence is the development of arewarded. Indeed, this is why unskilled telecommunications industries. But this culturally diverse workforce.labor currently flows from Pakistan intoargument, based on current levels ofDubai, from Mexico into the US, and fromtechnology, is not as relevant in other jobsPoland into the UK. And it is this logic that and in other industries.is now driving skilled and highly talentedworkers to places like New York, London 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 23. The Global Skills Convergence 9In order to achieve this goal, companiesBut it is not just in the skilled workforceFloridas ideas can be applied tosuch as IBM have implemented specific that the flat world facilitates the fluidthis study. He argues that workersprograms to ensure that top-level movement of talent and labor. Friedmans can exercise choice in moving to anexecutives have the skills and internationalnotion of jobs being outsourced can be environment that is conducive to theirexperience to manage foreign marketsapplied at a global level, for example the work and lifestyle. Friedman on the otherand an awareness of cultural, political and need for unskilled labor in Dubai. Herehand, would argue that the creativeeconomic sensitivities. is a sovereign state that has outsourced output of workers can be outsourced tomanual labor to Pakistan and the anywhere and so has little or no impactAnother model being employed is the Philippines. Arguably the US is doing theon the issue of migration. But there areconcept of worldsourcing which Lenovo,same to Mexico. These are not theproblems with both views when applied tothe third largest computer maker in the high-tech jobs that Friedman believesthe fluidity of the global workforce.world, has recently implemented. Insteadcan be completed anywhere. There is aof moving people around to deal withlegitimate and growing need for non-localHighly creative and skilled individuals aredemand, worldsourcing sees companieslabor to perform tasks in locations wherenevertheless attracted to what can bemove the work to areas that have thethe locals are either unqualified or simplydescribed as less than cosmopolitan andcapability. William J. Amelio, the American do not want to perform them. even intolerant locations (perhaps to setCEO and President, based in Singapore, atup a factory or to facilitate a capital raisingLenovo, made the following statement in . The rise of the creative class for a new government in a new state) byan article in Forbes in 2007. Another commentator in this field is a unique combination of the challenge ofthe US-based academic Richard Floridathe assignment, the opportunity to makeWorldsourcing is a strategic outgrowththeir mark, the scope to take advantagewhose 2000 book titled The Rise of theof globalization. In a world with just one of a low local tax rate, and the overallCreative Class, argues that skilled andtime zone (Now), business must sourceremuneration package. The personal andespecially talented labor the so-calledmaterials, innovation, talent, logistics,relationship-driven nature of the workcreative class will move domesticallyinfrastructure and production wherever in these cases means that it must beand internationally in pursuit of a lifestylethey are best available. And we must performed locally, requiring the servicesthat allows their talents to flourish. Floridasell wherever profitable markets exist,of expatriate skilled labor.cites Austin, Texas as a creative city andanywhere in the world. In todays globalPittsburgh, Pennsylvania as a less creativeeconomy, companies must worldsource orcity. The creative classification is madedie. Its that simple.on the basis of a statistical analysis of theCompanies must allocate resources and industries and the culture that is presenta workforce around regions that havein these cities and which flows through tospecific expertise. For example, hardware the type of people attracted to them.design is regarded as the comparativeadvantage of the Japanese workforce andtelemarketing the comparative advantage Individuals have leverage in the workplace of the Indian workforce.not generations.Matt Burns, Lockheed Martin Corporation 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 24. 0 The Global Skills Convergence5 Net migration flowsThe flow of migrants between countriesThe map shows the significance ofAustralia, currently in the midst of a skillsis monitored by a number of different some nations as a source of talent and shortage and economic boom, attractedorganizations including the United Nations. workers in comparison to others. migrants from China, India and MalaysiaOften the headline figures for migrationNations illustrated on the map include as a result of close regional ties. Australiaonly cite the number of people flowingthe US, the UK, Canada, Australia, also attracted tertiary educated studentsinto a nation. Whereas the true positionNew Zealand, Germany, Italy, Sweden, from these nations.is often quite different with an equallyFrance, Spain, Hungary, Belgiumsignificant migration flow in the oppositeand Denmark. There was a net outflow of migrants fromdirection. The argument being put forwardthe UK to Australia (31,000) and Spainin this study is that there are important This United Nations data shows that(21,000) in 2006, whereas 10 years earliernet inflows and outflows of labor and during calendar year 2006, there was a the leading outflow destinations were Italytalent between selected countries.net flow of 47,000 migrants from Polandand Australia. What this shows is thatto the UK (as Poland joined the EU), and the source of workers flowing into thePreviously unpublished United Nations a further 41,000 migrants from India toUK has shifted over a decade to includedata showing cross-migration flowsthe UK (in search of work opportunities).Poles, whose access to this developed-between selected countries over the lastOther important source countries for world labor market was made possibledecade has been accessed for this study.migrants to the UK in this year were by a geo-political shift. In addition, thisThe results are summarized on a map ofPakistan, China and the Philippines. Ten analysis shows that UK residents have,the world in Figure 2 which identifies theyears earlier, countries contributing thefor a decade or more, pursued lifestyleleading net inflows and net outflows on a most migrants to the UK in net terms options in destinations such as Italy, Spaincountry-by-country basis for the latest yearwere Germany, Pakistan, and the US.and Australia.available, which in most cases is 2006.This data set is both unique and importantfor several reasons. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 25. The Global Skills Convergence There is evidence of a cultural shiftin migration flows associated withEurope, while stricter visa requirementsand less robust regional agreements act as There is a shortagegeopolitical developments. In 1996,Turkey represented the main source ofbarriers in other countries. of talent with thelabor flowing into Germany; 10 yearsMexicans flowed across the borderinto the US to take advantage of work right skills in certainlater, the prime source of new labor intoGermany is Poland followed by migrantsopportunities while flows to the US from emerging marketsifChina, the Philippines and India werefrom Denmark, Belgium and Sweden.Poles comprised the largest proportion of also significant. China was the leadingwe cant find thatmigrants to Germany, Denmark, Iceland,source of migrants for Australia, theUK, New Zealand and Finland. The US talent locally, we willNorway, Belgium and Sweden. Germansflowed out to Greece and Italy most remains a powerful pull destination withits prominence in the global economy increasingly rely onlikely in order to take advantage of theMediterranean lifestyle.attracting migrants in search of expats with globaleconomic prosperity.One country that has actively broadenedskills and mindsets.its immigration program to cope withFrance gained migrants from Algeria,Spain gained Romanians and CanadaRyan Larsen, Wal-Martplummeting birth rates is Italy, where netmigration has tripled over the past decade. experienced a net inflow of Indians.At a geographic crossroad between the Despite these diverse flows, the pointMediterranean and northern Europe, Italyto note is that changed geo-politicalexperienced a net gain in migrants from circumstances alter the source from whichRomania, the Russian Federation and labor for the developed world is naturallyMorocco in 2003.drawn, as well as influencing the push andpull forces of migration.Sweden experienced strong flows ofmigrants from EU member countries To compete in the global labor market,including Poland, Denmark and Germany countries must provide a flat platform overduring 2007. Migrant flows from Norwaywhich migrants can flow. Establishinghave also been strong as the Swedishregional and international agreementseconomy outpaced its Nordic neighbour.which unite countries with similar physicalSwedens political asylum policy resulted and social characteristics is likely to be thein a significant increase in migrants favored tool.from Iraq during 2006 and 2007. Duringthese years, Iraqi migrants also figuredprominently in other Nordic countriesIts really difficultintake including Norway and Finland.to find exactly theThe free flow of labor across Europe is right people forparticularly evident when compared to thetighter movements elsewhere around thean internationalworld. The strength of the European Unionand the Schengen Agreement has allowedassignmentthese movements to occur in a flatBob Sovine, Marathon Oil 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 26. The Global Skills ConvergenceFigure Global Migration Flows SwedenDenmark UKGermanyPoland BelgiumFranceHungary RomaniaCanadaSpainItaly USAlgeriaIraqMexico 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 27. The Global Skills Convergence Australia 00 Net gainChina 31,000 Net loss US (9,000) Belgium 00 Net gain France 7,000Canada 00 Inflow India 29,000 Denmark 00 Net gainPoland 4,000 France 00 InflowAlgeria 32,000China Germany 00 Net gain Poland 48,000 Net loss Greece (6,000) Hungary 00 Net gainRomania 8,000IndiaItaly 00 Net gainRomania 74,000New Zealand 00 Net gain UK 10,000 Net loss Australia (23,000) Spain 00 Inflow Romania 112,000Sweden 00 Net gain Iraq 12,000 Australia UK 00 Net gain Poland 47,000 Net loss Australia (30,000) US 00 New Zealand Inflow Mexico 174,000Source: KPMG International 2008, United Nations (forthcoming): International migrationflows to and from selected countries: The 2008 revision, New York 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 28. The Global Skills Convergence6 Measures of skills convergenceThere are a number of measures that In the developing world, the literacy rate The greatest advances have taken placecan be applied to the developed world averaged almost 80 percent in 2007,in Africa where the literacy rate hasto show the extent to which migrant while in early-stage developing countriesgenerally increased from 50 percent toworkers are making a contribution to localthe average was 54 percent. The60 percent between 1980 and 2007.economies. The differences between theworldwide average literacy rate wasThere have also been advances indeveloped and the developing world are79 percent in 2007.literacy rates outside Africa.narrowing in terms of literacy. However,other measures, such as the acceptanceLiteracy rates tend to be a primeWhile the developed nations of theand integration of skilled workers, are still factor in the degree of social and Organisation for Economic Co-operationpresenting challenges for some nations. economic preparedness of a country and Development (OECD) haveto accommodate growth andsignificantly higher rates of literacy, the. Convergence in literacy development. Historically, rates above gap between developed and developingLiteracy rates are a key indicator that 90 percent have facilitated a progressionnations is narrowing. Between 1980 andseparates the developed and the of standard of living through increased2007, the literacy rate in Egypt improveddeveloping worlds. Across the majority of productivity. Over the past two decadesfrom 52 to 71 percent, in Saudi Arabia itthe developed world, literacy rates, whichsignificant resources have been allocatedmoved from 74 to 83 percent,act as an indicator of the significant social to address low rates of literacy and the in Honduras it increased from 73 toand economic advantages enjoyed byresults can be seen throughout many80 percent and in India from it jumpedthese countries, are close to 100 percent,developing countries.from 55 to 61 percent.according to United Nations data. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 29. The Global Skills Convergence Figure Proportion of natives and foreigners with a high level of education, 00-05045403530% 25201510 5 0IrelandPortugalAustraliaCanada Poland Denmark New ZealandUnited Kingdom Spain SwedenItalySwitzerlandGreeceNetherlandsFrance United States GermanySource: KPMG International 2008,International Migration Outlook 2007 OECD,Native-bornForeign-bornConvergence in global literacy rates In a majority of OECD countries,existence of cultural barriers such as poorfacilitates productivity gains withinforeigners were more educated thanlanguage skills or the non-recognition ofdeveloping countries and therefore natives reflecting the policies of theseforeign-gained education qualifications.underpins improvements in the standard countries in attracting largely skilledof living. With increased standards of migrants. In several European countries Increasingly, the ability of public andliving, potential migrants have the meanswhich have more liberal migration private sectors to adopt a co-ordinatedand ambition to flow between countries inprograms, foreigners are less educatedapproach in recognizing credit andsearch of improved labor outcomes. than the natives. This was also the qualifications will be crucial in allowing the case in the US where family reunification easy flow of skills between markets.. Migrant integration andand humanitarian streams of migration Figure 4b compares the unemploymentlabor market outcomesaccount for a significant share of the totalrates of native and foreign-bornThe focus of most, but not all, developedmigrant intake. populations deemed to have a low levelnations is to attract and grant entry to of education (defined as less than upper-skilled and educated migrants. This broadFigure 4a compares the unemployment rates of native and foreign-bornsecondary) in 2003-04.policy pursued over recent decades bymany nations has led to a skewed profile populations deemed to have a high The situation that was shown to prevailthat favors educated foreigners. level of education in 2003-04.among skilled and educated migrants also This analysis highlights the issue of the applies to low-skilled and unskilled migrants,Figure 3 shows an OECD analysis of the although it is less pronounced. Importantly,proportion of the foreign-born populationlag-time to the effective employment of migrants. While migrants tend to bethis chart shows that in the US and the UK,aged 25-64 with a high level of educationgreater employment-based integration(defined as tertiary level and above) as as highly educated, if not more, they often struggle to gain employment. This has ensured that migrants who have acompared to the proportion of the native lower level of education are able joinpopulation, in the same age group, with awould suggest that many host nations are not using human capital as efficientlythe labor market faster than in othertertiary education in 2003-04. developed nations. as they perhaps could, due to the 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 30. The Global Skills ConvergenceFigure a Unemployment rate of natives and foreigners with a high level of education, 00-0 14 12 10 8% 6 4 2 0 Germany DenmarkGreeceFranceSweden Spain Switzerland PortugalNew ZealandAustraliaCanada IrelandUnited Kingdom Netherlands United StatesItaly PolandSource: International Migration Outlook:2007 Edition - OECD Native-bornForeign-bornFigure b Unemployment rate of natives and foreigners with a low level of education, 00-0 35 30 25 20% 15 10 5 0 Australia CanadaDenmarkFrance Germany Greece Ireland ItalyNetherlandsNew ZealandPoland PortugalSpain Sweden Switzerland United KingdomUnited StatesSource: International Migration Outlook:2007 Edition - OECD Native-bornForeign-bornThe capacity of a nation to integrate As levels of education across the Destination countries mustmigrant workers will be critical to developing world improve, significant proactively manage the integrationnational harmony and to the realization opportunities will open up for developedof both skilled and unskilled migrantsof maximum economic capacity over markets starved of local labor. However,so that structural and cultural barriers,the coming years. There is an inherentfacilitating increased flows of labor such as the portability of qualificationsrequirement for skilled and unskilled labor is only the first step in order for a and language, do not hinder the vitalto move between nations and regions,company, and country, to gain the contribution of migrants.and it is important that migrating workerseconomic and social benefit thatare immediately integrated within the comes with the educated migrant.host nation so the advantage of thesemigration flows is not lost. 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 31. The Global Skills Convergence 7 Global migration and cultural deferenceThis chapter looks at the non-economicStalker noted that there had been surges migrants to the UK: this inflow peaked infactors which may influence skilled in international migration previously, but 2006 but now appears to be receding asworkers moving from one nation to these largely resulted from a liberalization economic prospects in Poland improve.another. Although initially it is worth citingof immigration controls.the work of an academic who predictedOne of the issues associated with thesean acceleration in global migration trendsStalker reasoned that the increased flow worker flows is the so-called brain drainearlier this decade. of goods, capital, and people associated where skilled and talented workers fromwith globalization has the potential a poor or remote nation are attracted to. Reasons for the brain drain to deliver what he calls economic larger and more powerful economies. ThisThe issue of the existence of a convergence. In this theory, labor flowsbrain drain occurs because talented workersdemographic faultline affecting labor from low-wage areas to high-wage areas have the capacity to significantly improvemarkets at the end of this decade was while capital notionally flows in thetheir income by making such a move.more or less flagged by UK academic opposite direction. But there is also a subtle cultural pushPeter Stalker in his 2000 book, WorkersAlthough to date, there is evidence of behind the brain drain and it relates towithout Frontiers. Stalker argued that overpolitical resistance to migration flows from the issue of what might be termedthe current decade (2000s) and the nextthe developing to the developed world. cultural deference.(2010s) there will be a surge in internationalThe disparity between rich and poormigration underpinned by labor supply Here is the thinking: over there is betternations and especially in differential wageissues, by rising income inequalities and than back here, and it is especiallyrates eventually equalize in this theory.by the spread of communication and relevant in small, remote, and developedAnd this certainly seems to be the caseinformation technologies.nations that were former colonies. Thiswith regard to the recent influx of Polish applies to Australia, New Zealand and South Africa. In particular, skilled labor 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 32. The Global Skills Convergencein these nations often want to test their . Why losing skilled young More than 20 years of tax-payer moneymettle in markets like London or Newlabor is an importantis invested in skilled workers by way ofYork, as well as taking advantage of primary, secondary and often tertiarytax issuehigher levels of remuneration andeducation. This investment is notionallyThe permanent migration of a skilled worker career opportunities.recouped over the working life of thefrom one nation to another is an issue if this individual via the payment of taxesIndeed, in these nations, the process ofresults in a net outflow of talent and youth. between, say the ages of 25 and 60.out-migration of talented young workers This is because a worker in their 20s trained However, if that worker should leave ato larger, stronger markets is turned in another nation but prepared to remain small colonial outpost soon after universityinto a positive by the local community. and pay tax in another country, delivers (say at age 25), and work internationally,Middle-aged Baby Boomers in Australia a net economic benefit to the host nation. there is the personal benefit of internationaland New Zealand attach a social cache toIt also represents a net economic loss to experience and a broader skill base,the notion of their young son or daughter the nation that provided the training. which comes from exposure to theliving and working in Europe or Northglobal labor market.Figure 5a and Figure 5b show the medianAmerica. This outflow can thereforepersonal income in each year of life upbe viewed as a measure of parental On the other hand, if that individual shouldto the age of 100 in the US and Australia success in a colonial outpost: Ive beenform a personal relationship or merelyrespectively (highlighted columns indicate so successful as a parent that I haveremain in the destination country to thethe five peak income-earning years). A managed to catapult my children into the age of 30, then there is every likelihoodsimilar trend is observed in both countries,center of the world.that they will end up investing theirand indeed in most developed countries, youth, their skills, their energy and mostThe outflow of young workers maywith the peak income-earning period importantly their tax-paying capacity, into abe a matter of parental pride today occuring between 45 and 55 years. It is country other than that which schooled andin former English colonies (and mostthis age group, along with those aged skilled them, up to the age of 25. This isprobably also in former French colonies)over 25 years who have completed their not an issue if there is a balance betweenbut it also represents a serious economic studies, that are most prized amongst the outflow and inflow of young talent.and tax issue.destination countries. The educationalinvestment has been made and they areThis is a positive arrangement for theYoung workers pursuing what is nowpaying tax, spending, and reproducing alldestination country: young taxpayingwidely referred to as gap years orfactors that are key to ongoing economic workers make a contribution for manyoverseas experience can lead to a net growth and to a rising and robust tax base.years before requiring support by way ofoutflow of talent. Studies of expatriate pensions and health care services. Thisworkers by Australian academic, GraemeWhile destination countries experience arrangement was not entirely possible inHugo, have concluded that workers orsignificant social and economic the 20th century due to both cultural andexpatriates who spend 5 years or more value as a result of flows of key political barriers to migration, but it is veryoverseas are significantly less likelyincome-earning/tax-paying age groups, much possible in the 21st century.to return home. This is good news for this arrangement is not so good for thethe destination country: young skillednation generating the migrants.workers arrive in their early 20s, enterthe workforce, and make a direct andimmediate contribution to the tax baseWe need training programs to educateand social capital.partners and senior managers on how todeal with Generation Y in the workplace.Brian Ambrose, Global Mobility, KPMG 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 33. The Global Skills Convergence 9Generation Y is more international than previous generations it is more cost-effective to move people around up to the mid-30sthen it gets more difficult and expensive because of the dualcareer problem.Irene Cowden, G4S GroupFigure a: Median personal income by single year of age in the US, 000DependenceDevelopmentWealth AccumulationDraw-down DepartureDraw on educational Develop career and High spenders and Draw on pensions, andresourcescontribute to tax basecontributors to tax base health resources 2040608035,00030,00025,000Income $US20,00015,00010,000 5,0000152025 30 35 40 45 5055 60 65 70 75 80 85 90 95 100Source: KPMG International 2008, US Census Bureau 2000Figure b: Average personal income by single year of age in Australia, 00DependenceDevelopment Wealth AccumulationDraw-down DepartureDraw on educational Develop career andHigh spenders and Draw on pensions, andresourcescontribute to tax base contributors to tax base health resources 2040608050,00045,00040,000Income $AUD35,00030,00025,00020,00015,00010,000 5,000 0152025 30 35 40 45 5055 60 65 70 75 80 85 90 95 100Source: KPMG International 2008, Australian Bureau of Statistics 2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated. All rights reserved. 34. 0 The Global Skills ConvergenceA KPMG International survey of 79 Academic, Graeme Hugo, has estimated And the question is why?countries found that governments arethe number of Americans living offshoretaking a strategic approach of attracting at seven million or 3 percent of the The flow from Mexico to the US is easilyskilled staff by cutting taxes. The surveydomestic population. explained: here is an opportunity for Latinofound that as a result of increased laborworkers to significantly increase theirmobility, governments are being forcedIn other nations, the outflow is far moreincome and standard of living. Hence, notto compete on measures such as tax in significant. The largest known Diasporaquite one-fifth of that nation now livesorder to attract and retain talent. Of theis the 20 million Indians who now live predominantly in the US. Canadians oncountries surveyed, 34 have cut their outside India. But this large figure is less the other hand are less motivated by thetaxes in the past 5 years, while only than 2 percent of the nation. In Mexico, opportunity to equalized incomes.three have increased their tax rate. Thesome 19 percent (or 19 million) of thepopulation is thought to be now living But why such a large proportion of thesurvey concentrated on the highest level New Zealand population overseas? Thisof personal tax payable to the centralin the US. is not a third world nation. The reason isgovernment, where possible, excluding The proportion of Canadians living abroadmost likely linked to the notion of culturalother taxes like social security contributions(including in the neighboring US) is deference: the notion that over there isand state and municipal taxes.7 percent of the national population.better than back here.China has somewhere between 20 and. The workforce Diaspora40 million living abroad, or aroundWhatever the reason, these figures showThere is every incentive for businessesthe extent of the expatriate population3 percent, while for the Philippines theand indeed for governments, to targetin just a selection of nations. In annumbers are almost eight million orskills and talent from a globally accessible increasingly globalized world people no9 percent. About 900,000 Australiansworkforce. Such talent would belonger feel tied to their country of birth.or 4 percent of that nation livespoached in their mid-20s (after schooling) They are instead willing participants insomewhere other than Australia.and then attracted into a developedthe labor force churn, driven by fallingeconomy. And while parents beam withHowever, the nation with the largest barriers to migration, and increasingpride at their childrens overseas success, proportion of its population living offshore demands for labor and talent in regionslocal taxpayers should be increasinglyis in fact New Zealand. There are 5 millionwhere their interests lie.exasperated. After all, their 25-year New Zealanders on this planet. Onlyinvestment is yielding results (by way4 million live in New Zealand. Some 22of an enhanced tax-paying capacity) for percent of that nations population liveanother country.outside the islands in which they were born.But there is a human angle to thisDiaspora. The proud parents who areseemingly happy to see theirWe hire locally where staff are available 20-something children live and workoverseas may not be so pleased in 25we often have an integration plan where weyears time when they remain more or less