16 April 2014

Talent mismatch costs global economy US$150 billion

A global study by PwC commissioned by LinkedIn, the world’s largest professional network on the Internet, reveals that poor talent adaptability – the inability for people to retrain for new skills or switch industries – is costing the global economy billions of dollars in lost productivity and leads to businesses wasting huge sums on avoidable recruitment costs.

The study, Adapt to Survive, analyses interactions from LinkedIn’s network of 277 million professionals and information on 2,600 employers from PwC’s Saratoga database, a resource for people and performance metrics, to understand which of 11 markets are better at aligning talent with opportunity.

The research found a strong correlation between the adaptability of the talent in a particular country and the performance of its companies. If markets were better at matching talent with the right opportunities, this could unlock as much as US$130 billion* of productivity in the markets studied, including US$65.6 billion in China. 

This lack of access to the right talent is driving up the cost of recruitment for employers today. The extended time taken to find the right candidates, and the increased likelihood of mismatched talent leaving prematurely are costing companies a further US$19.8 billion** in avoidable recruitment costs.

Each market is assigned a Talent Adaptability Score*** based on five key behavioural factors, and provides an indicator of a market’s ability to respond to future shifts in demand, rather than being a snapshot of current economic performance. Scores vary significantly by country (see table), with the Netherlands’ multilingual workforce and international business base placing it first in the ranking.

Emerging markets India and China have lower scores due to the existence of fewer mature sectors and their geographic size, which limits talent mobility.

Commenting on the findings, Michael Rendell, Partner, Global Head of HR Services practice at PwC, said: “Worldwide unemployment continues to rise while jobs remain unfilled, and CEOs are worried about a growing skills gap. The better employers and employees are at adapting to changing circumstances and aligning their skills with the available opportunities, the more productive organisations will become."

David Cohen, Senior Director of Sales, EMEA, added: “Countries increasingly differentiate themselves in the global marketplace via their human capital. Up until now, it’s been challenging for them to assess the skills, knowledge and experience of their workforces due to the dearth of professional data. We’re hopeful that countries will leverage the insights uncovered in Adapt to Survive to maximise the efficacy of their human capital and create more opportunities for their workforces.”

Country by country findings

Rank Country Talent Adaptability Score** Lost Productivity Opportunity* Avoidable
Size of the prize*
1 Netherlands 85 - - -
2 UK 67 1.44 billion 0.43 billion 1.87
3 Canada 61 1.86 billion 0.11 billion 1.98
4 Singapore 57 0.22 billion 0.06 billion 0.29
5 US 57 29.34 billion 2.37 billion 31.71
6 Australia 52 3.65 billion 0.37 billion 4.02
7 France 41 3.23 billion n/a billion 3.23
8 Germany 39 4.92 billion n/a billion 4.92
9 Brazil 36 11.71 billion 0.07 billion 11.77
10 India 34 8.61 billion 0.38 billion 8.99
11 China 23 65.58 billion 16.02 billion 81.61

TOTAL - 130.56 19.81 150.38

*all figures US$
**scores are relative (a score of 100 would mean a #1 rank in each of five variables)

Read the full report here.

 *PwC first created a benchmark for adaptability based on five key variables - the Talent Adaptability Score - and then cross-referenced this score with the stated productivity of employers in each of the 11 markets through PwC’s Saratoga database of 2,600 employers. This allowed PwC to equate improvements in adaptability of each market’s workforce with increases in productivity. PwC have taken a conservative approach by asking “what productivity could be unlocked if everyone was as adaptable as the Netherlands? If you apply their adaptability to each of the 11 markets in this study, there is approximately US$130 billion of potential productivity to be gained.

**PwC's Saratoga database captures information on the amount of resignations that occur for people with less than one year of service. This is widely regarded as unwanted, and often avoidable turnover, indicative of a mistake during the recruiting process resulting in a poorly matched employee. Through the Saratoga database, PwC were able to estimate the number of new hires made in a country in one year, and then determine how many of these resigned within 12 months. PwC were also able to estimate how many hires would have resigned in the first year if they were performing as well as the Netherlands (4.8% first year resignation rate). By taking the difference between the actual number currently happening, and the better performing number, then PwC could calculate the number of 'excess' hires in a given year. Combining this with the cost per hire allows PwC to calculate the savings potential in the 11 markets analysed of US$19.8 billion.

***The Talent Adaptability Score used LinkedIn profiles and metrics from PwC Saratoga to assess each country in five areas:

  1. The promotion rate (scaled to take account of growth in the home market) – which indicates the reward offered by employers as the value of talent increases
  2. The market vacancy rate – the lower the vacancy rate, the better the fit of talent to available jobs
  3. Average number of profile positions – the number of positions that professionals list on their LinkedIn profile, which is an indication of the liquidity within the given market
  4. Average number of employers – the average number of employers each individual has had, in any sector, which is a proxy for liquidity of opportunity
  5. The industry switching rate – the rate at which professionals switch between different sectors, which shows their willingness to apply their skills to different areas.