The labor market can be approached from many perspectives. In the current public debate, it is most often viewed through the prism of employment stability and labor rights, or flexibility in hiring and firing employees. In an era of widely available cheap labor, such dualism in the perception of labor market problems was justified to some extent. Nowadays this is no longer the case. Almost all of the world’s major economies face the problem of an aging population, which is linked by logical necessity to a declining number of people of productive age. The times when an employee was easy to find are long gone. Likewise, the times when, for this very reason, employers have been rotating personnel with exceptional savagery, generating high instability of employment.
Declining labor supply would not be such a big problem if productivity grew in tandem with this phenomenon at an adequate rate. Unfortunately, the more developed the economy, the more problems it has in maintaining satisfactory growth in productivity. The most likely result of the collision of these two unfortunate trends – falling labor supply and low productivity growth – will be competition over people. Countries that, relatively to their peers, will be able to offer companies a better demographic structure,
a better-educated workforce, a greater ability to attract immigrants and lower employment costs will avoid stagnation and perhaps even achieve higher economic growth rates.
Our Labour Market Performance Indicator takes all these factors into account. Its final score, set on a 100-point scale, is meant to be a proxy of how countries are managing and a predictor of how they will perform economically. However, it also provides guidance to government officials on how to shape public policy on migration, regulation, education or taxation. It can be used by global investors making decisions to build factories or service centers – especially those where the final location of the investment is determined by small differences between the countries in question.