Digital platforms offer a talent for GDP growth, says McKinsey

Stuart Lauchlan Profile picture for user slauchlan June 4, 2015
Summary:
Increased output, increased employment, increased GDP - what's not to like? If McKinsey's right, boom times lie ahead for digital talent platforms.

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Online talent platforms could ‘revolutionize’ the world labor market and increase global GDP by $2.7 trillion.

According to a new report from consultancy McKinsey - A labor market that works: Connecting talent with opportunity in the digital age - online talent platforms, including the likes of monster.com and LinkedIn, if used better, could increase employment by 72 million full-time-equivalent positions.

McKinsey makes some bold claims:

  • Up to 540 million individuals could benefit from online talent platforms by 2025.
  • As many as 230 million could shorten search times between jobs, reducing the duration of unemployment.
  • 200 million people who are inactive or working part-time could work additional hours through freelance platforms.
  • 60 million people could find work that more closely suits their skills or preferences.
  • 50 million could shift from informal to formal employment.

The firm adds that, depending on the sector and workforce needs, companies adopting talent management platforms could also increase output by up to 9% and reduce HR and talent-related costs by as much as 7%.

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Source: McKinsey Global Institute

McKinsey breaks down the talent platform space into a number of distinct categories, beginning with those that match individuals with traditional jobs, most notably LinkedIn, but also including the likes of Germany’s Xing and France’s Vladeo. These have a specific function, says McKinsey:

Recruiters and human resources professionals increasingly use these
talent platforms for “passive recruiting”—that is, they seek out and contact individuals they want rather than placing an ad and waiting to see who responds. This trend favors highly specialized talent in fast-growing industries.

Next up are the platforms that connect contingent workers with specific tasks or assignments, such as TaskRabbit, Angie’s List, Upwork and Amazon Home Services. Into this category can also be placed the likes of Uber and Sidecar, platforms that deliver one type of specialized freelance service. Mckinsey notes here:

The quality of jobs being created through these on-demand service platforms is coming under increased scrutiny. For some workers, participation in contingent work may be their only option for getting by in a difficult labor market. But there is growing evidence that many use them to supplement income from other jobs. The availability of more flexible and self-directed options can also boost participation among people who are out of the workforce altogether.

Finally there are talent management platforms, such as PayScale and ReviewSnap:

Talent platforms are uniquely positioned to track the positions that employers are filling, the skills required, and career pathways that take people from education and entry-level positions into more fulfilling work. They can empower individuals—from high school students to workers seeking a mid-career change—with better information about educational investment and training.

Adding up the GDP

Circling back to that headline $2.7 trillion increase in global GDP, McKinsey puts what it calls its “modest assumptions” in context:

Our projections look at 2025, when Internet penetration will be higher and talent platforms will have evolved to a substantial degree. It is also important to note that our model also assumes that economies will have fully recovered from the Great Recession, with no slack in aggregate demand or the labor market; this implies there are jobs available for anyone who wants to work.

By 2025, there will be:

  • Increasing labor force participation and hours worked among part-time employees, based on evidence from around the world that people would work more hours if they could.
  • Reduced unemployment with the search capabilities and screening algorithms of online talent platforms enabling matches between needs and skills more easily. McKinsey suggests:

People who have felt trapped in stagnant local economies can gain insight into the opportunities they could realize by moving even a few hundred miles. This dynamic could be especially important for workers across Europe, where employment prospects differ radically from country to country.

  • Higher levels of labor productivity as talent platforms put the right people in the right jobs, thus increasing job satisfaction levels and making for happier, more productive workforces.

Not everyone’s going to share in this presumed GDP increase equally of course. The biggest impact will be seen in the counties with high levels of unemployment and low levels of participation, such as Greece and Spain.

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Source: McKinsey Global Institute

But...

So that’s all good, isn’t it? Well, up to a point. McKinsey concedes that there are some barriers in the way to this nirvana. including a need for:

expanded broadband access, updated labor market regulations, systems for delivering worker benefits, and clearer data ownership and privacy rules.

These blockages require policy-making initiatives to address them, says McKinsey, beginning with the first principle of affordable broadband access for all:

As of mid-2014, less than half of China’s population and less than 20 percent of India’s population were online, for example. In the United States, which has one of the highest Internet penetration rates in the world, some 50 million people remain offline. As talent platforms become the most accepted and efficient way to find work, bridging the digital divide becomes even more critical for inclusive growth.

The growth of freelance, part-time and contingent employment is likely to be fuelled by digital platforms. This raises problems in its own right:

This will likely necessitate rethinking some labor market regulations. There are questions, for example, about whether the large contingent workforces employed by on-demand service platforms should be classified as regular employees or as contractors (or a hybrid category yet to be defined). This will determine whether some types of regulations (including minimum-wage laws) apply to them.

Finally there’s the double-edged sword of data capture and exploitation. McKinsey notes:

Online talent platforms are able to capture rich troves of data on the positions
that employers are filling, the skills required, and career pathways that take people from education and entry-level positions into more fulfilling work. Capturing this data and applying sophisticated analytics could produce better insight into how the demand for specific skills and occupations is evolving—in greater detail and something much closer to real time than traditional labor statistics…This information would be valuable to policy makers, companies, and individuals alike.

But it warns:

The issue of data ownership in an age of social media is not unique to online talent platforms, but resolving the question of whether employers, platform providers, or individual workers own this data—as well as who is entitled to use it and under what conditions—will be of increasing importance.

Overall though, the prognosis for talent platforms is upbeat, with McKinsey concluding:

Online talent platforms will not sweep away all the roadblocks that impede the smooth functioning of labor markets. They cannot, for example, address weak aggregate demand or create better-quality jobs across the board. But they can make a much-needed difference in how well economies perform one of their most basic tasks: connecting individuals with productive and fulfilling work.

These are early days in their evolution, but as these platforms rapidly expand, the cumulative benefits are growing. Capturing their full potential will require a thoughtful policy framework, private-sector investment and innovation, and—perhaps most important—a whole new level of adaptability on the part of individual workers.

My take

My initial reaction to the $2.7 trillion boost figure was a cynical smile and an assumption of 'think of a number and double it', but actually McKinsey's broken out its calculations well in the full report, to the extent that it doesn't seem entirely implausible.

But the most important thing here is the need for broadband access for all. Without that, the potential of online platforms will be massively impaired. Then there's the need to face up to new disruptive models of employment - the Uber-ization that Salesforce President Keith Block was talking about in London a few weeks ago. Those models require serious attention from the policy makers and regulators.

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