Next generation of leaders and laggards in a new era of labor: PGIM study

Global labor markets are at a critical turning point, with significant structural changes underway that will create future labor shortages, inflation and headwinds to economic growth. New research from PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU), explores how macroeconomic forces are reshaping the global workforce and economy.

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“The combined effects of tighter labor supply due to aging populations, the rise of AI and the pushback on globalization will have a major impact on growth and inflation, as well as fiscal policy around the world.” -- Shehriyar Antia, Head of Thematic Research, PGIM (Photo: Business Wire)

In “The Transformation of Labor Markets: Winners and losers in a new era,” the latest in PGIM’s Megatrends research series, PGIM examines the drivers transforming global labor markets and the impact for investors determining future leaders and laggards across industries, regions and countries.

“Profound structural changes to labor markets were already underway prior to COVID-19,” said Shehriyar Antia, head of Thematic Research for PGIM. “The combined effects of tighter labor supply, growing labor market mismatches, the rise of AI and the pushback on globalization will have a major impact on growth and inflation around the world.”

KEY FORCES DRIVING GLOBAL LABOR MARKETS

In the report, PGIM identifies four forces underpinning structural change in labor markets:

1. Demographic trends reshaping global workforce: Notably the “dual aging” of companies and older, settled workers is dampening entrepreneurship and innovation, with the U.S., for example, seeing a decline in startups.
2. Structural mismatch in labor demand and supply: Labor mismatches are being amplified by technology, reshoring and industrial policy. For example, by 2030 the U.S. semiconductor industry expects more than half of the roles they need will be unfilled due to a lack of workers with the technical skills to manufacture chips.
3. AI brings automation from the factory floor to the office: Labor and tech have a complex relationship — AI both enhances productivity and replaces jobs. While it may eventually displace workers — especially in service industries such as law, finance, pharma research, and education — this won’t happen imminently and to the scale current headlines are suggesting.
4. Fraying globalization impact on labor patterns: With the “golden era” of globalization over, there are paradigm shifts underway which are being overlooked by investors. Migration, onshoring of global supply chains and the resurgence of labor bargaining power are all factors investors must consider given their potential to reshape growth, inflation, and monetary policy in this new era of labor markets.

“Technology and trends like the reshoring of supply chains are increasingly creating labor mismatches across advanced economies,” added Taimur Hyat, PGIM’s chief operating officer. “This research points investors to where companies will find the skills they need to grow — an important factor to consider when making long-term investment decisions.”

TODAY’S REGIONAL LEADERS FACE CHALLENGES IN THE NEW ERA

“The reshaping of labor markets will create a new set of winners and losers by industry and region, added Taimur Hyat, PGIM’s chief operating officer. “It’ll be essential for investors to understand the far-reaching implications of these new dynamics” In the report, PGIM creates a framework for evaluating labor supply, labor quality and policy environment.

The study finds that many of the current leaders will struggle to meet future demands for labor. Meanwhile, new and unexpected nations are better placed to take advantage of the labor transformation. The findings include:

• In Asia, China will be greatly challenged to meet their future demand for labor. China’s steep demographic drop-off and net negative migration means it scored poorly on labor supply.
• Largest economies in Europe will be challenged while smaller countries like Sweden and Switzerland are better positioned. Germany, Italy and Spain will be challenged in the new era by a steep demographic drop-off that is not likely to be resolved by current immigration policies.
• In the Americas, current regional leaders Mexico and Brazil will be challenged as both face steep demographic challenges that are unlikely to be mitigated by current trends in migration or female labor participation. In addition to Canada and the U.S., Chile and Costa Rica are well positioned for the new era of labor.
• While African leaders South Africa, Egypt and Nigeria have favorable demographics relative to nations in other regions, they scored poorly on labor quality and ease of doing business.

A DEEPER DIVE INTO THE U.S.

PGIM also collaborated closely with the Brookings Institution to take a more granular look at the labor characteristics of U.S. states and cities. The study found:

• States such as Oregon and Wisconsin have the highest potential to boost local productivity and growth.
• Cities with major universities supplying scientific and research talent are attractive even in otherwise challenged states. For example, Mobile, Alabama, is a hub for skill-adjacent industries like aviation and aerospace, as well as chemical and machinery industries.

For more, read “The Transformation of Labor Markets” and visit PGIM’s Megatrends 360 for investment insights categorized across asset classes, themes and regions.

ABOUT PGIM

PGIM is the global asset management business of Prudential Financial, Inc. (NYSE: PRU), a global investment manager with more than $1.2 trillion in assets under management as of September 30, 2023. With offices in 18 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate and alternatives. For more information about PGIM, visit pgim.com.

Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit news.prudential.com.

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