A new white paper from Bain & Company explores some dramatic changes that will affect talent management and the employee mobility function. A brief excerpt follows.
Demographics, automation and inequality have the potential to dramatically reshape our world in the 2020s and beyond. Our analysis shows that the collision of these forces could trigger economic disruption far greater than we have experienced over the past 60 years. The aim of this report by Bain’s Macro Trends Group is to detail how the impact of aging populations, the adoption of new automation technologies and rising inequality will likely combine to give rise to new business risks and opportunities. These gathering forces already pose challenges for businesses and investors. In the next decade, they will combine to create an economic climate of increasing extremes but may also trigger a decade-plus investment boom.
In the US, a new wave of investment in automation could stimulate as much as $8 trillion in incremental investments and abruptly lift interest rates. By the end of the 2020s, automation may eliminate 20% to 25% of current jobs, hitting middle- to low-income workers the hardest. As investments peak and then decline—probably around the end of the 2020s to the start of the 2030s—anemic demand growth is likely to constrain economic expansion, and global interest rates may again test zero percent. Faced with market imbalances and growth-stifling levels of inequality, many societies may reset the government’s role in the marketplace.
The analysis and business insights in this report can help leaders put these changes in context and consider the effects they will have on their companies, their industries and the global economy.
Some key implications follow.
Be wary of following market momentum—volatility will increase. The crosscurrents of multiple macroeconomic forces will ebb and flow at different times, making it dangerous to assume that signals indicate stable opportunities.
Trends that had longer trajectories up until now, such as falling interest rates or even growth itself, may reverse course far more rapidly than in past decades. Companies can prepare for such shifts by making resiliency a high strategic priority and actively managing and monitoring macro risks.
Middle-class markets are likely to erode. Many consumer-facing businesses design and market goods based on a three-tier household model, including a small upper-income tier, a small lower-income tier and a broad middle-income tier. Pressure on the middle class may favor a primarily two-tier structure, with upper-income households representing roughly 20% and lower-income households making up the remaining 80%. This change would trigger a dramatic shift in the way that companies segment goods and services markets within and across these tiers.
Expect an interest rate speed bump. Interest rates are likely to rebound upward (potentially rapidly) in the next decade before dropping back toward historical lows, making capital management for businesses and capital preservation for investors more challenging. Since the 1950s, interest rates have tended to rise or fall gradually with patterns in one direction or the other, lasting decades. An environment of volatile interest rates would expose companies and investors to a greater risk of being caught with exposures pointing in the wrong direction.
Automation could fuel a 10- to 15-year boom followed by a bust. The next wave of automation investment will create many opportunities but will grow increasingly perilous as it builds momentum. Companies may feel competitive pressure to invest in automation technologies, similar to the way they felt compelled to create global supply chains in the 1990s and 2000s. But to avoid being caught on the wrong side of the investment cycle, businesses and investors will need to pay greater attention to monitoring their risk exposure as the investment cycle progresses.
Highly skilled, high-income labor will grow increasingly scarce. The pace at which displaced workers retrain and migrate toward higher-skilled jobs will likely be too slow to alleviate shortages. The challenge for companies will be attracting, growing and retaining highly skilled talent and maximizing workers’ productivity by rethinking how their businesses are structured.
Baby boomer spending growth will peak in the 2020s before tapering. Compared with previous generations, baby boomers will extend the period of high-income earning and spending by about 10 years. The sheer size of this generation means there are considerable market opportunities for most goods and services, including big ticket items such as housing and transportation. But growth based on this demographic shift will become more concentrated among the top 20% of households.
More government in more places is likely. Faced with rising inequality, governments are likely to become more interventionist, using higher taxes and regulation to manage market imbalances. Governments may expand their role in the marketplace, similar to what was seen in the West between the end of World War II and the early 1980s, by shifting resources as well as becoming a direct buyer of goods and services.
Intergenerational conflicts will potentially rise, drawing in businesses. As retirees and the working-age population battle for resources, businesses may become indirectly involved. Businesses, management teams and even shareholders may add their voices to the conversation about government transfers as they grapple with existing pension obligations, the scarcity of highly skilled workers, social pressure to address job losses and declining incomes among mid- to low-skilled workers.
You can download read the entire report here.
