The Global War For Talent


1 January 2007 David Bartlett


Liberalised immigration policies generally lead to a better business climate and a stronger national economy. However, many countries are restricting immigration, making it hard for multinational companies to compete for skilled workers explains David Bartlett, economic advisor to RSM International.


The global bidding for human capital has become a central axis of corporate competition. Human resource managers of multinational firms cite recruitment and retention of talent as their foremost challenge in the coming years. Small and medium-sized enterprises, many of which occupy high-technology niches vacated by multinationals, also report looming shortages of skilled employees. The mounting international competition for talent reflects many demographic, economic and technological factors:

  • The rising technological content of many global industries heightens demand for qualified scientists and engineers, a growing number of whom are internationally mobile individuals enjoying a broad range of professional options
  • The increasing technological sophistication of global manufacturing boosts demand for production workers whose jobs require exacting technical / vocational skills
  • A shortage of scientists, engineers and mathematicians – a phenomenon especially notable in the US – increases reliance on foreigners
  • The ageing workforce and declining fertility rates in many industrialised countries hinder replenishment of the labour pool, trends particularly evident in Japan and Western Europe
"The global bidding for human capital has become a central axis of corporate competition."

The rapid expansion of skilled labour forces in key emerging markets further intensifies the global competition for human capital. China now produces four times as many scientists and engineers as the US. India has also become a major source of technological talent, including growing numbers of young professionals holding advanced degrees from leading universities in Europe and the US.

GLOBAL MIGRATION TRENDS

Internationally standardised census data compiled by the Organisation for Economic Cooperation and Development (OECD) and the World Bank provides valuable insights into the global war for talent.

Figure 1 shows the seven leading hosts of high-skill immigrants among the OECD countries. The US leads in both absolute and relative terms: in 1990, it hosted 6.2 million foreign-born holders of tertiary degrees, representing 49.8% of the OECD total. By 2000, the US stock of qualified immigrants had grown to 12.5 million or 50.7% of the OECD total.

The US enjoys several important advantages in the global bidding for talent:

  • The size and flexibility of the US labour market offers a broad range of professional opportunities
  • The density of world-class universities and research institutions attracts large numbers of foreign students who stay to work for US companies

The OECD / World Bank data indicates that the US is outperforming the EU in the competition for leading talent. Although a higher percentage of Mexican nationals in the EU hold advanced degrees than those in the US (52% vs 14%), for every other country studied the US surpasses the EU. The US even enjoys a lead in the recruiting of tertiary degree holders originating from the EU itself.

"China now produces four times as many scientists and engineers as the United States does."

Despite its status as the world's second largest economy, Japan hosted just 286,000 tertiary degree holders in 2000, marginally more than much smaller countries like Switzerland, the Netherlands and New Zealand. The Japanese Government recently relaxed immigration laws to boost inflows of skilled foreign professionals. But the Japanese labour market remains the most insular of the advanced industrialised countries, auguring poorly for Japan's capacity to offset its adverse demographics via immigration.

On the outmigration side, Mexico is by far the OECD's leading source country, with 8.4 million emigrants in 2000, the majority of whom are unskilled workers residing in the US. The UK is the primary source of skilled emigrants, producing 1.4 million qualified expatriates in 2000 or three times the level of the US (see Figure 2).

Combining the immigration and outmigration data permits calculation of the net effects of global movements of skilled workers. Net 'brain gain' in the OECD countries in 2000, measured as (1) high-skill immigrants vs high-skill expatriates and (2) that differential as a share of the working-age population, reveals that Australia, Canada, Luxembourg, the US, Switzerland, Sweden and New Zealand are the winners in the competition for talent. Mexico, South Korea, Poland, Italy and the UK are the largest net exporters of skilled workers. With net imports of 9.9 million advanced degree holders, the US accounted for 83.6% of the OECD's overall brain gain in 2000.

THE POLITICS OF IMMIGRATION REFORM

But while the US remains the foremost destination for skilled foreign professionals, recent legislative setbacks threaten the country's lead.

Security concerns following the September 11 attacks prompted Congress to slash the annual cap on H1-B visas (which allow employer-sponsored foreign professionals to work in the US) from 195,000 to 65,000, a quota that represents just 1% of the country's total science and engineering workforce and that falls significantly short of the declared needs of US high-tech companies. Meanwhile, growing public rancour over undocumented immigrants (numbering between 10 and 12 million and originating chiefly from Mexico) has clouded the issue.

As the political environment surrounding immigration deteriorates in the US, other developed countries are enacting proactive measures to attract foreign talent. For example, Australia, Canada and New Zealand are moving from quota-based to quality-selective systems that assign points to applicants with advanced skill sets. Similarly, the UK is migrating from a work permit regime to a multi-tiered system.

"Ageing workforces and declining fertility rates hinder replenishment of the labour pool."

But elsewhere in Europe, the politics of immigration is trumping economic logic. In May 2004, 12 of the EU-15 countries exercised the seven-year transitional period for liberalising immigration from the Eastern European accession countries. The experiences of the three that fully opened their labour markets to EU-8 workers at the time of accession – Ireland, Sweden and the UK – dispelled fears that waves of Eastern European immigrants would displace local employees.

Empirical studies by the European Commission show that immigration reform has generated broadly positive effects on the labour markets of those countries. Ireland (which, not coincidentally, was both the EU-15's best-performing economy and its most open labour market) experienced a two-fold increase in Eastern European immigration during the first year after accession, relieving bottlenecks of skilled workers in a small country whose global competitiveness hinges on its access to foreign talent.

Contrary to popular expectations, among the Eastern European guest workers reaching the three liberalised markets, there were fewer unskilled persons than among the local workers. The empirical record also belies fears of East European guest workers overwhelming national welfare systems. Of the 427,000 registered EU-8 workers reaching the UK after accession, only 1,777 have applied for income support and 3,519 for unemployment benefits.

The salutary effects of Eastern European immigration prompted four other EU-15 states (Finland, Greece, Portugal and Spain) to remove their restrictions in April 2006. But national authorities in Austria, France and Germany – facing large foreign communities and mounting political discord over immigration reform – elected to avail themselves of the full phase-in period for EU-8 immigrants.

The Netherlands retained Eastern European labour restrictions pending a review by the Dutch parliament in November 2006. Dutch authorities meanwhile enacted a new immigration rule that requires foreigners seeking residency to pass a civic-integration examination gauging applicants' receptivity to the country's liberal culture.

"The UK is migrating from a work permit regime to a multi-tiered immigration system."

This measure was aimed more at immigrants from North Africa and Turkey, whose role in Dutch society has become highly contentious following the 2004 murder of filmmaker Theo Van Gogh by an Islamic extremist.

But the worsening political climate facing the Netherlands' immigrant community bodes unfavourably for Dutch companies seeking to attract skilled professionals from the Eastern European accession countries.

More generally, current developments in the Netherlands illustrate the growing politicisation of immigration policy throughout Western Europe, whose demographic profile and global competitive position unambiguously signal the need for more – not fewer – skilled foreign workers.

Figure 1. The US is by far the biggest host country for tertiary degree holders in the OECD.
Figure 2. Mexico is by far the greatest source of expatriate workers, while the UK supplies most expatriates holding tertiary degrees.