Human capital powers today's knowledge economy

Ejaz Ghani | Published: November 22, 2018 20:55:24 | Updated: November 25, 2018 20:45:05


More than 3.0 per cent of all people live outside the country of their birth. But while the share of migrants in the world's population has remained mostly stable for six decades, its composition has changed. The share of high-skilled migrants relative to low-skilled migrants has grown dramatically, owing to the globalisation of demand for talent. And this development has a clear geographic dimension. Nearly 75 per cent of all high-skilled migrants reside in the United States, the United Kingdom, Canada, and Australia; over 70 per cent of software engineers in Silicon Valley are foreign-born. But today's leaders could well be tomorrow's laggards.

Many factors are driving the shift in the composition of migration flows, including the Fourth Industrial Revolution, declining transportation and communication costs (high-skilled migrants tend to travel farther to their destination countries than do less-skilled migrants), and limited educational opportunities in source countries. The main cause, however, is the growing recognition that human capital plays a key role in today's knowledge economy.

A worldwide "war for talent" is being waged, and enterprises that manage their global talent pool well are marching ahead. Most multinational corporations now insist that high-potential executives gain global experience by working in other countries, and they have made international mobility a prerequisite for senior leadership positions. Some of the global economy's most familiar players - including Google, Microsoft, Alcoa, Clorox, Coca-Cola, McDonald's, Pepsi, and Pfizer - have immigrant chief executive officers (CEOs).

But demographics also play a key role in global migration trends. Whereas most of the developed world is aging, many developing countries have a growing share of young people. In India, there are four 20-year-olds for every 65-year-old; in Western Europe, that ratio is one to one. At the same time, average earnings in high-income countries are 70 times higher than in low-income countries. Combined, these demographic and wage differentials have become a strong impetus for migration.

Though the global talent race initially led developed countries to create special visas to attract high-skilled professionals, political sentiment toward migrants in those countries has since turned negative. Migration has come to be seen as a threat to native workers in host countries, even though empirical evidence shows that its labour-displacement effect is very small. In Silicon Valley, for example, immigration has not led to a decline in wages or the return on skills.

Migrants' adverse effect on a host country's public finances is also very limited. Migrants may initially impose a net cost on their host society, but it is small and more short-lived than the cost of schooling a newborn native. More important, highly educated immigrants have actually contributed positively to public finances in developed countries, because these workers pay more in taxes than they use in public goods and services.

Global talent mobility is also beneficial for source countries, because it helps to integrate them into world markets. This makes up for some of the shortcomings that firms in developing countries face as a result of lower public investment, inadequate training and equipment, and scarce financial resources to purchase technology licenses or intellectual property. To be sure, emigration is not an optimal long-term method for improving productivity in a knowledge economy; but it does accelerate technological diffusion in the short run.

Another potent force for global economic integration and exchange is the Internet, which some have come to view as a substitute for global mobility. But while the Internet does allow for some forms of labour to be provided at a distance, it has not displaced diaspora networks. Though information and communications technology (ICT) has reduced the importance of traditional diaspora connections, ICT innovations have also been complemented by these connections. For example, the exchange of knowledge and technology through India's links with its diaspora has allowed that country to leap-frog over traditional development stages.

All told, the world has benefited enormously from increased global trade and capital mobility. Now, it is time to reap the benefits of talent mobility. Unlike trade and finance/capital, migration remains highly restricted, even though economic growth depends in large part on the availability of employment opportunities and higher returns on labour, which in turn require mobility, both globally and nationally.

Policymakers have many tools to improve global talent mobility. The multifaceted nature of the issue calls for more partnerships between the public and private sector. Firms and universities are the frontline participants in the global talent race, but global-governance organisations, multilateral development banks, and civil-society groups also have key roles to play. So, too, does technology, which now allows for virtual talent mobility through video conferencing, digital platforms, online labour exchanges, and other applications.

The global talent race will continue to accelerate as countries and businesses compete for the best and brightest. Middle-income non-OECD countries - particularly China and India - are becoming an increasingly important destination for high-skilled labour. As these countries grow, the global economic clout of the advanced economies will continue to diminish. The race is on.

Ejaz Ghani is Lead Economist at The World Bank.

Copyright: Project Syndicate, 2018.

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