Hamish McRae: Help! We're going to need to work: but where will the jobs come from?

Economic view: There remains a strong demand for people with high problem-solving skills

"Today 40 million workers across advanced economies are unemployed. At the same time, businesses in those nations say that they often can't find workers with the skills they need."

Click here to view the graphic

That is the introduction to a new paper, Help Wanted: The future of work in advanced economies, by McKinsey Global Institute, which tackles this sad paradox of our times. It is a thorough bit of work and deserves a wider audience.

The immediate cause for the surge in unemployment has of course been the recession, but behind this cyclical issue is the structural weakness of the mismatch in skills. Economic growth will not of itself bring the jobs, for many of the jobs lost will never return. But how do you know what the jobs of the future will be when they don't yet exist? You start by looking at what is happening now: the paper examines five ways in which the labour market is being changed.

First, technology is changing the nature of work. McKinsey divides jobs into three broad areas: interaction, transaction, and production. Production is self-evident, the turning of raw materials into finished goods, and it is here that the biggest job losses are being incurred. Factories are being automated: machines replace people. Transaction jobs are the routine ones involving, up to now, a human being: a travel agent or a bank teller. These now are being replaced by the new technologies: we buy our airline tickets online and bank on the internet. Both these types of job were in decline in the US through the 2000s, as the right-hand graph shows.

The other type of job, the area where there have been increases, are those involving a complex interaction between two people and needing problem-solving skills and experience. Examples would include being a lawyer or a nurse. In the US nearly all the net new jobs were in this area, but a similar phenomenon has occurred in all developed countries, including those with a large manufacturing sector, such as Germany and South Korea.

Now, within the private sector at least, the pressure is on to try to improve the efficiency of this interaction segment, by shifting part of the tasks of the highly skilled to lower-skilled co-workers – from lawyers to paralegals – and bringing in more part-time workers. McKinsey notes that this will create many more opportunities for people with mid-level skills.

The second big shift in the labour market is the skill mismatch: the rising premium on high skills. There remains a strong demand for people with high problem-solving and specialist skills and their pay has continued to rise. There is also demand for low-skilled people in jobs that cannot be traded internationally, such as food preparation. Between the two, job opportunities have been squeezed.

There is a host of evidence from across the developed world showing how the better-educated people are, the better employment prospects they have. Here in Britain the unemployment rate over the past decade for people without full secondary education is up two percentage points; the rate for graduates is steady. It is a huge challenge to lift skill levels to meet the demand.

Shift number three is the geographic mismatch, both within countries and between them. We have that in Britain, where the unemployment rate in the South-east is 6 per cent, half that of the North-east. Similar divergence happens in the US, where labour mobility is half that of 1989, and there are even greater practical barriers to job mobility within the EU, and between the developed world and the emerging world.

McKinsey argues that there should be a range of policies to try to tackle this, including using the new communications technologies to bring work to where the people are, and trying to spread economic development more widely.

Shift four is using untapped talent, especially of the young. The rise in youth unemployment is one of the most troubling features of the job market, as the left-hand graph shows.

Two other groups can help fill the skill gap: older workers and women. In Germany, which currently faces a shrinking workforce, researchers say they could add another 1.2 million people to the workforce if the country reached the same level of participation as Sweden. If the country's female participation rate was the same level as Sweden's, Germany could have another 2 million workers by 2025.

Finally, there are growing disparities of income. We rightly worry a great deal about this in the UK, but the problem is pretty universal. A study by the OECD shows that over the past 25 years there are only four countries where the income of the bottom 10 per cent of households increased significantly faster than that of the top 10 per cent: Ireland, Spain, Portugal and Greece. We now know those four countries followed paths that were not sustainable. The UK is pretty typical, in much the same broad area as Sweden, Finland and New Zealand.

So what's to be done? McKinsey sketches three broad approaches. One is to have sustainable macroeconomic policies, and I don't think anyone would quarrel with that.

The second is to focus on developing human capital at every level. This must be right too. In a world where other forms of capital flash around the globe, developing the education and skills of your own people is a crucial element of competitiveness.

And the third is to develop infrastructure, foster entrepreneurship, and cut regulation with an eye on job creation. One of the reasons why Spain has such high unemployment is that it is very cumbersome to start a business there. But it is not just Spain. McKinsey adds: "Even the most business-friendly countries have regulatory barriers that stand in the way of job creation."

Footnote to that: our Chancellor's new Finance Bill, at 686 pages, is the largest in history. It is not easy to simplify, is it?

Drivers fretting about petrol prices have an unlikely ally: the Saudi oil minister

Are oil prices too high? It is a silly question, you might think, but it is not just we consumers in Britain who fret about the rising oil price. Last week, the Saudi oil minister, Ali al-Naimi, agreed.

Saudi Arabia vies with Russia to be the world's largest oilproducer, and is still the largest exporter, so you might think it would like the highest price. Not so, for the kingdom has long argued in favour ofstable prices and used the spare capacity of its fields as the swing producer of Opec, boosting production when demand was high and cutting back when low. It believes that excessively high prices damage Saudi long-term interests, partly because they disrupt the world economy but also because they encourage diversification away from oil.

Mr Naimi (left) made two main points. One was that in his view the oil price was inflated by a perceived shortage of oil rather than a real one. The other was that Saudi Arabia has plenty of spare capacity to increase production should it be needed, for example were there disruption in supply from Iran.

His background was as an engineer at the national Saudi oil producer, where he had a successful career, ending up as chairman. So this is not just a politician talking.

If he is right, this is important. The one single thing that would nudge this mediocre global recovery into something a little sharper would be lower energy prices. In the longer term the oil price sets a base for energy prices generally, but, in addition, any change in fuel prices has a direct impact on consumer demand. It is like a tap being turned on or off, for moneyspent at the pumps is money not available to be spent in the supermarket. Even a slightshading down would, right now, be most helpful.

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