MainStreet Macro: Five Global Trends Reshaping the World of Work

As we welcome 2023, the global economy is in a precarious place, with the growth outlook likely to slow for a second straight year in 2023. In addition to global growth, there are other trends that could be as important, if not more important, to the economy this year and in years ahead. As you plan for the new year, keep in mind these five global growth trends that are reshaping the world of work.

1. The big slowdown

The war in Ukraine, high inflation, and China’s economic chill are likely to contribute to slower global growth in 2023. 

It’s a big turnaround from 2021, when economic growth soared to 6 percent after governments stepped up spending in the face of pandemic lockdowns. Things cooled down in 2022 as cost-of-living increases weighed down many advanced economies.

This year, growth is likely to slow further still in the face of geopolitical risk, uncomfortably high inflation, and a third, more insidious dynamic – weak productivity. 

Be it France, China, or Brazil, there’s only one way national economies can grow over time: Workers need to become more productive, and that has become a worldwide challenge. Labor productivity is on the decline, which means workers are taking more time to deliver fewer goods and services.

This is no short-term trend. Recession or not, this enduring shift threatens to constrain economic and wage growth over the long run.

2. The persistence of inflation 

Globally, inflation is expected to moderate in 2023 from the sky-high levels we endured in 2022. But it’s unlikely we’ll return to the same decades-long inflation slumber that Europe, Asia, and North America enjoyed before the pandemic.

In high-income countries, synchronized trends such as aging populations, automation, and globalization worked to keep inflation low for years.Those trends have been disrupted permanently.

In this new world, wage-setting becomes more complex, and employers can expect sustained uncertainty. Wages being paid today might not cut it for long as labor shortages endure and cost-of-living increases become steep or unpredictable. Turnover will continue to plague companies as in-demand workers switch jobs to secure higher pay.

3. The wage reset

It might seem like workers are in the driver’s seat, but that myth unravels when we look at real wages.

In November, U.S. real wage growth – that’s wage growth adjusted for inflation – fell by two percentage points. Globally, real wages fell nearly 1 percent in the first half of 2022, the first drop in this century, according to the International Labour Organization.

While the cost of living has soared in many places around the world, wages have not kept pace. Even with inflation set to moderate this year, wage growth will need to remain robust in order for workers to feel the full benefit of slower price gains.

During the global expansion that took place before the pandemic, low wage growth helped keep a lid on inflation. But pay still rose modestly faster than prices, which meant real wage growth was modestly positive instead of negative like it is now.

This dynamic has changed in the post-pandemic recovery. Wages have been eroded by inflation. As workers attempt to close the gap between prices and pay, their demand for higher wages has intensified.

Higher and more irregular pay jumps, elevated worker turnover, and wage compression between new hires and tenured workers have reset pay scales around the world as employers try to keep up.

4. The shrinking labor force

Since 1990, the global labor force participation rate has fallen steadily, from more than 65 percent of working-age people to less than 60 percent, according to a World Bank analysis of International Labour Organization data.

As the workforce has grown proportionally smaller, it also has become more regionally concentrated. Asian countries account for more than 57 percent of the global workforce. By contrast, the U.S., Canada, and Mexico combined make up 26 percent of global GDP, but supply only 5 percent of the labor force.

This mismatch between the geography of wealth and labor will continue to affect how business functions. In the past, worker mobility and immigration helped even out differences as wealthy countries attracted skilled and unskilled workers in search of better pay and prospects.

Now the political winds are shifting on globalization and immigration. Physical mobility might be supplanted by remote work that allows people to stay put while their jobs migrate. The impact of this new dynamic on wages is uncertain and could determine how tight the global talent market will remain in the future.

5. The accelerating digital economy

In 2005, only 16 percent of the global population used the internet. Today more than half of the world is online.

Internet usage climbed 5 percent during the depths of pandemic lockdowns as consumers worldwide shifted their spending, socializing, and entertainment to digital platforms.

In the business world, nascent technologies that supported remote work during the pandemic have gone mainstream. Even mom-and-pop outfits now have a digital presence supported by social media that transcends national borders. Consumers seamlessly integrate their brick-and-mortar window shopping with online price comparisons, while digital retail ads pop up to remind them of their purchase intentions.

In this new world, the challenge for companies is to make the digital more personal – to make the consumer or client feel special and keep workers engaged.

My Take

In the last two years, the world of work was forced to change due to an unprecedented pandemic. In 2023, change will be a choice.

The global trends I’ve laid out will influence the path ahead for employers and workers. The idiosyncratic needs of individual businesses will determine how these trends might play out at the local, national, and global levels. Not every company will, can, or should make the same decisions. Employer size, industry, location, and customer base all will come into play.

Collectively these choices will reshape the international labor market in ways that defy geographical boundaries, embrace technological advancement and incorporate the needs of a more dynamic global workforce.