Human capital: a critical challenge for modern economies

The global talent shortage

At its heart lies a stark reality: by 2030, more than 85 million jobs globally could go unfilled due to a lack of skilled workers. This talent gap, roughly equivalent to the population of Germany, could result in about $8.5 trillion in unrealised annual revenues worldwide.

This crisis is already unfolding. A recent survey by ManpowerGroup revealed that 75% of employers worldwide report difficulty filling roles, up from 69% in 2021 and 45% in 2018.

These shortages are not just critical for individual businesses but central to the health of the modern economy too. Nearly every industry, from technology and healthcare to manufacturing and professional services, faces growing demand for skilled workers. For example, 77% of employers in the Health Care & Life Sciences industry report difficulty filling roles.

Source: ManpowerGroup – 2024 Global Talent Shortage Infographic

These shortages translate into unfilled positions, reduced productivity, and lost opportunities for growth, threatening both individual company success and broader economic prosperity. The issue is particularly acute in industrial sectors where manufacturing, operations, and logistics are among the top five technical skillsets employers report most difficulty finding.

In the US, manufacturing adds $2.85 trillion to the US economy, accounting for 10.3% of the country’s gross domestic product (GDP). The manufacturing industry employs 13 million people, and there were 601,000 manufacturing job openings to be filled as of December 2023.

And this is not just a problem for developed economies. Emerging markets are also feeling the pinch. In India, for example, 81% of companies report difficulty filling roles, despite the country’s large and growing workforce.

Source: ManpowerGroup – 2024 Global Talent Shortage Infographic

Several factors are driving this talent shortage

Demographic changes, including aging populations in many developed countries, are reducing the pool of available workers. The rapid pace of technological change is creating demand for new skills faster than education systems can produce graduates with the right expertise. At the same time, the transition to a low-carbon economy is creating new green jobs that require specialised skills.

However, the threat to the world’s talent supply is drawing attention, with governments and businesses starting to drive investment in education and skills development. Workforce development programs are proliferating, with a focus on reskilling and upskilling workers. In the US, for example, the CHIPS and Science Act (CHIPS Act) includes a provision for workforce development in the semiconductor industry, a fast-growing and innovative sector facing critical talent shortages, exacerbated by geopolitical motives to relocate factories.

Companies are also reimagining their approach to talent. Many are investing in training and development programs. Others are exploring new ways of working and new sources of talent, including tapping into underutilised demographics or geographic regions.

Technology is also playing a crucial role in addressing talent shortages. Automation and artificial intelligence are being deployed to augment human workers and fill gaps in the workforce. These technological solutions are not only helping businesses cope with the current talent shortages but are also creating new investment opportunities. Companies at the forefront of developing and implementing these technologies are attracting attention from investors looking to capitalise on these trends

Automation

An example of a company helping address the talent shortage is Siemens – an industrial technology conglomerate. Siemens is a global leader in industrial automation and digitalisation, offering solutions to address talent shortages and workforce challenges. Its comprehensive portfolio of automation and digitalisation solutions boosts business productivity and efficiency, effectively doing more with fewer workers.

Siemens’ Digital Industries segment, which includes factory automation and industrial software, offers products ranging from industrial internet-of-things (IoT) platforms to advanced robotics, helping manufacturers automate processes and upskill their workforce.

Siemens is committed to solving the world’s critical workforce challenges with innovation and expertise. The focus is on developing technologies that enhance human capabilities, reduce manual labour, and support sustainability efforts. This includes digital tools that combine smart and connected technologies. An example is its Industrial Edge system – a distributed computing platform that brings real-time analytics and artificial intelligence to the shop floor, enabling predictive maintenance and optimising production processes.

Artificial Intelligence (AI)

RELX is a global provider of information-based analytics and decision-making tools that enable professionals – scientists, doctors, and lawyers – and business customers in more than 180 countries to be more productive, make better decisions, and get better results. Many of its products are well recognised command oligopolistic market positions (e.g. Elsevier science journals and LexisNexis), and are proprietary in nature.

The use of AI at RELX isn’t new. For well over a decade, the company has been combining its rich data sets and leading content with AI and other technologies to create effective solutions for its customers. And the group’s management expects this to remain a key driver of growth in the business for many years to come. RELX spends $1.7bn on technology each year, and more than half of its 11,000 technologists are software engineers.

There are ten products that incorporate generative AI and are already transforming the way people work. One example is Lexis+ AI™ for legal professionals, which features conversational search, legal drafting, summarisation, and document analysis. Importantly, Lexis+ AI™ answers are grounded in accurate and exclusive legal content from LexisNexis, minimising the risk of invented content or hallucinations. According to RELX, legal professionals save up to 11 hours a week using Lexis+ AI™.

Transformers

There are other less-obvious companies, such as Persimmon that are addressing the skills shortage by working smarter. Persimmon is one of the UK’s leading housebuilders. Headquartered in York, it employs 5,000 people and operates from 29 regional offices across the country, under the brand names of Persimmon Homes, Charles Church, and Westbury Partnerships. The company’s homes are attractively priced, with average selling prices more than 20% below the UK national average for new builds.

Housebuilders are increasingly turning to modern methods of construction to address an industry-wide chronic labour shortage. These are more efficient than traditional methods and less impactful on the environment, too.

According to the latest Construction Skills Network report, the UK needs to hire 251,500 extra workers by 2028 to deliver current construction output. And this skills shortage is expected to widen due to an aging workforce and a decline in the number of apprentices entering the industry.

Last year, Persimmon invested in industry-leading modular housebuilder TopHat. Persimmon is pairing TopHat’s innovative brick-façade modular units with its own Space4 timber frames in a trial to create prefabricated walls that are completely watertight, highly insulated, and have windows already installed. This method of construction has the potential to halve build times compared to traditional methods.

Back to the Future

For those looking for broad exposure to the human capital theme or for whom single-stock exposure is incompatible with their risk profile, there are also investment trusts and exchanged-traded funds (ETFs).

Scottish Mortgage Investment Trust (SMT.L) – an actively-managed fund run by Ballie Gifford – offers investors exposure to companies addressing the global talent shortage through technological innovation. With a focus on high-growth, disruptive businesses shaping the future of work and industry, its long-term approach aligns well with the ongoing nature of talent shortage, as innovative solutions are likely to be in demand for years to come.

A unique aspect of Scottish Mortgage is its ability to invest in both public and private companies. This gives investors access to cutting-edge firms that may not yet be available on public markets. For example, Zipline is a drone delivery company that is revolutionising logistics with its autonomous drones. By automating last-mile delivery, especially in hard-to-reach areas, Zipline helps mitigate shortages in delivery personnel and enables more efficient distribution of resources. The trust also owns Meta, which is investing heavily in virtual and augmented reality to create more immersive and inclusive work environments. The vision for the metaverse is to enable seamless collaboration regardless of physical location, potentially solving many challenges associated with remote and hybrid work.

While Scottish Mortgage is not exclusively focused on solving talent shortages, its emphasis on the transformative technologies of the future makes it ]relevant to this theme.