Latam's Perfect Timing in the Global Talent Market

The current labor market is navigating a complex and evolving landscape. HR departments are still debating whether the pandemic-driven initiatives, like full-time remote work, remain relevant in today's context. Beyond the question of returning to the office, reports from international organizations such as the International Labour Organization (ILO) paint a picture where long-term sociological trends have merged with pandemic effects, the integration of cutting-edge technologies, and a diverse mix of generations working together on the same projects.

A notable long-term trend is that the labor markets in advanced economies are tighter than they've been in two decades, largely due to an aging workforce. These economies are facing demographic challenges like population aging and a shrinking labor force, which contributes to the talent shortage. Key sectors in these countries are struggling to fill positions due to a lack of skilled workers, exacerbated by low birth rates and an aging population. According to ILO data, from 2000 to 2022, the share of workers aged 55 or older in the workforce increased from 13% to 22.5% in high-income countries and almost doubled from 9.8% to 17.8% in upper-middle-income countries.

Labor shortages occur when employers can't fill open positions due to a lack of suitable candidates. This situation arises from various factors, such as an overall worker shortage, a skills mismatch between what employers need and what candidates offer, a disconnect between worker expectations and job characteristics, or a combination of these elements. Ideally, short-term talent shortages are driven by cyclical factors like a sudden increase in worker demand or temporary labor supply constraints. However, a persistent shortage reflects an imbalanced labor market, which, if sustained over time, could signal serious macroeconomic issues.

In addition to the talent shortage, wages and labor mobility also play crucial roles in market adjustments. "Wage growth data from the United States shows that in 2021, wages began to rise in the sectors hardest hit by labor shortages, especially in hospitality. In the Eurozone, wage growth in 2022 was notable in accommodation, food services, transportation, and retail. Beyond these sectors, wage growth has been moderate," notes the “World Employment and Social Outlook, 2024” report. However, wage increases have been offset by the rising cost of living, absorbing much of the nominal gains. According to the International Monetary Fund, global inflation reached levels in 2022 not seen in decades. Price hikes, which initially hit energy-intensive sectors, have since spread across the economy, negatively impacting real incomes. Real wages in OECD countries fell in 2023.

Workers in advanced economies have steered clear of jobs with poor working conditions. A particularly interesting insight from the ILO highlights: "The ability to pay higher wages and improve working conditions is also linked to company performance. More profitable companies tend to do better in terms of employee well-being. Conversely, companies with worse working conditions tend to be less profitable."

The shortage of well-educated workers and an aging population in advanced economies meet a highly qualified and youthful workforce in Latin America. According to McKinsey, "Companies and economies will need to boost productivity and find new ways to expand the workforce. If not, they will struggle to surpass, or even match, the relatively moderate economic growth of the past decade" (McKinsey, 2024).

Latin America has a growing young population that has had access to top-tier education and is actively seeking job opportunities. This talent pool presents a significant opportunity for advanced economies through flexible migration policies or by embracing remote work. This could create a "win-win" scenario, where countries facing a talent shortage gain the workforce they need while young professionals from Latin America secure better career opportunities in more competitive markets.

In recent years, the percentage of companies in advanced economies hiring remote talent from Latin America has surged, especially in sectors like technology, customer service, and digital services. According to McKinsey, demand for nearshore talent grew significantly in 2023, with some platforms reporting an 800% increase in Latin American community members as more U.S. companies seek skilled workers from the region. The freelance economy, which includes remote work, is rapidly growing and valued at US$5.4 trillion globally.

Advanced economies are increasingly tapping into this talent pool to address their local skill shortages, a trend expected to continue in 2024.

The alignment of social trends over the medium and long term is now clearly reflected in today's labor market. As demographic shifts, technological advancements, and evolving work preferences converge, the global workforce faces unprecedented changes that demand proactive responses. Fortunately, the international landscape is well-equipped with both technological innovations and legislative frameworks to help navigate these challenges. Tools such as EOR, cross-border remote work platforms, and progressive labor policies are providing new avenues for companies and economies to bridge gaps in talent shortages and improve productivity.
Sources:

• wpiea2020019-print-pdf.pdf

• wcms_908142.pdf

• Which countries have the oldest populations? Japan and Italy | World Economic Forum (weforum.org)

• Labor markets: Tight in advanced economies | McKinsey