As of the first quarter of 2006, according to the U.S. Bureau of Labor Statistics, unemployment for knowledge workers (defined broadly as anyone with a bachelor’s degree or higher) was hovering just above two percent, and on the decline throughout the U.S.A. Seventy-six million baby boomers will retire in the next five years to be replaced by a generation only half as large. We are on the verge of a more acute and protracted “War for Talent” than that faced in the late 1990s. However, this time the talent war will be much more cross-cultural, multigenerational and global.

In today’s age of talent, leaders must become preoccupied with the challenges of assembling, deploying and keeping a workforce that is as good as or better than that of the competition. In the long run all other opportunities and threats pale by comparison.

Today’s market for talent in North America and much of Europe is characterized by the following:

In the 1950s, fewer than one in 10 American workers were college educated. Between 1965–1985, these numbers increased by over 300%. Today, more than 30% of the U.S. workforce possesses a Bachelor of Arts or better. In the past 20 years, however, growth has been limited to a mere 20%, and since 2000 it has flattened altogether.

At the same time, boomers, who started the trend to mass higher education, are beginning to leave the workforce. The retiring population possesses greater human capital than those joining. On an average, boomers are only slightly less educated than today’s 25–34 year-olds. Yet, they are far more experienced and knowledgeable. Whereas in the past, a much better educated workforce replaced the one retiring, which is not the case today. The imbalance in experience means the quality of the workforce may actually decline for the first time ever.

Immigration to the Rescue?

The U.S.A. and much of the western world have long enjoyed an advantage in attracting the world’s skilled and talented people. The U.S.A. in particular has always welcomed ambitious migrants from across the globe. And while it may still be among the most attractive destinations for top talent, recent security measures and restrictions on immigration in the U.S.A. have resulted in a greater than 30% decline in arrivals of skilled foreign workers and students since 2001. The timing is particularly bad since it coincides with an intensifying global competition for talent.

Around the world, countries are waking up to the fact that they must attract and keep talented workers. Indeed, in many countries, including India and Ireland, calls for expatriates to return home have become louder and more successful. Everywhere governments and industry are working together to stop the outflow of knowledge workers. American and European firms will find it increasingly difficult to convince top talent to emigrate. The battles for talent will occur both overseas and offshore.

And yet in India and China, where one-third of humanity lives, skilled talent is in short supply. India produces 2.5 million new college graduates per year, but it is estimated that only 10%–25% possess the skills and language abilities necessary to work for a U.S. or Western European firm (in China and other developing Asian markets, the proportion is much smaller).

The McKinsey Global Institute predicts pockets of skills shortages in India by 2008. China faces declining workforce growth starting in 2012. There is no time to waste, therefore, in creating the alliances and networks necessary to gain access to skilled talent in these and other countries.