Although both India and China each boast populations of more than a billion souls, the two giants also face severe labor shortages in key areas. Via the New Economist, a Bloomberg column on the situation faced by Indian call centers.:

To maintain its global share of 65 percent in information technology and 46 percent in business-process outsourcing, the country will need 2.3 million professionals by 2010. According to McKinsey’s calculations, India may face a deficit of as many as 500,000 workers. As much as 70 percent of the shortage will crop up in call centers and other back-office businesses, where proficiency in English is the No. 1 prerequisite for landing a job.

People within the Indian outsourcing industry are aware of the problem: A number of executives cite high employee attrition and galloping wages as signs that the labor market for undergraduates in India is getting tighter.

It isn’t obvious why that should be so. In a country where millions of educated young people are unemployed, why do call centers feel compelled to give pay raises of 10 percent to 15 percent a year? Why don’t they boot out the highly paid workers and grab the eager aspirants?

And why do they offer their employees free dance lessons on top of a $4,000 annual wage — worth $36,000 when adjusted for purchasing power in the local currency — when they can’t pass on the increase in costs to the U.S. bank or the European insurance company that is paying for the call centers’ services?

The answers may have a lot to do with India’s education system. A labor shortage is bound to surface unless India’s colleges can produce more employable graduates.

McKinsey produced a similar item on China’s plight a few weeks earlier. While this may raise concerns on whether China and Indian have the human capital needed to sustain their booming economies, overall it should be seen as an amazingly good thing. The end result of this is a push for higher wages and improved education in both countries.

Technorati Tags: asia, china, east asia, economy, india, northeast asia, south asia