2.3 Employment and labour market trends
In this section, the analytical approach outlined in the preceding section is used to examine the main features of employment and labour market trends in the Asia-Pacific countries in an attempt to assess the progress towards full employment achieved so far. The analysis is based on data gathered from a variety of national and international sources. The detailed data are provided in Appendix tables 2.1 to 2.16 (pages 21 to 35), while selected or summary information is used in the text to support observations and to illustrate arguments.
The employment situation in the mid-1990s
Around 1995, the employment situation in most countries of the region fell significantly short of full employment. Among the advanced industrialized countries, only Japan, where the unemployment rate was around 3 per cent, could be said to have achieved full employment. The unemployment rate in 1995 was high in the other two countries C 8.5 per cent in Australia and 6.3 per cent in New Zealand.
In the more developed East and Southeast Asian economies, the unemployment rate was consistently low C just 2-3 per cent. Given the employment structure in these economies, such low rates of unemployment do suggest that a full employment situation prevailed in them. Indeed, that these economies had become labour-scarce is also indicated by the fact that all of them (but particularly Malaysia, Hong Kong (China) and Singapore) had sizeable groups of foreign workers in employment. According to available estimates, the number of migrant workers was 1.7 million (19.8 per cent of the labour force) in Malaysia, 0.45 million (23.9 per cent of the labour force) in Singapore and 0.3 million (9.4 per cent of the labour force) in Hong Kong (China). Even these estimates are widely believed to be underestimates.
Of the three other fast-growing economies of East and Southeast Asia, Thailand had a consistently low rate of unemployment (less than 2 per cent in 1995). Unemployment rates were higher in the other two countries C about 5 per cent in Indonesia and 8.8 per cent in the Philippines. Indonesia and the Philippines were also major exporters of labour and unemployment rates might well have been higher but for migration. Rough estimates suggest that 6.1-6.4 million workers (18-20 per cent of the labour force, including migrant workers) from the Philippines and 2.4 million workers from Indonesia (nearly 3 per cent of the labour force, including migrant workers) were reported to be employed overseas. Thailand, on the other hand, had attracted some migrant workers from neighbouring countries, particularly from Myanmar. About 1.3 million migrant workers were reported to be working in Thailand, and they made up 3.7 per cent of the labour force. Some Thai nationals were also working in other countries, but Thailand was still a net importer of labour. The incidence of poverty was low (just over 11 per cent) in Indonesia and Thailand but high (35.5 per cent) in the Philippines.
It would appear from this evidence that the employment situation in Indonesia and the Philippines fell well short of full employment, while that in Thailand was approaching full employment. In all three countries, however, agriculture's share in total employment was large (53.6 per cent in Indonesia, 41.7 per cent in the Philippines and 59.8 per cent in Thailand). Furthermore, it is known that the urban informal sector also accounted for a large share of total employment, though no precise estimates are available. Given these features, underemployment is likely to have been significant in all three countries. In Indonesia, around 39 per cent of employed workers were working for less than 35 hours per week. In the Philippines, 20 per cent of the employed were reported to be seeking additional work. Unfortunately, no comparable estimates were available for Thailand, but there is no strong reason to believe that the problem of underemployment was any less serious here than in the other two countries. Thus, when underemployment is taken into account, even Thailand cannot be said to have achieved near-full employment conditions. However, the employment situation in Thailand was clearly much closer to full employment than in Indonesia and the Philippines.
In the case of transition economies, the relevant information is available for only a very few countries. But given the structural similarities of these countries, a number of observations can be made on the basis of whatever information is available. Rural unemployment is generally presumed to be non-existent in these countries. Recorded urban unemployment rates were generally low (for example, 2.9 per cent in China and 5.4 per cent in Mongolia). However, the effective unemployment rate was actually much higher since a significant proportion of the employees in state enterprises in these countries were reportedly idle and were not even being paid regular wages; in China, for example, the effective urban unemployment rate was estimated to be about 7.5 per cent. Moreover, a fairly large proportion of the employees in state-owned enterprises, though retained in employment, was regarded as redundant; the proportion was estimated to be 15-20 per cent in the case of China.
Besides, agriculture accounted for a large share C between 30 and 70 per cent C of total employment in these economies and the share of regular wage employment was also typically small. Even in China, the most developed of the East Asian transition economies, agriculture's share in total employment was 53 per cent and regular wage employment (i.e. employment in state, collective and joint venture or multinational enterprises) constituted less than 25 per cent of total employment. Unemployment, therefore, was only a part of the problem; low incomes and underemployment were more serious. In China, 35-40 per cent of workers in agriculture were thought to be Asurplus@ in the sense that they could be moved out of the sector without appreciably affecting output. The incidence of poverty was 19.7 per cent (23 per cent in rural areas and 12 per cent in urban areas) in that country. No estimates of the incidence of poverty from national sources were available for Viet Nam; the World Bank estimated the incidence to be 42.2 per cent in the mid-1990s. The overall conclusion must be that the employment situation in transition economies fell far short of full employment.
The same conclusion can be drawn about the employment situation in South Asian economies. The unemployment rate was high only in Sri Lanka (12.5 per cent), which essentially reflected the reluctance of educated youth to engage in traditional activities in the unorganized sectors; in other countries, it ranged from 2 to 5 per cent. These estimates, however, substantially understate the problem of open unemployment because, as in transition economies, there were significant amounts of redundant labour in the formal sector. Moreover, all the countries were exporters of labour. Migration of workers abroad in search of jobs was particularly important in the case of Bangladesh, Pakistan and Sri Lanka. According to available estimates, close to 1 million Pakistanis (more than 2 per cent of the labour force), 0.5 million Bangladeshis (about 1 per cent of the labour force) and 0.5 million Sri Lankans (about 6 per cent of the labour force) were employed overseas. These estimates, however, are widely regarded as underestimates; according to unofficial estimates, for example, about 2.3 million Bangladeshis were actually working outside their country.
Besides, underemployment and poverty were the real manifestations of the Aunemployment problem@ in these countries. Agriculture was by far the most important employer; its share in total employment ranged from about 33 per cent in Sri Lanka to more than 80 per cent in Nepal. Self-employment and casual wage employment were the dominant forms of employment. Regular wage employment accounted for less than 10 per cent of total employment. Underemployment (by time criterion) was a serious problem in all these countries. Available estimates show, for example, that around 35 per cent of the employed in Bangladesh and 47 per cent of the employed in Nepal worked for less than 35 hours per week. About 25 per cent of those regarded as employed in India worked for only a part of the year. More than 36 per cent of the employed in Sri Lanka worked for less than 40 hours per week. The incidence of poverty ranged from 22 per cent in Sri Lanka to 42 per cent in Nepal.
The available information on the island economies of the Pacific suggests that the employment situation in these countries was similar to that in transition and South Asian economies. Unemployment rates tended to be low, but this is a poor indicator of the employment situation. These economies typically depend on a narrow range of agricultural export commodities. Except in Fiji, where sugarcane plantations dominate agriculture, a majority of workers are engaged in subsistence activities in both agriculture and non-agriculture. Underemployment, low productivity and low incomes are the real manifestations of the Aunemployment problem@ in these circumstances. In Papua New Guinea, 41 per cent of the population was in poverty in 1995, according to World Bank estimates. There is little doubt that the employment situation in these countries too fell far short of full employment.
Thus the evidence examined so far indicates that, at the aggregate level, just about five economies C Japan, the Republic of Korea, Malaysia, Singapore and Hong Kong (China) C could be said to have achieved near-full employment conditions in 1995. In another country C Thailand C the employment situation was approaching full employment. In all the remaining countries, the employment situation was very far removed from full employment.
The long-term trends
During the decade 1985-95, employment and labour market trends in Asia-Pacific countries were mixed. While some countries, mainly those in East and Southeast Asia, made steady progress towards full employment, others suffered setbacks or barely managed to maintain the status quo.
Among the three advanced industrialized countries, Japan alone was able to maintain low unemployment throughout the period; employment growth kept pace with labour force growth and the average unemployment rate was just 2.5 per cent. In Australia and New Zealand, high unemployment had already become a feature of the labour market by the mid-1980s. Throughout the period 1985-95, moreover, employment growth failed to keep pace with labour force growth in both countries so that unemployment showed a tendency to rise. The average unemployment rate during the period was 8.5 per cent in Australia and 7 per cent in New Zealand. Despite the differences in their labour market performance, however, certain tendencies were commonly observed in all three countries; in particular, self-employment and part-time employment, for example, increased in all of them. As such forms of employment are generally more precarious than traditional full employment, their growing importance could be indicative of the employment situation moving away from full employment. Even Japan's performance, therefore, was actually less impressive than appears to be the case at first.
In the four more developed economies of East and Southeast Asia, namely, the Republic of Korea, Malaysia, Singapore and Hong Kong (China), employment growth consistently outpaced labour force growth so that the unemployment rate showed a declining trend. More significantly, employment structures underwent rapid transformation; as workers moved out of agriculture (in the Republic of Korea and Malaysia), regular wage employment rapidly grew in importance and actually became the dominant form of employment. Indeed, the rapid economic growth of these four economies had led to labour shortages in many sectors of the economy and (as already noted) they had become significant host countries for overseas migrant workers. As a result of these labour market achievements, the incidence of poverty fell to insignificant levels in the course of a decade. In Malaysia, for example, between the mid-1980s and the mid-1990s, the incidence of poverty fell from 19.6 per cent to just 4 per cent.
Trends were not so positive in the other fast-growing economies of East and Southeast Asia. In Indonesia and the Philippines, employment growth failed to keep pace with labour force growth generating a tendency for unemployment to rise; only in Thailand did employment growth outpace labour force growth, leading to declining unemployment. The share of agriculture in total employment declined at a slow pace in Indonesia and the Philippines, and at a faster pace in Thailand, but remained high in all three countries. Urban informal employment is also known to have grown in importance in all three countries. Under these circumstances, underemployment remained significant. The incidence of poverty was declining in all three countries; it remained high in the Philippines, however, though it fell to low levels in Indonesia and Thailand.
On the whole, the evidence suggests that Thailand was making steady progress towards full employment. The labour market in Thailand was becoming tighter so that, by the end of the period, it had become a host country for migrant workers. In Indonesia and the Philippines, in spite of some positive developments, the overall employment situation was moving away from full employment. This is consistent with the fact that Indonesian and Filipino workers were migrating in large numbers in search of overseas employment.
In the transition economies, employment growth seems to have generally kept pace with labour force growth and open unemployment C a relatively new phenomenon confined to urban areas C was sustained at low levels except in Mongolia. However, increased employment opportunities largely consisted of self-employment and unprotected wage employment in emerging small-scale private enterprises and township and village enterprises. Regular wage employment grew very slowly (and even declined in some countries) and its share in total employment fell. Moreover, labour hoarding was prevalent and growing in state-owned enterprises. These facts indicate that underemployment was growing and even unemployment was actually higher than the official statistics suggest.
The changes in the employment situation in China, the most advanced of the Asian transition economies, provide a good illustration of the problems emerging in the transition economies. Between 1985 and 1995, employment growth in China C at 2.3 per cent per annum C outpaced labour force growth. But regular wage employment grew at a rate of 2.1 per cent per annum. Even this low growth conceals the fact that labour hoarding was a growing phenomenon; 15-20 per cent of the employees in state-owned enterprises, for example, were believed to be effectively redundant by the mid-1990s. At any rate, the share of self-employment and unprotected wage employment increased from 75.3 per cent to 76.9 per cent. The share of agriculture in total employment declined slowly C from 62.4 per cent in 1985 to 52.9 per cent in 1995. In rural areas, underemployment or surplus labour was growing and more than a quarter of the rural labour force was officially estimated to be in surplus by the end of the period. The incidence of poverty declined from about 25 per cent in 1985 to only about 20 per cent in 1994, and the decline was largely confined to urban areas.
Developments in South Asian economies were roughly similar to those in transition economies. At the aggregate level, employment growth kept pace with labour force growth, but employment growth largely meant growth of self-employment and casual wage employment. Regular wage employment in the modern sector tended to decline in importance. Moreover, as in the case of transition economies, labour redundancy in the modern sector was growing. The share of agriculture in total employment declined at a slow pace, and employment in the urban informal sector grew. Open unemployment was not a serious problem except in Sri Lanka, but underemployment was clearly growing. The incidence of poverty, though declining, remained high. Migration of workers in search of overseas employment emerged as an important feature of the labour market, particularly in Bangladesh, Pakistan and Sri Lanka.
Changes in the employment situation in India provide a good illustration of the general trends in South Asian economies. Between 1983 and 1994, aggregate employment grew at roughly the same rate (2.1 per cent per annum) as the labour force. The recorded unemployment rate was 2.5 per cent in 1983 and 2.3 per cent in 1994. But the share of the organized sector in total employment fell from 9 per cent to 8.1 per cent, while the share of unprotected and casual wage employment increased from 36.8 per cent to 40.2 per cent. An estimated 16.5 per cent of the organized sector employment, moreover, was thought to be effectively redundant by the early 1990s. The share of agriculture in total employment declined at a very slow pace C from 66.4 per cent in 1983 to 61.5 per cent in 1994. The incidence of poverty declined, but was still 24 per cent in 1994.
Developments since 1995
The post-1995 developments in the Asia-Pacific region have been shaped by an accelerated process of globalization and market-oriented reforms in most countries and, most recently, by the Asian financial crisis. Indeed, an assessment of the post-1995 changes in the employment situation in the Asia-Pacific region essentially boils down to an assessment of the effects of the Asian crisis.
Among the advanced industrialized countries, Japan is facing recessionary conditions after many years of healthy growth; its economy recorded less than 1 per cent growth in 1997 and is expected to contract by 2.5 per cent in 1998. The unemployment rate showed a tendency to rise in the post-1995 period, though it was still only 3.4 per cent in 1997 and is expected to show a rise to 4.1 per cent in 1998. In Australia and New Zealand, the long-term trends seem to have persisted, though there are some signs of an economic downturn in New Zealand (GDP growth is expected to be negative in 1998).
Broadly speaking, the long-term trends have also persisted in the transition and South Asian economies. Among the transition economies, the open unemployment rate rose significantly only in Mongolia (it was 7.6 per cent in 1997), where aggregate employment has been declining since 1995. Elsewhere, economic growth has been sustained at the long-term trend rate and there are no reasons to believe that changes in employment conditions since 1995 have been different from those observed during 1985-95. However, there are some signs of decelerating growth in China and Viet Nam, and there are apprehensions that the Asian crisis may not leave these economies wholly unaffected. Two countries in South Asia C India and Pakistan C are also currently facing economic difficulties; the recently imposed economic sanctions appear to have had an adverse effect on growth. Natural disasters such as serious floods have also created economic difficulties in Bangladesh.
A new element that globalization and market-oriented reforms have introduced is a serious possibility of rising open unemployment in both the transition and South Asian economies. As noted earlier, there are sizeable amounts of redundant labour, which have been carried over from the past, in the modern sectors of these economies. Globalization and market-oriented reforms, by generating competitive pressures and pressures on governments to pursue tight monetary and fiscal policies, have in effect generated pressures for retrenchment of this redundant labour; hidden unemployment may thus be transformed into open unemployment. China has embarked on reforms of state-owned enterprises which will almost certainly lead to significant job losses. Privatization of public sector enterprises in several South Asian countries C Bangladesh, Nepal and Pakistan in particular C has already led to loss of Agood@ jobs. In India, the Government has set up a National Renewal Fund to help workers who are expected to lose jobs as a result of restructuring of the organized sector, which is currently under way. So far, the scale of job losses has been small in all the countries so that there has not been a noticeable effect on the rate of open unemployment. But as reform processes are carried forward, it is very likely that the rate of open unemployment, as well as the relative importance of informal sector employment (and hence the level of underemployment), will show significant increases.
While these developments lie in the future, the disastrous effects of the Asian crisis are already apparent. Singapore and Hong Kong (China) have so far been relatively less affected by the crisis than other economies, although both have suffered deceleration. GDP growth in 1998 is expected to be zero in Singapore and a negative 5 per cent in Hong Kong (China), and the unemployment rate is expected to reach 4.4 per cent in Singapore and 5 per cent in Hong Kong (China). These adverse trends, though significant, appear relatively mild in comparison with the trends in other crisis-affected countries. The assessment below focuses on five worst affected countries C Indonesia, the Republic of Korea, Malaysia, the Philippines and Thailand.
In Indonesia, GDP growth rate declined from 8 per cent in 1996 to 4.7 per cent in 1997. The economy contracted by 7.9 per cent in the first quarter of 1998 and by 16.5 per cent in the second quarter. For the whole of 1998, GDP growth is now expected to be a negative 15 per cent. The Ministry of Manpower estimates that about 400,000 potential jobs are lost for every percentage point decline in GDP growth rate. The ILO estimates retrenchments to be between 3.8 million and 5.4 million. On this basis, it can be said that 8 million jobs are likely to be lost by the end of 1998. Moreover, Indonesian workers who had found employment in other East Asian countries, particularly in Malaysia, have been returning in large numbers (according to ILO estimates, nearly a million Indonesians were working in other East Asian countries before the onset of the crisis, more than 750,000 in Malaysia alone) and the labour force is expanding at a rate of 2.5 per cent per annum. These developments are expected to lead to a serious problem of open unemployment. The National Development Planning Agency (BAPPENAS) projected (in June 1998) the rate of open unemployment to reach 13.6 per cent by the end of 1998. According to the estimates (made in July 1998) of the Ministry of Manpower, the number of openly unemployed is expected to rise from 4.3 million in mid-1997 to about 18-20 million by the end of 1998; this means a rise in the rate of open unemployment from 4.7 per cent in mid-1997 to around 20 per cent by the end of 1998.
Growth of open unemployment is, of course, only one of many manifestations of labour market adjustment in response to the crisis. In the Indonesian economy, underemployment has always been high, as already noted. Further growth of underemployment will obviously be one result of the crisis as agriculture and the urban informal sector absorb some of the job-losers. Another effect has been a sharp decline in real wages; the legislated real minimum wage in Jakarta is estimated to have fallen by more than 30 per cent in less than a year. All these changes imply a dramatic rise in the incidence of poverty; indeed, according to ILO estimates, the incidence of poverty, which had been driven down to 11 per cent in 1997, has already risen to about 48 per cent.
In Thailand, GDP growth declined from 5.5 per cent in 1996 to a negative 0.4 per cent in 1997 and is expected to be a negative 8 per cent in 1998. The effects on employment were already evident by early 1998. Between February 1997 and February 1998, the labour force participation rate declined from 53.1 per cent to 52.7 per cent suggesting withdrawal of significant numbers from the labour force. Aggregate employment shrank by 3 per cent, the rate of open unemployment increased from 2.2 per cent to 4.8 per cent and the share of self-employment in total employment increased from 53.8 per cent to 54.4 per cent. Real wages fell in 1997 mainly as a result of a substantial reduction in bonus payments; they are expected to fall by 8 per cent in 1998. These trends show the broad mechanisms through which labour market adjustments are occurring in response to the crisis. The same trends can be expected to greatly intensify between February 1998 and February 1999 and the overall effect will be a sharp rise in the incidence of poverty. Another effect is the pressure to send the migrant workers, mainly from Myanmar, back to their country of origin. According to ILO estimates, the number of migrant workers in the country declined by about 460,000 by mid-1998.
In the Republic of Korea, the economy started contracting towards the end of 1997, though for the year as a whole GDP growth was still nearly 6 per cent (compared to 7.1 per cent in 1996). The economy contracted by 3.9 per cent in the first quarter of 1998 and by 6.6 per cent in the second quarter; for the year as a whole, GDP growth is now expected to be a negative 7 per cent. The changes in employment conditions between mid-1997 and mid-1998, as a result of the economic crisis, have been as follows.
The labour force participation rate has declined from 63 per cent to 61.6 per cent. The unemployment rate rose from 2.3 per cent in June 1997 to 4.7 per cent by the end of 1997, and then to 7 per cent in June 1998, and is expected to reach 8.2 per cent by the end of 1998. Overall employment in the economy declined by 5 per cent and real wages declined by 10 per cent. The ILO estimates retrenchments at 1.5 million. Besides, there is evidence of growing informalization of employment, which means that the quality of employment deteriorated. Wage employment C both regular and irregular C contracted by about 10 per cent, while the number of unpaid family workers increased by almost 11 per cent. By industry, the decline in employment was sharp in manufacturing (15.1 per cent) and in construction (22.9 per cent); employment in services registered only a mild decline and that in agriculture actually rose. Another result has been a decline in the number of migrant workers; according to ILO estimates, this declined by about 117,000. These trends represent the initial effects of the recession and are expected to strengthen as the recession deepens. There is a serious possibility of poverty re-emerging as a problem in a country which had virtually eliminated it.
The Philippines= economy recovered from the recession of the early 1990s only in 1994 and recorded a growth rate of about 5 per cent per annum between 1994 and 1997. It now faces another recession; its GDP is expected to record a negative growth in 1998. Employment conditions in the country, which had been bad even in the mid-1990s, have shown signs of sharp deterioration. Between April 1997 and April 1998, while the labour force expanded by 2.4 per cent, aggregate employment declined by 1 per cent. The open unemployment rate is expected to reach 11 per cent by the end of 1998. The decline in employment, however, seems to have been basically in agriculture, whose share in total employment declined from 41.3 per cent to 37.5 per cent in one year; this suggests that the absolute decline in employment was caused more by the El Niņo factor (unfavourable weather conditions induced by atmospheric changes) than by the economic crisis. But there is also evidence to suggest that there has been significant informalization of employment in the non-agricultural sector, and this is more closely linked to the crisis. In the first half of 1998, for example, almost 75,000 workers were laid off in the organized sector while 63,000 were laid off during the whole of 1997. Alongside, real wages declined; the average real wage declined by 3.0 per cent during 1998.
The Philippines, moreover, has been an important source of migrant workers in other Asian countries (according to ILO estimates, nearly 750,000 workers from the Philippines were working in other countries of the region) and return migration is now adding to the problems. All this implies a sharp rise in poverty, whose incidence was already high in the pre-crisis period.
Malaysia is a country which had not only recorded impressive economic growth over a decade but had also achieved near-full employment conditions. It now faces a fairly severe recession; its economy, which grew by about 8 per cent in 1997, contracted by 2.8 per cent in the first quarter of 1998 and by 6.8 per cent in the second quarter. For the whole of 1998, the rate of GDP contraction is expected to be between 6 and 7 per cent. The experiences of the other countries suggest that the unfavourable effect of this sharp deceleration in growth on employment will be serious though adequate information is not as yet available. On retrenchment, some evidence is available, indicating that nearly 61,000 workers were retrenched from January to September 1998. According to ILO estimates, moreover, the number of migrant workers in the country has already declined by about 400,000.
The basic characteristics of labour market adjustments in response to the economic crisis in these countries can be summed up as follows. In the first place, labour force participation rates have tended to fall, suggesting growth in the number of discouraged workers. Secondly, open unemployment has increased sharply. Third, there has been rapid informalization of employment; self-employment and irregular wage employment have grown, while regular wage employment has fallen. There has thus been a sharp deterioration in the quality of employment. Fourth, there have been sharp declines in real wages. Fifth, labour-importing countries have attempted to absorb the shock partly by sending the migrant workers back to their country of origin, and this has exacerbated the unemployment problem in the labour-exporting countries. Finally, there has been a sharp growth of poverty.
It is clear that the developments since 1995 constituted very serious setbacks to progress towards full employment in virtually the whole of the Asia-Pacific region. After a long period of full employment, Japan is now confronted with rising unemployment and there are no signs of easing of high unemployment in Australia and New Zealand. Severe setbacks were suffered by the fast-growing economies of East and Southeast Asia, precisely the economies which had made steady progress towards full employment during the preceding decade. There are some signs that economic prospects in transition economies, where the long-term trends in employment had not been favourable, are beginning to be adversely affected by the Asian crisis. In South Asia too, the long-term trends had not been favourable and some countries are currently experiencing economic difficulties. In both transition economies and South Asian countries, moreover, the recent economic reforms have exposed problems of labour redundancy, carried over from the past, which threaten to increase levels of open unemployment.
