employment creation, labor markets, and...

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LABOR MARKETS IN ASIALABOR MARKETS IN ASIAEmployment Creation, Labor Employment Creation, Labor

Markets, and GrowthMarkets, and Growth

Economic and Research DepartmentEconomic and Research Department

Asian Development BankAsian Development Bank

2

Context for Labor Market Context for Labor Market StudyStudy

Policy and Institutional ReformsPolicy and Institutional Reforms

•• Trade & industrial policy Trade & industrial policy liberalizationsliberalizations

•• Privatization; price liberalizationPrivatization; price liberalization

•• Strengthening property rightsStrengthening property rights

•• “Governance” reforms “Governance” reforms

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The impact of reforms on labor The impact of reforms on labor marketsmarkets

•• Employment, wages, & benefitsEmployment, wages, & benefits

••By sectorBy sector

••By worker characteristicsBy worker characteristics

•• PovertyPoverty

4


A sound understanding of the operation A sound understanding of the operation of labor markets is criticalof labor markets is critical

•• Ongoing stockOngoing stock--taking in 4 countriestaking in 4 countries

•• IndonesiaIndonesia

•• PhilippinesPhilippines

•• VietnamVietnam

•• IndiaIndia

•• ResearchResearch

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IndonesiaIndonesia

•• Regaining preRegaining pre--crisis economic crisis economic dynamism is proving elusivedynamism is proving elusive

•• Growth rates of per capita GDP Growth rates of per capita GDP have ranged between 2.1have ranged between 2.1--2.6% 2.6% since 2000since 2000

•• Investment has been weak (16Investment has been weak (16--18% as a share of GDP)18% as a share of GDP)

6

Growth in employment has slowed down, Growth in employment has slowed down, while female employment has declined while female employment has declined since 2000since 2000

IndonesiaIndonesia

Growth in Indonesian Workforce

45 46 47 47 49 52 53 54 55 55 57 59 60

28 28 29 30 31 32 32 34 34 34 34 33 31

-

20

40

60

80

100

1990 1992 1994 1996 1998 2000 2002

Millio

ns

Males Females

7

Unemployment rates have increased Unemployment rates have increased for all major subfor all major sub--groupsgroups

IndonesiaIndonesia

Open Unemployment Rates

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Total Urban Rural Male Female

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Agriculture’s employment share Agriculture’s employment share has has increasedincreased since 1997since 1997

IndonesiaIndonesia

Composition of workers by sector

55.2 53.4 53.0 50.0 45.6 43.5 40.7 45.0 43.2 45.3 43.8 44.3 46.3

13.8 14.6 14.7 15.8 18.8 18.2 19.1 16.3 17.8 17.4 18.7 18.8 17.5

14.8 15.1 15.1 15.9 17.1 18.9 19.9 19.2 19.7 20.6 19.2 19.4 18.6

16.2 16.9 17.1 18.3 18.5 19.4 20.3 19.6 19.2 16.7 18.3 17.5 17.6

-

20.0

40.0

60.0

80.0

100.0

1990 1992 1994 1996 1998 2000 2002

Agriculture Industry Trade Other Services

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Informalization is increasingInformalization is increasing

IndonesiaIndonesia

Employment by Working Status

71.6

29.230.432.335.136.034.637.235.628.426.224.624.423.1

70.869.667.764.964.064.4 62.8 65.4

75.475.676.973.8

0102030405060708090

1990 1991 1992 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003

Perc

ent

Formal Informal

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Labor Market PoliciesLabor Market Policies

IndonesiaIndonesia

•• ADBADB--WB establishment survey reveals WB establishment survey reveals managers complaining about a poor managers complaining about a poor “investment climate” and labor “investment climate” and labor regulationsregulations

•• Main Concerns:Main Concerns:

Decentralization of LM policies: CDecentralization of LM policies: Creating reating More corruption and uncertainty?More corruption and uncertainty?

Populist or Pro Union Approach:Populist or Pro Union Approach:More regulatory burdens? More regulatory burdens?

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Future AgendaFuture Agenda

IndonesiaIndonesia

•• To what extent are new labor market To what extent are new labor market policies holding back industrial policies holding back industrial employment and investments? employment and investments?

•• Assessing the impact of minimum Assessing the impact of minimum wages under the framework of wages under the framework of decentralized minimum wage decentralized minimum wage legislationslegislations

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PhilippinesPhilippines

•• Despite economic reforms, Despite economic reforms, economic growth has been economic growth has been generally lacklustergenerally lackluster

•• Growth rates of per capita GDP Growth rates of per capita GDP have been around 2.5% over the have been around 2.5% over the last three yearslast three years

•• Increasing investment remains a Increasing investment remains a key challenge for economic policykey challenge for economic policy

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Transformation of employment: From Transformation of employment: From agriculture to servicesagriculture to services


0.00

10.00

20.00

30.00

40.00

50.00

60.00

19801983198619891992199519982001

Years

Perce

tage

AgricultureMiningManufacturingConstructionUtilitiesServices

14

A majority of the jobs tend to be A majority of the jobs tend to be comprised of own account and comprised of own account and unpaid family membersunpaid family members


0

10

20

30

40

50

60

1990

1992

1994

1996

1998

2000

2002

Years

Perce

ntage

Wage and Salary

Own Account

Unpaid Family

Combined ownaccount and unpaidworkers

15

Nevertheless, unemployment Nevertheless, unemployment rates remain highrates remain high


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

198019

821984198619

88199019

92199419961998200020

02

Years

Unem

ploy

men

t Rate

s

16

Real wages have remained flat Real wages have remained flat over long periodsover long periods


-

50.00

100.00

150.00

200.00

250.00

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Peso

s

Nominal Real

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As has labor productivity in As has labor productivity in key sectorskey sectors


0

50000

100000

150000

200000

250000

300000

350000

1994

1996

1998

2000

2002

Years

Labo

r Pro

ducti

vity

ALL INDUSTRIES

AGRICULTURE, FISHERYAND FORESTRY

MINING AND QUARRYING

MANUFACTURING

ELECTRICITY, GAS ANDWATER

CONSTRUCTION

SERVICE SECTOR

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After a gradual decline, poverty After a gradual decline, poverty incidence has increasedincidence has increased


Figure 8. Poverty Incidence by Location, 1985,1988, 1991, 1994, 1997, 2000

0

10

20

30

40

50

1985 1988 1991 1994 1997 2000

Year

Perc

enta

ge

PHILIPPINES

National Capital Region

Areas Outside NationalCapital Region

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•• Probationary employmentProbationary employment

•• Security of tenureSecurity of tenure

•• Continuation of BenefitsContinuation of Benefits

•• Provisions for subcontractingProvisions for subcontracting

•• Conditions of terminationConditions of termination


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•• Assessing the impact of labor Assessing the impact of labor market policies on employment, market policies on employment, wages, and investmentwages, and investment

•• Examination of trade and industrial Examination of trade and industrial policies. In particular, why does policies. In particular, why does investment continue to be low in investment continue to be low in the Philippines?the Philippines?

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VietnamVietnam

•• “Doi“Doi--Moi” has resulted in markedly Moi” has resulted in markedly improved macroeconomic improved macroeconomic performanceperformance

•• Poverty reduction has been Poverty reduction has been dramaticdramatic

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Reductions in poverty: Reductions in poverty:

VietnamVietnam

Poverty Rates 1993 1998 2002

Poverty Rate 58.1 37.4 28.9

Urban 25.1 9.2 6.6

Rural 66.4 45.5 35.6

% of Population living on less than:1 PPP$ a day 39.9 16.4 13.62 PPP$ a day 80.5 65.4 58.2

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Transformation of employment: Transformation of employment: From agriculture to industry and From agriculture to industry and servicesservices

68.96

10.88

20.16

61.14

15.05

23.81

58.35

16.96

24.69

0

10

20

30

40

50

60

70

%

1996 2002 2003

Distribution of employement by major industries

Agriculture-Forestry-Aquaculture Industry-Construction Service

VietnamVietnam

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Services and industry have now Services and industry have now surpassed agriculture in generating surpassed agriculture in generating jobsjobs

Number of job generation by main sectors of the economy

100150200250300350400450500

1996 1997 1998 1999 2000 2001

Thou

sand

per

sons

Agr. & Forestry Industry & construction Service

VietnamVietnam

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Share of wage workers is Share of wage workers is increasingincreasing

0

10

20

30

40

50

60

70

Self farming Self non-farm Waged

1993 1998 2002

VietnamVietnam

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But public sector employment has But public sector employment has not been declining … probably due not been declining … probably due to slow pace of SOE reformto slow pace of SOE reform

VietnamVietnam

90.8%

9.2%

90.5%

9.5%

90.4%

9.6%

0%

20%

40%

60%

80%

100%

Shar

e (%

)

1995 2000 2001

Private Public

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•• Vietnam has a relatively new Labor Vietnam has a relatively new Labor Code (effective from 1995)Code (effective from 1995)

••Minimum wage regulationMinimum wage regulation

••Social insurance (3 months+)Social insurance (3 months+)

•• Enforcement in private sector Enforcement in private sector appears to have been weakappears to have been weak

VietnamVietnam

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•• The impact of the Labor Code on labor The impact of the Labor Code on labor market outcomes need more market outcomes need more examination (WBexamination (WB--ADB Investment ADB Investment Climate Assessment in 2005?)Climate Assessment in 2005?)

•• An assessment of government’s An assessment of government’s employment generation programs is employment generation programs is neededneeded

•• A more detailed investigation of wage A more detailed investigation of wage inequality and returns to educationinequality and returns to education

VietnamVietnam

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IndiaIndia

•• Reforms since the 1980s have delivered Reforms since the 1980s have delivered higher economic growthhigher economic growth

•• A key concern: employment creation in A key concern: employment creation in the organized sectorthe organized sector

Manufacturing sector employment elasticities: Manufacturing sector employment elasticities:

19741974--80: 0.9980: 0.99

19801980--86: 86: --0.160.1619861986--96: 0.33 96: 0.33

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A transition from agriculture to A transition from agriculture to industry and services is taking placeindustry and services is taking place

IndiaIndia

68

14 17

64

1520

60

1723

010203040506070

(%)

1983 1993 1999

Distribution of Employment by Major Industries

AgricultureIndustryServices

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But employment growth is not keeping But employment growth is not keeping up with increases in the labor forceup with increases in the labor force

IndiaIndia

Millions1999-00 1983-93 1993-99

Total Population 1,004.10 2.12 1.93Total Labor Force 406.05 2.05 1.03Total Employment 397.00 2.04 0.98

Organized Sector Employment 28.11 1.20 0.53Public Sector 19.41 1.52 -0.03Private Sector 8.70 0.45 1.87

Growth Rate (%)

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Falling employment of workers in Falling employment of workers in organized manufacturingorganized manufacturing

IndiaIndia

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

81 83 85 87 89 91 93 95 97 9920

01Nu

mbe

r

Workers Supervisors

33

Evidence of a rising skill Evidence of a rising skill premiumpremium

IndiaIndia

0

10000

20000

30000

40000

50000

60000

81 83 85 87 89 91 93 95 97 9920

01C

onst

ant r

upee

Wages to w orkers Emoluments to supervisors

34

The use of “contract” labor within The use of “contract” labor within the organized sector is growingthe organized sector is growing

IndiaIndia

Contract Labor as % of Total Employment

Year Public Private Total1984 2.9 10.1 71989 5.6 11.9 9.81998 10.9 29.1 21.6

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Labor Market PolicyLabor Market Policy

•• Labor legislations are determined by Labor legislations are determined by both the Center and Statesboth the Center and States

•• Legislative and enforcement machinery Legislative and enforcement machinery are heavily focused on organized sectorare heavily focused on organized sector

•• Key labor regulations: Industrial Key labor regulations: Industrial Disputes Act, Industrial Employment Disputes Act, Industrial Employment (Standing Orders) Act, Trade Unions (Standing Orders) Act, Trade Unions Act, and Contract Labor ActAct, and Contract Labor Act

IndiaIndia

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How critical is reform of How critical is reform of labor policies?labor policies?••Rigid labor laws are only one Rigid labor laws are only one of many constraints facing of many constraints facing India’s organized manufacturing India’s organized manufacturing sectorsector

••Product market competition Product market competition may be taking the sting out of may be taking the sting out of rigidityrigidity--inducing aspects of inducing aspects of labor regulationslabor regulations

••CrossCross--country, firmcountry, firm--level level surveys could be useful in surveys could be useful in shedding light on this issueshedding light on this issue

Wage

Employment

Labor demand

After liberalization/ deregulation

Labor supply

1

2

3

IndiaIndia

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Common IssuesCommon Issues

•• Are labor regulations constraining Are labor regulations constraining industrial investment and employment?industrial investment and employment?

•• How can social security programs How can social security programs covering the informal sector, especially, covering the informal sector, especially, be improved?be improved?

•• What is needed to foster growth in the What is needed to foster growth in the informal sector and noninformal sector and non--farm farm enterprises?enterprises?

employment creation, labor markets, and...

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