equitable growth and labour market...
TRANSCRIPT
Equitable Growth and Labour Market Reforms:
The Asian Experiences
The 5th Asian-European Labour Forum
4-6 September 2013, Amsterdam
Sangheon Lee INWORK à Research Department
International Labour Office
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Contents
¡ Outline: An short overview of recent developments in labour market policies in Asia, from the perspective of equitable growth ¡ Asian “tigers” were once praised as the “champion of
equitable growth” without “social consensus” (cf. European Social Model)
I. Why “equitable” growth?
II. Recent policy developments in Asia
III. What went wrong?: an illustrative case of South Korea
IV. Some policy issues ¡ Redistribution and social security ¡ Minimum wages
V. Concluding remark
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I. Equitable growth Why? ¡ Building on van der Hoeven’s presentation (new
development agenda which captures both growth and equity)
¡ Distribution matters, perhaps much more than assumed
¡ Observation: Income inequality has been widening
¡ Arguments: Widening inequality may lead to ¡ Shifting power balance to “the have” which may encourage
“rent-seeking” activities ¡ Economic slowdown and/or instability
¡ Shortfalls in aggregate demand (thus slowing down economic growth
¡ Unstable economic behaviors (financialization, household debts) à unstable growth pattern at the national level
¡ “Beggar-thy-neighbour” behaviors (e.g., export-led growth) à unsustainable growth at the global level
¡ Empirical evidence: ILO Global Wage Report 2012/13
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I. Equitable growth How can distribution affect economic growth?: The case of functional income distribution (labour income share) Source: ILO, Global Wage Report 2012/13
I. Equitable growth How can distribution affect economic growth? The case of functional income distribution (labour income share)
¡ According to recent empirical studies (e.g., ILO’s Global Wage Report 2012/13), falling labour income share have negative impacts on growth, with some notable exceptions such as China
(+)
(-‐)
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I. Equitable growth Strategies for equitable growth (a) Rebalancing income distribution at three levels (b) Rebalancing power relationship
Functional income distribution
-- Labour income share
Personal income
distribution
Redistribution -- taxation
-- income transfer
Sustainable and equitable growth
Favourable macro-economic policy framework, including finance
Power balance
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I. Equitable growth Market failure … and also policy failure
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¡ Widening inequality is a market failure ¡ Inherent tendency towards inequality
¡ More importantly, evidence shows the importance of policy failure in two related senses: ¡ Passive form: Lack of policy responses to address
“economically-inefficient” inequality ¡ Active form: Policy changes to encourage “rent-
seeking” behaviours and thus increase inequality ¡ e.g. reforms in labour market (and social policies) and
financial market ¡ Basically, weakening bargaining power of workers
(and “citizens”)
¡ Cf. ILO’s Global wage Report 2012/13 and the next edition
II. Recent policy developments in Asia Context – The end of the “champion of equitable growth”? Inequality is increasing (and growth is slowing down) in Japan and Korea: Gini coefficients (Lee and Gerecke, forthcoming)
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0,2
0,22
0,24
0,26
0,28
0,3
0,32
0,34
0,36
1980 1985 1990 1995 2000 2005 2010
Japan Korea
II. Recent policy developments in Asia Complex development and the factors behind …
¡ Labour market reforms in Asia are NOT uniform, which cannot be simply categorized as “neo-liberal” reforms
¡ The complex of the reforms in Asia are due to a wide range of factors, including: ¡ Economic transition (e.g., China, Vietnam)
Ø Dual process of “de-regulation” and “re-regulation” ¡ Democracy (e.g., Indonesia, Philippines, Korea etc)
Ø Growing demand for “pro-worker” policy reforms ¡ Economic crisis (Asian financial crisis 1997, the Great
Recession) Ø Encouraging the transformation of “policy regime” in
Korea ¡ The influence of Washington Consensus ¡ Others
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II. Recent policy developments in Asia Dual process of “deregulation” and “re-regulation”: Transition and policy reforms
¡ China and Vietnam
¡ Early phases of “deregulation” to be followed by the recent episodes of “re-regulation” ¡ Labour law and social security reforms ¡ Gradual improvements in minimum wage system ¡ How to respond to growing “discontents”?
¡ Policy regime change? ¡ China: Overall policy shift towards boosting domestic
consumption ¡ Vietnam: Unclear, with continued emphasis on FDI
and exports
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II. Recent policy developments in Asia Democracy …
¡ Democracy movements in East and South Asia have been driving forces for “pro-labour” reforms ¡ Labour law reform
¡ Minimum wages
¡ Social security
¡ Yet, with labour market fragmentation strategies (e.g. “insider” vs “outsider”) from business and “market”
¡ Also, these reforms were “neutralized” by liberal policy reforms in the wake of economic crises
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II. Recent policy developments in Asia Economic crisis and neo-liberal reforms
¡ In many Asian countries, economic crisis (particularly the Asian Financial Crisis) was used to introduce neo-liberal reforms ¡ Sometimes, intended to “neutralize” democratic forces ¡ Under the influence of the Washington Consensus
(specified in World Bank’s Doing Business Indicators) ¡ Trade unions (and “insiders”) considered as an
“obstacle”
¡ Major directions ¡ Increasing “non-standard” employment
Ø With the effects of converting the issues into “insider versus outsider”
¡ Weakening workers’ bargaining power ¡ “Some” investments in social security ¡ Basically, “liberalizing” functional income distribution
with some compensation in the form of redistribution (e.g., income transfer)
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II. Recent policy developments in Asia Labour regulation as an easy “victim”: Even from the perspective of business, labour regulation is not the key concern … Firms perceptions about the biggest obstacle to their operation (all firms, % distribution) [Source: World Bank Enterprise Survey]
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
II. Recent policy developments in Asia Despite the evidence … (Employment protection) Source: World Bank 2012, The Jobs
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II. Recent policy developments in Asia Despite the evidence … (Minimum wages) Source: World Bank 2012, The Jobs
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III. What went wrong? (Korean case)
Trends in the functional labour distribution Source: KLI Labour Statistics
¡ The increasing trend became strong since 1987 when historic progress was made in political democracy and workers’ organizations
¡ Reversal since the Asian financial crisis
¡ Followed by upward adjustments in the first half of 2000s
30,0
35,0
40,0
45,0
50,0
55,0
60,0
65,0
Laour income share (A) Labour income share (B)
Direct democracy & Workers' Great Struggle
Asian Financial crisis & Neoliberal reforms
Great Recession
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III. What went wrong?: Korean case Productivity-wage gaps in Korea (Base year = 1990) Source: B.K. Kim, 2012
¡ Recent changes in the functional income distribution are related to the emergence of productivity-wage gaps since the Asian financial crisis
¡ The gap is much larger if hourly productivity is considered ¡ Solid productivity
growth in the context of significant reductions in working hours
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III. What went wrong?: Korean case The case of personal income distribution (Incidence of low pay,1986-2010) Source: Hwang, D. and Lee, BH, 2012 Note: Low pay is defined as the level of pay less than 2/3rd of the median pay
¡ The increasing trend in low pay (and wage inequality) emerged since the Asian financial crisis
¡ Increasing trend in income inequality (Gini coefficients in disposal household income) ¡ Apparently beginning
from early 2000s
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III. What went wrong?: Korean case Changes in economic regime (trade patterns) Source: Bank of Korea
¡ Recent distributional changes imply the presence of international competitiveness gains in terms of unit labour costs
¡ Increasing reliance on exports and imports
¡ Again, since the Asian financial crisis
¡ Continued (often historic level of) net exports ¡ Creating pressures on
currency and labour costs
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Export (% of GDP) Import (% of GDP)
Direct democracy & Workers' Great Struggle
Asian Financial crisis & Neoliberal reforms
Great Recession
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IV. Some policy issues Social expenditures and taxation: Asian countries can do more and better Figure. Effects of taxation and transfers on income inequality Source: M. Luebker (forthcoming)
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IV. Some policy issues Political economy of minimum wages Three potential risks (or dilemmas)
1. Un-coordinated, decentralized (or regional) MW-setting will increase the risk of extreme minimum wages, either "too high" (e.g., Philippines) or "too low" (e.g., China)
§ the risk of underbidding or overbidding
2. Under-developed or weakened CB (or IR) increase the risk of extreme minimum wages, either "too high" (e.g., Philippines, Indonesia) or "too low" (e.g., Korea, Japan)
3. The lack of political democracy may push minimum wages “too low” (e.g., China and Vietnam): more generally, the issue of “voice”
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IV. Some policy issues Political economy of minimum wages Interaction between minimum wages and collective bargaining (Lee and McCann forthcoming)
% of workers
wages minimum wages
Minimum wages zone
Collective bargaining zone
With weaker CB
With stronger CB
IV. Some policy issues Effects of decentralization: The case of the Philippines Figure. Trends in real daily MW, Manila, (constant 2005)
0
50
100
150
200
250
300
350
400
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Co
up
d'é
tat
Am
en
dm
en
t, n
ew
NW
C
Ma
ritia
l la
w
De
ce
ntr
aliz
ed
MW
Ma
rco
s e
lec
ted
Ma
rco
s re
-ele
cte
d, u
nfa
ir e
letio
ns
23
IV. Some policy issues Effects of decentralization: The case of the Philippines Figure. Trends in Kaitz index (MW/AW) by regions
050
100150200
050
100150200
050
100150200
050
100150200
1985 1995 2005
1985 1995 2005 1985 1995 2005 1985 1995 2005
NCR CAR Region 1 Region 2
Region 3 Region 5 Region 6 Region 7
Region 8 Region 9 Region 10 Region 11
Region 12 ARMM CARAGA
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IV. Some policy issues The case of the Philippines A “too high” MW approaching the AW Figure. Kaitz index (MW/AW) by regions, 2009
0
20
40
60
80
100
120
140 Approaching 100% of AW
25
IV. Some policy issues The case of Indonesia Democracy, collective bargaining, decentralization Figure. The dispersion of real monthly minimum wages across regions(constant 2005 rupiahs)
0
100.000
200.000
300.000
400.000
500.000
600.000
700.000
800.000
900.000
1.000.000
1988
19
89
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
MIN
MAX
AVE
Jakarta
Crisis and democracy Decentralization
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IV. Some policy issues Effects of decentralization: The case of Indonesia Figure. Trends in Kaitz index by regions (Decentralization since 2001)
0
50
100
0
50
100
0
50
100
0
50
100
0
50
100
2000 2005 2010 2000 2005 2010 2000 2005 2010
2000 2005 2010 2000 2005 2010
Nanggroe Aceh Darussalam Sumatera Utara Sumatera Barat Jambi Bengkulu
Lampung DKI Jakarta Jawa Tengah DI Yogyakarta Bali
Nusa Tenggara Barat Nusa Tenggara Timur Kalimantan Barat Kalimantan Tengah Kalimantan Selatan
Kalimantan Timur Sulawesi Utara Sulawesi Tengah Sulawesi Selatan Sulawesi Tenggara
Maluku Papua
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IV. Some policy issues Effects of decentralization: The case of Indonesia Figure. Percentage point difference in the Kaitz index (MW/AW) across regions, between 1998-2011
-10
-5
0
5
10
15
20
25
30
35
40
45
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V. Concluding remarks
¡ Current policy changes seem to be incapable of reducing inequality and achieving equitable growth in Asia
¡ Policy actions are required at the three levels of income distribution (functional, personal, re-distribution) ¡ Given the conventional focus on redistribution, more
weight should be on correcting market failures in functional distribution (labour income share)
¡ The risk of enterprises’ moral hazards vis-à-vis social security
¡ Policy coherence ¡ How to combine policies for maximum impacts ¡ How to make policies empower workers’ bargaining
power
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