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
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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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Context for Labor Market Context for Labor Market StudyStudy
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
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Context for Labor Market Context for Labor Market StudyStudy
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)
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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
PhilippinesPhilippines
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
PhilippinesPhilippines
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
PhilippinesPhilippines
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
PhilippinesPhilippines
-
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
PhilippinesPhilippines
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
PhilippinesPhilippines
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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Labor Market PoliciesLabor Market Policies
•• Probationary employmentProbationary employment
•• Security of tenureSecurity of tenure
•• Continuation of BenefitsContinuation of Benefits
•• Provisions for subcontractingProvisions for subcontracting
•• Conditions of terminationConditions of termination
PhilippinesPhilippines
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Future AgendaFuture Agenda
PhilippinesPhilippines
•• 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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Labor Market PoliciesLabor Market Policies
•• 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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Future AgendaFuture Agenda
•• 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 (%)
32
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
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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?