Structural Change and Labor Policy Reaction in Asia

A/Professor Ying Zhu

Department of Management & Marketing

The University of Melbourne

Australia

Introduction

Employment and development are crucial aspects for developing countries survival under the process of globalization.

In Asia:– 1980s & 1990s, high economic growth with low

unemployment;– After the 1997/98 Asian Crisis, lower economic

growth with higher unemployment;– Table 1 demonstrates the overall economic & social

indexes;– Four examples: Japan and S. Korea as developed

economies; Indonesia and Thailand as developing economies.

Key issues

How these countries have dealt with structural transformations of their labor market:– 1. The loss of manufacturing jobs and the

surge in tertiary sector jobs;– 2. The increase in unemployment and in

informal employment;– 3. The government’s policy on social

protection, labor market development and policies for vulnerable groups.

Overview of Unemployment in the Four Asian Countries

As developed economies, Japan and Korea shifted towards a post-industrial society;

Japan: – 1960s & 70s, unemployment between 1 & 2%; 1980s, 3%;– After 1992 recession, unemployment increased and reached

peak in 2002 with 5.4%;– Increase of youth unemployment and long-term unemployment.

Korea: – From 1960s till late 1990s, low unemployment;– After Asian Crisis, unemployment increased from 2.5% to 8.6%

(1999);– After 2000, under 5%;– Youth unemployment shares 50% of total unemployment.

Developing Asian Economies 1980s and 1990s, high economic growth and low

unemployment average below 3%; After 1998 Asian Crisis, economic recession and higher

unemployment, eg. Indonesia with 6.4% and Thailand with more than 3%.

Why the official unemployment rate is lower in Asia:– A large informal sector;– Frequent labor movement between urban and rural

areas;– Different statistical practices;– The rural workforce was not part of the labor registration;– High underemployment;– A general lack of well-established social security

systems.

Economic Restructuring & Impact on Employment

Japan:– The decline of manufacturing sector influences economic

development and long-term regular jobs;– 1991-2002, a fall of 3.3 million employees from manufacturing

sector, about 21.3% of total manufacturing workforce;– Service sector created jobs of 3.58 million, but many of these were

temporary or part-time jobs. Korea:

– 1990-2003, the share of manufacturing jobs declined from 27.6% to 19.1% of total employment;

– Service sector increased from 43.5% to 72.1%, similar situation with mainly temporary or part-time jobs.

– Korean labor market: • 49.5% was in non-regular jobs, and most of them were women,

older workers and the less educated;• Self-employment was the highest among the OECD countries

with 28% of total employment.

Indonesia– 1994, investment liberalization allowed 100% foreign

ownership;– Asian Crisis and competition from other developing

Asian economies led to losing manufacturing jobs, in particular the formal jobs with skills;

– Lack of required competences, formal & large scale of industrialization.

Thailand– The real situation was worse than the official figures;– A large proportion of informal labor force and

seasonal workers between urban and rural economies.

The Role of Governments Comparing with other OECD countries, Asian

economies have less substantial social insurance support for unemployed people, including Japan and Korea.

New challenges for the governments to play active role and being partners with industries and community.

Japan Unemployment benefit was usually paid less than one year; Minimum support forced people to cope by utilizing their own savings or family

support; Young workers and female workers have less unemployment benefits due to mainly

temporary and part-time works.

Recent policy changes:– New law to prevent large-scale redundancies;– Establishing more external technical training facilities to up-grade skills for

unemployed people;– Address the issue of inadequate pensions & improved welfare benefits for the

older workers;– Developing new strategies to encourage more entrepreneurial activities, in

particular among young unemployed people with financial support;– New industry policy to target emerging industries, eg. bio-technology &

environmental friendly industries with long-term employment potential;– Other short-term incentives.

Korea Before 1997, there were few unemployment benefits

claimants due to low unemployment; Employment Insurance Scheme (EIS) was established

in 1995 with a limited financial support for regular workforce, 79% of total unemployed were non-regular workers who were not covered by the EIS;

The government temporary income support programs:– Large scale public projects for job creation;– Financial support for creating new business and

self-employment, in particular among young unemployed people.

Developing Asian Economies Due to lack of government financial resources, the role of government financial

support is less significant, but community-based support and individual household support are crucial.

Indonesia:– The government has not provided an unemployment benefit. Other social insurance

for workers has only included formal retirement, death and disability benefit for regular work force.

– After Asian Crisis, the government introduced several social assistance measures with the name of the Social Safety Net:

• The Intensive Labor Project through the development of infrastructure in all urban areas and some rural areas by targeting poor family members for job creation;

• 400,000 jobs for at least 3 months;• Employment Generation fund: to create wage employment & provide targeted

credit for self-employment, in particular among the vulnerable groups eg. women and disabled people.

– Problem: the central government did not have an adequate administrative network for effective delivery and fund/project management, local authority’s involvement led to lack of coordination, poor targeting, incompetent management and corruption/nepotism.

Thailand Unemployment benefit was only paid after the 97/98

Crisis for formal sector only with limitation: 50% of income for 180 days only.

Other government programs:– Public employment information services;– Training programs;– Public work programs.

Problems:– Two-tier labor market: Upper-tier formal sector

with only 15% workforce covered vs. lower-tier informal sector with 85% workforce uncovered.

Conclusion1) Asian economies have experienced both

successful achievement and painful adjustment in the past 3 decades.

2) Several lessons:a) The role of the government;b) The sensitivity for job creation and welfare

allocation, the so-called ‘giving the skills of fishing’ vs. ‘simply giving fish’;

c) Effective administration system for job creation, fund allocation & management;

d) The government as partner with industry/community for job creation, training and education;

e) Financial incentives for employers to employ unemployed people and provide training;

f) Public employment information system;g) Each country must be able to adopt its own

unique way and we all learn from each other for creating prosperity for human kind.