Structural Change and Labor Policy Reaction in Asia

1. Structural Change and Labor Policy Reaction in Asia A/Professor Ying Zhu Department of Management & Marketing The University of Melbourne Australia

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. Conclusion • Asian economies have experienced both successful achievement and painful adjustment in the past 3 decades. • Several lessons: • The role of the government; • The sensitivity for job creation and welfare allocation, the so-called ‘giving the skills of fishing’ vs. ‘simply giving fish’; • Effective administration system for job creation, fund allocation & management; • The government as partner with industry/community for job creation, training and education; • Financial incentives for employers to employ unemployed people and provide training; • Public employment information system; • Each country must be able to adopt its own unique way and we all learn from each other for creating prosperity for human kind.