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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:

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structural change and labor policy reaction in asia

Structural Change and Labor Policy Reaction in Asia

A/Professor Ying Zhu

Department of Management & Marketing

The University of Melbourne

Australia

introduction
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
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
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
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
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.
slide7
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
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
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
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 economies1
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
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.
slide13

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.