A report published Monday by United Nations agency, the International Labour Organization (ILO), warns that the rise in the size of Asia’s labour force is expected to slow over the next decade threatening output growth in some of the region’s fastest growing economies.
The report Visions for Asia’s Decent Work Decade: Growth and Jobs to 2015, has been published to coincide with the ILO's Asian Regional Forum on Growth, Employment and Decent Work, held in Beijing, 13-15 August 2007
The ILO says that uneven rates of population growth, ageing workforces, and a huge shift in employment from rural areas to cities pose challenges for the region’s rapidly growing economies.
Asia’s recent economic dynamism
The ILO says that between 2000 and 2006, real GDP growth in the Asia-Pacific region surged at an average annual rate of 6.3 per cent, compared with growth of 3.1 per cent in the rest of the world.
This was underpinned by tremendous growth in labour productivity: output per worker in the Asia-Pacific region grew by 30.1 per cent since 2000, as opposed to only 7.8 per cent outside the region. In addition, export growth has made a large contribution to the region’s overall economic performance, led by surging exports from China.Each of the three Asian subregions outpaced growth in the rest of the world.
5 East Asia experienced the fastest growth with 8.6 per cent, followed by South Asia with 6.4 per cent, and South-East Asia with 5.5 per cent. The following key factors are driving Asia’s strong growth, productivity and export performance:-
First, favourable demographic and labour force trends have contributed to the region’s underlying potential for growth.
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Second, Asia has been, and continues to be, a very cost-competitive region, which makes it a prime destination for production, services and foreign direct investment.
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Third, high investment rates have boosted within-sector factor accumulation and have consequently driven higher productivity and growth.
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Fourth, Asia has been undergoing an impressive shift in employment, away from lower productivity agriculture and into higher value-added industry and service sector activities, leading to robust total economy productivity and output growth.
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Fifth, most Asian countries have rapidly become more open to international trade, particularly with regard to increased exports. Asia’s fastest growing economies, including China, India, Cambodia and Viet Nam have become more globally-integrated, and rising exports from these countries have contributed to their recent surge in growth.
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Sixth, human capital accumulation has raised the aggregate education and skill levels of the Asian workforce, allowing for higher value-added production and thereby leading to labour productivity gains.
Asia’s workforce is expected to increase by 221m to 2bn by 2015 as countries such as Iran, Bhutan, Cambodia and Pakistan continue to benefit from a rise in the proportion of “prime working-age” people, between 25 and 54. But the life of this “demographic dividend” would be limited with the proportion of children aged 0 to 15 and youth aged 15 to 24 falling across the whole of the region.
The ILO warns that more developed regions such as Singapore, South Korea and parts of China are likely to hit the “demographic cliff” even earlier.
The ILO says that in terms of employment generation, economic growth in recent years has been generally less “employment-intensive” in many Asian countries as compared to the situation that existed in the 1990s. For instance, in Asia-Pacific as a whole, employment grew at an average annual rate of less than 1.6 per cent between 2001 and 2006, compared with slightly more than 1.7 per cent between 1991 and 1996. This occurred despite more rapid GDP growth in the latter period (6.8 per cent versus 6.4 per cent). Yet, much of this change is due to declining population and labour force growth, together with a shift away from labour-intensive agriculture to services and more export-oriented, capital-intensive manufacturing. Domestic reforms have also played a role: the trend toward privatization of state-owned enterprises has resulted in a significant release of labour through redundancies, particularly in China. Yet, while unemployment rates in the region have risen somewhat over the past decade, they remain low compared to the rest of the world (Appendix, Table A.6).
The report says that in terms of poverty, approximately 908 million of the region’s workers – 51.9 per cent of the region’s total workforce – live on less than US$2 per day, with 308 million of these living in extreme poverty on less than US$1 per day. But poverty has declined since 1996, with the number of working poor living on US$2 per day falling by 123 million and US$1 per day shrinking by 148 million (Appendix, Table A.7).
Despite this progress, the still large number of working poor indicates that millions of workers have clearly been unable to obtain tangible benefits from the region’s favourable economic performance. One reason for this is that in many countries, recent growth has been driven by a few dynamic sectors, such as high value added services and export industries, rather than by favourable economy-wide patterns. Not surprisingly, growth in consumption – a key metric for assessing improvements in living standards – has lagged GDP growth in most countries. Therefore, much remains to be done to ensure that the benefits of Asia’s future economic growth will be more equitably distributed.
Increasing intensity of ageing
The ILO says that at the end of the decade, there will be a marked increase in the share of the population ages 65 and above in every region, with the largest increases taking place in the developed economies (from 20.4 to 26.4 per cent), and East Asia where more than 1 in 10 people will be over 65 years old in 2015, up from 1 in 12. Trends in East Asia reflect the situation in China where family planning policies have accelerated the process of demographic transition.
As a result, China is ageing faster than any other nation in history. As for Asia’s developed (industrialized) countries, Japan’s labour force began shrinking in 1999 at which point new retirees outnumbered new labour market entrants. Taking a longer-term perspective, the pattern of ageing is abundantly clear: the shape of the region’s population pyramid will change substantially in coming decades, and the region will gradually become significantly older (Figure 3.1).The report concludes that in economic terms and looking at region-wide trends, there is little doubt that the Asia-Pacific region is experiencing an unprecedented leap forward in terms of growth and development.
Underlying this performance are a number of positive, reinforcing factors, including favourable demographic trends; cost competitiveness due to the region’s enormous pool of labour and rapid productivity growth; the remarkable export performance, which has clearly benefited from this cost competitiveness; the ongoing structural shift in employment in which tens of millions of workers have moved from low-productivity agricultural employment to higher-productivity jobs in manufacturing and services; and substantial investment in both physical and human capital, which has made possible a large-scale movement to higher-value added production.
However, the ILO warns of the need to look beyond the narrow scope of economic growth to the broader issue of decent work. From this “higher” vantage point, the picture is much more complex. With more than 900 million workers living on less than US$2 per day and over 1 billion working in the informal economy, there clearly remains a great deal of very serious work to be done. More than 200 million additional jobs will be needed in the region by 2015. Adding this to the current number of working poor, this implies that to truly succeed during the Asian Decent Work Decade, the policies and programmes put in place by the tripartite partners must help to provide opportunities for least 1.1 billion Asians to, themselves, realize decent work.
Juan Somavia, ILO Director General
The ILO says that the need for raw materials and energy to fuel growth was increasing environmental pressures. Juan Somavia, ILO Director General, said: “One thing is clear: doing business as usual is not sustainable over the long term. Asia is experiencing unprecedented growth and development. At the same time, vulnerabilities arising from environmental pressures, economic insecurity, shortcomings in governance and unequal income distribution pose a threat to the region’s future development.”