Asean’s labour challenge
Asean and the broader East Asia Pacific region are at a crossroads. The more I look at demographic changes and trends, the clearer the challenges become. This is especially true in the labour market if countries in the region want to sustain their economic performance. The top challenge is certainly the rapid increase in the ageing population, with developing middle-income countries such as China, Indonesia, Thailand and Vietnam growing old quickly, according to a recent World Bank report.
Between 2015 and 2034, the number of people aged more than 65 is projected to grow by about 22% every five years in East Asia. By 2060, one in five of the world’s oldest countries will be in East Asia, compared with just one in 25 in 2025.
Rapid ageing has led to a shrinking labour force in an increasing number of countries. The problem is compounded by low birth rates in countries including China, Japan, South Korea and Thailand. By 2040, the greying of the population could reduce the number of working-age adults by more than 15% in Korea and more than 10% in China, Thailand and Japan.
As well, older populations require higher public spending. Without reforms, pension spending is projected to increase by 8-10% of GDP from current levels by 2070. Those factors could weigh down growth in a hugely diverse region where countries such as Cambodia, Myanmar and parts of Thailand still rely on labour-intensive manufacturing.
Worse still, statistics show that Asean’s young people are facing an increasingly difficult transition from the classroom to the workplace. Regionwide, young women and men aged 15-24 account for around 109 million, or 17% of the total population.
According to the International Labour Organization (ILO), only around 7.8 million young people or 14% of the youth labour force are employed even though official unemployment rates in Asean countries are relatively low. Youth unemployment is notably high in Brunei, Indonesia and the Philippines given their limited experience, insufficient career guidance and a lack of demand.
For the nearly 50 million young people in Asean who are able to secure steady work, low-quality employment is a critical concern. Poorly educated Asean youth often find themselves in low-skill occupations in less productive sectors such as agriculture. Too many are stuck working in vulnerable jobs with informal arrangements and limited earnings.
Meanwhile, millions of young graduates with higher degrees are leaving school and entering the workforce with qualifications that do not match the demands of employers. In Indonesia, for instance, 70% of young graduates overall are overqualified for their jobs. Overqualification rates are also high in Cambodia, Laos and Thailand.
Another alarming concern is low productivity. Since 2000, labour productivity in Asean has risen by 3.3% on average annually. It has exceeded 4% in Cambodia, Laos, Myanmar and Vietnam, albeit from a very low base. Low productivity figures reflect the high share of agricultural employment and widespread informal employment among other factors. While productivity in Singapore and Brunei was seven to eight times higher than the regional average, the rate in Myanmar was only one-sixth the regional average and one-third in Cambodia.
Reliance on migrant labour has risen dramatically in the Asean workforce of around 300 million. Intra-Asean migrants increased from 1.5 million to 6.6 million between 1990 and 2013, driven by differences in wages, with Malaysia, Thailand and Singapore the major recipient countries.
Such demographic and productivity challenges require strong leadership and bold decisions, as well as social consensus to move forward. For Asean countries, that means agreeing on a goal first, and then on policies to move in that direction.
In countries such as Japan, Korea, Malaysia and Fiji, solutions include encouraging more women to join the workforce, especially after childbirth, and attracting younger immigrants to compensate for low birth rates.
Workforce quality also needs to be improved through investments in education and a shift in focus to lifelong learning. As well, higher education and technical training in Asean needs to be more responsive to industries to facilitate an easier school-to-work transition. For example, quality apprenticeship programmes could help ensure graduates gain practical and job-specific skills. Such measures could be complemented by other efforts such as job matching schemes and better career guidance.
Asean leaders know how urgently they need to respond to such challenges. The formal start of the Asean Economic Community and the expected expansion of the Trans-Pacific Partnership will only intensify competition in the labour market. Without better educated and more productive workers, Asean risks losing its growth edge.