When are labour markets inclusive?

Gyorgy Sziraczki ILO Regional Office for Asia and the Pacific

Decent Work for All

ASIAN DECENT WORK DECADE 2006-2015

Outline of presentation
Introduction
When are labour markets inclusive? Supporting broad-based productivity increase - a precondition for generating widespread productive employment Investing in skills and education getting the learning process right Labour market institutions - critical for fair and equitable labour market outcome

Improving the synergy between labour market regulations and social protection
Concluding remarks

1. Introduction
Productive employment represents a fundamental development goal; it is not just about economic growth Productive employment is the most important link between growth and poverty reduction By promoting productive employment as part of the catching-up process in MICs, industrial transformation could become a vehicle for poverty reduction and social goals Productive employment and the efficient use of human capital enhance growth, and on the demand side, rising income and wages increase demand and stimulate growth

Introduction (cont)
At the same time, employment is instrumental for structural change and diversification:
employment shapes the capabilities (competences and skills) accumulated in the labour force, and these capabilities define the scope and direction for future diversification and catching-up Policies to promote productive employment opportunities are central elements in strategies to overcoming the middle-income trap

Yet, the catching-up debate largely neglects the employment dimension both in terms of the impact of catching-up on productive employment and in terms of the instrumental role of employment in creating new capabilities and comparative advantage

Despite high growth, few are thriving

Percentage of population that was thriving in 2010 (%)
60 50 40 30 20 10 0
19 18 17 17 16 13 12 5 3 37 57 48

43

Source: Gallup WorldView Database, Thriving Index.

Work and jobs are central to peoples well-being

If developing Asias labour force consisted of 100 people

61 are males and 39 are females 95 are employed, of which:

42 in agriculture, 22 in industry and 31 in services 34 as wage earners, 60 as OAW & CFW and 1 as employer

46 live on less than $2/day and 23 on less than $1.25/day

5 are unemployed, of which:

3 adults (ages 25+) 2 youth (ages 15-24)

2. When are labour markets inclusive?

ILO: Decent work is a goal, meaning not just whether women and men have any job, but rather productive employment that provides an adequate income to keep them and their families out of poverty, security in times of adversity, good working conditions and a voice in the decisions that affect their lives. Inclusive labour market generates sufficient opportunities for productive employment, guarantees rights at work within the framework of an open market economy, provides access to social protection, and promotes voice and dialogue.

3. Productivity growth is a precondition of job

quality and productive employment

Productivity growth has been high, but large gap remains with the U.S.
12 10 8 6 4 2 0
9.3 10.6 3.0 16.0 10.3 6.2 15.4 15.9
10 40

37.8

35 30 25 20 15

8.8

5 0

Annual average change in labour productivity, 2000-2010, % (left axis) Productivity as a share of United States productivity level in 2010, % (right axis)
Source: The Conference Board Total Economy Database, January 2011

Uneven productivity growth - gaps in productivity across sectors

Labour productivity by sector, 2009
20,000 18,000 16,000 14,000 Agriculture Services Industry

12,000
10,000 8,000 6,000

4,000
2,000 Nepal Cambodia Viet Nam Pakistan Sri Lanka Indonesia Philippines Thailand Malaysia
Note: Constant 2000 US$. Figures from Nepal are from 2008. Source: ILO calculations based on World Bank: WDI (2011) and national statistical offices.

The potential of SMEs remains largely untapped. They account for between 5090% of employment but only 26-58% of value added.

Unlocking the potential of entrepreneurship

Number of newly registered limited liability companies per 1,000 working-age population, (aged 15-64) in 2008
8
7.18

7 6 5 4 3
2.6 1.72

2
1
0.12 0.24 0.32

0 India Indonesia Sri Lanka Korea, Rep. of Malaysia Singapore

4. Changing drivers of productivity growth getting the learning process right

Employment shift from agriculture to industry and services has driven productivity growth (In Cambodia 47% and in Viet Nam 37% - 2000-2006) Getting the incentives right to encourage investment in required skills, support the development of demand-led training systems and to ensure high mobility in the labour market for the efficient allocation of labour and skills In the catch-up period and beyond, getting the learning process right is important
Institutions can provide information that reduces high uncertainties over rapid technological, product and work organizational change Learning is also collective, not just individual (learning organizations)

5. Labour market institutions are critical for fair and equitable labour market outcome
International labour standards (ILS), national laws and labour institutions provide some safeguards for the rights of labour, defending workers against exploitation, discrimination, underage employment and unsafe working conditions ILS provide rights and a level playing field to ensure that growth, globalization and free trade benefit to all Long-term benefits of ILS outweigh their short-term costs Benefits of representation and dialogue
can lead to better labour-management cooperation, thereby reducing the number of costly labour disputes, improving productivity and enhancing social stability can provide political support necessary for structural change and social reforms

Do international labor standards deter FDI?

Business criteria used in evaluating location choice:
Labour availability Cost competitiveness (all cost, not just labour costs) Future labour supply Intensity of competition for talent Labour quality Cost of living Real estate Infrastructure Labour law flexibility 99% 78% 62% 56% 52% 34% 23% 21%
21%

Source: Mercer

Developing Asia has weak labour market governance

Ratification of selected core conventions, selected Asian countries
Freedom of Association Elimination of and Collective Bargaining discrimination in respect Out of these eight countries: Five have ratified of employment and Labour Inspection occupation
C871 C982 C1003 C1114

Convention (1947)

Bangladesh

China
India Indonesia Philippines Thailand Malaysia Viet Nam
1

Two have ratified Occupational Safety and Health Convention (1981)

None have ratified Minimum Wage Fixing Convention (1970)

Freedom of association and protection of the right to organize convention (1948) 2 Right to organise and collective bargaining convention (1949) 3 Equal remuneration convention (1951) 4 Discrimination (employment and occupation) convention (1958)

Wage growth lags productivity gains

Annual change in labour productivity and real wages (%)
China (2000-2009) Viet Nam (2002-2008) Indonesia (2000-2008) Pakistan (2000-2008) Malaysia (2000-2009) India (2001-2008) Thailand (2001-2009) Philippines (2001-2009) Sri Lanka (2000-2008) -4
-1.7 -1.8 1.7 1.7 1.3 0.7 2.1 2.3 2.5 4.7 4.2 3.4 4.0 10.6 12.7

4.9

3.1

3.1

Annual change in labour productivity, % Annual change in real wages, % 6 8 10 12 14

-2

Source: Real wages are calculated based on nominal wages from the ILO Global Wage Database 2010 and average consumer price index from IMF World Economic Outlook Database (April 2011). Labour productivity based on The Conference Board Total Economy Database (January 2011).

5. Improving the synergy between labour markets and social protection

Social protection is an investment in both human capital, and social and economic development it is a social contract with people Building a social protection floor on the basis of minimum social universal entitlement to social security within the context of fiscal sustainability gradually and according to national circumstances Social protection serves many purposes:
Reduce poverty/vulnerability Strengthen resilience of societies to economic shocks Reduce the costs of adjustment to changing markets, and Support consumption and domestic demand

Building a social protection floor provides an opportunity to review labour market regulations, ensuring labour market dynamism while providing security

Concluding remarks
Urbanization and labour markets

International migration
Macroeconomic, trade and industrial policies play a key role in boosting job-rich growth Labour institutions and social protection are essential to ensure fair and equitable labour market outcome Policy coherence and coordination is critical