ILO urges APAC states to diversify, grow sustainable inclusive economies

In a report, the International Labour Organization (ILO) said Asia-Pacific countries, severely hit by the pandemic, should consider diversifying their economies away from over-reliance on export-led growth towards more sustainable and inclusive structural transformation after the crisis devastated global supply chains.

30, Jun. 2021

The extraordinary developments of the 2020 pandemic highlight the need to have a comprehensive and concerted policy to prevent widening inequality and help overall progress in the world of work. (Photo: ILO)
The extraordinary developments of the 2020 pandemic highlight the need to have a comprehensive and concerted policy to prevent widening inequality and help overall progress in the world of work. (Photo: ILO)

In the decade before the COVID‑19 pandemic, the Asia and the Pacific region experienced some of the highest economic growth rates in the world.

Structural transformation – driven by a confluence of factors, including technological change, trade and greater integration into global and regional value chains – has been accompanied by rising inequalities across groups of workers based on geographical location and skill level, but also more generally across demographic groups, with employment outcomes being on average worse for women and young people.

In many countries of the region, the labor share of income had declined between 2011 and 2017, reflecting production shifts towards more capital-intensive industries.

Urban centers saw increases in private sector employment, including medium- and high-skilled jobs in industry and services, boosted by foreign investment. They also experienced increases in informal employment in low-productivity service industries that absorbed the growing labor force displaced from agricultural employment.

The growing urban–rural gap in labor market outcomes has been exacerbated by technological change in the region. At the onset of the crisis, countries in the region had among the highest labor force participation and employment rates in the world, and relatively low rates of labor underutilization.

However, these indicators mask considerable levels of hardship. This includes a high incidence of working poverty, informality, low wages and poor working conditions.

Despite substantial progress in poverty reduction over the past two decades, around 300 million workers in the region were still living with their families in poverty, including some 58 million in extreme poverty in 2019.

Approximately two thirds of workers were still engaged in informal employment – with a far greater share in some countries – and social protection systems were absent or underdeveloped. Large shares of the population therefore remained highly vulnerable to crises like the COVID-19 pandemic.

The COVID‑19 crisis hit Asia and the Pacific hard, although the impact differed greatly across subregions owing to the actual spread of the virus, the stringency and scope of the measures adopted to curb transmission, and the different composition of output, exports and employment across countries.

In general, the slump in global demand, lockdown measures, travel bans and mobility restrictions greatly affected the region, which is highly integrated into global and regional supply chains, and in which tourism makes an important contribution to local economies.

Although no country in the region was spared by the crisis, the hardest-hit countries included those doubly impacted by the collapse of tourism and the disruption of manufacturing supply chains, such as Malaysia, the Philippines and Thailand.

Labour markets in the Pacific Islands, which are highly dependent on tourism and its spillovers to other economic sectors, were heavily impacted as well.

The initial labor market impacts on Asia and the Pacific in the first quarter of 2020 were reflected in significantly reduced working hours, equivalent to 115 million full-time jobs. These losses were primarily incurred in East Asia.

In the second quarter, working-hour losses in East Asia had declined, but those of the other two subregions increased significantly, resulting in a total loss equivalent to 295 million full-time jobs across the region, the largest share of which occurred in South Asia.

By the second quarter, working-hour losses were accompanied by employment decreases in most countries of the region. The outlook started to improve in the third and fourth quarters of 2020, with progressively smaller working-hour losses over time.

In terms of net job losses (actual, not full‑time equivalent jobs), the ILO estimates point to a jobs gap of 73 million at the regional level in 2020 relative to the no-pandemic scenario, which may be broken down into 47 million in South Asia, 15 million in East Asia, and 11 million in South-East Asia and the Pacific Islands.

The labor market recovery is being facilitated by the region’s relative success in containing the pandemic, but it is nevertheless expected to be held back by global factors, including a slump in tourism.

Indeed, a significant part of the recovery projected to occur between 2020 and 2021 had already been achieved by the end of 2020, with working‑hour losses amounting to just over one third of the average working-hour losses experienced during the entire year.

The further progress of the recovery will depend on continued success in containing the pandemic – among other things, through vaccination campaigns – and on concerted policy action.

At the regional level, the manufacturing sector accounted for over 30 percent of estimated net job losses in 2020 relative to the no-pandemic scenario.

The construction sector accounted for a further 21 percent, the wholesale and retail trade sector for 16 percent, accommodation and food services (mainly tourism and hospitality-related industries) for 10 percent, and “other services” (including personal services) for 7 percent.

Two sectors that normally play a countercyclical role in absorbing displaced workers (construction and wholesale and retail trade) also accounted for major shares of employment loss in this crisis.

Nevertheless, there is some evidence that the agricultural sector in the region maintained its traditional countercyclical role, as reflected in the limited but positive employment growth there in relation to the no-pandemic scenario for 2020.

Women in the region were on average affected by working‑hour and employment losses to a greater extent than men, largely owing to their over‑representation in most of the heavily impacted sectors. Women were also far more likely than men to exit the labor force, while men accounted for a larger share of the increase in unemployment.

Young people in the region were also more heavily impacted by job losses, with a 10.3 percent decline in employment in 2020, compared with 2.4 percent for adults.

A severe discouragement effect may be observed among young people who lost their jobs, but also among those already unemployed, as many stopped their job search activities and dropped out of the labor force during the pandemic because of the lack of opportunities. This is reflected in an increase in the youth unemployment rate despite a net decline in the number of unemployed.

Migrant workers from the Asia and the Pacific region were another group that was highly affected by the crisis. These workers include many employed in GCC countries and Europe, and also in other countries of the region (particularly Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, the Republic of Korea, Singapore and Thailand).

The crisis resulted in significant return migration and a sharp decline in remittances to some countries in the region. For instance, India used special flights and shipping vessels to repatriate over 600,000 stranded migrant workers.

As of October 2020, over 230,000 overseas Filipino workers had returned to the Philippines, representing nearly half of migrant workers from that country who had lost their jobs. Approximately 120,000 migrant workers are estimated to have returned to Cambodia from Thailand.

Remittances to East Asia and the Pacific are estimated to have declined in 2020 by 7.9 percent to $136 billion.

The crisis further exposed huge inequalities in the region, disproportionately affecting lower‑skilled workers and informal workers living in poverty or on the margins of poverty. Lower-skilled workers accounted for 49 percent of job losses among women and for 47 percent of job losses among men in 2020 relative to the no‑pandemic scenario.

Micro and small enterprises, often operating in the informal sector, were also disproportionately affected, particularly in the second quarter of 2020, and are likely to take longer to recover.

Evidence from countries for which labor force survey data are available suggests that informal workers accounted for a large share of the job losses across many sectors, owing to the limited employment protection that is available to them.

For instance, in Vietnam, informal workers accounted for 61 percent of job losses in the second quarter of 2020, while formal workers experienced relatively larger reductions in working hours. By the third quarter, however, as formal enterprises struggled to maintain their workforces, both working‑hour and job losses were larger for formal than for informal workers.

This suggests some labor reallocation towards informal work as many who had exited the labor force began re-entering it.

Lost working hours and jobs resulted in major declines in incomes and a deterioration of livelihoods in Asia and the Pacific. The labor income in 2020 is estimated to have declined by 6.6 percent at the regional level.

In terms of subregions, and before accounting for the offsetting impact of income support measures, the decline was estimated as 13.4 percent for South Asia, 5.0 per cent for Southeast Asia and the Pacific, and 4.1 percent for East Asia.

The extreme working poverty rate – that is, the share of workers living with their households on less than $1.90 per day – is estimated to have increased by 1.4 percentage points in 2020, which translates into an additional 24 million workers.

The moderate poverty rate is also estimated to have increased, namely by 3.9 percentage points, which is equivalent to approximately 65 million additional workers living with their families on between $1.90 and $3.20 per day.

Many governments stepped up their assistance to enterprises and workers during the crisis, and in some cases, contributory and non-contributory social protection schemes were broadened to cover previously excluded groups.

The crucial institutional challenge facing the region now is how to translate short-term emergency support during the crisis into the creation of more adequate social protection systems in the medium to long term.

COVID‑19 CRISIS AND FUTURE OF GLOBAL SUPPLY CHAINS

In 2020, the COVID-19 crisis severely disrupted trade and investment across the world, with localized impacts having “ripple effects” across global supply chains (GSCs), spreading within and across industries and borders.

The pandemic had a strong impact on the supply side in its early stages, with factory closures in China resulting in shortages of intermediate inputs in downstream industries and causing firms in these industries to limit or cease operations.

This effect was then compounded by its impact on the demand side as the crisis evolved, affecting enterprises and workers at all levels of the supply chains.

The disproportionate impact of the crisis on manufacturing in the Asia and the Pacific region has once again highlighted the vulnerability of micro and small enterprises in global supply chains, which have limited access to resources and finance, and of their workers, who have limited health and other social protection coverage.

In the aftermath of the crisis, greater efforts will be necessary to tackle decent work deficits in global supply chains, ideally through multi-stakeholder approaches and social dialogue involving all firms within the supply chain, governments and the social partners.

For many countries, the pandemic has also highlighted the importance of economic diversification to mitigate the effects of external shocks.

In particular, owing to the magnitude of its impact on global supply chains, the crisis could precipitate certain trends or structural changes, such as reshoring or “near-shoring” (which involves shifting elements of the production process closer to end users, with particular emphasis on regional supply chains), supplier diversification, increased inventories of critical parts and product components, and automation so as to limit human contact.

All of these changes could have significant and enduring impacts on regional employment in supplying countries.

It is therefore essential for countries in Asia and the Pacific to consider the COVID-19 crisis as a wake-up call regarding the need to diversify their economies away from an over-reliance on export-led growth towards more sustainable and inclusive structural transformation.

While a recovery is expected from the second half of 2021 onwards, it is likely to be fragile and globally uneven. Projected employment growth will be insufficient to close the gaps opened up by the crisis.

In addition, the crisis has also generated, and continues to generate, highly disparate effects on workers and enterprises, with those already disadvantaged prior to the crisis being most affected. In that sense it has exacerbated pre-existing social and economic inequalities, undone a great deal of earlier progress in the world of work, and made it considerably more difficult to implement the 2030 Agenda for Sustainable Development.

These intensified social and economic inequalities and decent work deficits will result in long-term “scarring” of economies and societies unless targeted efforts are undertaken by policymakers to ensure that the recovery is as broad-based and human-centered as possible.

The return of strong GDP growth, while necessary, is not likely to be sufficient in itself to prevent scarring and the loss of considerable human and economic potential.

Bringing about widespread improvement in decent work opportunities will require accommodative monetary policy to be maintained along with fiscal policies and investments that can propel job creation, particularly in those economic sectors that have the greatest potential to create decent work, including the care economy and green infrastructure.

For low-income and some middle-income countries, international policy action is required to provide them with the fiscal space necessary for making such investments – including through debt restructuring and other forms of financial assistance.

Employment-intensive investments favor local labor and resources and develop the skills of local communities. In the process, they generate much-needed employment and income, reduce costs, save foreign exchange and support local industries.

Physical and social infrastructure deficiencies beset many parts of the world before the crisis; the recovery thus presents an opportunity to fill these gaps and build back better.

Comprehensive national employment policies can play a critical role in bringing together, in a coherent and integrated manner, the various interventions required to support a sustained, inclusive and job-rich recovery.

* This article compiles extracts from the World Employment And Social Outlook Trends 2021 report produced in June 2021 by the International Labour Foundation, an agency of the United Nations.