Catalog

Asia's Skills Crisis

Introduction

Developing Asia has a serious skills gap, as well illustrated by the topic's growing frequency in news headlines. The Financial Times in early 2008 suggested that Asia's growing skills shortages may compel multinational companies operating in the region to pay Western-level salaries within 5 years to skilled scientists, information and communications technology (ICT) specialists, and engineers—a staggering claim once one considers the enormous income gap between the two regions. A few days later The Economist highlighted an unfolding crisis in the Indian army of a shortage of 11,000 officers, almost a quarter of requirements—at first glance, a puzzling situation in a country with a billion-plus population and a large pool of unemployed youth. But a closer inspection reveals that there is no puzzle: India has only a small pool of well-educated young workers, and salary offers from the country's booming private sector are often higher than those from the armed forces.

Ironically, developing Asia, home to over two fifths of the global population, is—in a relatively new phenomenon—suffering from a shortage of qualified workers. This is not limited to a few hot spots, but is prevalent enough to present a genuine risk to the region's long-run growth. Asia lacks a wide class of occupational skills relevant to a modern economy, and areas that are critical to growth are seeing large and growing mismatches between the skills that employers need and the skills that employees have. Such imbalances are particularly evident among professional groups, including accountants, airline pilots, business managers, engineers, lawyers, medical doctors, scientists, and software specialists.

The dearth of skills is manifesting itself in a variety of ways: productivity losses and idle capital; rising wage costs; increased turnover of sought-after workers; and higher placement and training costs for new workers. Business efficiency suffers as a result, and if problems are sufficiently widespread, whole industries and even entire economies may suffer.

Asia's skills gap has been widened by increasingly fierce global competition for skills, stimulated both by technological change and by a steady reduction in barriers to immigration. (See the chapter Asian workers on the move, also in Part 2.) Highly qualified professionals in particular have benefited from these trends as industrial countries welcome them with open arms. Although this "brain drain" is hardly new to the region, the skills shortage confronting it has added a new, more urgent dimension to this trend.

This chapter is organized as follows. The next section, Anatomy of a crisis, looks at the causes, consequences, and likely future trends in developing Asia's scarcity of skills. The shortfall stems from Asia's economic success, which has fueled the demand for new skills-intensive goods and services. If not resolved, it may turn into an economywide bottleneck, seriously holding back growth. The largely structural nature of the problem precludes any "quick fix."

Shortages at the sharp end sifts though survey data of employer perceptions of skills shortages in the region. It is, after all, corporate Asia that suffers the most—and so is most knowledgeable. These perceptions confirm that lack of qualified workers is indeed a large and growing business constraint across Asia and all industries. They also show that the scarcity is more pronounced for higher-skills levels, emphasizing that it is the skills that are in short supply, not workers.

Next, Skills shortages in four Asian countries looks at the experiences of the People's Republic of China (PRC), India, Malaysia, and Thailand— two giants and two middle-income economies. With its combination of explosive economic growth and an education system that can fail to provide the types of workers that the economy now needs, the PRC epitomizes Asia's talent crisis. In India, a looming shortage of talent is being fueled by the remarkable export success of the country's ICT sector. In both Malaysia and Thailand, the failure of the education system to produce enough skilled people is seriously hampering the countries' progression to higher value-added industries and activities.

The final section, Easing the bottleneck, looks at policy options, including short-term measures, such as greater openness to skilled foreign workers. More fundamentally though, stronger education systems need to be constructed, which is inevitably a long-term process. Allowing a greater role for the private sector must be an integral part of any changes to the education system, but governments will continue to play a key role. This section also contains some real-world examples of policies that help mitigate skills shortages.