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NEW DELHI, INDIA – At least half a billion people in developing Asia are unemployed or underemployed and finding ways to provide them productive jobs should top economic agendas around the region, according to Labor Markets in Asia: Issues and Perspectives, an ADB book launched today.

Asia has made significant progress in reducing poverty over the last two decades. But almost 1.9 billion Asians still survive on less than $2 a day. There are many causes of poverty, but in the final analysis poverty exists because people are either unable to find work or earn too little from the work they do, according to the book.

Out of a total labor force of around 1.7 billion, at least 500 million people in the region are unemployed or underemployed on conservative estimates, the book notes, and some 245 million people are expected to join Asia's labor market over the next decade.

“The outlines of an Asian employment crisis are already taking shape,” says ADB Chief Economist Ifzal Ali. “Strong economic growth alone will not solve the problem. Even in countries that have achieved relatively high growth rates of output, employment growth has been disappointing. Governments must focus on achieving full, productive, and decent employment for their people if their economies are to provide equitable growth and development.”

In the 1990s in many countries in the region, each percentage-point of economic growth created fewer jobs than a decade earlier. The experience of the People’s Republic of China (PRC) - one of the world's fastest-growing economies year after year - starkly explains the challenge facing many developing countries. During the 1980s, a 3% growth rate of output in the PRC was needed to induce a 1% increase in employment. In the 1990s, a growth rate of almost 8% was needed to achieve the same result.

The challenge of generating jobs in many countries is particularly acute in the formal sector where employment entails higher earnings, a degree of job security, and social benefits. The share of formal employment in many Asian countries has declined or stagnated in recent years despite economic growth.

There are two dimensions to this phenomenon. First, agricultural employment, which tends to be overwhelmingly informal, has been slow to decline as a share of total employment in a number of countries, especially in South Asia. In India, for example, agriculture continues to account for a majority of total employment in the country.

Second, many new jobs being generated outside of agriculture are also in the informal sector. The book notes that this is a break from the past when economic growth and expansion of employment in the formal sector went together. India’s experience illustrates the point. Despite average annual growth in GDP per capita close to 5% between 1993 and 1999, the share of the informal sector in total nonagricultural employment increased from 80.5% to 83.2%. The informal sector also appears to be expanding in fast-growing transition economies such as the PRC and Viet Nam.

The interplay between the forces of globalization, technological change, and competition is an important factor behind slow job creation, the book notes. While positive in many ways, these forces have enabled and compelled firms in developing countries to adopt productivity-enhancing technologies that tend to be increasingly capital-intensive. This technological progress has made it possible for firms to expand output with smaller increases in employment.

The book discusses the key elements of an overall policy package to address Asia’s employment challenge and points out that while labor laws could be improved in some cases, they are not the main drag on job creation. More flexible labor laws alone would not spark a surge in new jobs. Among the key issues a successful policy package would address are:

• The need to increase public investments in rural infrastructure and the provision of agriculture extension services to raise productivity in agriculture. Increased productivity on the farm would bring benefits for the nonfarm rural economy. Increased incomes from improved farm productivity would also raise demand for nonfarm outputs; and

• The need for significant increases in the demand for labor in the formal sector. The key to encouraging job growth in the formal sector will come from policies that promote diversification of production activities into new areas, especially labor intensive areas; that facilitate restructuring of existing activities; and that foster coordination between public and private entities.

“The potential of developing Asian economies is widely recognized,” says Mr. Ali. “But unless Asian governments make job creation a central national objective backed by time-bound, feasible, credible, and measurable policies, the region may well remain plagued by huge unemployment, underemployment, and poverty - and all the challenges they create.”

Labor Markets in Asia consists of five chapters examining cross-cutting issues and five country studies. It includes in-depth discussions of labor markets across the region; the links between the forces of globalization, technical change, and competition, and their impact on labor markets; and provides a framework intended to guide policy action. Country studies are presented for the PRC, India, Indonesia, Philippines, and Viet Nam. The book was edited by ADB economists Jesus Felipe and Rana Hasan and published by Palgrave Macmillan.

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