Part 2 Workers in Asia

Young Asians: A Squandered Talent

Introduction

The number of developing Asia's workers has risen steeply in recent years as a tide of young people has entered the labor force. The trend has been most prominent in northeast Asia—comprising People's Republic of China (PRC); Hong Kong, China; Republic of Korea; and Mongolia— where the proportion of the labor force to the total population is expected to peak at 72% in 2010, up from 57% in the 1970s (UN ESCAP 2007). The high share of young people in the total population—also known as the "youth bulge"—provides a unique opportunity for enhanced long-run growth or the "demographic dividend."¹ The dividend can occur in two phases: first, when young people are productively employed, they can lift per capita income; second, as they grow older, accumulate assets, and invest, they can generate higher national income (IMF 2006). If young workers embody higher skills and knowledge levels as a consequence of earlier investments in human capital, this will boost productivity too.

However, an economy has to redeem its demographic dividend within the short time span of a single generation, and doing this is by no means automatic. It depends on the policy environment and on institutions (Bloom et al. 2006). If these enabling factors are not in place, the demographic dividend can turn out to be a demographic curse. But when enabling factors are present, favorable demography can exert significant leverage on growth. Indeed, the remarkable growth performance of East and Southeast Asia owes much to the successful exploitation of this dividend (Bloom and Canning 2004). In accounting terms, two fifths of the actual growth in output per effective consumer can be traced to favorable demographic shifts in East and Southeast Asia (IMF 2006). But other regions, such as Latin America, have largely wasted their demographic dividend. Weak governance, inward-looking policies, and macroeconomic instability there curbed the investment and growth the young could have produced.

The youth bulge will begin to shrink in Asia as a whole around 2010, and by 2040 the share of young people in the total population will be about 14%, down from 20% in 2005 (UN 2007). Before the bulge begins to disappear, and the rising dependency of the nonproductive youth and elderly populations on young people checks per capita income growth, it is vital that economies create productive and sustainable jobs for the young. Failure to do this will not only crimp growth now, it will also undermine an economy's ability to support a larger dependent population in the future. Other stresses are also likely to break through. If the young find that they have few economic opportunities and little to look forward to, this is likely to aggravate social problems and could undercut political support for reform programs (Box 2.1.1).

The importance of youth employment in the developing world has been brought into prominence in recent years by, among others, the International Labour Organization and the World Bank (see, for example, ILO 2008 and World Bank 2006a). These studies have taken a broad and largely aggregate view across countries. The contribution of this chapter of Asian Development Outlook 2008 is to provide a micro-level perspective on issues, set in particular country contexts. The analysis provides new estimates of the dimensions of youth employment and unemployment in India, Indonesia, Philippines, and Thailand, and traces their evolution over the last decade.

Together these four countries account for close to half the young population in developing Asia—33% from India, and 12% from Indonesia, Philippines, and Thailand combined (Figure 2.1.1). While capturing some of the diversity in country demography, experiences, and circumstances that exist in developing Asia, all these countries face the imminent prospect of a declining share of young people in their population (Figure 2.1.2). The descent has already begun and the opportunity to redeem the dividend will soon be moving to a close in Indonesia and Thailand. The opportunity is expected to peak at around 2010 in the other two countries.

The rest of this chapter is structured as follows. The economic context of the perspective is presented in section 2, Country context. The following two sections present a statistical analysis of the situation of young people. In section 3, Work and joblessness, several labor market outcome indicators are estimated, including jobless rates, waiting time in the job market, and the opportunity cost of job search. The analysis shows that young people are disadvantaged vis-à-vis adults, and young women are disadvantaged relative to young men. In the past decade, unemployment and jobless rates among young people have increased in all the four countries. The opportunity cost in terms of loss of earnings while searching for a job has increased over time, reflecting a more difficult job market for young people. These are worrying trends. Moreover, weaker and marginalized sections of young populations are being left behind. In particular, those with low levels of education are most at risk.

Section 4, Structure and quality of employment, looks at the conditions of those who have found employment. Agriculture—characterized by low productivity—has emerged as the employer of last resort for the young, especially teenagers. Opportunities for young people are rapidly growing in services and, to a lesser extent, in manufacturing. Encouragingly, employment has become more formalized, particularly for young workers. At the same time, however, poor and uneducated young people are being pushed more into low-end manufacturing and services jobs in the informal sector. It would seem that young workers, and particularly young women, have borne the brunt of the structural change since the 1990s. The young also continue to stay disproportionately behind adults in earnings.

Section 5, Policy conclusions, discusses possible avenues for addressing the market and institutional failures identified above that bedevil labor markets for young people. The current emphasis on boosting the quality of labor supply for higher-end and mid-level jobs is important (see the chapter Asia's skills crisis). But the need for policies to improve the prospects of the large numbers of young people struggling in the job market is stronger than ever. More flexible regulatory frameworks; suitable education, skills training, and counseling; and public–private partnerships would enhance the opportunities for underprivileged new job seekers.