Sustainable Social Development in a Period of Rapid Globalization: Challenges, Opportunities and Policy Options

Chapter III Employment expansion and globalization in Asia and the Pacific

A. GLOBALIZATION AND EMPLOYMENT EXPANSION

A t the beginning of the 1990s, there was much optimism about the impact that liberalization and globalization would have on employment and growth in developing countries. Financial liberalization was expected to increase the rate of investment, enhance the efficiency of investment and improve the savings rate, which in turn was expected to contribute to higher investment in developing countries. Deregulation and trade liberalization, by increasing internal and external competition, were expected to ensure the efficiency of such investment in terms of technology choice, scale and operation. The positive impact this would have on growth was expected to contribute to increases in employment.
Indeed, the dominant mood then was one of excitement about a new phase of globalization, in which the expectation was widespread that a significant proportion of the population in developing countries would benefit in various ways from new technologies and expanded trade and employment opportunities. Women in particular were seen as major potential beneficiaries of this trend because of the increase in feminization of employment that was apparent, especially in export production. Despite such optimism there was some consciousness of the possible negative consequences; indeed, many statements emanating from international forums contained very perceptive analyses of the risks of inequitable growth, the chances of marginalization and exclusion from the benefits of globalization, the costs in terms of reduced food security and greater environmental destruction. The key question was how the process of globalization could be managed so as to spread its generally beneficial effects more evenly by gender, class and region.

This chapter is concerned with an assessment of the progress made in expanding and improving the quality of employment in the ESCAP region over the past three to four decades. It is also concerned with tracking the achievement in increasing the participation of women in the labour force as a means to empowerment. Several aspects of the employment scenario are touched upon: labour-force participation; employment, unemployment and underemployment; the impact of export-oriented production on employment and wages; and the emergence of new forms of production organization such as working at home and subcontracting. This chapter also contains a specific consideration of the nature and extent of the impacts of the South-East and East Asian 1997 financial crisis, especially on poor women.

B. GLOBAL ECONOMIC TRENDS DURING THE 1990S

1. The growth scenario

Liberalization and globalization had been expected to boost economic growth, which would lead to increases in employment through the processes noted above.

The reduction in protection and the realization of a more appropriate market-determined exchange rate associated with globalization were also expected to have a number of positive effects. Wide and intensive protection in developing countries was normally provided to the fledgling industrial sector being fostered by the State, so that domestic industrial prices tended to be well above international prices. However, the agricultural sector was rarely offered protection, which could be seen as a mechanism by which the terms of trade were turned against the agricultural sector, thus adversely affecting agricultural investment and peasant livelihoods. In the event, reduced protection was seen as a means of redressing imbalances in the terms of exchange between agriculture and industry and stimulating growth in agriculture. Given the larger share of the population dependent on agriculture and the greater labour-absorbing capacity of primitive agriculture, trade liberalization was seen as contributing to increases in output and employment in the agricultural sector.

Furthermore, the liberalization of rules with regard to foreign investment was expected to result in a surge in foreign direct investment in export-oriented, labour-intensive, greenfield projects, aimed at exploiting the low cost of skilled and unskilled labour in developing countries.

There was one other factor that fuelled the optimism that stemmed from these perceptions. The conclusion of the Uruguay Round agreement under the General Agreement on Tariffs and Trade (GATT) had raised expectations of an acceleration in world trade, which had already been growing for some years. In particular, it was expected that the agreement would stimulate exports, at higher prices, of agricultural products and traditional manufactures from developing countries, because of the reduction in protection and a cut in subsidies offered to these products in developed-country markets.

Seen from the perspective of the situation in 2002, it is now clear that the expectations regarding world economic growth during the 1990s were in part misplaced. As table III.1 shows, the 10-year average rate of growth during the periods 1983-1992 and 1993-2002 (based on projections for 2001 and 2002) were more or less the same. Furthermore, growth during the 1990s had been characterized by significant variations across regions and countries, with regions and countries displaying substantial volatility in growth rates throughout the decade and a trend towards deceleration during the second half of the 1990s.

The most obvious case of variation from the global average trend is that of Japan, which registered low rates of growth throughout the decade and experienced a recession starting in the latter part of the decade. In fact, the most striking feature of economic trends during the 1990s was that the United States experienced strong growth while most of the other economies in the world system languished.

According to IMF estimates, the average rate of world economic growth during the 1990s was only 3 per cent, which is below the 3.5 per cent average of the 1980s and the 4.5 per cent average of the 1970s. The figures for the periods 1982-1991 and 1992-1999 stood at 2.6 and 1.9 per cent respectively in the case of the European Union and 4.1 and 1.0 per cent in the case of Japan.

Looked at from the point of view of unemployment, the United States economy reflected a phase of near-continuous buoyancy with declining unemployment rates (from 7.5 to 4.0 per cent) starting in 1992. Meanwhile, Japan recorded a continuous increase in unemployment rates from 2.1 to 4.7 per cent between 1991 and 2000.

Another set of countries adversely affected in the latter half of the decade were the developing countries and economies in transition that were afflicted by the 1997 financial crises, especially the East and South-East Asian countries. Economic growth in the newly industrializing Asian economies, which averaged 8.4 per cent annually during the period 1983-1992, is estimated to have fallen to 4.6 per cent during the period 1993-2002, partly because of the negative 9.2 per cent result in 1998 and the waning, since late 2000, of the initial signs of recovery. It is well known that the dramatic economic boom in East and South-East Asia in the 1980s and first half of the 1990s, based on rapid export expansion, was a major factor contributing to whatever dynamism the world economy displayed. The extraordinary nature of this boom does not need elaboration; nevertheless, table III.2 shows the extent to which the East Asian subregion (as per the World Bank classification), outperformed not only the world economy but also that of other developing countries in the period from 1980 to early 1997 in terms of overall growth rates. The corollary to this is that the downturn in the Asian and Pacific region in the late 1990s was a major factor contributing to the disappointing performance of the world economy over the 1990s as a whole.

The main reason economic growth for the world and for developing countries as a whole during the 1990s exceeded that of a decade earlier was the unusually long economic boom in the United States during the 1990s. However, there are signs that that boom has come to an end. Well before the disruption and the uncertainties created by the 11 September 2001 attacks on the World Trade Center and Pentagon buildings in the United States, there were clear signs that world economic growth was slowing as a result of the end of the boom in that country.

In a note on the prospects for the global economy following the incidents of 11 September, prepared for the International Monetary and Financial Committee in early November, the Managing Director of IMF stated that the staff’s revised baseline projections envisaged that the global slowdown would be more prolonged than foreseen in the October 2001 World Economic Outlook, with recovery being delayed until around the middle of 2002. As a result, global GDP growth has been revised downward by 0.2 percentage points to 2.4 per cent for 2001 and by 1.1 percentage points to 2.4 per cent for 2002.
Clearly, employment expansion based on growth alone is proving inadequate in the current global context. After initial signs that globalization would lead to a boom in world output and trade, the evidence is accumulating that globalization could be resulting in synchronized slow growth or recession.

2. The elasticity of employment

Employment expansion is driven not just by growth, or the expansion of output. The capital- and import-intensity of production affects the elasticity of employment with respect to output or the responsiveness of employment increases to output increases, and therefore the degree to which any increase in output translates into an increase in employment. A high and rising level of capital intensity reduces the employment generated by new investment. Furthermore, a high degree of import intensity reduces the domestic linkage effects of any expansion of demand and therefore contributes less to increases in domestic output and employment creation.

It is no doubt true that any given level of elasticity of employment with respect to output implies that employment grows to some degree when output increases. Also, any increase or decrease in the rate of growth of output positively or negatively affects employment generation. These factors yield the obvious conclusion that to increase employment it is necessary to stimulate growth as well. However, in countries with a large reserve of unemployed and underemployed labour, the pursuit of the goal of employment expansion requires not just accelerating growth, but transforming the nature of growth as well, both by encouraging the adoption of techniques having a lower capital intensity, especially in rural areas, and by reducing leakages of demand that reduce the value of the multiplier. It is for this reason that there has been much emphasis on rural development in general and rural industrialization in particular in many developing countries, a trend that has been encouraged by the successful experience of town and village enterprises in China.

Table III.3 presents calculations of the employment intensity of aggregate manufacturing value added, based on ILO data, for selected countries and area. It is evident that the employment elasticities emerging from this data set are all close to zero, and there is no clear-cut evidence of increases in such intensity in the developing economies or declines in the developed countries.

A different source, a UNIDO data set, provides information that can be used to calculate employment elasticities for a number of economies over the period 1985-1998, considered the peak globalization phase. These employment elasticities have been calculated for some of the economies that are routinely described as among the more successful of the new manufactured goods exporters and are typically seen as the most important destinations for the jobs that are supposedly being relocated to developing countries.

Relevant calculations by six countries and various sectors of the available data for many of the major manufactured goods exporters among Asian developing countries are presented in table III.4. What is striking is how low most of the employment elasticities appear to be. Even more striking are the negative elasticities that emerge in some cases, also in a range of manufacturing sectors that are typically thought of as being labour-intensive. It is worth noting that the elasticities range very widely across countries and areas with otherwise similar characteristics.

The preponderance of low elasticities of employment with respect to output points to the fact that the structure of growth under globalization and liberalization has not been adequately conducive to employment expansion.

3. Foreign direct investment and employment

Asia and the Pacific emerged as one of the most dynamic regions for FDI in the 1990s, despite the first decline of FDI flows in 13 years, in 1998, following the financial crisis. According to the UNCTAD World Investment Directory 2000, between the late 1980s and the late 1990s, average annual FDI flows to the region quintupled, going from just under $16 billion to slightly more than $80 billion (table III.5). The region’s share in world average annual flows doubled, from 9 per cent to 18 per cent, while its share of flows to developing countries remained more or less stable, at 55 per cent.

In the late 1980s, the largest country in the region, China, had average flows three quarters of the amount of those attracted by Singapore. By the late 1990s, China’s average flows had grown by a multiple of 13, reaching $41 billion, while Singapore’s more than doubled, to $8 billion. FDI in South Asia grew over the decade by a multiple of 15, albeit from a very low average in the late 1980s largely owing to the gradual opening and flow of FDI to India (the second largest country in the region), where the average annual flow stood at $2.7 billion in the late 1990s. During that period, South-East Asian countries other than the NIEs caught up with the NIEs, attaining average flows exceeding $16 billion. In the late 1980s, that average had been just over $4 billion, as compared with approximately $8 billion for the NIEs. The secondary sector attracted very significant amounts of FDI flows to the region. The tertiary sector is growing in importance, however, with business-support services such as trade, transport, storage and communications, and finance developing faster than any others. In 1997, for instance, trade accounted for up to 20 per cent of FDI stock in Thailand, while finance represented as much as 30 per cent in Pakistan. FDI continues to flow very unevenly into individual countries in Asia and the Pacific. More than 80 per cent of the region’s inflows in the late 1990s went to just six economies: China; Hong Kong, China; Indonesia; Malaysia; Singapore; and Thailand. As for the sources of these flows, developed countries continue to dominate flows into the NIEs, while the NIEs themselves dominate the flows to many other countries including, pre-eminently, China.

There had been an expectation that foreign direct investors looking for appropriate, low-cost sites for world market production would invest in liberalizing countries in large measure following liberalization. As low wage costs are one of the major benefits offered by the developing countries, which are seen as being capital-scarce and labour-abundant, such investment would be in the more labour-intensive sectors. Thus, foreign investment would be virtuous in a double sense: it would spur export production as well as increase employment. Furthermore, it is argued that such employment expansion would serve to redress the imbalance in the labour participation rates between male and female workers.

Indeed, the expansion in export production that fuelled the boom in the South-East Asian region was itself based on the growing participation of women as wage workers. It is currently widely appreciated that the Asian export boom was driven by the productive contributions of Asian women: in the form of paid labour in export-related activities and in services, through the remittances made by migrant women workers, and through the vast contribution of unpaid labour by women. This phenomenon occurred as liberalization and government fiscal contraction transferred many areas to the public provision of goods and services to households (and thereby to women within households).

In view of the current extreme inequality of distribution of FDI, even allowing for a continuous increase in global FDI flows, it is suggested that most developing countries could do better by setting moderate, realizable targets for the volume of FDI inflow and seeking appropriate domestic policies to maximize the benefits they derive from those flows. The case for moderate targets and differentiated strategies is suggested on the basis of the experience in Asia and the Pacific.

FDI in liberalizing developing countries is being targeted also in the infrastructure sector, where Governments keen on strengthening their infrastructure base offer substantial concessions. Infrastructure industries are by definition quite capital-intensive in nature, and the products of these industries normally consist of non-tradable services. Here again, even if investment is in greenfield projects, the employment and export contributions of such investments tend to be low or non-existent.
It is generally acknowledged that the increase in manufacturing production, and manufactured exports in particular, is confined to only a few developing countries. Typically, the countries concerned have also been beneficiaries of substantial foreign capital inflows in various forms. The countries concerned, mostly in South-East and East Asia, have been dominant in contributing to the increase in the share of developing countries in total world exports of manufacture goods and in the higher rates of economic growth.

The economies of China; Hong Kong, China; India; Indonesia; Malaysia; Mexico; Philippines; Republic of Korea; Singapore; Taiwan Province of China; and Thailand explain almost all the significant increase in the manufactured exports of developing economies over the past two decades.

The real change in the 1990s was with regard to a form of capital flow that is widely seen as responsible for the increased vulnerability of economies, namely, portfolio capital movement, in the form of investment in domestic stock and securities markets by non-residents. Such flows registered a marked increase to developing country “emerging markets” in the 1990s, as a result of a combination of factors. These included the wave of financial deregulation in the previous decade, the increasing need of international asset managers, including growing pension funds, to diversify their portfolios in order to ensure larger returns and the economic slump in rich industrial countries, which reduced rates of return on capital investments made there and forced mobile capital to seek alternative avenues for investment.

This wave has already diminished in strength, and most developing country equity markets have experienced the negative effects of decelerating net inflows of foreign portfolio capital. Currently, enthusiasm for “emerging markets” among international portfolio managers has clearly dampened.
Such flows, however, have tended to generate unparalleled degrees of volatility and uncertainty in capital and currency markets. Clearly, the financial markets of some developing countries and economies in transition, which had been seen as the favoured destination of international investors, are not so for the time being. The outlook for most emerging markets is unclear, if not negative, impacting on the employment situation.

C. THE EMPLOYMENT CONSEQUENCES

1. Employment expansion

The percentage of the total population who are economically active (the crude activity rate) tends to increase if population growth rates are declining, because there is a smaller proportion of persons below employment age in the population. That upward influence is offset by the tendency for younger persons to delay entry into the labour force and older persons to withdraw earlier as an economy develops and shifts to urban formal employment. Between 1960 and 1995, the crude activity rate (CAR) for Asia increased slightly from 47.5 per cent to 49.8 per cent (table III.6). Almost all of the increase in CAR is attributable to increased female labour-force participation, which rose from 36.2 per cent to 40.6 per cent. These trends vary greatly by subregion and country.

Employment expansion was the greatest in East and North-East Asia for both men and women. The CAR for both sexes increased from 51 per cent to nearly 59 per cent, and that for females from 42 to 54 per cent. While those figures were mostly determined by trends in China, large increases in CAR were also attained for both sexes in Hong Kong, Japan and the Republic of Korea.

While the CAR for males did not increase between 1960 and 1995 in South-East Asia, that for females increased from 32 per cent to 41 per cent. Indonesia, Malaysia and the Philippines each followed this pattern. In Singapore and Thailand, the CAR for both males and females increased substantially. The expansion of female employment was particularly notable in Singapore, although it began from a low level. Fifty-five per cent of the female population of Thailand was economically active in 1995, a level matched only in China. Employment was essentially stagnant in Viet Nam for both males and females.
Total employment as a proportion of the population stagnated throughout South, West and Central Asia between 1960 and 1995, partially because of higher population growth rates in that subregion (note that South-Central Asia, in the ILO definition, includes countries in South Asia, West Asia and Central Asia). Kazakhstan and Sri Lanka are the only exceptions to the subregional trend. In both of these countries, employment expansion was led by female employment, albeit from a low level in Sri Lanka.

It is clear that during this period the economies that had been able to participate most actively in global economic processes expanded overall employment the most significantly. These include Hong Kong, Indonesia, Japan, Malaysia, the Republic of Korea, Singapore and Thailand. While employment expanded greatly in China between 1960 and 1995, much of the stimulus came from internal reform as well as from the effects of international trade and investment.

International trade stimulated female employment in East and South-East Asia in manufactured textiles, garments, electronic and electrical products and other household items for export. Rapid industrial expansion also generated increased employment in the service sector for both men and women. Large increases in the percentage of women in the labour force occurred in China, Hong Kong, Indonesia, Japan, Kazakhstan, Malaysia, the Philippines, the Republic of Korea, Singapore, Sri Lanka and Thailand.

2. Structural change in employment

During the period of rapid economic growth and of employment expansion, the sectoral structure of labour forces in the region also shifted significantly towards industrial and service employment (table III.7). In Asia as a whole, the proportion of the labour force employed in agriculture declined from 76 per cent in 1960 to 62 per cent in 1990. During that period, the proportion in industrial employment increased from 10 per cent to 17 per cent and the proportion in services from under 15 per cent to over 21 per cent. While much higher proportions of women than of men work in agriculture, they shifted to industrial and service employment at about the same pace as men.

Although employment expansion was much greater in East and South-East Asia than in South-West and Central Asia between 1960 and 1990, the subregions underwent structural changes in employment at about the same rate (table III.7). In each subregion, the proportion employed in industry increased by approximately 7 percentage points.

While the proportion of the labour force in industry increased significantly in China between 1960 and 1990, that employed in services increased only modestly and remains at a low level. While the proportion of the male labour force employed in services is essentially the same in South-East Asia and South-West and Central Asia, a much greater proportion of the female labour force in South-East Asia (27.6 per cent) is employed in services than is true in South-West and Central Asia (13.5 per cent).

In general, employment in the industrial sector increased at about twice the rate of population growth in Asia during the 1970s and 1980s (table III.8). This shift from agriculture to industry contributed to higher economic productivity and to higher average wages in the region.

The economies of Asia appear to be following the expected cycle of industrialization, i.e., industrial employment increases rapidly at early stages of industrialization, then slows and may eventually decline as the economy becomes fully industrialized and begins to shift to service employment. Industrial employment expanded rapidly during the 1970s in China, the Republic of Korea, several countries in South-East Asia and Uzbekistan (table III.8). In each case, industrial employment grew more slowly during the 1980s. Hong Kong, China; Japan; and Singapore may be considered to have reached a post-industrial stage, with low or negative growth in industrial employment.

The average annual rate of increase of employment in the industrial sector declined between 1970 and 1980 in East Asia and in South-East Asia but increased in South, South-West and Central Asia. During the 1980s, the rate of increase in industrial employment in Bangladesh and Pakistan exceeded that in any country in East or South-East Asia. The implications for social development of shifts in labour force structure from agriculture to industry and services will be considered in the final section of this chapter.

3. Rural employment

Manufacturing employment trends are of importance in developing countries because agricultural employment cannot be expected to keep pace with the expansion of the labour force in these countries. The arrival of the Green Revolution did not change this expectation. There is some evidence that in the early phases of the Green Revolution growth based on use of high-yielding varieties, intensive application of fertilizers and pesticides and investment in irrigation, multiple cropping and better farming practices resulted in greater labour absorption along with increased land productivity. However, this has been found to be inadequate to meet the employment needed to clear the backlog of underemployment as well as provide livelihoods for the new entrants into the labour force. Furthermore, in many developing countries, the lack of sufficient public investment in irrigation, aggravated by cutbacks in public expenditure associated with globalization, has substantially slowed the application of new technologies in agriculture. Even in the successful regions, where public and private investment in irrigation has occurred, the evidence shows that, in the later stages of Green Revolution-based growth, the shift to more mechanized systems of production substantially reduces the employment elasticity of output.
As a result, in many contexts, rural employment increases have been the result of an increase in the share of non-agricultural employment in total rural employment. This shift to non-farm employment in rural areas occurs in three ways. First, the shift occurs as a result of the increases in the demand for non-agricultural products and services that an increase in agricultural output creates, which can only be serviced locally. Second, the expansion in non-agricultural employment is generated by State intervention in rural development. Third, it reflects the spillover into non-agricultural activities of that part of the rural population that is forced to seek employment outside the agricultural sector as a response to the unsustainability of the process of “agricultural involution”.

In some countries, such as India, State expenditure on rural development has played a major role in increasing rural non-agricultural employment. During the 1980s, along with a rapid increase in all sorts of public subsidies and transfers to households from the Government, there was a very large increase in expenditure on the rural sector by state and central governments. More generally, throughout that period, political developments tended to give rural interests greater power and they were able to command significant improvement in the historically low share of government expenditure to benefit rural areas. Nearly 60 per cent of all new government jobs created accrued to rural areas during the decade.
Resources were primarily allocated to expanding “rural development” schemes with an explicit redistributive concern. This included not only the various rural employment and integrated rural development programmes, but also a plethora of special schemes for a variety of identifiable “target” groups. There was a realization that income growth by itself would not “trickle down” in adequate amounts to have an impact on the poor and that targeted interventions were essential.

Furthermore, the rural elites had greater access to the varied benefits of government expenditure owing partly to their greater mobility and better transport infrastructure and partly to more jobs and contracts being distributed in the rural areas. The resulting flow of resources and the consequent generation of rural demand led to growing opportunities for diversification of the self-employed from agriculture to non-agricultural enterprises.

The experience in India is, however, instructive. Many schemes became constrained by large bureaucracies, inefficiency and unsustainability. Moreover, the subsequent stabilization policies resulted in a reduction in the flow of public expenditure to rural programmes and employment and placed the livelihoods of rural dwellers at risk.

4. Unemployment

It is well known that data on unemployment in developing countries are extremely unreliable. Conventional surveys aimed at capturing the employment status of those in the working age groups do not capture their degree of access to decent work. This is especially true of rural workers and those earning their livelihoods from the urban informal sector. Open unemployment is usually not an option for poor people, who have to force themselves into some activity, however low-paying; thus, changes in open unemployment rates are not necessarily good indicators of changes in levels of economic activity. This is one reason for the relatively low and stable nature of the unemployment rates reported by many surveys in developing countries.

Yet, in the case of the more developed of the developing countries and areas, the evidence is clear (table III.9): the trend is towards an increase in the rate of unemployment over time.

Studies suggest that globalization also poses new threats to and opportunities for employment expansion in the small developing economies of the Pacific islands. However, the current situation in employment is hard to gauge in a simple way, particularly as labour statistics are often dated and unreliable and because monetary measures are difficult to reconcile with the semi-subsistence nature of household economies. According to the UNDP Pacific Human Development Report, 1999, in some countries of the subregion, such as Kiribati, Papua New Guinea, Solomon Islands, Tuvalu and Vanuatu, a large proportion of adults work in semi-subsistence agriculture. In other countries, particularly Fiji, cash employment is on a significant scale and growing. In yet others, there is little in the way of either form of employment. This situation, together with the availability of employment outside the country, fuels high emigration from some countries. Remittances from workers abroad effectively subsidize some unemployment at home. Since Palau’s Compact with the United States in 1994, for example, many Palauans have taken advantage of unrestricted access to jobs in the United States. These emigrants benefit Palau through their remittances as well as the job skills and capital they acquire. The negative aspects include the loss of skilled resources and a rise in the relative proportion of unemployed and low-skilled workers.

Agriculture, in particular export commodities, is central to the economies of many of the Pacific islands. Other important industries include fishing, tourism and mining (Papua New Guinea, Fiji, New Caledonia), all of which depend on world prices. The high degree of dependence on these sectors means that the island economies are vulnerable to outside shocks, in particular weather extremes. Economic downswings in growth elsewhere, such as that caused by the 1997 financial crisis, have had severe adverse effects on almost all the economies of the Pacific subregion. Solomon Islands, whose economy is heavily dependent on the export of timber and fish to Asian countries, was particularly hard hit.

The small scale of Pacific island economies and low levels of either foreign or domestic investment make it harder for new entrants to the labour market to find formal employment. High rates of population growth and school dropouts (from grades 2 to 3) make “youth employment” a major concern. Available data (table III.10) show that young people are especially at risk of unemployment. In some countries, there are up to seven times as many young people seeking work each year as there are new jobs available. Youth unemployment in Papua New Guinea, for example, is especially high among young urban males with little formal education. In Samoa, young people are three times more likely to be unemployed as older workers. In Marshall Islands, unemployment for urban youth runs around 50 per cent. The unemployment situation is compounded by the entrance of more and more women into the labour market seeking formal employment.

Economic growth in most of these countries has been highly dependent on assistance from their former colonial administrators, including through large and persistent aid flows and preferential access to export markets. These arrangements are likely to offer fewer benefits in the future, which poses a great challenge for these countries to find alternative arrangements and to better manage their own natural, financial and human resources.

Another characteristic feature of the developing Pacific island economies is the informal sector. The informal sector includes a variety of occupations and small-scale enterprises. These typically involve simple organizational and production structures, require a low level of technology or skills and a small amount of capital per worker and rely on family labour or a few hired workers. They are informal in the sense that they are mostly unregistered and unrecorded in official statistics and have little if any access to organized markets or credit institutions. Most informal sector workers are rural, semi-subsistence producers who operate in both the traditional exchange and cash sectors. Another smaller group operates small enterprises or domestic services, most of them in the cash economy and in urban areas. They include considerable home-based activity, especially for women and children. Yet many informal businesses operate out of urban households, selling produce or small items. In town, small-scale informal enterprises involve mainly the urban poor, who typically seek multiple sources of income. Many children are employed, particularly those who leave school early. In both rural and urban areas, however, women are particularly involved in the informal sector. Their small businesses provide the main income of many urban families. Surveys indicate that many were run by women aged over 30 years with dependents. In Solomon Islands, almost half of all women working for money were self-employed, and one third of these self-employed women were the sole income earners for their households, even though most had very little formal education.

Prospects for economic growth vary among the developing Pacific island economies, but all countries face a strong challenge in generating sufficient employment. Another reason for this is demographic, namely, the fast-growing labour force. The other reasons are economic: the mostly small, undiversified economies of the region, the highly structured and rigid labour markets, the underdeveloped private and informal sectors and socio-economic and environmental uncertainties that discourage investment.

D. ECONOMIC PARTICIPATION OF WOMEN

1. Participation rates and related issues

Some indication of the gender dimension in economic participation is available from table III.11. It is evident that for most countries of the region the period between 1985 and 1997 witnessed a massive increase in the labour-force participation of women. This process – the feminization of work or the continuing increases in the female share of employment – was most marked in the South-East Asian subregion, which was also the most dynamic in terms of exporting during that period. Throughout Asia, as a consequence, the gap between male and female labour-force participation rates has narrowed, suggesting that the recent period has been one in which, at least in terms of quantitative involvement, the gender gap has been narrowing.

Among the four countries registering declines in the labour-force participation of women, the percentage change is small, ranging from –1.5 in Papua New Guinea to –5.0 in India. Not too much should be made of the declines in Fiji, the Lao People’s Democratic Republic and Nepal, given the problems of data collection in these countries and the well-known problems associated with the underreporting of women’s work.

Despite the growing involvement of women in recognized economic activity in Asia, they have continued to remain dominant in unpaid household work, as is also shown in table III.11. The point that growing responsibility for paid economic activity does not necessarily reduce the burden of unpaid work for women has been reiterated many times. However, the sheer fact that women continue to be the dominant suppliers of unpaid family labour is likely to be of growing significance in view of the current reliance on adjustment policies, which shift more economic activity onto unpaid family labour (and thereby to women).

Table III.12 shows the shift in employment patterns in three of the “typical” economies of the region, where the growth of export orientation in both production and employment meant that women wage workers came to dominate in the export processing zones (EPZs) and even became much more significant in non-EPZ manufacturing activities. In this period, women workers were frequently the main contributors to household income, rather than subsidiary workers working for supplementary earnings, and their dominant material contribution in the households reflected also their substantial contribution to the aggregate national economies.

Table III.13 makes this pattern even clearer; it shows the ratio of female employment to total employment in all sectors of the economy taken together. As is evident, the countries of the East Asian and South-East Asian subregions show very high shares of female employment throughout the 1990s. (The ratios given are the average of the years for which data were available during the period 1990-1997.) The female share of total employment was over 30 per cent, and reached almost 46 per cent in Thailand.

Data on four countries of South Asia are provided for comparison in table III.13. India and Pakistan show relatively low rates, which are even slightly lower than the average for developing countries. However, even here, it is worth noting that the 1990s witnessed an increase in the female share of manufacturing employment alone. Meanwhile, the two South Asian countries in which export-oriented production has been or has become more important – Bangladesh and Sri Lanka – show shares of females in total employment which are comparable to South-East Asian countries.

2. Working conditions and wages

This trend towards the feminization of employment in Asian countries resulted from the needs of employers to hire a cheaper and more “flexible” source of labour oriented to export promotion. It was also strongly associated with the moves towards the casualization of labour, a shift to part-time work or piece-rate contracts, and insistence on greater freedom for hiring and firing over the economic cycle and response to technological changes. All these aspects of what is described as “labour-market flexibility” became necessary once external competitiveness became the significant goal of domestic policy makers and defined the contours within which domestic and foreign employers in these economies operated.
Feminization of work was also encouraged by the widespread conviction among employers in South-East Asia that female employees are more tractable and subservient to managerial authority, less prone to organize into unions, more willing to accept lower wages because of their own lower reservation and aspiration wages, and easier to dismiss using life cycle criteria such as marriage and childbirth.

However, when the export industries in some countries started to experience a slowdown from the middle of 1995, it became evident that continued growth of employment in export-oriented industries was not sustainable; furthermore, export industries could not serve as the same engine of expansion as they had during the previous decade. It also became clear, therefore, that there could be some setback in the feminization of employment because the export industries that had become the most important employers of women at the margin were starting to slow. Indeed, the very features which had made women workers more attractive to employers – the flexibility of hiring and firing and the more casual, non-unionized nature of their labour contracts – are precisely those which are likely to make them the first to lose their jobs in any recession.

It has turned out also that even the earlier assessment of the feminization of work had been based on what was perhaps an overoptimistic expectation of the expansion in female employment. An ILO report has provided some trends in aggregate manufacturing employment and female employment in this sector during 1990 to 1997 in some of the more important East and South-East Asian economies: Hong Kong, China; Indonesia; Malaysia; Republic of Korea; Singapore; and Thailand.

In several of these economies – Hong Kong, the Republic of Korea and Singapore – aggregate manufacturing employment actually declined after 1990 as their economies matured towards a greater reliance on the service sector.

Furthermore, while female employment in manufacturing was important, the overall trend during the 1990s was not necessarily upward. In fact, there was a definite tendency towards a decline in the share of women workers in total manufacturing employment even before the crisis. In Hong Kong and the Republic of Korea, the decline in female employment in manufacturing was even sharper than that in aggregate employment; indeed, in Malaysia and the Republic of Korea, the share of women’s employment in total manufacturing employment declined respectively from 47 per cent to 40 per cent and from 40 per cent to 35 per cent in the five years between 1992 and 1997.

Evidence suggests that the process of feminization of work really peaked somewhere in the early 1990s, and that the process subsequently was not only less marked, but may also have begun to fade even before the effects of the 1997 financial crisis began to be felt.

This change in the feminization of work is an important issue that clearly requires further investigation. The reversal of the process of feminization of work has also been observed in other parts of the developing world (notably in Latin America), where it has been found to be associated with either of two conditions: an overall decline in employment opportunities because of recession or structural adjustment measures, or a shift in the nature of the new employment generation towards more skilled or lucrative activities.

In the East Asian case, until 1996 neither of these conditions would have been very important, except to some extent the second factor (a shift towards more skilled jobs) in certain economies such as the Republic of Korea and Singapore.

It is obvious that one of the important reasons for preferring women workers, particularly in export-related activities, has been the lower reservation and offer wages of women. Table III.14 presents evidence on this preference for women labourers in selected Asian economies. It shows that women workers’ wages have been consistently and significantly lower than male wages in the aggregate. The differentials are particularly sharp in the case of Malaysia, the Republic of Korea and Singapore, where the average female wages are just above half those paid to male workers.

To some extent, this situation reflects differences in the types of jobs for which women are employed, which are typically at the lower skill and lower wage end of the employment spectrum. But the table also reflects the general tendency towards gender discrimination in pay, whereby women are paid less even for similar or identical jobs. This feature, which is quite marked in East Asia, will be rendered less significant as more and more women are drawn into employment. As women become an established part of the paid workforce, or dominate in certain sectors (as in textiles, ready-made garments and consumer electronics in East Asia), it becomes more difficult to exercise the traditional type of gender discrimination at work. Not only is there upward pressure on their wages, but there are also other pressures for legislation which would improve their overall conditions of work.

While such a development is fundamentally desirable and necessary, such action could reduce the relative attractiveness of women workers to those employers concerned with export profitability. A rise in wages also tends to have the same effect. It is worth noting that the female wage as a proportion of the male wage had been rising in most parts of East and South-East Asia in the 1990s up to 1997. Included in the improvement of women’s wages are Malaysia (from 49 to 57 per cent between 1990 and 1995), the Republic of Korea (from 50 to 56 per cent between 1990 and 1997), Thailand (from 63 to 68 per cent between 1991 and 1995) and Singapore (from 54 to 60 per cent between 1990 and 1997). Hong Kong was the only economy in the region for which there was a decline in this ratio, from 69 to 61 per cent between 1990 and 1997.

During this period (the 1990s), there were legislative and other moves towards protecting the interests of women workers in such areas as maternity benefits and the nature of their contracts. For example, in the Republic of Korea, a law which allowed women to be fired once they got married was repealed in the early 1990s.

If these improvements explain the tendency towards the reduced employment of women, then it raises certain crucial questions, which will become increasingly important in the near future. How can societies ensure the minimum provision of basic rights and privileges to women workers and improve their working conditions without simultaneously eroding their advantages to employers and reducing the extent of female wage employment? How can such rights and basic labour standards be ensured in the coming phase, in which heightened export competition is likely to be combined with a phase of aggregate employment contraction, as the full force of the current adjustment measures is felt in the real economies?

These questions are already pressing concerns, as is evident from the growth of unemployment in the region, which is bound to accelerate in the coming period. During the 1990s, female open unemployment rates were much higher than those of men even in the expansionary phase, as table III.15 makes clear. However, as the exporting industries shrink and as the general economic decline is worsened by adjustment measures that could adversely affect workers (men as well as women), the problem is likely to become more acute.

Evidence suggests that more workers (women as well as men) will lose their paid employment and be forced to consider occupations which are even more precarious and offer inferior conditions as unemployment worsens in the current uncertain economic climate. Thus, even the progress that was achieved in the early part of the decade, in terms of better pay and conditions for women workers, may be reversed. All these factors underline the need to focus on patterns of employment generation which are not prone to sudden “boom-and-bust” cycles, but are sustainable over the medium term. Only then can even the basic conditions of work for both women and men be ensured.
3. Home-based work

The economic participation by women as home-based producers has increased in significance. The actual contribution of women, even in this area, involving subcontracting relations, is very large. Thus, in India, it has been shown that most of the apparently self-employed women in manufacturing activities are actually involved in home-based, piecework as contractor-mediated employees of informal or partly formal capitalist businesses (Bardhan 1987; Shah and Gandhi 1992; Hirway and Unni 1995). In Pakistan, while employment of women in the formal sector is still very small, recent trends show a rapid increase, and unrecorded indirect involvement through subcontracting and ancillary informal sector activities is also estimated to be very large. In Bangladesh, exporting industries in the garments, leather and electronic assembly industries have increasingly relied on the formal employment of young female labour, but there is now evidence to indicate that a substantial part of the work in the garments and leather goods finishing industries in particular is subcontracted to home-based women workers on a piece-rate basis. In Sri Lanka, home-based production is supposed to account for fully half of all current employment, while even in the Republic of Korea the ratio is said to be as high as 33 per cent (UNDP 1999a).

Obviously, the issue of home-based work by women is a complex one. On the one hand, such work may be preferred by both employers and employees alike. Women workers may desire such work because it enables them to add income-generating activities to household work without physically leaving their home, which means that other household duties can be performed simultaneously. It also provides greater flexibility in the use of time, including that for commuting. However, such work also lends itself to the greatest possibilities of exploitation, since the individual woman working at home has virtually no bargaining power and the scope for worker protection is extremely limited. It has generally been found (Shah and Gandhi 1992) that home-based production by women, through a “putting-out” system in which such production is the base of a complex production chain ultimately involving major multinational producers, produces the lowest level of remuneration, few or no benefits or social protection.

The current policy response to this dilemma has been in terms of proposing a convention for home-based workers, along the lines of similar ILO conventions. As aggregate household real incomes decrease and as real wages or employment get squeezed by adjustment and recession in various Asian countries, such production may actually increase and form part of the survival strategies of households faced with adverse material circumstances. The combination of crisis and adjustment measures in the region is likely to increase the reliance of employers (both large and small) on such home-based work and subcontracting arrangements.

4. Child labour

Low wage labour often leads to the issue of paid and unpaid child labour, especially that of girl children. It has been estimated that the largest child-labour population in the world is to be found in Asia: 120 million children between the ages of 5 and 14 who are fully employed and more than twice that many, an estimated 250 million, for whom work is at least a secondary activity (Ashagrie 1998). The majority of child labourers in South and South-East Asia are to be found in home-based, agricultural or informal sector and service activities, although there are some cases of children being employed in manufacturing as well. This situation reflects the fact that the rapid economic growth in some sectors and regions – along with widespread poverty of the labour supply households – has resulted in children being drawn into commercial and industrial activities.

Child labour, though not prevalent in the developing Pacific island economies, is a growing concern (ILO 2001b). In urban areas, increasing numbers of children who are not enrolled in school or have left school early are found on the streets. Information collected by several sources, including civil society and the news media, suggests that this problem is on the rise. In Fiji, despite a national policy that provides free education up to the age of 10, children are often found begging on the street or working as shoeshiners, wheelbarrow handlers, bottle collectors, etc. Anecdotal evidence indicates that many are from homes which cannot support them because their parents are unable to generate enough income to meet school fees. There are reports that some children are found to be working in industrial enterprises. Also, in some countries, newspaper reporters indicate that some Pacific island children are involved in prostitution.

Karunan (1998) noted that girls are being disproportionately employed for work in urban and rural areas in comparison with boys, and there is a significant correlation of this trend with the relative school dropout rates for boys and girls. Certainly in home-based work, there tends to be a heavy emphasis on the unpaid labour of the girl child, including not only such activities as childcare and housework, but also piecework in home-based arrangements. The drastic reduction in spending on social welfare and safety nets and reduced government budgets for essential services for the poor in countries affected by the economic crisis and structural adjustment programmes are likely to contribute directly to the growing incidence of child labour, both by increasing poverty in wage-based households and reducing the availability of public services. The issue of female child labour may thus become one of growing significance.

5. Unpaid labour

Unpaid labour forms a very significant part of the time spent on economic activities by women. Time-allocation studies commissioned by UNDP found that, in the 11 developing countries studied (including the following Asian countries: Bangladesh, Indonesia, Nepal, Philippines and Republic of Korea), women worked, on average for longer hours than men (by 13 per cent) and spent two thirds of their time on unpaid activities, whereas men spent less than a quarter of their time on such activities. A study in Bangladesh has found that this disparity worsened, and female total labour time increased, with the combination of increased female export-based employment and structural adjustment measures.
It appears that, just as the Asian economic boom was based largely on the paid labour of women workers, the pattern of adjustment to the crisis and associated slump in economic activity and employment may rely heavily on the unpaid labour of women. Adjustment packages tend to intensify the workload of women by increasing their participation in formal and informal labour markets. Women often assume the responsibility for “making ends meet” when household real incomes fall and therefore become the category of workers that dominates in the adjustment because of the decline in their effective received wages.

By now, it has become well known that market-oriented structural adjustment programmes tend to lead to an increase in unpaid labour by women. This phenomenon has been discussed extensively (UNDP 1995). It has been argued that the basic inadequacy of structural adjustment programmes from the women’s perspective is that they emphasize price changes and market forces as the preferred instruments of resource allocation, but fail to consider explicitly the process of reallocation. Thus, they implicitly shift the burden of adjustment to the unpaid segment of the economy in the household sector and ignore the fact that it is largely women who will have to supply that unpaid labour.

E. POLICY IMPLICATIONS

Overall, the process of globalization poses important challenges to the potentials for employment generation in Asia and the Pacific. Moreover, the current global economic slowdown, which may be more prolonged than originally foreseen, does not bode well for employment expansion based on growth alone. There is a need for specific policies to counteract the tendency towards jobless growth and deal with the increasing level of informal, casual and volatile work.

Poor or slow growth will also cause severe employment problems for the most vulnerable groups of workers, among them young workers, women, migrant workers, the long-term unemployed and persons with disabilities. Their situation is often compounded by labour-market segmentation, which is common in all developing countries. Formal sector workers have difficulty moving from one labour-market segment to another because of barriers such as distance from alternative markets, entry requirements, education and skills requirements and non-job related aspects like discrimination based on status or ethnic group. It is easier for workers to move from the formal to the informal sector or from wage employment to self-employment because neither the informal sector nor self-employment has significant entry barriers.

1. Nature of employment

The trends in employment expansion and structural change generally conform to the concept of a shifting comparative advantage among economies. At a low level of development, a country with abundant labour may offer relatively low wages, and its comparative advantage would lie in labour-intensive basic industry. At higher economic and social development levels, educational levels and wages rise and the economy’s comparative advantage shifts to more value added manufacturing based on higher levels of technology. As the economy continues to develop, its comparative advantage may shift to the tertiary sector and knowledge-based enterprises, such as business and financial services, research and development, and information and communications.

2. Human capacity-building

The rapid changes in job-market requirements and needed skills increase the emphasis on training and lifelong learning to raise workers’ employability and improve access to employment. Countries need to continually invest in skills and knowledge development and the training of their workforce in the light of these changes, including advances in technology and work organization. The risks are higher for the vulnerable groups and reduce their opportunities and incentives for training. To progress to higher levels of value added employment (and thus towards higher incomes at the individual and aggregate levels), the population and workforce must steadily improve their knowledge and skills to contribute effectively to changing job market requirements. Human resources development or human capital formation is essential for sustaining a productive workforce. Importantly, as policy attends to the development of both human and social capital, there are two elements that deserve special attention: making new information technologies available to wider segments of the population and building productive assets, especially for poor men and women at the household level.

Because the structure and composition of labour markets are changing rapidly, there are also pressures to heighten “flexibility” and this can mean compromising on the protection of workers’ incomes, rights and working conditions. Evidence suggests that making labour markets flexible by abandoning protection for workers does not help in dealing with changing labour markets and capturing global opportunities in trade and investment. Instead, the new vulnerabilities in labour markets call for the following:

(a) Employment expansion, especially on reasonably productive jobs;
(b) Regular upgrading of workers’ skills, through training, dissemination of technical know-how and developing the technical skills needed to overcome the labour-market segmentation that is characteristic of developing countries;
(c) Having in place reasonable compensation, minimum wage and accepted labour standards and rights;
(d) Increasing the productivity of the informal sector through tax holidays, duty exemptions, lower interest rates and access to credit.

In addition to training, labour-market interventions are necessary to attend to a wide-ranging set of issues, including employment promotion and poverty alleviation, human resources development, migration policies, industrial relations policies, labour standards, workers’ protection, labour administration and statistics.

In designing such interventions, the distinction between the private and public sectors is relevant, particularly in transition economies. In Central Asian countries, most labour policies are geared or should be geared towards private sector development in an attempt to reduce employment in State-owned enterprises from the quasi-totality of employment as it had been in 1989. An important issue is the absorption of excess labour from agriculture. In the Central Asian economies, labour-market policies face a much more important task in trying to facilitate enterprise restructuring. The growth prospects of these countries are almost entirely dependent on enterprise restructuring.

3. Country-specific conditions

Labour policies need to consider differences between the rural and urban areas. For instance, for improved efficiency and effectiveness, labour-market exchange systems set up in rural areas might take account of the limited infrastructure and transport system, seasonal labour and the strength of village organizations or community services vis-à-vis formal local authorities.
In urban areas, the focus may be put on youth and female unemployment. This is so because in rural areas young people and women in need of a job can be occupied with various types of agricultural or household duties, thus appearing in statistics as employed or economically inactive rather than unemployed. Intrahousehold income distribution is also typically different in urban and rural areas. Offering training or public works to households in urban or rural areas can have very different repercussions on household income.

Attention should be given to measures to protect and support informal sector workers with skills training, credit and marketing programmes to secure their livelihoods. This is particularly important, for example, for female workers, those with low skills and a majority of the Pacific island workers for whom formal sector employment is not a viable option. Research has pointed to the many livelihood opportunities that a more active informal sector can create (UNDP 1999b). Promotion of informal sector work expands livelihood opportunities to all sectors of the community, especially those disadvantaged by their lack of formal education. Increasing the demand for surplus labour generally raises the income of the poorest groups in a society.

In view of the narrow range of economic resources in the developing Pacific island economies, a firm basis for growth is to promote sustainable resource use and increase the local value of local resources. Productivity and employment need to be expanded in such a way that natural resources are not used indiscriminately. A clearer environment policy could encourage investment and trade and ensure that more of the benefits of such are realized locally. The Pacific subregion is, for example, the most important tuna-fishing area in the world, providing about one third of the global catch. The sustainability of this resource and expanding it by good management are critical to the employment prospects it offers. Around 10,000 Pacific islanders depend on tuna fishing and processing for their livelihoods and possibly another 20,000 are indirectly employed by the industry, but the industry could provide a livelihood for many more people in the region. Pacific islanders comprise less than 10 per cent of the crews of commercial fishing boats in the region. Local recruitment could be increased by better regional coordination of qualified crew, regional standardization of contracts, more local training opportunities and more information reaching local employment agencies about recruitment opportunities and procedures in the United States and Asian fleets. Much more local employment and local business could be generated by bringing the foreign tuna-fishing fleet onshore. Such a move onshore would be particularly suited to decentralizing employment, creating jobs for women and developing private enterprises, including in the informal sector.

4. Gender-related dimensions

A central challenge is how to encourage female participation and promote equal gender opportunities at work without disrupting cultural values, family life and social stability. Developing appropriate support systems for child reproduction and child care becomes necessary for working mothers. By contrast, in economies that are mostly rural, labour policies per se may not be the best means to improve equal gender opportunities in the labour market. In some cases, improving water and sanitation infrastructures can do more to benefit women than a kindergarten, by reducing the time needed to collect water where this is a traditional female task.

Other than the human rights aspect of gender equality, there is also a valid economic argument. Bringing women into full employment at an equal wage with men encourages women to work, increases the potential for the growth of any economy and enables the best use of local labour as opposed to immigrant labour. A number of countries have made great efforts to encourage women to work, so as to keep the internal labour supply up to demand requirements and avoid massive immigration.

5. Labour migrants

For some countries, policies regarding migrant workers need urgent attention. The economies that have expanded employment rapidly have also generally reduced population growth, so that labour shortages are apparent in some sectors. Large wage differentials between countries of the region have induced large movements of international labour migration within the region. Millions of persons in the region now work in countries other than their own. International labour migration can benefit the migrants, the country of origin (through remittances and removing some surplus labour) and the country of destination (by solving labour shortages). However, the possibility for the workers to be exploited can occur at each of the steps involved in recruitment, movement, employment and return, and workers outside their own country may be particularly vulnerable to infringement of their rights. Much greater subregional and regional cooperation is required to smooth the process of international labour migration and ensure the rights and benefits to which the workers are entitled. To assist the migration of unskilled workers, labour-sending countries could set up employment units in receiving countries to capture employment opportunities and protect workers’ well-being. Countries also need stronger legal frameworks and laws to stop human trafficking. NGOs and other civil society institutions could play an important partnership role in eliminating human trafficking.

6. Labour-market policies

Labour policies are more likely to be seen and accepted by Governments as an effective way to facilitate matching the supply of and demand for labour, especially in highly segmented labour markets. They provide some form of assistance to the unemployed as a form of social protection. Job brokerage and training could contribute to matching the unemployed with vacancies, while microfinance and other measures aimed at assisting the self-employed could be effective in creating new jobs. In some labour-surplus countries where large numbers of people live in poverty, food-for-work programmes could provide employment, improve the nutritional status of the population and contribute to building the infrastructure. However, the overall effect of such measures on the economy is usually marginal. Therefore, it is important to have the correct expectations of labour policies and invest in monitoring and evaluation, especially for new experimental measures, in order to keep the possible waste of resources to the minimum. The establishment of costly systems such as employment service networks should be carefully reviewed before their introduction.

Finally, different labour policies or groups of labour-related policies may also be managed by different institutional arrangements. A country’s ministry of labour may be the principal organization responsible, but it is by no means the only unit of government to play an important role. Ministries of industry, the economy, education, finance and the interior, among others, are often involved in one way or another in the design or implementation of labour policies. Trade unions, employers’ organizations, NGOs, local administrations and village autonomous organizations are just some of the stakeholders which may be involved in the design and implementation of labour policies. A country strategy needs very much a “who-does-what?” preliminary assessment in order to ensure that issues relating to implementation and division of responsibility are addressed from the start.