COVID-19 and Labor Markets in Southeast Asia

Impacts on Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam

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• Publisher: Asian Development Bank
• Year: 2021
• Print ISBN: 9789292692506
• eBook ISBN: 9789292692513
• Topic: Medicine
• Subtopic: Infectious Diseases

This report examines the impacts of the coronavirus disease (COVID-19) pandemic on labor markets in Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam. Labor markets in Southeast Asia were particularly hit hard in 2020, when government containment measures were most severe. COVID-19 has exacerbated growing inequalities in the region—hurting not just low-skilled workers but also middle-skilled workers whose jobs were already at risk from automation even before the pandemic. Large gaps in social protection coverage were also exposed. While the policy response has been significant, a narrowing fiscal space and the protracted nature of the pandemic still pose major challenges for recovery. The report aims to help policymakers identify priorities, constraints, and opportunities for developing effective labor market strategies for economic recovery and beyond.

Chapter 1

COVID-19 Impacts and Labor Market Adjustments

1 Key Findings

In the decade preceding the coronavirus disease (COVID-19) pandemic, employment growth fell short of working-age population growth in some Southeast Asian countries.

Despite significant progress, many workers remained in the poor and near-poor categories, and informal employment remained widespread across labor markets in the region.

The severity of COVID-19 impacts on Southeast Asian economies and labor markets depended on various contextual factors such as the effects on health, stringency measures, and the economic and labor market structure.

The impact of the pandemic was unprecedented, partly due to strict containment measures affecting sectors that would normally absorb displaced workers and preventing labor reallocation in the first half of 2020.

The peak of the crisis in Q2 2020 highlighted massive job losses and labor force exits, and major working-hour losses for those still employed.

In response to the crisis, intensive adjustment margins (resorting to reduced working-hours instead of job cuts) were used in varying levels across the different sectors and across countries in the region.

Labor reallocation occurred over the second half of 2020 as economies reopened, and a partial employment recovery was led by self-employment and informal work in Q3 2020.

The recovery of formal employment lagged behind that of informal employment, but generally took place in Q4 2020.

A renewed wave of the virus and slow vaccine rollout have set back the region’s recovery in 2021.

COVID-19 hit Southeast Asia most severely in Aug–Sep 2021, as cases surpassed 2020 levels before winding down in Oct 2021

The coronavirus disease (COVID-19) crisis hit economies hard, across Southeast Asia. Labor market adjustment to the crisis was unprecedented, as measures to contain the virus affected the sectors that would normally absorb displaced workers and prevented reallocation toward these sectors, at least initially. But some labor reallocation took place in the second half of 2020 as economies reopened.

This chapter provides a detailed account of COVID-19 impacts and the labor market adjustment process, focusing on five Southeast Asian countries—Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam. Section 1.1 describes the labor market situation and trends in Southeast Asia before the pandemic. Section 1.2 examines the channels through which the COVID-19 pandemic affected labor markets in the region as well as labor market adjustment in terms of the transitions across labor force status (between employment, unemployment, or inactivity) over time at the aggregate level. Section 1.3 looks at labor reallocation (transitions within employment) to identify the extent to which this type of labor market adjustment mitigated job losses. Finally, section 1.4 decomposes the working-hour reductions at the sector level to analyze the intensive margins of adjustment to the COVID-19 shock.

Southeast Asia’s Labor Markets Prepandemic

Despite relatively high gross domestic product (GDP) growth between 2010 and 2019 in most Southeast Asian economies, employment growth has been slow. In some countries such as Thailand and the Philippines, employment growth fell short of working-age population growth, and the employment-to-population ratio has declined steadily (Figure 1.1). Part of the decline in these countries, however, reflected lower labor force participation among the youth due to increased schooling. Nevertheless, the share of youth who are not in employment, education, or training (NEET) remained high in 2019, particularly among the females. Unemployment was essentially a youth issue in the region, with major gender gaps in labor market outcomes seen in some countries. Chapter 2 describes in more detail the disadvantaged position of youth and women in the region’s labor markets.

Figure 1.1: Evolution of the Employment-to-Population Ratio, 2010–2020

Source: International Labour Organization (ILO). ILOSTAT. ILO modeled estimates. https://ilostat.ilo.org/data/ (accessed 22 October 2021).

While Southeast Asia has made significant progress in poverty reduction over the last decade, informality and working poverty remained widespread across many countries before the COVID-19 crisis. A large number of workers and their households still lived below or just above the poverty line, particularly in the low-income countries of the region (Figure 1.2B). In Cambodia, the Lao People’s Democratic Republic (Lao PDR), and Indonesia, the share of workers living with their families below the poverty line (with an income of less than $3.20 in purchasing power parity [PPP] terms per day), declined by 24–27 percentage points between 2010 and 2019 (Figure 1.2A). In Cambodia, in particular, working poverty reduction consisted entirely of a decline in extreme poverty (share of workers living with their families below the $1.90 PPP per day threshold). The working poverty rate declined by 14 percentage points in the Philippines, and 12 percentage points in Viet Nam during this period. Additionally, the share of workers living in near poverty (between $3.20 PPP and $5.50 PPP per day) in Viet Nam declined by 18 percentage points. In Malaysia and Thailand, working poverty at the international poverty lines was virtually eradicated by 2019, but the poverty headcount ratio at the national poverty line was 5.6% and 9.9%, respectively, in 2018.¹

Figure 1.2: Working Poverty in Selected Southeast Asian Countries, 2010–2019

Lao PDR = Lao People’s Democratic Republic, PPP = purchasing power parity.

Source: International Labour Organization (ILO). ILOSTAT. ILO modeled estimates. https://ilostat.ilo.org/data/ (accessed 22 October 2021).

Even in Southeast Asian countries with lower working poverty rates, informality in labor markets was high. The share of workers in informal employment across the countries in which these data were available ranged from 64% in Thailand to 94% in Cambodia, based on the latest year available.² Even when only nonagricultural employment is considered, workers in informal employment comprise between 52% in Thailand and 91% in Cambodia.

Impact Channels, Aggregate and Sectoral Effects

Although the COVID-19 pandemic affected all countries, the scale and shape of its impact and corresponding labor market adjustment patterns have differed, driven by various contextual and institutional factors. Among the sample countries with available labor force survey (LFS) data, the crisis had the most severe effects in the Philippines, Malaysia, and Indonesia—at least in its early phases—with a period average of over 1,500 COVID-19 cases per million persons in each country between January 2020 and March 2021.³ During this period, the stringency index for containment measures averaged 71 in the Philippines, 34 in Indonesia, and 62 in Malaysia.⁴ Other Southeast Asian countries like Cambodia, the Lao PDR, Thailand, and Viet Nam had an average of less than 100 cases per million persons. Viet Nam’s stringency index averaged (62), as high as that of Malaysia and Indonesia, while the average index of other countries with a similar range of COVID-19 cases (such as Cambodia, the Lao PDR, and Thailand) ranged from 39 to 47.

The region’s GDP growth dropped to –4.0% in 2020, with the Philippines experiencing the steepest decline (–9.6%), followed by Thailand (–6.1%) and Malaysia (–5.6%) (Figure 1.3). Viet Nam’s economy proved the most resilient, maintaining positive GDP growth (2.9%) in 2020. By mid-2021, the COVID-19 situation in many countries in the region once again deteriorated, owing to slow vaccine rollout and new and highly contagious variants of the virus. As a result, Southeast Asia saw a downward revision in its growth outlook for 2021 (IMF 2021b). Nevertheless, most Southeast Asian countries are expected to have positive growth in 2021. The region’s GDP is estimated to have increased at the rate of 3.1% in 2021 and is projected to grow by 5.0% in 2022.

Figure 1.3: GDP Growth, Estimates and Projections, Selected Southeast Asian Economies, 2016–2022

Source: ADB (2021a).

Overall, annual net job and working-hour losses do not reveal the full extent of the labor market impact in 2020, because job and working-hour gains in the second half of the year partially offset the losses in the first half. For this reason, this report relies primarily on quarterly data to quantify the impacts and describe the adjustment process, examining flows across labor force status and transitions within employment (labor reallocation). The COVID-19 crisis led to significant net transitions out of employment, particularly in the second quarter (Q2) of 2020. For most countries, job losses and work stoppages were accompanied by significant exits from the labor force. Figure 1.4 shows the net movements of individuals between employment, unemployment, and in and out of the labor force from January 2020 to January 2021, overlaid with the number of COVID-19 cases and the stringency index for the five Southeast Asian economies.

Figure 1.4: COVID-19 Cases, Stringency of Containment Measures, and Net Labor Market Transitions

LHS = left-hand side, RHS = right-hand side.

Sources: Labor force surveys of various countries; Stringency index and COVID-19 cases from Our World in Data. COVID-19 Data Explorer. https://ourworldindata.org/coronavirus (accessed 9 July 2021).

The COVID-19 crisis has had highly sectoral impacts, hitting the hardest sectors that (i) were affected by supply chain disruptions and a decline in aggregate demand, both domestic and international; (ii) were affected by mobility and travel restrictions; and (iii) had limited possibilities of telework. At the peak of job losses in Q2 2020, manufacturing accounted for a larg...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Tables, Figures, and Boxes
• Foreword
• Acknowledgments
• Abbreviations
• Executive Summary
• Chapter 1: COVID-19 Impacts and Labor Market Adjustments
• Chapter 2: Differential Impacts of the Pandemic
• Chapter 3: Social Protection and Labor Policy Response
• Appendix
• References
• Back Cover