Unemployment in Asia

John Benson, Ying Zhu, John Benson, Ying Zhu

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134290604
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Internationale Wirtschaftswissenschaften

The rate of economic change in East Asia over the past two decades has been astounding. High levels of growth have been experienced by a number of the region's developing economies, centralized systems have developed large market sectors, Japan has suffered a prolonged downturn and the 1997 crisis plunged the region into economic turmoil.

This volume presents an in-depth analysis of the effects of these changes on employment in the region. Chapters are devoted to market restructuring in China and Vietnam, the Asian crisis and recovery, and Japan's business doldrums. The unique case of Malaysia – one regional economy that needs to import workers – is also brought into play, as is the example of high-tech Taiwan. Underpinning these case studies is a common theoretical framework and a strong structure for understanding.

With its solid research the book focuses on a relatively unexplored aspect of one of the world's most dynamic economic regions.

1 Unemployment in Asia
Influences and issues

John Benson and Ying Zhu

Introduction and key questions

The last two decades have witnessed major economic restructuring in China, Taiwan and Vietnam, a prolonged recession in Japan, and the Asian Crisis that particularly affected Thailand, South Korea, Indonesia and Malaysia. These events have all taken place within an increasingly globalised world and have had a significant impact on business activities in these economies, which in turn have impacted on employment. Yet, while much attention has been focused on the restructuring and development of these economies¹ (World Bank 1993; Leipziger 1997; McLeod and Garnaut 1998) and the accompanying changes in business structures, management practices and global competitiveness, surprising little attention has been placed on how such transitions have impacted on employment opportunities and unemployment.

Taken collectively unemployment represents a severe loss of skills and productive capacity from society (Sinclair 1987; Kuruvilla 1995). Governments respond to the pressures created by unemployment by instituting short-term training programmes, income support mechanisms, and a range of job creation activities. Unemployment thus becomes a part of an overall strategy of economic management. For most people, however, employment represents a central concern and a key feature of their lives (Bakke 1940; Bradbury 1993). A major reason for this is that the income from employment supports individuals and families and allows people the opportunity to function effectively, to a more or less degree, in society. Being unemployed means that individuals and families face uncertain futures and that many opportunities to participate in society are denied (Bakke 1940; Fineman 1987). Being unemployed may well be seen by large numbers in the community as an individual problem. Yet, increasingly, behind these individual and collective views is the realisation that employment, and hence unemployment, is not equally distributed throughout society but discriminates on the basis of age, gender, education, and status (Fineman 1987; Eatwell 1996; Jackman 1997; Mugtada and Basu 1997).

The pace of change in Asia and the absence of current research have meant that much of what has been written on employment and unemployment over the past two decades no longer applies.² Moreover, the recent transitions of China and Vietnam to market-based economies means that unemployment, in these cases, is a relatively new concept and problem. It is thus timely to revisit the issue of employment and unemployment in Asia, and in particular, in the fast growing economies of East Asia. Given the complexities involved in any discussion of unemployment, the differing stages of economic development, and the various policy positions of the countries of this region, it was deemed that the best way of examining unemployment would be by undertaking case studies of a number of East Asian economies.

This volume represents the outcome of these case studies and addresses three questions. First, how have the transitions of the past two decades impacted on the levels of employment and unemployment? Second, what are the likely prospects for unemployment and what are the key factors that will impinge on these trends? Third, are these trends and factors similar to what is happening elsewhere (for example in non-Asian OECD countries) or are they unique? By addressing these questions this volume will provide details on the dynamics of unemployment from a macro-economic perspective, an assessment of how governments have responded to unemployment and, a consideration of how unemployment is affecting workers, families and societies.

As a consequence, by studying unemployment we can learn much about the economic and political strategies adopted by governments as well as improve our understanding of the impacts of globalisation, economy-wide and company-level restructuring, internal migration, the changes and development of labour markets, and the impact of law and labour regulation. While general lessons can be learnt from the experiences of individual economies it must be remembered that each economy represents a unique set of attributes.

Structure and framework

In attempting to assess the impacts of economic, political and social factors on unemployment it is necessary to take into consideration the different stages of economic development of the economies represented in this volume. One way to do this is to examine the distribution of employment between the agricultural, industrial and service sectors. Where there is significant employment in agriculture this can be taken as a proxy for lower levels of industrialisation and development. The distribution of employment for the three sectors, in each of the economies considered in this volume, is presented in Table 1.1.

From these statistics the economies represented in this volume can be divided into two groups. The first group includes the developed economies of Japan, South Korea and Taiwan. In these economies there has been a shift way from agriculture and a move to more urban living and work. Clear sets of institutions and regulations have been developed to guide employment and regulate labour markets, and a degree of protection and support for workers exists. The second group are the developing and more agrarian-oriented economies of China, Indonesia, Malaysia, Thailand and Vietnam. In these economies much of the population resides in rural areas, although increasing migration to cities is occurring. Labour market institutions and regulations are poorly developed and often little support is provided to unemployed workers.

Table 1.1 Breakdown of employment in case study economies, 2002

Such a breakdown is essential to understand the dynamics and ‘uniqueness’ of unemployment in each economy. In particular, it will help to analyse the differing impacts of globalisation and regional economic integration on unemployment, the unique labour markets that exist in each economy, and the possible approaches and policies adopted to combat unemployment. This division will also help to identify the similarities and differences between these East Asian economies and the OECD countries referred to in Chapter 2.

The current economic health of the eight case study economies varies significant and cuts across the developed/developing division. An examination of the situation of these economies in 2002/2003 illustrates this point. South Korea, China, Taiwan and Vietnam had economic growth exceeding 6 per cent in this period, and with the exception of Vietnam all experienced relatively low levels of unemployment. On the other hand, Japan, Taiwan and Indonesia all experienced modest economic growth and had higher than average unemployment rates. Details are provided in Table 1.2. Yet it cannot be assumed that a clear relationship exists between high growth and low unemployment. Intervening in this relationship are the sectoral shifts taking place in employment as economies move from an agricultural base to a more industrial and service structure.

The economies represented in this volume are typical of those that have undertaken economic restructuring, or have been affected by wider economic events. They all have a unique set of conditions underpinning employment and have addressed the social and economic impacts of unemployment in a variety of ways. These differences call for the adoption of a more holistic and multi-disciplinary approach to the study of employment and unemployment. While economic factors will undoubtedly be important, an understanding of political factors, the particular social and cultural attributes, and the institutions and legal framework of each economy will be essential if the key questions outlined earlier are to be answered.

Table 1.2 Real GDP growth and unemployment in case study economies, 2002–2003

The structure adopted for each case study consisted of six sections. Each chapter commences with a brief introduction and background information for the particular economy. This is then followed by a more detailed discussion on the key contextual factors and influences. These include external influences such as globalisation, regional integration and the Asian Crisis, as well as internal influences such as economic restructuring, political, and social factors, population shifts and demographics, and the development and regulation of key institutions. The third section explores the relationships between society and unemployment focusing on factors that affect labour supply and demand, and the social impact of these factors. This is then followed by a consideration of labour markets, and the implementation of policies, such as social security, income support and job creation, to protect those who become unemployed. The fifth section of each chapter attempts to establish trends in unemployment and to make some predictions concerning future unemployment prospects. The final section of each chapter considers the key policy issues as well as how their findings contribute to a fuller understanding of unemployment.

The complexity of the issues surrounding employment and unemployment in the context of economic restructuring and globalisation called for a more general chapter canvassing the key conceptual issues. Chapter 2 therefore provides the foundations for the case study chapters by considering a variety of issues necessary for a more complete understanding of unemployment in East Asia. The chapter commences by considering ‘how globalisation as a process of homogenisation and differentiation might intersect with processes of regionalisation’. This goes to the core objective of this book in attempting to compare and contrast the various approaches to unemployment in the selected economies. In short, as Webber points out, this will allow the research to ascertain whether unemployment in this region has the same attributes and whether such attributes are similar to the characteristics of unemployment elsewhere, such as in OECD countries.

This chapter then considers how unemployment is measured, pointing out the difficulties of this task, especially where differences in population growth, labour force participation, gross domestic product (GDP) growth, and productivity changes exist. This is made more complex by the differences in the social definitions of work and the divisions between formal and informal work. Where differences in unemployment exist, the issue of causes and policies becomes central to any discussion. This, in turn, leads on to a discussion of the effects and costs of unemployment. This framework of measurement, causes, remedies, effects and costs, leads Webber to suggest eight questions that underpins the general discussion in each chapter. The answers to these questions we hope will not only allow for the central themes of this volume to be considered but will allow the reader to reach their own conclusions on a range of associated issues.

The case study economies

The recent economic histories of the eight case studies followed similar trajectories. The three developed economies all industrialised rapidly from the 1960s, although Japan was a little earlier. High levels of GDP growth were achieved in this time and unemployment was low. The manufacturing sector drove much of this growth and only in the 1990s did this growth falter due in the Asian Crisis in the case of Korea or the rationalisation of production to offshore sites in the case of Taiwan. Japan’s fall was more complex and continued through much of the 1990s and the early part of the twenty-first century.

In contrast, the five developing economies have all experienced rapid growth over the past two decades. China and Vietnam undertook major restructuring of state-owned enterprises and moved to a more market-based economy. The Asian Crisis had little impact on these economies. In a similar fashion, Indonesia, Malaysia and Thailand all instituted a series of economic reforms, deregulated their economies and promoted foreign direct investment (FDI) during this period. These economies suffered badly with the onset of the Asian Crisis, although Thailand and Malaysia were to recover more quickly than Indonesia. Steady economic growth is now occurring in these economies. The social, political and institutional contexts of these eight economies did, however, differ and it is these aspects that will now be considered.

Japan represents the most developed and economically successful of the case study economies, experiencing four decades of significant economic growth from the early 1950s. In the 1990s this pattern came to an end with the collapse of the ‘bubble economy’, the emergence of a number of Asian manufacturing competitors and the ‘hollowing out’ of Japanese domestic manufacturing. During this period unemployment more than doubled and was particularly high amongst the young and older workers. The ageing population has highlighted the plight of older unemployed workers who often do not have adequate pension cover and so rely on paid employment. Despite a slight fall in unemployment over the past year, unemployment is expected to continue to rise over the next few years.

Much of the unemployment has occurred in the manufacturing sector, although these losses were more than accounted for by the rise in employment in the services sector. These service sector jobs were often, however, temporary and part-time. This has, as pointed out by Benson in Chapter 3, led to a rapid increase in non-regular employment in Japan. This means that, to some degree, unemployment is understated as many peripheral workers would prefer to have full-time employment. These workers are often denied training, and with most companies still committed to internal training the unemployed are often trapped into a life of part-time work with little opportunity to retrain and advance into full-time employment. The poorly developed external labour market only serves to consolidate these problems.

South Korea represents a similar trajectory to the early post-war development of Japan. South Korea’s early success commenced with the manufacturing sector and the economy increasingly became integrated into world markets. This global integration was to take its toll with the onset of the Asian Crisis. The government was forced to turn to the International Monetary Fund (IMF) for emergency credit which, in turn, imposed significant structural reforms in the financial, corporate and labour sectors. Unlike Japan, however, South Korea recovered quickly and unemployment has fallen significantly, although not quite to pre-Crisis levels.

Yet, these macro-statistics conceal important characteristics of the South Korean labour market. Nearly half of all wage and salary earners are either temporary or daily workers, and nearly a third of total employment consists of those who are self-employed. This means that the majority of workers have little job security, poor pension cover, and little chance to gain long-term permanent employment. It also means that the real level of unemployment may be seriously understated. Youth unemployment, since the Crisis, has defied the overall trend and is, according to Rowley, Yoo and Kim in Chapter 4, one of the most serious social issues facing Korean society. The ageing population and the prospects of immigrant labour being brought in to counter the shortage of skills are further issues that will need to be confronted in the future.

Taiwan, in a similar fashion to South Korea, commenced its industrial development in the 1960s and enjoyed two decades of high economic growth accompanied by low levels of unemployment. By the late 1980s the growth rate of industrial production had commenced to fall, although much of the excess labour generated was absorbed by the growth in the service sector. Nevertheless, from the mid-1990s unemployment has steadily risen as Taiwanese companies rationalised their domestic production and relocated offshore, particularly to mainland China.

Contributing to these problems has been political instability in the relationship between Taiwan and mainland China, as well as uncertainty over a number of major national projects. These problems, Zhu in Chapter 5 argues, have led to business uncertainty and a fall in confidence of foreign investors and local consumers. In addition, Taiwan has, like Japan and South Korea, an ageing population and a mismatch of skills that has led to long-term structural unemployment. This has caused a growing disparity of income and although the government has responded with various job creation programmes and changes to social security they appear to have had minimum effects and will need to be revisited in the future.

The first of the developing economies to be considered in this volume is China. China represents an economy in transition as it continues with the restructuring of state-owned enterprises (SOEs) and the reform of many of the key state institutions. According to Lee and Warner in Chapter 6, the Asian Crisis had a minimum impact on China, although it did affect rural industries and reduced demand for China’s exports. Overall, China has experienced substantial economic growth since 1980 and the official unemployment figures have remained remarkably low. Yet, the large number of employees retrenched from SOEs and the migration of rural labour would suggest a substantially higher unemployment rate.

One of the most serious problems facing China is the large number of unskilled workers unemployed. This is further exacerbated by the limited training opportunities available and the under-developed nature of the external labour market. This has meant that retrenched workers are likely to experience long periods of unemployment on minimum income support. China’s entry into the World Trade Organisation in late 2001 may, in the next few years, lead to further unemployment. A major concern, according to Lee and Warner, is the loss of jobs in agriculture that will result in the migration of a substantial number of...