Book Launch: Quality Adjusted Labour Input in ASEAN and Sub-national Economies of China, India, Indonesia

For better or for worse, the COVID-19 pandemic has re-shaped the global economy. Online businesses featuring remote communication have waxed, and traditional industries that involve in-person contact have waned. Such a huge economic shift has given rise to structural unemployment, predominantly of low-skilled workers in shrinking industries. Although the government can provide subsidies in the short run, facilitating labour transfers from shrinking to growing industries is inevitable for long-run labour quality growth.

The pandemic also caused underemployment in two ways: 1) individuals worked for fewer hours than necessary or desired, and 2) individuals worked in lower-paying jobs that do not match their skill set. Both situations led to lower productivity levels. Thus, the significance of this study lies in providing a benchmark for policymakers to reckon the labour quality movement for ASEAN-5 economies (Indonesia, Malaysia, Philippines, Singapore and Thailand) and the sub-national economies of China, India and Indonesia.

ASEAN

The calculations of Quality-Adjusted Labor Input (QALI) for the ASEAN-5 economies lead to the following observations:

  • Rising QALI, computed based on industry classifications, indicates that workers move from low-productivity industries to high- productivity industries.
  • Rising labour quality clearly indicates that quality-adjusted labour productivity has improved, although the labour productivity based on traditional measures appears to be falling in countries like Singapore.
  • Labour share of GDP in ASEAN-5 is much lower than that of the OECD economies, typically no higher than 45 percent.

In the long run, as ASEAN Member States (AMS) adapt to a changing global economy, their competitive advantage of low cost labour will diminish. The COVID-19 pandemic accelerated Fourth Industrial Revolution trends, and the quality and productivity of the labour force will be key to driving economic development in the region.

China  

The study primarily focuses on China’s urban economy and leads to the following observations:

  • The labour quality index has fluctuated more for non-private enterprises than for private ones in most provinces. Both show patterns of slow upward momentum.
  • The quality-adjusted and unadjusted labour input indices demonstrate almost identical trends, which indicates a lack of human capital transfer from low to high-productivity industries. This may lead to rising unemployment levels and regional inequalities that would require government support via upskilling and training programmes.
  • With the exception of a few areas such as Beijing, the highest labour share of gross regional domestic product (GRDP) is below 20 percent for non-private enterprises and below 15 percent for private enterprises. This translates into very low contributions to GRDP growth, which further corroborates China’s capital-intensive growth strategy over the past decade.

The outbreak of the COVID-19 pandemic will accelerate the labour retraining process. One key prediction from this study is that long-term labour productivity may rise as a result of workers being retrained, upskilled, and later moved into higher-skill jobs. This prospect may overshadow the COVID-inducted short-run productivity loss.

India

In the case of India, the analysis of the Annual Survey of Industries revealed that:

  • The labour quality index of the organised manufacturing sector has been on a downward trend since 2013. The lack quality job creation amidst an increasing workforce, complex labour laws, and strict laws for large firms are identified to be responsible for this trend.
  • India is a largely domestic-oriented economy and its exposure to the world market is limited. As a result, the country’s productivity is low.
  • The quality-adjusted and unadjusted labour contribute approximately one to two percentage points to the gross value added growth. This signifies that workers receive low wages. At the state level, the labour quality indices are heterogeneous due to differences in industry type, state-specific labour laws, and labour force quality.

The COVID-19 pandemic has hit the labour market in India hard, probably leading to structural changes in employment. The labour quality index of India is likely to deteriorate as the manufacturing sector has been contracting since the second quarter of 2019 and took a major hit in the first quarter of 2020 due to the nationwide lockdown.

Indonesia

The study on sub-national economies of Indonesia leads to the following observations:

  • Indonesia’s labour productivity growth shows a positive trend, with wage and employment boom in high productivity sectors of mining, manufacturing, finance, and energy sectors. The country’s strategic shift from the agriculture to industrial and service sectors has contributed to this trend.
  • The study observes a few key productivity drivers: i) the country’s rapidly growing mining and manufacturing sectors and ii) the government’s focus on job creation and worker training.

The majority of the Indonesian labour force is still low skilled. COVID-19 hit this group the hardest, with unemployment reaching levels not seen since the 1990s. Continued human capital development is necessary if Indonesia is to continue its labour productivity growth.

To request an e-copy of the full book, please drop us an email at aci@nus.edu.sg.

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