1 The Middle Class and Employment in Asia Natalie Chun Economist, Asian Development Bank 25 September 2013 Based on the Special Chapters of the KEY INDICATORS FOR ASIA AND THE PACIFIC 41 st and 42 nd Editions The Rise of Asia’s Middle Class Toward Higher Quality Employment in Asia
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The Middle Class and Employment in AsiaNatalie ChunEconomist, Asian Development Bank25 September 2013
Based on the Special Chapters of theKEY INDICATORS FOR ASIA AND THE PACIFIC41st and 42nd EditionsThe Rise of Asia’s Middle ClassToward Higher Quality Employment in Asia
2
Middle class grew rapidly in size and purchasing power
Region YearTotal Pop (millions)
Percent of Population Annual Exp. (2005 PPP$ billion)
Sizable structural transformation has occurred in Developing Asia
Developing Asia Developing Europe Latin America & Caribbean
OECD0.00
0.20
0.40
0.600.61
0.270.17
0.070.18
0.33 0.26 0.320.21
0.400.57 0.61
1990
Empl
oym
ent S
hare
0.000.400.80
0.430.16 0.15 0.03
0.24 0.26 0.23 0.220.340.58 0.63 0.752010
Agriculture Industry Services
Empl
oym
ent S
hare
12
Informal employment in Developing Asia remains high…
0.000.400.80 0.73
0.160.43
0.170.26
0.780.53
0.80
0.01 0.06 0.04 0.03
1990
Empl
oym
ent S
hare
0.000.400.80 0.70
0.17 0.360.130.27
0.810.60
0.85
0.03 0.02 0.04 0.03
2010
Informal Workers Employees Employers
Empl
oym
ent S
hare
13
Informality uneven and persistent
Singapore(1991-2008)
Hong Kong, China(1990-2008)
Malaysia (1990-2008)
Korea, Rep. of(1990-2008)
Philippines(1990-2008)
Thailand(1990-2008)
PRC(1995-2008)
Pakistan(1990-2008)
Indonesia(1992-2008)
Nepal(1991-2001)
India(1991-2008)
Bangladesh(1991-2005)
0.0 25.0 50.0 75.0 100.0
10.0
10.7
21.9
24.8
43.5
54.2
58.9
63.1
67.9
71.6
81.9
85.9
8.1
10.2
31.4
32.6
53.1
70.3
64.3
74.2
68.5
74.3
80.1
88.3
Percentage of Informal Workers to Total Employment
Start EndYear
Cou
ntry
(yea
rs)
14
Informality is becoming more common even in non-agriculture jobs
Informal Sector Employment in Latin America and Asia 1980-2008
1980-1985 1990-1995 2003-200830
40
50
60
0
2
4
6
8
10
12
Latin America
Informal Employment (%)Per capita real GDP (2005 PPP constant $ '000)
Shar
e of
Info
rmal
Em
ploy
men
t
Per c
ap re
al G
DP (2
005
PPP
$ '0
00)
1980-1985
1990-1995
2003-2008
30
40
50
60
0
2
4
6
8
10
12
Developing Asia
Informal Employment (%)Per capita real GDP (2005 PPP constant $ '000)
Shar
e of
Info
rmal
Em
ploy
men
t
Per c
ap re
al G
DP (2
005
PPP
$ '0
00)
Data source: ILO LABORSTA, CHIP, NSS-EUS
15
Formal versus Informal EmploymentInformal employment is typically lower quality and associated with: • Lower income• Underemployment • Less security • Absence of social safety nets
Benefits Received by Formal and Informal Wage Workers(% of total formal/informal wage jobs with benefit)
Arm
enia
Bang
lade
sh
Bant
en
Yogy
akar
ta
0
20
40
60
80
100
Pension
Arm
enia
Bang
lade
sh
Bant
en
Yogy
akar
ta
Sick Leave
Arm
enia
Bang
lade
sh
Bant
en
Yogy
akar
ta
Maternity/Paternity Leave
Arm
enia
Bang
lade
sh
Bant
en
Yogy
akar
ta
Vacation Leave
Formal Informal
16
Income and stability are most important for majority of workers
Azerbaijan
Armenia
Kyrgyz Rep.
Malaysia
OECD
Bangladesh
Thailand
PRC
Georgia
India
Indonesia
Philippines
Viet Nam
0 10 20 30 40 50 60 70 80
Safety/Security
OECD
Indonesia
Viet Nam
Philippines
PRC
India
Kyrgyz Rep.
Georgia
Thailand
Bangladesh
Armenia
Malaysia
Azerbaijan
0 10 20 30 40 50 60 70 80
Good Income
Source: Staff estimates based on unit record data from the World Values Survey, 2000 -2008
Percent of Workers Reporting Certain Attributes as Most Important in a Job
17
Quality of Employment Enhances Worker’s Well-Being
Fully-employed workers are more likely to report the highest well-being.
Unemployed
Employed part time, looking for full time
Employed part time, not looking for full time
Employed full time (by self)
Employed full time (by employer)
0 5 10 15 20 25 30 35
Workforce Well-Being, Thriving Worldwide2009-2010
percent
18
Better Employment Can Enhance Firm Productivity and Profits
• Efficiency wage hypothesis implies worker effort and productivity depends positively on wages (Stiglitz 1976)
• Human resource management literature indicates pay for performance schemes, target setting, and communication associated with higher productivity and profits (Bloom and Van Reenan 2010)
19
Productivity Growth Key to Promoting Higher Wage Employment
Brun
ei D
arus
sala
m
Sing
apor
e
Japa
n
Phili
ppin
es
Thai
land
Taip
ei,C
hina
Bang
lade
sh
Kore
a, R
ep. o
f
Sri L
anka
Mal
aysia
Hong
Kon
g, C
hina
Indo
nesia
Mon
golia
Indi
a
Viet
Nam
PRC
-5
0
5
10
15
20
Real Wages and Labor Productivity Growth 2001 to 2008
Labor Productivity
wage
Perc
ent
2020
Summary
• Middle class in developing Asia is rapidly expanding and key to rebalancing.
• Growing Asian middle class provides business opportunities.
• Vulnerability of middle class, requires policies targeted to their needs.
• Generating more formal employment opportunities may be key way to support and build the middle class.
21
Many Challenges• Skill biased technological change
• Restrictive labor and industrial policies
• Uncompetitive markets (SOEs and Monopolies)
• Demographic changes
22
Policies to Nurture Middle Class and Improve Employment• Stable and sustained economic growth• Greater infrastructure development• Increased FDI• Skill development through quality technical
and vocational education• Managed migration from lower productivity to
higher value added sectors.
• Safety nets especially for informal workers
23
Concluding Remarks• General policy prescriptions given tell us little
about how to implement the policies.
• Need greater in-depth micro studies to better understand true effects of policies on distribution.