LABOR IN SOUTHEAST ASIA

 

LIBERALIZING LABOR IN EAST ASIA

Boonwara Sumano

Forbes, July 13, 2010

The future of Association of Southeast Asian Nations (ASEAN) member states is a source of considerable discussion, with economic recession, internal and interstate conflict and environmental degradation remaining top concerns. This decade signals the increasing significance of another issue in the structure of member countries' populations.

ASEAN Statistical Yearbook 2008 reports that population in most ASEAN countries is declining. Growth has fallen from an average 2.1% between 1980 and 1990, to 1.5% in the year 2008. Population growth has slowed substantially in Thailand, Vietnam and Brunei and even in labor-intensive industrial countries like Indonesia. In all member countries, crude birth ratio is diminishing while life expectancy is expanding. The dependency ratio is increasing in high-income countries like Singapore, which experienced a doubling in the proportion of dependents to working population from 2004 to 2008. This phenomenon no longer exempts developing countries such as Thailand and the Philippines in which dependency ratios are also widening. If this trend continues the demographic divide is likely to cause significant economic difficulties.

Labor-intensive industries are vital to many Southeast Asian economies. The theory of comparative advantage, which underpins international trade, stipulates that countries with cheap labor costs will export labor-intensive products and import capital-intensive goods, and vice versa. A declining labor force in a labor-abundant country is therefore likely to deteriorate both its importing and exporting capacity. Additionally, a declining population means in the future there will be fewer people to collect taxes from and accordingly decreases the government's ability to provide fundamental public services and infrastructure. ASEAN governments need to urgently and effectively respond to their changing demographic situation.

A popular and desirable option is to increase member countries' competitiveness by applying superior technology to the production processes. This requires ongoing investment and technically skilled workers. Given it may take a very long time to develop the required technical capacity, in the meantime labor liberalization should be considered.

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