//Asia faces employment crisis that could lead to social chaos

Asia faces employment crisis that could lead to social chaos

By Jo Johnson in New Delhi, Finacial Times, UK, Published: April 28 2006 03:00

Asia is heading towards an employment crisis that could lead to social breakdown and a rapid collapse in growth rates, the Asian Development Bank has warned.
"The outlines of an Asian employment crisis are already taking shape," Ifzal Ali, the ADB’s chief economist, said in New Delhi. "Strong economic growth alone will not solve the [region’s] problem."

The slow pace of job creation even in countries with relatively high growth rates has left 500m unemployed or underemployed in a region with a total labour force of 1.7bn. Another 245m are set to join the labour market over the next decade.

Mr Ali warned that unless economic activity became more inclusive, joblessness in the region would cause social instability, political strife, policymaking paralysis and capital flight.

"In India, for example, we could step back from 7-8 per cent growth to 3-4 per cent growth very easily within five to six years if unemployment and underemployment is not addressed," Mr Ali said at the launch of an ADB study of Asian labour markets.

While the newly industrialised economies of Hong Kong, South Korea and Singapore had succeeded in generating many "good jobs", demanding high skills and wages, others, especially in south Asia, had failed.

Although the region has made progress in reducing poverty in the past two decades, almost 1.9bn Asians still survive on less than $2 a day, either unable to find work or earning too little when they do, the bank said.

The bank said a "huge global oversupply of labour" resulting from the growing integration of China, India and Russia with the world economy had led to a "race to the bottom" as companies pursued competitiveness with "often ideological zeal".

"Asia’s success will sooner or later be eclipsed by the pressures of a huge ‘reserve army’ of unemployed and underemployed workers who are constantly driven to seek out employment at substandard wages in order to survive," Mr Ali warned.

In China, it is getting harder to create jobs. In the 1980s, the ADB study calculates, it took a 3 per cent growth rate in China to induce a 1 per cent increase in employment, compared to the 8 per cent growth rate that was required to achieve the same result the following decade.

Employment growth rates have been especially disappointing in the formal sector, where production is more capital-intensive and workers have defined employment contracts that provide for decent working conditions and greater job security.