April 28, 2006

Asia faces jobs crisis that could hit growth

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.


Battle lines form over India jobs plan

The private sector is under intense pressure from the government to adopt more progressive recruitment policies towards socially disadvantaged groups: failure could result in caste quotas being imposed by administrative fiat. The outcome of the battle will have important ramifications for all doing business there.

In the first sign of the New Delhi government’s determination to change patterns of corporate recruitment, Arjun Singh, human resources minister, has proposed lifting to just under 49 per cent the proportion of places reserved for these groups at India’s elite publicly funded institutes of higher education, including the famous Indian Institutes of Technology. Such a shift would force corporate recruiters to follow suit or increase costly overseas recruitment.

On Wednesday police used watercannon against medical students protesting over the reservation of a further 27 per cent of places in higher education for so-called “other backward castes”, in addition to the 22.5 per cent already reserved for the “scheduled castes and scheduled tribes” that occupy the lowest rung in India’s social hierarchy.

Companies have been trenchant in their opposition, saying their competitiveness and flexibility would be at risk. Azim Premji, chairman and majority shareholder of Wipro, one of India’s leading information technology groups, has said there would be no way to make the policies work at his meritocratic software company, while Rahul Bajaj, the outspoken chairman of the Bajaj motorcycle empire, has threatened to take the government to court.

“We are aware of the disparities in society,” he says. “But that does not mean we have to bring in people who do not deserve to be brought in.”


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