publication
Lao PDR Development Report 2014: Expanding Productive Employment for Broad-Based Growth

World Bank Group

Lao PDR is a fast-growing economy – 7% in GDP on average over the last two decades – with the highest growth rate in Southeast Asia. Its population is projected to increase by 38% from 6.4 million in 2010 to 8.8 million in 2030.

An additional 96,000 young people will be looking for jobs every year in the coming decades. Having more potential workers presents an opportunity for growth, but only if productive, income-generating jobs are available.

While the government has focused on the role of education in skills development, the Lao PDR Development Report aims to identify what needs to be done to create more and better jobs for Lao PDR’s growing population.

Key findings

  • Lao PDR’s economy is growing fast but growth is mainly driven by the hydro and mining sectors where very few jobs are created: only 22,000 people work in these sectors and this number is unlikely to increase much, given how capital intensive those sectors are.
  • Currently, most of the jobs that are available in Lao PDR are not very attractive: productivity and growth remains very low, and this implies relatively low wages, and relatively slow growth in those wages.
  • The underlying problem is that a difficult business environment keeps foreign and domestic private investments away. Unless this problem is addressed, it is unlikely that the economy in Lao PDR will be able to provide attractive job opportunities to the 96,000 young people entering the labor market each year.
  • Large proportions of the workforce are trapped in lower-productivity farming jobs: 7 in 10 Lao workers are employed in the agriculture sector. This implies that a very large number of workers is needed, each producing very little and making only a meager living.
  • To take advantage of better jobs, young people need better foundational skills – the reading skills of adults in Lao PDR lag behind adults in neighboring countries. An Early Grade Reading Assessment showed that over 30% of 2nd graders could not read a single word, and among those who could read, 57% did not understand what they had just read.

Recommendations

  • Boosting agricultural productivity is a top priority to raise farm incomes, lower the need for labor in the agricultural sector, and eventually free agricultural workers to move out of farming to higher-productive, higher-paying sectors with more growth prospects. This includes:
    • Facilitating trade in paddy and rice to encourage private investment in milling that will reduce milling costs and give farmers greater incentive to increase production for export.
    • Making better use of public resources supporting rice farmers, such as technology development and irrigation.
  • The Lao economy will need to generate more off-farm jobs to absorb these new workers coming into the economy. The essential first step is creating an environment conducive for farm and non-farm businesses to make investments and grow. In particular, action is needed on three fronts:
    • Streamlining and simplifying business compliance and transaction costs associated with dealing with government to create a more business-friendly environment.
    • Improving transparency in the provision of public sector services to business through measures such as publication of all fee schedules, permits, and licensing requirements.
    • Establishing a more predictable playing field for the private sector, with consistent implementation of publicly available legislation, rules, and regulations and with reduced bureaucratic discretion.
  • For workers to take up the higher-productivity opportunities that become available, priority must be placed on ensuring basic literacy skills. Reforms must focus on:
    • Expanding and strengthening early childhood education to help develop school readiness skills, basic cognitive and behavioral skills.
    • Making sure all children can read by the end of grade 2 to build a skilled and productive workforce.
    • Building job-relevant technical skills with the Government more strategically focused on developing policies, setting standards, investing in training materials and instructors, improving public information about training systems, and carrying out training evaluations.