Economic Development a Triumph of Working People in East Asia Pacific

May 28, 2014

Axel van Trotsenburg Kompas

The last three decades have been a triumph for working people in East Asia and Pacific.  More than any other region in the world, millions of people were lifted out of poverty and countries that were poor a generation ago have successfully integrated into the global value chain. 

Yet our progress in social protection hasn’t kept pace with job creation. More than half of the workers in many countries work in the informal sector, without the protection of labor regulations and social protection policies. That means basic benefits, such as health care and unemployment insurance, are simply out of reach for many hard-working citizens.

For East Asia and Pacific to sustain its high growth and improve shared prosperity, I believe policy makers should consider social policies that will benefit all workers, regardless of what kind of job they have and where they work.

Modest, nationally-financed unemployment packages, such as those in Thailand, Vietnam, and China, would benefit informal workers as well. Other programs, such as Thailand’s universal health care coverage, cut down on health care costs for workers and encourage them to use the services more often. Indonesia is embarking on a similar universal health care program.

The new model of social protection would fill the gap in current policies, which have discriminated against women, youth and other workers with lower skills and driving them into in unprotected, unregulated, and untaxed jobs, according to empirical evidence in our new report, East Asia Pacific at Work: Employment, Enterprise and Well-Being.

In addition, our research shows that more than 30 percent of people ages 15 to 24 do not hold jobs, receive an education or any training. Exclusion feeds resentment, and perhaps violence.  Add to the mix increasing inequality of income from those with formal job contracts, and those who don’t have them – and countries may be presented with a potent cocktail for social volatility.

Why are the vulnerable groups of our society left out by social protection? The root cause is a combination of two factors: relatively stringent regulations on paper and lax enforcement, which drive more people into informal employment.

For example, some policies, such as Indonesia’s high severance payment system, stifle job creation – employers are not likely to hire when faced with paying severance costs more than four times the equivalent in Western Europe.

We can turn the challenges into opportunities. Since the region has a relatively short history of labor regulations and social protection policies, we can switch to a new model at relatively lower cost. The timing is right: as the region’s growth is moderating, many countries are already planning on structural reforms to make their economies more formal.

Policy makers also should not forget these key constituents: employers and investors.  We need to encourage the private sector to continue to invest and innovate, particularly small and medium-size enterprises that provide the bulk of jobs across the region.  Often, these enterprising firms face hurdles in growing their businesses.  Regulations should ease business expansion, not limit it.

The region’s diverse economies, of course, call for different policy priorities. Countries that remain largely agrarian will benefit from policies that encourage higher agricultural productivity.  The homes of some of the world’s largest urban centers – China, Indonesia, and the Philippines – will benefit from cities that function better, with more infrastructure and improved services. 

Indeed, as urbanization in East Asia and the Pacific intensifies, both labor and social protection policies may be attuned to the challenges and opportunities faced by residents of cities and peri-urban areas.  Policy makers can be daunted by urban agglomeration, or benefit from it. 

The World Bank is eager to work with countries in East Asia Pacific to design and implement new social protection policies that will benefit all people, not just those in salaried employment. That new model can boost domestic demand and usher in a new wave of high economic growth for the region, while also spreading the benefits of development to the members of our society that need protection the most.