Single market 'may aggravate inequalities' in ASEAN

Deutsche Welle | 21 August 2014

Plans by Southeast Asian countries to set up a single market next year are likely to boost the economy and job market, but could also worsen inequality and benefit men more than women, as analyst Sukti Dasgupta tells DW. 

The Association of Southeast Asian Nations (ASEAN) is aiming to create a single economic market within the 10-member bloc in 2015. The ASEAN Economic Community (AEC) is designed to allow a free flow of goods, services, and investments, as well as freer flow of capital and skills. Moreover, it should enable investors to increase their market reach and grant ASEAN-based companies access to raw materials, production inputs, services, labor, and capital wherever in ASEAN they choose to set-up their operations.

According to a report released by the International Labour Organisation (ILO) and the Asian Development Bank on August 20, the single market could add an extra 14 million new jobs and boost the bloc's annual growth by 7.1 percent by 2025.

However, Sukti Dasgupta, Senior Economist at the ILO and co-author of the report, says in a DW interview that the AEC also risks leaving some behind and aggravating inequalities as some new jobs growth could be in sectors that are prone to be informal and vulnerable and women will gain less from new jobs than men.

DW: What are the key findings of the report?

Sukti Dasgupta: The key finding of the report titled ASEAN Community 2015: Managing Integration for better jobs and shared prosperity is that the AEC could create new opportunities for growth and prosperity in the region, but only if the labor market impact is properly managed and prosperity is shared. Otherwise, the AEC could aggravate inequalities and its gains could bypass many of the region's 600 million women and men.

Dasgupta: 'The AEC will create opportunities, but risks leaving some behind and aggravating inequalities'

How can the ASEAN bloc profit from the creation of the AEC?

The AEC, which will create a single market and production base for the ASEAN region, will create new opportunities for growth and prosperity for the region's women and men. More specifically by 2025, compared to the baseline, the AEC could increase GDP growth in the ASEAN by a further 7.1 percent, increase investment by eight percent and create an additional 14 million jobs.

How would single countries be able to profit from the AEC?

Detailed analysis on six of the 10 countries in the ASEAN region show that the AEC creates new opportunities for them through potential increases in their GDP and employment, if managed well. The sectors that stand to gain across the region are construction and trade and transport. The manufacturing sector also expands in most countries though at a relatively lower rate.

Which are the countries set to profit the most from the AEC and why?

The region as a whole could gain from the AEC, though the gains will not be even across countries, sectors and gender. Our simulations using detailed labor market data from Cambodia, Vietnam, Thailand, Indonesia, Lao PDR and Philippines show that the lower income ASEAN member states - Cambodia and Vietnam - in general see the largest increases in GDP relative to the baseline. This is because consumers and producers in these countries face relatively high trade barriers and costs and thus stand to gain most from increased international trade.

How is the job market within AEC expected to develop?

The AEC will accelerate the current pace of structural change in ASEAN member states – and many new jobs could be in sectors that are likely to be vulnerable and informal. At the same time, the AEC will increase the demand for skilled labor across the region – our findings show that the rate of growth of high skill jobs will be 41 percent from 2010 to 2025, growing at the fastest rate. 

However, our occupational projections show that half of these high skill jobs could be filled by under-qualified workers, if the current situation of skill shortages continues. There are, therefore, implications for the quality, availability of education and skills as well as the match between skill supply and industry demands.

Furthermore, if member states can respond to the skills challenge, they could see huge gains in productivity, as per our estimations. These rises in productivity, could, if effective wage setting mechanisms are in place, translate into wage gains and make this a region that competes on high productivity and now low wages.

Could the AEC also worsen inequality, if not managed effectively?

The AEC will create opportunities, but risks leaving some behind and aggravating inequalities. We find for example, that some new jobs growth could be in sectors that are prone to be informal and vulnerable, women will gain less from new jobs than men, and the demand for high skill workers will increase faster, potentially creating wage inequality between skilled and unskilled workers.

We also find that migration of medium and low-skilled workers will continue within the region, while the free flow of skilled labor under the AEC will have little impact affecting less than one percent of all workers. Managing and protecting these low skill migrant workers will be key to containing inequalities. It’s also concrening that ratification of ILO core labor standards and those relating to migrant workers remain low in the ASEAN region.

What must member nations do to reap the benefits of this market union?

We identify three priorities for ASEAN's leaders to focus on: Firstly, to proactively facilitate and manage structural change; Secondly, to have institutions in place to ensure that gains from AEC are shared; Finally, to strengthen regional cooperation.

For the first – it means not only aligning industrial and employment and skills policies, but more support for small enterprises, and the agricultural sector in member states, and greater investment in infrastructure – both hard and soft such as education and skills development. Equally important is the setting up of sound social protection systems, which include migrant workers, knowing well that the AEC could actually create more vulnerabilities.

Secondly, ASEAN countries need to ensure that economic gains lead to shared prosperity – by linking wages to productivity gains through sound minimum wage setting mechanisms and collective bargaining so that workers can gain from economic progress while enterprises remain competitive.

The success of ASEAN regional integration will depend on how it affects the labor market, says Dasgupta

Finally, regional cooperation is key to achieving all this – regional cooperation is already taking place – some of the architecture is already in place such as the CEBU declaration and the ASEAN Social Protection declaration, but greater cooperation is required in implementing these landmark declarations.

How intense will the need for closer cooperation be?

Cooperation is needed to extend mutual recognition arrangements to medium skilled workers and implement the ASEAN qualifications framework. Ratifying the core ILO conventions to create a level playing field, strengthening labor market information - these are key issues if labor market impacts are to be monitored, and collecting labor market data and sharing such data are also critical and will require greater cooperation.

Also, boosting dialogue with and between workers and employers organizations would help guide policy and policy sequencing in the region. Ultimately, the success of ASEAN regional integration will depend on how it affects the labor market and therefore the quality of life of women and men in the region.

Sukti Dasgupta is Senior Economist and Head of the Regional Economic and Social Analysis Unit at the Regional Office for Asia and Pacific of the International Labour Office.