Coming to terms with Asia and the Pacific’s labour markets

Why it Matters

Asia and the Pacific’s labour markets are going through unprecedented changes. Some countries in the region have largely moved past the pandemic but others are still reeling from its devastating impact on labour markets. Unlike previous crises, mobility restrictions and workplace closures prevented workers from seeking jobs elsewhere, causing unemployment rates to surge. Young workers and women suffered the most. The situation exacerbated growing inequalities in the region, hurting low-skilled and middle-skilled workers whose jobs were already at risk from automation.

What is a skills mismatch?

A skills mismatch is an inconsistency between the skills available to the labour market and the skills demanded in the labour market. In other words, it is a mismatch between skills and jobs. This happens when the education and training received by an individual does not equip them with the skills demanded by the labour market.

This mismatch negatively affects individuals, firms, and the overall labour market. At the individual level, there can be wage penalties for a worker who is in a job where they are overqualified. This is also a waste of human capital. For firms, a skills mismatch negatively impacts their productivity and competitiveness. It could also lead to higher staff turnover. At the national level, a skills mismatch can lead to higher unemployment and an increase in informal employment.

What is informal employment?

Informal employment is work in areas not taxed, regulated or registered by the government. It also includes employees not protected by national labour laws, those not affiliated with a social security program, and those without benefits such as paid vacation and sick leave. Examples of these workers include market vendors, pedicab drivers, and farm workers. Entrepreneurs who own their businesses, and family workers, such as housekeepers and drivers, are also often considered informal workers.

The informal sector – which is where more women earn their livelihood than men in many countries – represents an integral part of the economy and the labour market. It provides employment and income for workers who do not have access to salaried jobs. In lower-income countries with high population growth rates and urbanisation, the informal sector absorbs a large share of the expanding labour force. However, reducing informal employment is critical for inclusive development and poverty reduction, including bringing more women into the formal workforce and giving them the protections it offers. 

What are active labour market policies?

Active labour market policies are government programmes designed to improve the functioning of the labour market by inducing changes in labour demand and supply and their matching process. Active labour market policies aim to preserve existing jobs and create new job opportunities. These policies also help the unemployed regain employment by assisting with job searches and matching processes. 

Governments in Asia and the Pacific used active labour market policies in response to the COVID-19 pandemic. For example, wage subsidies were critical in preserving existing jobs and creating new ones. Similarly, training targeted at workers displaced by the pandemic effectively enhanced the employability of unemployed workers. 

What is labour market matching?

Labour market matching aligns job vacancy requirements with workers’ skills. Policies facilitating this process are carried out through public employment services, including those run by the private sector. These public employment services play a critical role in the labour market and are increasingly used in developing countries.

Labour market information systems are essential for effective matching. Without good labour market data, matching is not possible. Furthermore, countries are leveraging digital technology to improve matching between job seekers and employers. LinkedIn is an excellent example of a privately-owned public employment service. There are national and local versions of LinkedIn across countries in Asia and the Pacific. 

What are employment guarantee schemes?

Employment guarantee schemes are public works programmes that guarantee people the right to work for a certain amount of time each year at a specified compensation level. One of the most well-known employment guarantee schemes is Mahatma Gandhi National Rural Employment Guarantee Scheme in India.

One of the largest public works programmes in the world, the programme provides a right to work for up to 100 days annually at the legal minimum wage for all rural households. On average, it reaches around 50 million households and about 70 million individuals yearly. Evidence shows that India’s programme has increased employment, labour force participation, and wages. Studies have shown that women’s labour force participation and wages went up in areas where it was introduced. 

Employment guarantee schemes can be a form of social protection for poor and vulnerable households. In rural areas where employment opportunities are scarce, guaranteed employment raises labour force participation and provides much-needed income support.

Looking Ahead 

The COVID-19 pandemic and the megatrends that are transforming the labour market have significant implications for job quantity, quality, and inclusiveness, now and in the future. New challenges emerge as the type and nature of work change, interacting and exacerbating existing inequalities. Governments in the region have made great strides to address the challenges in the labour market. However, as potential long-term and more profound impacts become more evident, enhancing skills for evolving labour market needs and digitalisation are more critical. Labour market and skills development policies underpin the capability of the workforce, displaced workers, and vulnerable populations to build back better. These policies help workers find good jobs, make training available to those who need it and provide reskilling opportunities that reflect labour market needs.