Issues Paper for Seminar on

‘Jobs and Skills in the Twenty-First Century’ 2 May 2013Asian Development Bank and Towers Watson Study

AcknowledgementsThis issues paper was led by efforts at Towers Watson with contributions from ADB staff. The team at Towers Watson was led by Neha Sand. Comments and inputs from Lucia Carrera, Khushboo Chaudhary, Natalia Garabato, Vrinda Gupta, Pulkit Kapoor, Akhil Khurana, Magdalena Ramada and Maximiliano Sosa are acknowledged. The team at ADB was led by Rana Hasan. Comments and inputs from David Christopher Ablett, Raginee Baruah, Shamit Chakravarti, Gautam Chikermane, Kanupriya Gupta, Nidhi Kapoor, Brajesh Pant and Abhijit SenGupta are acknowledged.

DisclaimerThe views expressed in this paper are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank or its Board of Governors or the governments they represent and Towers Watson.

Asian Development Bank and Towers Watson do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use.

By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, Asian Development Bank, or Towers Watson do not intend to make any judgments as to the legal or other status of any territory or area.

Asian Development Bank and Towers Watson encourage printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of Asian Development Bank and Towers Watson. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of Asian Development Bank and Towers Watson.

Issues Paper for Seminar on ‘Jobs and Skills in the Twenty-First Century’

Table of Contents

Introduction 4

Section 1. Productivity, technology and jobs 7

Section 2. New jobs and skills: A sectoral perspective 10

Section 3. Economic policies and jobs 13

Section 4. Skills development and training 15

Section 5. Social protection 18

Jobs and Skills in the 21st Century 3

4 towerswatson.com

services.3 With more than 35% of their workforces still in agriculture, India, Viet Nam, Thailand, Indonesia and the People’s Republic of China (PRC) are still in the midst of this transition, which will likely continue over the next few decades (see Figure 1). This implies that jobs must be created in the industry and services sectors to absorb the outflow of workers from agriculture.

Unemployment — While Asia’s unemployment rate is low compared with the rest of the world, this is partly because so much of its labor force is poor and underemployed; the poor cannot afford not to engage in economic activity. Given that the region’s labor force grew by 1.5% annually between 2007 and 2010, avoiding higher unemployment will likely require 28 million additional jobs each year.4 It is also important to note that youth unemployment is high in many Asian countries (Figure 1), with young men and women typically three times more likely than adults to be unemployed.

Challenge # 2: Providing good jobs

One of the biggest challenges facing Asia is that a large part of its workforce does not have good jobs. Even when workers transition out of agriculture — where productivity and earnings tend to be lowest — the transition is too often into the informal sector, where enterprises are typically too small for productivity-enhancing technologies, earnings are low, working conditions are precarious, prospects for accumulating human capital are slim, and social protection coverage is extremely limited. Given the massive size of the informal sector, which is estimated to employ 85% of the workforce in India,5 71% in Indonesia, 59% in the Philippines and 56% in the PRC,6 the challenge of creating enough good jobs is daunting.

Challenge # 3: Improving productivity

A fundamental determinant of a good job is productivity. High productivity generates the

3 Other elements of the transformation include rural employment shifting to urban employment, and employment in informal and micro enterprises shifting to employment in formal enterprises operating at scales compatible with modern, high-productivity technologies.

4 See International Labour Organization. Global Employment Outlook (ILO TRENDS Unit, Employment and Labour Market Analysis, September 2012), www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_188810.pdf (accessed April 18, 2013)

5 See Ministry of Finance. “Seizing the Demographic Dividend,” in Economic Survey 2012-13 (Government of India, 2012), 26-55. http://indiabudget.nic.in/es2012-13/echap-02.pdf (accessed April 15, 2013).

6 See Asia Development Bank. “Part I: The Rise of Asia’s Middle Class”. in Key Indicators for Asia and the Pacific 2010, eds. (Manila: Asian Development Bank, 2010), 3-57 www.adb.org/sites/default/files/pub/2010/Key-Indicators-2010.pdf (accessed April 15, 2012).

Introduction Developing Asia’s economies are undergoing rapid structural transformation, becoming increasingly integrated with the rest of the world and embracing technological advances. These developments are changing Asia’s jobs landscape — reshaping the sectors where jobs are being created, the types of jobs available and the tasks that workers perform. Meanwhile, Asia is expected to add 494 million people to its workforce between 2010 and 2030.1 Will the region’s economies be able to generate sufficient jobs for its burgeoning workforce? Will these be “good” jobs — i.e., productive, well-paying and accessible to the typical worker?2 While the specifics vary across Asia, many of the broad challenges are common. This paper describes these challenges and sets the stage for a discussion of issues such as:

• How is technology shaping the number and types of jobs that will be available in Asia?

• Which sectors will offer Asia’s workers well-paying and productive jobs? What skills will workers need for these jobs?

• Which economic policies hold the greatest promise for generating good jobs for workers?

• What types of systems for skills development and training will impart Asian workers with the human capital needed? How should these be funded?

• With heightened competition and rapid technological changes likely to lead to greater churning in labor markets, how should systems of social protection evolve?

Challenge # 1: Creating new jobs

Changing demographics — Over the next two decades, Asia will add 494 million people to its workforce — nearly 54% of the growth projected for the entire global workforce — and nearly half of them will be in India alone. Workforces in Malaysia, Indonesia and Viet Nam are expected to increase by 33%, 20% and 15%, respectively. Thus, new jobs will have to be created to accommodate these increases.

Impending structural shifts — Economic growth, technological advances and globalization are transforming the structure of employment in Asian economies. A key element of this transformation is the transition from agriculture to industry and

1 See United Nations, World Population Prospects, the 2010 Revision http://esa.un.org/wpp/ (accessed April 18, 2013).

2 Other characteristics of good jobs include decent working conditions, opportunities for advancement and protection from various risks.

Jobs and Skills in the 21st Century 5

Figure 1. Workers and employment in selected developing Asian economies

India Indonesia PRC Viet Nam Malaysia ThailandRepublic of Korea

Labor Force

Population, total (in million)

2010 1225 240 1338 87 28 69 49

Working age population (age 15-64) (in million)

2010 790 162 971 62 18 48 35

2030 1034 194 960 71 24 49 31

% Change in working age population (2010-2030)

31% 20% −1% 15% 33% 2% −10%

Labor force participation rate, total (% of total population ages 15-64)

2010 58 70 80 81 63 77 65

Unemployment, total (% of total labor force)

2010 3.5 7.1 4.1 2.4 3.3 1 3.7

Unemployment, youth total (% of total labor force ages 15-24)

2010 10.2 22.2 N/A N/A 11.3 3.9 9.8

Age dependency ratio, old (% of working age population)

2010 8 8 11 9 7 13 15

2030 12 15 24 18 16 26 37

Employment Structure

Employment in agriculture (% of total employment)

2010 51 38 37 48 13 38 7

Employment in industry (% of total employment)

2010 22 19 29 21 28 21 17

Employment in services (% of total employment)

2010 27 42 35 30 59 41 76

Educational Profile

Adult literacy rate (%) 2010 63 93 94 93 93 94 N/A

Gross Enrolment Ratio (%)

Primary 2010 N/A 118 111 106 95 91 106

Secondary 2010 63 77 81 77 69 77 97

Tertiary 2010 18 23 26 22 42 46 103

Average schooling (Years)

2010 5.1 6.2 8.2 6.4 10.1 7.5 11.8

Productivity

GDP per person employed (constant 1990 PPP $)

2010 8496 10474 13045 5877 25175 15883 44251

Source: World Bank, World Development Indicators for all except average schooling (World Bank, World Development Report 2013: Jobs. (World Bank, 2012)), Working age population and Age dependency ratio, old (Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects) and other educational profile statistics (United Nations Educational, Scientific and Cultural Organization (UNESCO) Data Centre).

Note: Employment in agriculture/industry/services, data for Viet Nam is for year 2011; Gross enrolment ratio (Primary), data for Malaysia is for year 2002; Adult literacy rate, data for Indonesia is for year 2009 and data for Thailand is for year 2005.

6 towerswatson.com

revenue to pay higher wages and salaries, as well as to fund benefit programs for workers. As noted above, a large share of Asia’s workforce continues to be employed in agriculture, where labor productivity tends to be relatively low. Moreover, even though productivity is considerably higher in the industry and services sectors on average, significant variations exist within subsectors and across enterprises. In particular, many enterprises in industry and services operate in the informal sector, where they are substantially less productive than their formal-sector counterparts. Because so much employment is in the informal sector, many workers are trapped in low-productivity, low-earning jobs.

Challenge # 4: Addressing skill gaps

As Asia strives to create good jobs, it must also help workers acquire the skills they need to

perform these jobs. Advances in technology are putting a higher premium on skills and education. More generally, developing Asian countries need policies that promote human capital development and develop targeted skill sets for their workforces. Recommendations for Viet Nam, the Philippines, Thailand, Cambodia and Malaysia include reforming training and education to better meet demand for skilled labor and improving access to quality education and training. India and the PRC, which have successfully implemented educational and economic policies to foster high-skilled labor over the last decade, must now focus on developing the capabilities of their semi-skilled workforce as well as improving soft skills among all workers.7

7 See OECD Development Centre and ASEAN Secretariat, Southeast Asian Economic Outlook 2013 with Perspectives on China and India: Narrowing Development Gaps (OECD, 2013), www.oecd.org/dev/asia-pacific/Pocket%20Edition%20SAEO2013.pdf (accessed April 19, 2013).

Jobs and Skills in the 21st Century 7

Section 1. Productivity, technology and jobs

High productivity is a fundamental building block for job creation. Unfortunately, large majorities of workers in developing Asia are employed in low-productivity sectors. Figure 2 illustrates the point by describing employment shares and labor productivity across the three major production sectors — agriculture, industry and services — for selected countries.8 In much of developing Asia, including India, Indonesia, Pakistan, the PRC and Thailand, agriculture accounts for between one-third and one-half of total employment, but its productivity is roughly one-fifth of that in industry and services.

The implications of this employment pattern for creating good jobs can be better appreciated by a disaggregated look at the distribution of employment and productivity across sectors. Using data from India, Figure 3a shows the distribution of workers across production sectors as well as each sector’s average labor productivity relative to the national average.9 Figure 3b presents the same information for the United States.

Around half of India’s workers are engaged in agriculture — where productivity is less than a third of the national average. In sharp contrast,

8 In this paper, all references to productivity imply labor productivity, which is defined as value added divided by employment.

9 See R. Hasan, S. Lamba, and A. Sen Gupta, “Growth, Structural Change, and Poverty Reduction in India” (working paper, India Resident Mission, Asian Development Bank, 2012).

productivity is almost seven times the national average in the finance, insurance and real estate sectors, but these sectors employ only around 2% of India’s workforce. Large productivity gaps also exist between the formal and informal segments of manufacturing.10 It is important to note that these large productivity gaps are not unique to India — they are quite typical of developing countries. In contrast, productivity gaps between sectors are much narrower in developed countries,11 as Figure 3b for the United States shows.

In developing countries like India, productivity rises through two broad channels, as suggested in Figure 3a and highlighted in the recent work of McMillan and Rodrik.12 First, employment shifts from lower- to higher-productivity sectors, such as when a farm worker joins the assembly line at a modern manufacturing plant. Second, less productive sectors become more productive, such as when farmers switch from traditional to modern agricultural technologies relying on new varieties of seeds, fertilizer and tractors.

Several conditions must be in place for the first channel to operate, including the skills necessary for workers to switch from one type of employment

10 This is captured by data on the registered and unregistered segments of Indian manufacturing.

11 See M. McMillian and D. Rodrik, “Globalization, Structural Change and Productivity Growth.” (working paper no. 17143: NBER, 2011)

12 Ibid.

Figure 2. Employment versus labor productivity, 2010

Employment (% of total employment)Labor productivity (calculated as value

added over employment)

Country Agriculture Industry Services Agriculture Industry Services

PRC 37 29 35 971 7399 5079

India 51 22 27 591 2430 4380

Indonesia 38 19 42 862 5345 2709

Rep. of Korea 7 17 76 15948 75199 21450

Malaysia 13 28 59 6995 18865 11057

Pakistan 45 20 35 927 2490 2919

Sri Lanka 33 24 40 1469 3335 4139

Thailand 38 21 41 915 10770 5442

United States 2 17 81 56663 91431 73201

Japan 4 25 70 24461 94837 79498

Germany 2 28 70 34638 46032 50033

Source: World Bank, World Development Indicators.

Note: Labor productivity is defined as value added (in constant 2000 U.S. dollars) divided by employment. Data for Pakistan refers to the year 2008.

8 towerswatson.com

Creating a new subset of jobs in services and industry. This is most evident in information technology (IT), whose products and services are changing the way firms operate across all sectors. For instance, technology has created new platforms for business and talent to interact, thus enabling workers to seek employment with firms across the globe as freelancers and enabling firms to outsource simple tasks to the lowest bidder. In this reshaped environment, alternative labor pools (women, children and teenagers) can participate in work both formally and informally. Moreover, technology has created new industries, such as cloud computing.13

Reducing the need for routine jobs, with implications for the distribution of income. Computers, IT and automation are reducing the need for jobs involving mostly routine tasks — both manual and cognitive.14 To the extent that such jobs occupy a place in the overall distribution of income — somewhere in the middle in developed

13 See J. McKendrick, “Cloud Will Generate 14 Million Jobs By 2015: That’s A Good Start,” Forbes, March 5, 2012 www.forbes.com/sites/>joemckendrick/2012/03/05/cloud-will-generate-14-million-jobs-by-2015-thats-a-good-start/ (accessed April 15, 2013).

14 See D. H. Autor, F. Levy, and R. J. Murnane, “The Skill Content of Recent Technological Change: An Empirical Exploration,” Quarterly Journal of Economics 118, no. 4 (2003): 1279-1333.

to another and expanded employment opportunities in higher-productivity sectors (We discuss these conditions in Sections 2 and 3).

For the second channel, the introduction of new technologies, including better management practices, into the workplace is crucial. In much of developing Asia, productivity is very low in employment-intensive sectors, such as agriculture, construction, informal manufacturing, and wholesale and retail trade. Designing policies and interventions to introduce new technologies and practices into these sectors should have large payoffs in boosting productivity and thus raising earnings.

Introducing new technologies is not easy. In agriculture, for example, not only do agricultural research expenditures and extension services need to expand, they should also be accompanied by appropriate investments in irrigation infrastructure and better water use efficiency; post-harvest infrastructure for high-value added agriculture; improved access to formal credit and insurance markets; and a policy regime that facilitates the functioning of agricultural markets (including that of land).

In more technology-intensive sectors, technological change is affecting employment opportunities in multiple ways, including the following:

AGRI (29) UNREG (58) CONST (81) CSP (112) WRT (140)

TSC (208) GOV (266) MIN (339) REGMFG (395) PU (632)

FIRE (723)

00

300

400

100

200

500

600

700

Employment Share (%)

Sec

tora

l lab

or p

rodu

ctiv

ity a

s a

% o

f av

erag

ela

bor

prod

uctiv

ity

800

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Figure 3a. Employment shares versus labor productivity differentials in India, 2009

Source: R. Hasan, S. Lamba, and A. Sen Gupta “Growth, Structural Change, and Poverty Reduction in India” (Working Paper, India Resident Mission, Asian Development Bank, 2012).

Note : AGRI: Agriculture, forestry and fishing, CONST: Construction, CSP: Community, social and personal services, FIRE: Finance, insurance and real estate, GOV: Government services, MIN: Mining and quarrying, PU: Public utilities, REGMFG: Registered manufacturing, TSC: Transport, storage and communications, UNREG: Unregistered manufacturing, WRT: Wholesale and retail trade, hotels and restaurants.

Jobs and Skills in the 21st Century 9

countries15 — new technologies are likely to significantly affect the evolution of inequality.

Making formal education and previously acquired skills less relevant to employers. As innovation proceeds apace, both employers and employees will want to invest in on-the-job training to keep up.16 Workers will need the right preconditions or potential for training, such as being able to learn quickly, and communicate and work well with others.

Creating and eliminating jobs at a rapid pace. As MIT professor Erik Brynjolfsson notes, “Technology is always creating jobs. It’s always destroying jobs. But right now the pace is accelerating.”17 This is particularly relevant for Asia, where new technologies are being adopted at a faster pace than in other regions.18 Depending on how long it takes workers to acquire the new skills they need for new jobs, unemployment might increase.

How new technologies will ultimately affect the demand for labor is a complex question. The

15 See M. Goos, and A. Manning, “Lousy and Lovely Jobs: The Rising Polarization of Work in Britain,” The Review of Economics and Statistics, MIT Press, vol. 89 no. 1 (2007): 118-133.

16 See A. P. Bartel, and N. Sicherman, “Technological Change and the Labor Market” National Bureau of Economic Research (2013) www.nber.org/reporter/summer99/bartel.html (accessed April 24, 2013)

17 See J. Stelton-Holtmeier, “The Challenge of Technology in Job Creation,” Modern Distribution Management, Feb. 12, 2013 www.mdm.com/economy-2013-02-12-the-challenge-of-technology-in-job-creation/PARAMS/post/29838 (accessed April 24, 2013)

18 See Matthew Tonkin, “Asia: Leaders in Technology Adoption” Connect World Asia-Pacific, II 2012. www.connect-world.com/~cwiml/index.php/magazine/asia-pacific/item/17485-asia-leaders-in-technology-adoption (accessed April 24, 2013)

0

300

400

100

200

500

600

700

Employment Share (%)

Sec

tora

l lab

or p

rodu

ctiv

ity a

s a

% o

f av

erag

e la

bor

prod

uctiv

ity

800

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

CSP (50) CONST (56) WRT (71)GOV (64) AGRI (93)

TSC (144) MIN (148) MFG (163) FIRE (171) PU (558)

Figure 3b. Employment shares versus labor productivity differentials in the United States, 2005

Source: Groningen Growth and Development Centre 10-sector database, August 2008, www.ggdc.net

Note: AGRI: Agriculture, forestry and fishing, CSP: Community, social and personal services, CONST: Construction, FIRE: Finance, insurance and real estate, GOV: Government services, MIN: Mining and quarrying, MFG: Manufacturing, PU: Public utilities, TSC: Transport, storage and communication, WRT: Wholesale and retail trade, hotels and restaurants.

developed world’s historical experience suggests room for optimism. For example, over much of the 20th century, new technologies ushered large productivity gains into the United States. Real wages grew steadily with no discernible upward trend in unemployment.19 However, the past does not necessarily predict the future in either developed or developing countries.

The foregoing discussion raises the following questions:

• How can developing Asia improve productivity in employment-intensive sectors such as agriculture, wholesale and retail trade, and construction?

• How will modern technologies affect labor demand in developing Asia? Will unskilled and/or semi-skilled workers win or lose from new technology? Is it possible to develop technologies that are not labor displacing?

• To what extent will concepts like “crowd-sourcing” generate employment opportunities in Asia? As crowd-sourced tasks require no formal education or title, will the practice discourage investment in formal education and encourage investment in skill-specific training? Will crowd-sourcing and similar practices expand the informal economy or increase the number of people with multiple jobs?

19 See A. Manning, “We Can Work it Out: The Impact of Technological Change on the Demand for Low-Skill Workers” (discussion paper no. 640, Centre for Economic Performance, 2004).

10 towerswatson.com

Food:24 Demand for food is expected to more than double by 2020, reaching nearly US$3 trillion per year. Asia will consume nearly 80% as much food as the United States, up from 45% in 2011.

Health care: Medical expenditure per person is expected to more than double between 2011 and 2020, almost reaching U.S. levels.

Housing: Total housing loans in Asia are expected to reach US$3.7 trillion by 2020, more than twice their value in 2011. While Asia had only one-tenth as many housing loans as the United States in 2011, mortgage expansion in Asia should nearly approximate growth in the United States between 2011 and 2020.

Automobiles:25 Asia is expected to account for 50% of global auto sales and to be a global production hub by 2020.

Tourism: According to the United Nations World Tourism Organization (UNWTO),26 the Asia-Pacific region will be the biggest global gainer in number of arriving tourists. Arrivals are projected to increase 2.3 times — from 204 million in 2010 to 535 million in 2030. As such, the region’s global market share is expected to expand from 22% in 2010 to 30% in 2030.

Of course, the sectoral composition of job growth will vary by country. In India, for example, many economists and policymakers view manufacturing as key for employment growth. As noted in India’s 12th Five-Year Plan documents, 250 million jobs will be needed by 2027, and manufacturing could potentially create 40% of them (100 million jobs) in textiles and garments, leather and footwear, gems and jewelry, food processing, and handlooms and handicrafts.27 The services sector will also be crucial for employment, creating 150 million jobs in tourism, hospitality, construction and health care.28

24 See DBS Bank. Imagining Asia 2020: Make Way for The Asia Giant. (DBS Bank, October 2011). www.dbs.com/TreasuresPrivateClient/Documents/PDF/DBS_IMAGINING_ASIA_2020.pdf (accessed April 18, 2013).

25 See Forum for the Automobile and Society. The European Automotive Industry at a Competitive Cross-Road: What Policy, Innovation and Jobs for the Future? April 24, 2012.

26 See World Tourism Organization, Tourism Towards 2030: Global Overview. (Madrid: UNWTO, 2011) http://cestur.sectur.gob.mx/descargas/Publicaciones/Boletin/cedoc2012/cedoc2011/unwto2030.pdf (accessed April 18 2013)

27 See Government of India Planning Commission. Faster, Sustainable and More Inclusive Growth: An Approach to the Twelfth Five Year Plan. (New Delhi: India Office Press, 2011)

28 Ibid.

In developing Asia, production and employment patterns are undergoing rapid structural transformation, as most clearly reflected by agriculture’s declining role in aggregate output and employment, and the corresponding boost to industry and services.

Which sectors will see the most significant expansion in terms of job opportunities? The answer largely depends on each country’s demography, stage of economic development and the sectoral makeup of its gross domestic product (GDP). However, a major transformation is afoot in the region with implications for job creation: the formation of a growing middle class.20 The middle class is widely considered to play an important role in driving economic growth. New entrepreneurs often emerge from the middle class, perhaps fueled by middle-class values and attitudes. The middle class also drives demand for better-quality consumer goods and those with increasing returns to scale.21 This demand can initiate investments in production and marketing, job opportunities and higher incomes.

Indeed, developing Asia’s new middle class is driving domestic demand for goods and services. Especially in light of the recent global financial crisis, policymakers are looking at domestic demand to become a pillar of future economic growth.22 The most significant items in Asian households’ consumption baskets are food, health care, housing and transportation.23 As a result, we expect a continued upward trend in demand for these goods and services. Moreover, Asia’s growing middle class has changed its consumption patterns and now demands higher-quality products.

Five sectors stand out as potential sources of growth and job creation:

20 See: (i) See Asia Development Bank. “Part I: The Rise of Asia’s Middle Class” in Key Indicators for Asia and the Pacific 2010, eds. (Manila: Asian Development Bank, 2010), 3-57 www.adb.org/sites/default/files/pub/2010/Key-Indicators-2010.pdf (accessed April 15, 2012).; and (ii) H. Kharas, “The Emerging Middle Class in Developing Countries,” (working paper no. 285: OECD Development Centre, 2010) www.oecd.org/dev/44457738.pdf (accessed April 19, 2013).

21 See A. Banerjee and E. Dufflo, “What is Middle Class About the Middle Classes Around the World?” MIT (December 2007) http://economics.mit.edu/files/2081 (accessed April 24, 2013).

22 See OECD Development Centre and ASEAN Secretariat, Southeast Asian Economic Outlook 2013 with Perspectives on China and India: Narrowing Development Gaps (OECD, 2013), www.oecd.org/dev/asia-pacific/Pocket%20Edition%20SAEO2013.pdf (accessed April 19, 2013).

23 See Asian Productivity Organization, APO Productivity Databook 2012 (Tokyo: APO, 2012) www.apo-tokyo.org/publications/files/ind_APO_Productivity_Databook_2012.pdf (accessed April 24, 2013)

Section 2. New jobs and skills: A sectoral perspective

Jobs and Skills in the 21st Century 11

soft skills. Strengthening education systems, especially primary education, is key to this process.33 However, secondary and post-secondary systems are important, too, as the burgeoning industry and services sectors will need capable workers for technical, managerial and leadership positions.

In the quest to raise the skill level of its large workforce, Asia needs to employ competency standards. The International Labour Organization (ILO) recently defined regional competency standards for Asia,34 which describe precise competencies required for a range of occupations and jobs across sectors to help firms hire the right people for the right job. These standards also suggest the skills that will be in demand by the manufacturing sector.

The ILO’s Regional Model Competency Standard (RMCS) for manufacturing encompasses requirements to:

• Perform individual tasks efficiently [task skills] • Manage a number of different tasks within a job [task management skills]

• Respond effectively to irregularities and breakdowns in routine [contingency management skills]

• Deal with the responsibilities and expectations of the work environment [job / role environment skills], including working with others and in teams

Along the same lines, the Talent 2021 study by Oxford Economics and Towers Watson outlines the skills expected to be in high demand over the next five to 10 years for professional, managerial and technical positions. The global study surveyed 352 HR professionals across different regions and a wide variety of industries. The findings indicate four broad high-demand skill areas for the mid-term future (see Figure 4).

33 Ibid.34 See ILO Regional Skills and Employability Programme in Asia and the

Pacific. Regional Model Competency Standard: Manufacturing Industry. (Thailand: ILO, 2007) www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_bk_pb_237_en.pdf (accessed April 18, 2013).

Similarly, forecasts suggest that by 2020, consumption in the PRC will be two-thirds that of the United States, thus accounting for 12% of the world’s consumption within this decade.29 This growth is expected to create new jobs in housing, health care, recreation, and transport and communications, with food and clothing yielding market share to housing and health care. Job creation will also be shaped by the priorities outlined in the government’s 12th Five-Year Plan. Between 2011 and 2015, the PRC aims to create 45 million jobs in urban areas.30 Reflecting the government’s goals of protecting the environment, addressing social inequities and rebalancing the drivers of economic growth, the focus will be on three sectors: energy (entailing conservation, protection of the environment and new energy), technology-intensive products (encompassing energy-efficient automobiles, new materials, high-end equipment manufacturing and new generation IT) and health care.

At the same time, economies in developing Asia and beyond are under pressure to adopt “greener” modes of production. Shifting from fossil fuels to greener alternatives, in particular, could result in job losses unless workers are retrained and their skills updated31 across sectors.

Changes in skills sets are needed. Translating increasing demand for products, both old and new, into jobs is not straightforward. First, workers must have the skills required for new production structures,32 and workers at all levels need enhanced skills. For example, workers transitioning from agriculture to entry-level jobs in industry or services need basic literacy, numeracy and various

29 See Q. Wang, and E. Ho. China Economics: Chinese Economy Through 2020 (Part 2): Labor Supply to Remain Abundant. (Morgan Stanley, Oct. 11, 2010).

30 See APCO. China’s 12th Five-Year Plan: How it Actually Works and What’s In Store For the Next Five Years. (APCO Worldwide, Dec. 10, 2010). http://apcoworldwide.com/content/PDFs/Chinas_12th_Five-Year_Plan.pdf (accessed April 18, 2012).

31 See R. Maclean, S. Jagannathan, and J. Sarvi, Skills Development for Inclusive and Sustainable Growth in Developing Asia-Pacific (New York: ADB, 2013) www.iadb.org/intal/intalcdi/PE/2012/10914.pdf (accessed April 18, 2013).

32 See Oxford Economics. Global Talent 2021: How the New Geography of Talent Will Transform Human Resource Strategies (Oxford: Oxford Economics, 2012).

12 towerswatson.com

The foregoing discussion raises the following questions:

• In which sectors is inadequate supply of well trained workers a major constraint to growth?

• How can the education systems of emerging Asian economies be transformed to enhance the employability of their workforces?

Figure 4. Skills in high demand over the next five to ten years

Digital Skills

Digital Business Skills

Ability to work Virtually

Understanding of Corporate IT software and systems

Digital design skills Ability to use social media and “Web 2.0”

50.6% 44.9% 40.1% 35.2% 29.3%

Agile Thinking Skills

Ability to consider and prepare multiple scenarios

Innovation Dealing with complexity and ambiguity

Managing paradoxes, balancing opposing views

Ability to see the “big picture”

54.8% 46.0% 42.9% 40.9% 15.3%

Interpersonal and communication skills

Co-creativity and brainstorming

Relationship building (with customers)

Teaming (including virtual teaming)

Collaboration Oral and written communication

48.3% 47.4% 44.9% 30.4% 29.0%

Global operating skills

Ability to manage diverse employees

Understanding international markets

Ability to work in multiple overseas locations

Foreign language skills

Cultural sensitivity

49.1% 46.0% 37.5% 36.1% 31.5%

Source: Oxford Economics. Global Talent 2021: How the New Geography of Talent Will Transform Human Resource Strategies (Oxford: Oxford Economics, 2012).

Note: Survey of 352 HR professionals conducted in the first quarter of 2012. Percentages reflect respondents who believe the skill will be in high demand.

• Which skills should developing Asian

countries emphasize to ensure basic

employability across industries?

• What role will on-the-job training play

in the development of industry-specific

skills? And what is the best way to prepare

for this?

Jobs and Skills in the 21st Century 13

sector.37 In the informal sector, many people work without contracts. Even more worrying, over the last 21 years, the proportion of workers in informal employment in developing Asia fell only marginally — from 68.9% to 67%. The percentage of workers in the region’s informal sector is more than twice the level in Latin America and eight times the level in advanced economies.38

What actions and policies would encourage entrepreneurs and firms in developing Asia to invest, expand their operations and thus create job opportunities?

The answers vary by country and even by sector. For example, managers in South Asian manufacturing firms identify the undependable power supply as their single biggest obstacle to growth and operations, while managers in other parts of Asia Pacific rank access to finance as their major barrier, according to enterprise surveys by the World Bank.39 In larger countries like India or the PRC, significant differences across regions and cities also emerge. Many challenges are industry specific. For example, in the PRC, the business environment and infrastructure might be adequate for manufacturing but need to be strengthened for other industries, such as high-tech subsectors within manufacturing and various service industries.40

Sometimes labor regulations that were designed to protect workers and improve their bargaining power can have the unintended consequence of diminishing demand for labor. Some argue, for example, that Indonesia’s minimum wage, which is 65% of the average wage of salaried workers41 — the highest in the world — has prompted formal-sector employers to hire fewer workers and discouraged enterprises from shifting from the informal to the formal sector. Similarly, some suspect that restrictions on layoffs and regulation of working arrangements in India have discouraged

37 See Ministry of Finance. “Seizing the Demographic Dividend,” in Economic Survey 2012-13 (Government of India, 2012), 26-55. http://indiabudget.nic.in/es2012-13/echap-02.pdf (accessed April 15, 2013).

38 See Kevin Brown, “What Asia’s Poor Need: More Jobs in the Formal Sector,” beyondbrics, Financial Times, Aug. 23, 2011, http://blogs.ft.com/beyond-brics/2011/08/23/what-asias-poor-need-more-jobs-in-the-formal-sector/#axzz2QqbC1gKa (accessed April 19, 2013).

39 See World Bank, Enterprise Surveys Data, www.enterprisesurveys.org/Data (accessed April 24, 2013).

40 See Klaus Schwab, The Global Competitiveness Report 2009-2010 (Geneva: World Economic Forum, 2009), www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2009-10.pdf (accessed April 19, 2013).

41 See OECD, OECD Economic Surveys: Indonesia, (OECD, 2012) www.oecd.org/eco/surveys/2012%20Indonesia%20Overview.pdf (accessed April 24, 2013)

The vast majority of jobs are created by the private sector. Nevertheless, a nation’s economic policies have a profound impact on job creation. National policies shape the decisions made by private-sector agents in farms, factories and city offices about product lines and markets, scale of production, production techniques, worker training and more.

Some of the more important policies for job creation pertain to infrastructure, the financial system, business regulations, skills development and the regulation of labor markets. Policies widely believed to encourage firms to invest, expand production, improve productivity, and employ and train workers include those that ensure:

• Good quality energy and transportation infrastructure

• Easy access to credit • Streamlined processes for starting and closing businesses, paying taxes and enforcing contracts

• Alignment of skills delivery systems with the requirements of businesses

• Judicious balance between workers’ need for earnings and job stability versus employers’ need for flexibility in responding to changing economic conditions

In the absence of such policies, firms have a tendency to operate in the informal sector where they typically remain small and relatively inefficient, while companies in the formal sector have less incentive to expand production, enter new lines of business, innovate or invest in worker training. Although jobs are created, they generally offer low pay, limited stability in earnings, poor working conditions, few opportunities to accumulate human capital or save for retirement, and little protection from risks, such as those arising from health shocks.

The informal sector is estimated to account for up to 85% of the workforce in India,35 71% in Indonesia, 59% in the Philippines and 56% in the PRC.36 Productivity differences between workers in the formal and informal sectors are large. In India’s informal sector, the median value added per worker is less than half what it is in the formal

35 See Ministry of Finance. “Seizing the Demographic Dividend,” in Economic Survey 2012-13 (Government of India, 2012), 26-55. http://indiabudget.nic.in/es2012-13/echap-02.pdf (accessed April 15, 2013).

36 See Asia Development Bank. “Part I: The Rise of Asia’s Middle Class”. in Key Indicators for Asia and the Pacific 2010, eds. (Manila: Asian Development Bank, 2010), 3-57 www.adb.org/sites/default/files/pub/2010/Key-Indicators-2010.pdf (accessed April 15, 2012).

Section 3. Economic policies and jobs

14 towerswatson.com

and small firms is an effective means of promoting start-ups and bringing unregistered workers into the formal employment fold.

While fostering an environment conducive to private entrepreneurship through improved regulations and business procedures is essential, it is likely not enough.43 Market failures due to lack of knowledge and coordination are common in developing countries, preventing firms from adopting new technologies or entering new product lines and markets. For example, the modern food processing industry — a sector with a strong potential to generate jobs — can encounter several impediments to growth. Farmers might be cultivating traditional varieties of fruit and vegetables unsuitable for processing; the infrastructure required to support postharvest preservation — cold storage facilities, silos or warehouses — might be lacking; or quality control and testing may not be efficient. Coordination failures can thus impede the growth of a sector with so many inputs and players, since no one actor would find it worthwhile to make all required investments. What is required is for the private sector and government to collaborate in identifying and eliminating the most significant obstacles to restructuring and diversification.44

The foregoing discussion raises the following questions:

• To the extent that overregulation can discourage firms from investing, expanding and creating jobs, which aspects of policy are problematic and what is the best way forward?

• Should public policy actively encourage the private sector to enter new, potentially dynamic sectors such as modern health care, modern retail and subsectors within manufacturing (e.g., electronics in India)? How can we design effective industrial policies that are neither dominated by vested interests nor characterized by wasteful subsidies?

• Can the experience of today’s high and middle-income countries inform us about the stance developing country policymakers should take on the design of business regulations and industrial policy?

• What models could governments adopt to ensure basic employment rights for workers in both the formal and informal sectors?

43 Ibid.44 See D. Rodrik. One Economics, Many Recipes: Globalization, Institutions,

and Economic Growth. (Princeton, NJ: Princeton University Press, 2007).

modern manufacturers from investing in labor-intensive subsectors, such as apparel and toys.

Designing appropriate policy responses can be complex. For example, the government estimates that beefing up India’s infrastructure would cost around US$1 trillion over fiscal years 2012 – 2016. This would increase the amount of public resources devoted to investment as well as the private sector’s share of infrastructure finance from 38% during fiscal years 2007 – 2011 to almost 48% over the fiscal 2012 – 2016 period. Public expenditures on other subsidies and investments would have to be curbed in favor of infrastructure, and innovative special-purpose vehicles would be needed to tap international and domestic capital markets for infrastructure finance.

Similarly, contentious elements of labor regulation might call for a nuanced approach. In Indonesia, for example, a lower minimum wage could be considered for youth — a practice that has been adopted by several Organization for Economic Cooperation and Development (OECD) countries. Along the same lines, India’s restrictions on layoffs could be relaxed for industries that need more frequent labor adjustment, such as apparel. More broadly, it is also important for countries to work toward improving industrial relation systems.

Facilitating access to finance and simplifying business-related procedures are also important. In general, government programs that try to help smaller enterprises obtain financing through directed credit programs and state-owned banks have not been successful. Governments can achieve better results by working with commercial forces to correct market failures.42 A variety of such approaches are being used all over the world. The key is for policymakers to figure out which approaches hold the most promise for their country and experiment with these. In finance, for example, upscaling microfinance institutions, strengthening credit bureaus and guaranteeing loans to small and medium enterprises (which typically lack collateral) are all being attempted. Similarly, there are different ways to address taxation systems and simplify tax filing. For example, Brazil’s Simples Nacional program suggests that a simpler taxation system for micro

42 See Asian Development Bank, Key Indicators for Asia and the Pacific 2009 (Philippines: Asian Development Bank, 2009) www.adb.org/sites/default/files/pub/2009/Key-Indicators-2009.pdf (accessed April 23, 2013)

Jobs and Skills in the 21st Century 15

of un-employability.49 In Viet Nam, almost 50% of firms responding to the 2011 Japan External Trade Organization survey expressed concerns about the capabilities of Vietnamese workers, especially “middle managers” and “engineers or technicians.”50 In the PRC, gaps have been identified in areas important to multinational firms, such as foreign language skills, ability to think independently and teamwork,51 suggesting the need for countries to look beyond enrollment and literacy rates and assess the type and quality of talent the educational systems are generating.

These skill gaps need to be addressed as part of a comprehensive skills development program for each country involving formal (vocational education institutes, polytechnics, on-the-job training and apprenticeship programs, and occupational accreditation) and non-traditional skills development organizations (usually run by nongovernmental organizations [NGOs] or trust funds established by industry associations or ministries that target school dropouts and vulnerable populations). Research has found that a mix works best (See Box 1).

Policymakers and supranational institutions seem to agree on the importance of additional skills development systems in Asia, as shortages of specific technical and vocational skills have become a major barrier to firms considering expanding into the region. Many developing economies in Asia are already taking steps to enhance the quality of the workforce.

In 2009, India established the National Skill Development Corporation (NSDC), a public-private partnership that will provide skills training programs to 150 million people by 2022.52 NSDC’s modus operandi is to identify sector-specific competencies and quality assurance standards and act as a catalyst for private-sector investment in 20 high-growth organized and unorganized

49 See Manish Sabharwal, “Education, Employability, Employment and Entrepreneurship: Meeting the Challenge of the 4Es,” in Skills Development for Inclusive and Sustainable Growth in Developing Asia-Pacific (Manila: ADB, 2013).

50 See OECD Development Centre, Southeast Asian Economic Outlook 2013 with Perspectives on China and India: Narrowing Development Gaps. Structural Policy Country Notes Viet Nam (OECD, 2013), www.oecd.org/dev/asia-pacific/Viet%20Nam.pdf (accessed April 19, 2013).

51 See Monika Aring, Youth and Skills: Putting Education to Work – Report on Skills Gaps. Background Paper Prepared for the Education for All Global Monitoring Report 2012 (UNESCO, 2012), http://unesdoc.unesco.org/images/0021/002178/217874E.pdf (accessed April 15, 2012).

52 See Planning Commission, Government of India, Twelfth Five Year Plan 2012-2017, Volume II and III, http://planningcommission.gov.in/plans/planrel/12thplan/welcome.html (accessed April 24, 2013)

Creating high-productivity jobs is only one part of the equation for employment in developing Asia — workers must also have the skills to perform them.

As mentioned in section 2, the evolution of growth in the region affects the demand for labor and for specific skills. Persistent mismatches between jobs and skills can hamper a region’s ability to grow and exacerbate inequalities. Developing skills and human capital through education and training is becoming increasingly crucial for Asian economies.

So, what policies or systems would work best for developing skills and training Asian workers? How can Asia generate the human capital it needs to grow in the 21st century?

Over the last few decades, Asia has made enormous progress in educating its citizens, increasing both average years of schooling and primary education enrollment rates. Still, much remains to be done. In some parts of developing Asia (mainly in South Asia), adult literacy rates hover around 50%, but even in countries where literacy rates are high, such as the Philippines, Thailand and Viet Nam, workforces do not necessarily have the right skills for high-quality jobs.45 Moreover, higher education — demand for which is projected to double over the next five years and triple in the next 10 years46 — does not always provide the competencies firms need to boost productivity.

Employability is also a huge concern. Employees in developing Asia need better skills in science, technology, engineering and math, as well as in critical thinking and creativity.47 Both Indonesia and Thailand score significantly below OECD averages on educational attainment in reading, mathematics and science, according to the OECD’s PISA survey, which evaluates how well education systems are preparing students to join the workforces of tomorrow.48 Employer studies from India show 57% of workers suffering some degree

45 See ADB, “As the Century Turns the Social Challenge in Asia,” in Asian Development Outlook 2000 (Manila: ADB, 2000): 177-226, www.adb.org/sites/default/files/ADO/2000/part3.pdf (accessed April 19, 2013).

46 See ADB, Education by 2020: A Sector Operations Plan (Manila: ADB, 2010), www.adb.org/sites/default/files/pub/2010/education-by-2020.pdf (accessed April 19, 2013).

47 See The World Bank, Putting Higher Education to Work Skills and Research for Growth in East Asia (Washington DC: The World Bank, 2012), http://siteresources.worldbank.org/EASTASIAPACIFICEXT/Resources/226300- 1279680449418/7267211-1318449387306/EAP_higher_education_fullreport.pdf (accessed April 19, 2013).

48 See OECD, PISA 2009 Results: What Students Know and Can Do – Student Performance in Reading, Mathematics and Science, Vol.1 (OECD, 2009), www.oecd.org/pisa/pisaproducts/48852548.pdf (accessed April 19, 2013).

Section 4. Skills development and training

16 towerswatson.com

the skills and capabilities of Malaysia’s existing workforce.55

These efforts are encouraging, as they introduce greater coherence into the system, framing and promoting a common vision of the skills system these countries want to achieve. The existence of national polices also facilitate coordination and clarifies roles.

Thailand, which has the highest tertiary enrollment rates among the Association of South East Asian Nations, has set out to dramatically increase the quality of its teaching staff. The goal is to produce 30,000 teachers between 2010 and 2015, with special attention paid to areas where teachers are scarce, especially in science and mathematics.56

Some evidence shows that skill-building programs boost productivity, promote capital-skills complementarities and trigger technological and structural change.57 However, the effectiveness of TVET in developing Asia is a matter of much debate,58 with some claiming its implementation has yielded meager results.59 However, sound and effective TVET programs remain crucial to remedy skills mismatches.

55 See Malaysia Prime Minister’s Department. The Economic Planning Unit, Tenth Malaysia Plan 2011-2015 (Putrajaya, Economic Planning Unit, 2010), www.pmo.gov.my/dokumenattached/RMK/RMK10_Eds.pdf (accessed April 19, 2013).

56 See OECD Development Centre, Southeast Asian Economic Outlook 2013 with Perspectives on China and India: Narrowing Development Gaps. Structural Policy Country Notes Thailand (OECD, 2013), www.oecd.org/dev/asia-pacific/Thailand.pdf (accessed April 19, 2013).

57 See Asian Development Bank, Education and Skills: Strategies for Accelerated Development in Asia and the Pacific (Manila: ADB, 2008), www.adb.org/sites/default/files/pub/2008/Education-Skills-Strategies-Development.pdf (accessed April 19, 2013).

58 See L. Wheelahan and G. Moodie. Rethinking Skills in Vocational Education and Training: From Competencies to Capabilities (NSW Department of Education and Communities, 2011), www.bvet.nsw.gov.au/pdf/rethinking_skills.pdf and National Council on Skill Development. Adviser to the Prime Minister, eSkill Development (New Delhi: National Council on Skill Development, n.d.) www.skilldevelopment.gov.in/sites/default/files/resource/e%20Skill%20Development.pdf (accessed April 18, 2013).

59 Ibid.

sectors.53 NSDC provides viability gap funding through loans, equity or grants to build capacity in the technical and vocational education and training (TVET) segment.

In 2008, Viet Nam established the “National Steering Committee on Training towards Society’s Demand” with the primary goal of designing and implementing policies to close supply-and-demand gaps in the skilled workforce. The government has also developed a number of supporting policy documents, one of which has established a medium-term (2011 – 2020) strategy for educational development and vocational training that reforms education management, curriculum contents, teaching methods, testing and evaluation, and accreditation.54

Malaysia is also emblematic, as the government has formulated a 10-step plan to upgrade the country’s human capital and increase the skilled labor supply. This plan focuses on three themes: revamping the education system to boost student outcomes, enhancing skills to increase workforce employability and reforming the labor market. It employs strategies such as holding schools accountable for student outcomes, and attracting and developing top talent in the teaching profession. The plan also includes initiatives to mainstream and broaden access to quality technical and vocational training, enhance the competencies of tertiary graduates, and upgrade

53 Sectors include automobile, textiles and garments, leather and leather goods, gems and jewelry, building and construction, food processing, tourism hospitality and travel trade, transport and logistics, warehousing, packaging, organized retail, health care, banking, insurance, finance, education and skill development services

54 See Socialist Republic of Viet Nam, Government Web Portal, Viet Nam Sustainable Development Strategy for 2011-2020, www.chinhphu.vn/portal/page/portal/English/strategies/strategiesdetails?categoryId=30&articleId=10050825 (accessed April 19, 2013).

Box 1. Examples of successful informal training programs

Teach For China, in partnership with the global network Teach For All, recruits, selects, trains and supports graduates from the United States and the PRC to deliver a high quality education in high-poverty and rural communities in the PRC. In 2011 – 2012, Teach For China supported nearly 150 American and Chinese fellows teaching in 37 low-income schools in Yunnan and Guangdong, which helped more than 22,000 students.

India’s partnership with Digital Greens uses videos to disseminate information on a variety of agricultural technologies and new farming techniques. Digital Green’s network of partners and communities have produced more than 2,629 videos and reached out to 58,902 farmers in India.

In Brazil, private associations like SENAR provide training and promote rural entrepreneurship programs for farmers, rural workers and their families.

Jobs and Skills in the 21st Century 17

Ministry of Human Resources Development Fund is taking a similar approach to promote training and development initiatives.

While deciding on skill development policies and systems is crucial, an equally important question is who takes the lead? The public and private sectors could share responsibility for design and implementation of national skills policies and mechanisms to incentivize engagement by all social partners.64 In Singapore, for example, the Ministry of Manpower and Economic Development Board coordinate the flow of information between the government, industry and educational institutions, providing resources to facilitate skills development whenever necessary. In India’s rapidly growing IT sector, companies such as Wipro, Infosys and TCS are taking the lead in addressing their skill gaps. At Wipro, for example, executives work with colleges across India to train teachers to develop IT skills and encourage students to become “work-ready.”

In view of the foregoing, an effective skills strategy should address the following questions:

• While technical qualifications are needed, how specific do these need to be? Who should take the lead in defining technical qualifications?

• What is the optimal mix for formal and informal provision of skills training? Where do public-private partnerships work best?

• What are the main risks for private training providers and how can public policies help to mitigate them?

• Who should take the lead in skills development — government, firms or individuals — and which incentives at the individual and corporate levels will increase its impact?

• How do we measure the development of soft skills and competencies and assess their quantitative and qualitative effects on productivity and employment?

64 See International Labour Office, “Formulating a National Policy on Skills Development,” Skills for Employment Policy Brief, www.ilo.org/wcmsp5/groups/public/---ed_emp/---ifp_skills/documents/publication/wcms_167172.pdf  (accessed April 19, 2013).

Proposals to increase the effectiveness of these systems include strengthening links with industry and government departments close to trade, sciences and industry (e.g., allowing them to advise or validate programs or standards for TVETs), as well as enhancing workplace training, such as with more internships.

Another important issue relates to financing skills development programs and enhancing the efficiency of educational and skill training spending. As in any economy, education must compete with other budget priorities. Governments should thus attempt to design and integrate policies serving different needs, such as education, social transfers of funds and health care, to leverage their effects through synergies.

Exploring links and cost-sharing agreements with the private sector seems crucial, too,60 particularly through public-private partnerships.61 In Singapore, for example, firms contribute a skill development levy on wages of all workers to the Skills Development Fund (SDF). High turnover among skilled workers reduces firms’ incentives to invest in skill development,62 for fear they might not reap the rewards themselves (although the private sector has much to gain from improving the skill sets of the overall workforce). Well-designed incentives for investment in training, therefore, become important. In Singapore, contributing to the skill development levy entitles employers to a grant for training programs for their workers. The SDF initiative has been successful in ensuring higher employee retention and productivity.63 Malaysia’s

60 See ADB, Education by 2020: A Sector Operations Plan (Manila: ADB, 2010) http://www.adb.org/sites/default/files/pub/2010/educationby-2020.pdf (accessed April 19, 2013).

61 See Asian Development Bank, “Chapter 4: A Partner and Agent for Change” in Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008-2020 (Manila: ADB, 2008) www.adb.org/sites/default/files/Strategy2020-print.pdf (accessed April 24, 2013).

62 See Towers Watson, Global Workforce Study 2012 (Towers Watson, 2012), towerswatson.com/Insights/IC-Types/Survey-Research-Results/2012/07/2012-Towers-Watson-Global-Workforce-Study (accessed April 18, 2013).

63 See C. Martinez-Fernandez and M. Powell, Employment and Skills Strategies in Southeast Asia Setting the Scene (OECD, 2009), http://cor.europa.eu/en/activities/governance/Documents/0f71e409-ace6-4993-a369-42f934806907.pdf (accessed April 19, 2013).

18 towerswatson.com

Countries diverge enormously in their investment in social protection. Developing Asia spends much less than developed nations such as the European Union (EU), the United States and Japan (see Figure 5).

Asia’s informal economy is estimated at 1 billion, highlighting the immensity of the challenge of meeting the needs of vulnerable workers.67 Moreover, a larger percentage of the population needs old age support because some Asian

67 See International Labour Organization, “Visions for Asia’s Decent Work Decade: Sustainable Growth and Jobs to 2015” Asian Employment Forum: Growth, Employment and Decent Work, Beijing, People’s Republic of China, August 13-15, 2007. www.ilo.org/public/english/region/asro/bangkok/asiaforum/download/visions.pdf (accessed April 29, 2013).

Social protection is a broad concept, referring to a “set of policies and programs designed to reduce poverty and vulnerability by promoting efficient labor markets, diminishing people’s exposure to risks, and enhancing their capacity to protect themselves against hazards and the interruption/loss of income.”65 In the context of employment and the job market, the availability of social protection is a key ingredient of “decent work.”66

65 See Asian Development Bank, Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020 (Manila: ADB, 2008) www.adb.org/sites/default/files/Strategy2020-print.pdf (accessed April 24, 2013).

66 See International Labour Organization, About the ILO, Decent Work Agenda www.ilo.org/global/about-the-ilo/decent-work-agenda/lang--en/index.htm (accessed April 19, 2013).

Figure 5. Social protection expenditure (% of GDP) in mid–2000s

0 5 10 15 20 25 30

1.4

1.6

1.9

2.2

2.3

3.9

4

4.1

4.6

5.3

5.7

7.50

16

16

26.4

Cambodia

Pakistan

Indonesia

Philippines

Nepal

Malaysia

India

Viet Nam

PRC

Bangladesh

Sri Lanka

Rep. of Korea

Japan

United States

European Union

Source: B. Baulch, A. Weber and J. Wood, “Volume 2: Asia,” in Social Protection Index for Committed Poverty Reduction (Philippines: ADB, 2008) for Asian countries; OECD database for United States (2005 figure); and Eurostat, Statistics in Focus (Population and Social Conditions) for European Union (2008 figure).

Section 5. Social protection

Jobs and Skills in the 21st Century 19

countries are rapidly aging and inter-generational caretaking is breaking down. Perhaps the biggest challenge lies in giving older workers access to decent and productive jobs, as many of them are not well-positioned for retirement, particularly given the erosion of traditional family support systems.68,69

But the elderly are not the only ones in need of social protection — illnesses, layoffs, political and economic instability, and natural disasters such as the 2004 tsunami also leave workers in developing Asia vulnerable.70 As a result, it is imperative for Asian countries to expand social protection to ensure economic and social sustainability as they grow. Figure 6 lists key risks faced by Asian workers and associated risk-mitigation programs currently in operation.

While social protection programs are clearly important, policymakers face several challenges in the design and implementation of these programs.

The population to be covered is enormous and segmented by location (rural/urban), occupation and other characteristics. Accessing these groups at a national level can be cumbersome, and policies often fail to address each segment’s specifi c needs. Poor record keeping and administrative roadblocks along with limitations in the supply side of service provision, particularly health care, have also caused many schemes to fail.71 Targeting in emerging markets is also diffi cult because many benefi ciaries cannot prove their identity and lack bank accounts to which money can be credited.

68 See International Labour Organization, “Visions for Asia’s Decent Work Decade: Sustainable Growth and Jobs to 2015” Asian Employment Forum: Growth, Employment and Decent Work, Beijing, People’s Republic of China, August 13-15, 2007. www.ilo.org/public/english/region/asro/bangkok/asiaforum/download/visions.pdf (accessed April 29, 2013).

69 See A. Alesina and P. Giuliano, “Family Ties,” (working paper No. 18966: NBER) www.nber.org/papers/w18966 (accessed April 29, 2013).

70 See International Labour Organization, “Realizing Decent Work in Asia” Fourteenth Asian Regional Meeting, Busan, Republic of Korea, August-September 2006. www.ilo.org/public/english/standards/relm/rgmeet/14asrm/dgrealizing.pdf (accessed April 29, 2013).

71 See World Bank, Social Protection: Social Security http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/0,,contentMDK:22183329~pagePK:146736~piPK:146830~theSitePK:223547,00.html (accessed April 29, 2013).

Another key challenge is around the choice and mix of funding options. All funding options — including taxes on labor or consumption and grants, transfers and relief from external organizations — convey their own challenges and complications, and a balance must be sought between programs and funding mechanisms.

Social protection programs also need to ensure benefi t portability, which is particularly important for migrant workers, and employ good governance practices, which are currently limited in developing Asia.72

Clearly, country characteristics and level of development can be taken into account when designing or reforming social protection programs. Low-income countries are probably better off focusing on policies to promote basic health care and minimum income, while middle-income countries can also incorporate other programs, such as pensions.73

Countries could also adopt a gradual approach to social protection coverage. Thailand serves as a good example, as it began providing basic social security benefi ts in the 1990s. Participation was gradually made compulsory for small businesses and even self-employed workers, which brought a vast number of informal workers under the umbrella of basic social protection.74

Some policymakers have established non-contributory or so-called social pensions with no links to formal employment for the old and the marginalized poor. In Nepal, for example, all citizens 75 or older receive a fl at pension, while means-tested schemes in India and Bangladesh provide benefi ts to the low-income elderly.75

72 See ISSA, Dynamic Social Security for Asia and the Pacifi c: Integrated Responses for More Equitable Growth - Developments and Trends (Geneva: ISSA, 2009).

73 See Asian Development Bank, Key Indicators for Asia and the Pacifi c 2011 (Philippines: ADB, 2011) www.adb.org/sites/default/fi les/KI/2011/pdf/Key-Indicators-2011.pdf (accessed April 29, 2013).

74 Ibid.75 Ibid.

20 towerswatson.com

Figure 6. Key risks faced by Asian workers and associated risk-mitigation programs

Risks due to evolving economy

Programs to handle those risks Some examples of programs in Asia

Marginalization of contract and migrant workers

Micro-insurance India has made the provision of micro insurance schemes mandatory for all private insurance companies.

Portability of social insurance The PRC, where migrant workers constitute a large percentage of the workforce, implemented a new social insurance law making coverage portable when employees transfer from one jurisdiction to another.*

Unemployment Employment guarantee programs

Employment guarantee programs are rare. An example of a large employment guarantee program in recent decades is Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)† in India.

Cash Transfers (unemployment insurance)

The PRC’s 1993 Minimum Living Standards Guarantee Scheme provides benefits to the elderly. The National Old Age Pension Scheme is a similar initiative in India for destitute elderly households.‡

Access to credit and asset building

Microcredit Most well-known microcredit program has been Grameen Bank in Bangladesh.

Micro-insurance /Asset transfer programs

Micro-insurance and asset transfers tend to be gender- or community-based programs. Vimo Sewa is a micro-insurance program for self-employed women in India, while TUP (Targeting the Ultra-Poor) is an asset transfer program in Bangladesh.

Costly healthcare services

Universal access to essential healthcare

The PRC, India and Indonesia are moving toward providing universal access to essential health care.

Micro health insurance Rashtriya Swasthya Bima Yojna (RSBY) in India contracts out the responsibility for providing health insurance to government and private insurance companies for those below the poverty line.

* See A. Livermore, “Mandatory Social Welfare Benefits for Chinese Employees,” China Briefing, Feb. 21, 2012 www.china-briefing.com/news/2012/02/21/mandatory-social-welfare-benefits-for-chinese-employees.html (accessed April 29, 2013); and Dezan Shira & Associates, “New Social Insurance Law Aims to Improve Social Welfare System in China,” China Briefing, March 8, 2011 www.china-briefing.com/news/2011/03/08/new-social-insurance-law-aims-for-an-all-round-social-welfare-system-in-china.html (accessed April 29, 2013)† MGNREGA is aimed at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work.‡ See International Policy Centre for Inclusive Growth, “Annex: Summary of Social Protection Environment and Cash Transfer Schemes in Selected Asian Countries” www.ipc-undp.org/publications/cct/asia/CashTransferExperiences.pdf (accessed April 29, 2013).

Jobs and Skills in the 21st Century 21

The challenges described above prompt a wide range of questions, including:

• What is the best way to provide a safety net to contract workers — occupational pensions or universal coverage?

• How should safety net programs be financed — by a tax on labor or tax on consumption/value added? What are the macroeconomic implications?

• How can small employers and contractors be convinced to participate in an occupational pension system?

• Are governments prepared to adopt technology for better identification, transfer and governance of social protection programs? What is the “right” degree of technology for optimizing the efficiency and accountability of these programs?

In terms of funding options, it is widely acknowledged that in developing Asia, taxes will have to play a greater role in funding poverty reduction and enhanced protections, as will better budgetary efficiency in delivering benefits.76 Developing Asian countries can forge partnerships with national and international stakeholders for the design, implementation and financing of social protection programs, a good example being the micro-pension products now offered to low-income workers in India and Bangladesh.77 Some efforts also provide health care. Several NGOs, such as India’s Self Employed Women’s Association, already offer social security to their workers, although the coverage is limited.78

76 Ibid77 Ibid.78 See World Bank, Social Protection: Social Security http://web.worldbank.

org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/0,,contentMDK:22183329~pagePK:146736~piPK:146830~theSitePK:223547,00.html (accessed April 29, 2013).

About the Asian Development BankADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two-thirds of the world’s poor: 1.7 billion people who live on less than $2 a day, with 828 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

About Towers WatsonTowers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management.

Copyright © 2013 Asian Development Bank and Towers Watson.

towerswatson.com