Social Inclusiveness in Asia’s Middle Income Countries (Presentation)

8/4/2019 Social Inclusiveness in Asias Middle Income Countries (Presentation)

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Regional Workshop (sponsored by ADB, ILO and IPRCC)Jakarta, 13 September 2011

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Pedro Martins

Overseas Development Institute,London

Terry McKinley

Centre for Development Policy &Research, SOAS

SOCIAL INCLUSIVENESS IN ASIAS

MIDDLE-INCOME COUNTRIES


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Basic Motivation

The need to move from a Pro-Poor Growth Agenda to

an Inclusive Growth Agenda

The central role of generating widespread ProductiveEmployment in making growth more inclusive

Linking Growth and Employment to reducing Inequality aswell as Poverty

Macroeconomic and Structural Policies play the dominantrole in creating growth and employment

Social Policies and Social Protection play an essentiallysupportive role

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Basic Motivation

We examined a sample of 8 middle-income countries:China PR, India, Indonesia, Malaysia, the Philippines,Sri Lanka, Thailand and Viet Nam

We were asked to investigate the role of: 1) socialand municipal services, 2) labour market policies,and 3) social insurance

Some of the major background sources:

McKinley (2010) Inclusive Growth Criteria and Indicators: An

Inclusive Growth Index for Diagnosis of Country Progress, ADB

ADB (2005), The Social Protection Index for Committed PovertyReduction, and its current revision

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Basic Motivation

Other Relevant Recent Sources:

ADB (2010), Key Indicators for Asia and the Pacific, The Rise ofAsias Middle Class

ADB (2011), Key Indicators for Asia and the Pacific, Toward

Higher Quality Employment in Asia In evaluating progress on inclusive growth, the McKinley 2010

paper places 50% weight on growth, employment and access toeconomic infrastructure, 25% on poverty and inequality, 15%on social policies (health, nutrition, education) and 10% on

social protection One of its main findings is that the Asia and Pacific region is

still confronting problems of employment and inequality. Apriority new area of research might be the links betweeninequality and the nature of employment

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Inclusive Growth Involves

Adopting a Broader Equity Lens

Our paper does not focus merely on the income poor(e.g., those receiving less than $2 per day) thoughthis proportion ranges from 7% in Malaysia up toabout 70% in India (ADB, 2010)

We also focus on ADBs lower-middle class ($2-$4),who are vulnerable to falling into poverty, and themiddle-middle class ($4-$10)

We do not emphasize the conditions of the upper-

middle class ($10-$20) because its income shareexceeds its population share

We are concerned mainly with promoting growthwith greater inclusiveness

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Converting Economic Growth into

Productive Employment

Macroeconomic and Structural Policies are theprimary levers for achieving this objective, throughboosting both public and private investment

Social Policies, Social Protection and Labour Market

Policies play a supportive role: they facilitatepeoples access to economic opportunities

The classic structural transformation of developingcountry economies appears to have mutated intonew, less employment-intensive forms, likely due inpart to the increased globalisation of capitalism

There is diminished domestic policy space forgovernments as a result. A lack of fiscal space toundertake economic policies is also a major concern.

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The basic growth and employment trends are wellknown: 1) agriculture is diminishing as a sector butstill remains the largest, 2) the service sector oftenappears to be the main driver of growth andemployment, 3) industry has recently grown rapidly

in some economies (China, India, Viet Nam) but notas rapidly as services in most economies

For example, in Developing Asia, agriculture still accounted forabout 44% of total employment in 2008 (down from about66% in 1990)

Industrys share had risen to only about 24% from 17% in1990

Meanwhile, services share had risen sharply from 16% in 1990to about 33% in 2008 (ADB, 2011).

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Sectoral Employment Shares

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Employment by SectorAgriculture (%) Industry (%) Services (%)

1990 2008 1990 2008 1990 2008

Developing Asia 66.3 43.5 17.4 23.7 16.3 32.9Developing Europe 31.8 14.3 31.9 28.0 36.3 57.5

Latin America & C. 18.8 16.5 26.6 24.2 54.6 59.2

OECD 7.1 3.9 31.4 24.2 61.6 71.9


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What is troubling is the stubborn persistence ofsizeable proportions ofinformal sector employmentand vulnerable employmentin economies that havebeen growing fairly rapidly, particularly in the 2000s

The share of informal workers in employment in 2008 was

67%, compared to 69% in 1990! The share of vulnerable employment (own-account and unpaid

family workers) in 2008 was still 64% in Indonesia, 54% inThailand, 44% in the Philippines and 41% in Sri Lanka

These trends portend difficulties in implementingsocial insurance and labour market policies, whichare usually based on the participation of employeesin formally registered firms

An active employment-focussed economic policyagenda will be necessary

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There has also been little change in the share ofwage and salaried employees in total employment

The share of wage and salaried workers in total employment in2008 was, for example, a little over 30%. This compares to ashare that was a little under 30% in 1990!

This indicates little real structural transformation inemployment, which should have led to both broad-based and higher-productivity employment

The central challenge is not to raise labourproductivity, as some would suggest; this is already

happening in some isolated sectors Real wages do not necessarily rise with labour

productivity partly because of the pressures ofinternational competition on labour costs

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The real challenge is to raise labour productivityalong with broadening formal-sector employment

This would entail an active role for the allocation ofpublic investment, particularly in economic and

social infrastructure that stimulates privateinvestment

This would also likely imply the use of publicincentives to induce financial institutions to directcredit to certain purposes (innovation) or certain

sectors (those potentially competitive) These policies combine demand-side stimulus with

longer-term supply-side impacts on expanding theeconomys productive potential

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Demographic Change

and Employment in Asia

Trends in the elderly dependency ratio [65+/(15-64)] show that the Asian population is ageing, withparticularly high ratios already in China, Sri Lankaand Thailand (about 10%) although these are stillfar from Japans 34%.

Conversely, the youth dependency ratio (under 15s)is experiencing dramatic falls, suggesting a smallerworking-age population in coming decades.

However, many countries still currently have highlabour force growth rates (above 2% per year)

These trends have important social and economicimplications, especially for mobilising fiscalresources and supporting the retired. They will posemajor problems for social insurance schemes

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The Role of Labour Market Policies

ADBs Social Protection Index indicates that labourmarket policies represent a small share (1-10%) oftotal social-protection expenditures in Asia

Most such policies are geared to serving the needs of

regular workers in established (formally registered)private-sector enterprises (in addition, of course, tocivil servants in the public sector)

Such workers are a minority of the total employed even though increased labour flexibility is putting

them under intensified pressure Whatever policies are implemented for these

workers, they are not highly likely to have significanteconomy-wide impacts

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Our working assumption is that formal-sectorworkers (public and private) tendto be part ofADBsmiddle class ($2-$20)

In China PR 47% of regular wage employees were inthe middle-middle class and another 31% were inthe lower-middle class (2002)

In the Philippines, 31% of such workers were in themiddle-middle class and another 31% were in the

lower-middle class (2006)

In poorer India, however, 36% were in the lower-middle class and 31% were moderately poor($1.25-$2) (2005)

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Distribution of Regular Employees

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Country Per capitaIncome(2005 $ PPP)

Self-Employed Wage Employment

Unempl. TotalOwn-AccountWorkers

EmployersCasual /

TemporaryRegular /

Permanent

India

(2005)

$10 0.2 2.9 0.0 1.2 0.4 0.2

Total 100.0 100.0 100.0 100.0 100.0 100.0

China

(2002)

$10 1.2 5.5 2.5 8.1 1.6 4.6

Total 100.0 100.0 100.0 100.0 100.0 100.0

Philippines

(2006)

$10 2.1 9.2 2.5 10.5 3.5 5.4

Total 100.0 100.0 100.0 100.0 100.0 100.0


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Extending employment protection legislation doesnot seem promising: its enforcement is weakdefacto

Passive labour market policies, such as

unemployment insurance, have become a morepopular vehicle, but mainly as counter-cyclical toolsduring crises and on a limited basis

Active labour market policies appear to be the bestoption, providing long-term support to employment-

boosting economic policies as the main driver: Training and skill development (to access higher-quality jobs)

Public Works Programmes geared to building infrastructure

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The Role of Social Insurance

Social Insurance is easily the dominant form of socialprotection in Asia, accounting for 55-92% of allexpenditures across our eight MICs (2005)

The largest item is pensions, half to two-thirds of total social-

insurance expenditures across our sample Next most important is health insurance, but less than 20% of

social-insurance expenditures across our sample

A central problem: social assistance is directed

towards the poor, while social insurance is directedto a minority of middle-strata workers

There is a sizeable missing middle of the labourforce that is not being served by social protection

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Social Protection Spending

Country

Social Insurance (% Total) SocialAssistance(% Total)

LabourMarket

(% Total)

SPSpending(% GDP)Pensions

HealthInsurance

Total

China, PR 63 18 84 7 7 4.6

India 58 1 60 23 10 4.0Indonesia .. .. 71 25 1 1.9

Malaysia 68 15 92 7 1 3.9

Philippines 64 13 79 4 0 2.2

Sri Lanka 47 0 56 13 1 5.7

Thailand .. .. .. .. ..

Viet Nam .. .. 55 31 8 4.1

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This missing middle remains vulnerable to a widearray of risks to their livelihoods and well-being

The especially vulnerable lower-middle class ($2-$4) often composed of the urban self-employed,

casual or temporary wage workers, small farmersand informal-sector workers is not well served byeither social assistance or social insurance

Some of the countries in our sample, such as SriLanka and the Philippines, have undertaken to reach

the large grouping of informal-sector workers, butwith limited success

Contributory schemes seem unlikely to succeedbecause of these workers low and variable incomes

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Any contributory schemes would have to besignificantly complemented by tax financing to beeffective programmes

Financing social pensions seems problematic since

even many formal-sector pension programmes facefinancial problems (partly due to population ageing)

Some countries, such as Malaysia, the Philippinesand Indonesia, appear to have had some success inextending health insurance

Our Recommendation: expand health insurance to boththe poor and the vulnerable non-poor. But this willrequire expanding government revenue (relying perhapson broad coverage of indirect taxation and somebeneficiary contributions)

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The Impact of Social and Municipal

Services on Inclusiveness

Most of our MDG-related focus on social andmunicipal services has been concerned with povertyreduction, with the most striking shortfalls incoverage evident in rural areas

However, accelerated urbanisation and rapid butjob-deficient economic growth linked toglobalisation point towards new priorities

We need to focus more on urban areas (but not just onslums since there is a growing general problem of

inadequate or expensive urban housing) We also need to focus more on the vulnerable non-poor

as well as the poor the lower-middle and middle-middle strata facing increasing relative deprivation withregard to such services

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Most of our standard indicators for health andeducation tend to be poverty-focused (e.g., under-five mortality, malnutrition, literacy)

We need to utilise indicators, such as life expectancy(or life expectancy beyond 60 years), which registerprogress across a broader segment of the population

We also do not focus enough on access to economicinfrastructure and services (electricity, roads,transportation, ICT), which are vital to growth

For education, we need to shift our attention tosecondary education and above: these levels willprovide the education and skills that support andpromote higher-quality employment

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For both healthcare and education, householdsappear to be shouldering an increasing share of thecosts, either opting for private schools or payingmore out-of-pocket for public services

Thus, the upper-middle and upper-class

households will likely gain superior access toservices Such trends will exacerbate inequalities in access

that will tend to reinforce widening inequalities inaccess to productive employment

Strengthening broad effective access to at least

secondary education (and vocational education)appears to be a key social policy now that cansupport the leading role of economic policies inpromoting an employment-intensive trajectory ofeconomic development

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Thank You

Pedro MartinsOverseas Development Institute,[email protected]

Terry McKinleyCentre for Development Policy & Research,School of Oriental and African [email protected]

Documents

Social Inclusiveness in Asia’s Middle Income Countries (Presentation)