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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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Converting Economic Growth into
Productive Employment
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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Converting Economic Growth into
Productive Employment
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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Converting Economic Growth into
Productive Employment
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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Converting Economic Growth into
Productive Employment
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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The Role of Labour Market Policies
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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The Role of Labour Market Policies
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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The Role of Social Insurance
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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The Role of Social Insurance
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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The Impact of Social and Municipal
Services on Inclusiveness
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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The Impact of Social and Municipal
Services on Inclusiveness
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,Londonp.martins@odi.org.uk
Terry McKinleyCentre for Development Policy & Research,School of Oriental and African Studiestm9@soas.ac.uk