Progressive Labour Practices to Enhance the Competitiveness of ASEAN

Association of South East Asian Nations

Foreword

I am pleased to present the final report of the study on Progressive Labour Practices to Enhance the Competitiveness of ASEAN, conducted by Mercer, on behalf of the ASEAN Ad-Hoc Working Group on Progressive Labour Practices to Enhance the Competitiveness of ASEAN.

This study, which was endorsed by the 5th ASEAN Senior Labour Officials Meeting (SLOM) in May 2007, aims to examine the impact of ASEAN integration on labour markets, and recommend areas in which ASEAN members could prepare their labour markets and develop their human capital to maximise the benefits from ASEAN integration and address potential challenges.

The findings from the study reaffirm labour as a key factor influencing business and investment decisions. It is therefore imperative for ASEAN countries to review labour practices to ensure that they meet changing economic and social needs, particularly as ASEAN forges ahead with closer economic integration through the formation of the ASEAN Economic Community by 2015. In this regard, the recommendations made in the report provide a good starting point for ASEAN countries to work towards creating a more favourable investment environment by putting in place progressive labour practices.

Singapore is privileged to be the country coordinator and sponsor of this study. I would also like to thank the ASEAN Secretariat and all the ASEAN member states that had supported this study through their active participation and facilitation of interviews with key stakeholders in their countries. We would also like to thank Mercer for its excellent work in successfully conducting this study.

I hope you would find the report useful for discussion and action to bring about more progressive labour practices in ASEAN.

LEO YIPPermanent SecretaryMinistry of ManpowerRepublic of Singapore

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Acknowledgements

Progressive Labour Practices to Enhance the Competitiveness of ASEAN was prepared by a team led by Suzanne Bond Hinsz under the direction of Su-Yen Wong. The core team comprised Ake Ayawongs, Ian Choo, and Pon Souvannaseng.

Mercer’s Workforce Sciences Group spearheaded reasearch and analysis of national competitiveness issues. The team was lead by Rick Guzzo and included contributions from Jay Doherty, Damien Deluca, Hu Han, and Haig Nalbantian.

Interviews were conducted by our country teams. The Thailand team was led by Wittapon Jawjit with assistance from Thaya Wichayathian and Phongpiboon Sak-Udomkajorn; Rina Sjoekri led the Indonesia team comprising Jovita Suwarso and Maudy Monique; the Philippines team was led by Gerard Cariaso with assistance from Gladys Santiago; Brunei and Malaysia teams were led by Zainal Kassim with assistance from Normah Hashim. Chanin Mephokee led additional country research supported by Anuwat Cholpaisal, Pairin Nakjan, Kiriya Kulkolkarn, Supruet Thavornyutikarn, Panadda Pradniwat, and Rapeephan Bunyaraskh.

NAFTA research was conducted by Stine Laursen and European Union research by Avinash Kaushik and Ravishankar Gopalakrishnan.

Members of the ASEAN Ad Hoc Working Group were instrumental in connecting us to stakeholders in their countries and the study could not have progressed without their support. We would also like to acknowledge the ASEAN Secretariat, particularly Mr Tan Tiangchye and Ms Fifi Anggraini Arif, for helping us to open many doors.

We would like to thank the team at Singapore Ministry of Manpower led by Ong Yen Her, Ng Cher Pong, and Lau Weng Hong, for initiating and supporting us throughout the course of this study, as well as Lim Tze Min, Toh Swee Chien, Jaslyn Soh, and Sim Li Chuan.

Other guidance was provided by Eugene Tan Khen Boon and Pang Eng Fong from the Singapore Management University, Tim Turpin from the University of Western Sydney, and Gyorgy Sziraczki of the ILO.

Further thanks goes to Thailand office for hosting the core team and providing vital support. Thanks to Singapore’s Mary Ann Tan, Elisa Bakri, Donna Canestra, Cheung Mylinh, Michelle Chan, Sharifah Aljunied. Additional thanks to Gabriela Jimenez and Mac Regan.

Lastly, this report was made possible through the generous contributions of individuals throughout the ASEAN region who took time to share with us their views.

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Table of contents

Foreword i

Acknowledgements iii

Executive Summary 1 ASEAN labour competitiveness 1Achieving harmony for stakeholders through progressive labour practices 1ASEAN countries will be more competitive if skilled labour

can flow between countries 2

Chapter 1: Introduction 4 Study background 4 Exclusions 5 Methodology of study 5

Chapter 2: The ASEAN Imperative 6 Competitiveness 6 The ASEAN productivity challenge 7

Chapter 3: ASEAN Labour Competitiveness 9 Criteria used in investment decisions 9 Mercer research on location investment 13 Relative competitiveness of ASEAN labour markets 18 Country level observations 20 ASEAN advantage over other global locations 22

Chapter 4: Progressive Labour Practices (PLP) 23 Building competitive labour markets through

Progressive Labour Practices (PLP) 23 Interview structure and data sources 23 Building sustainable development the ASEAN way 24 The challenge of stakeholder engagement 26 Stakeholder views regarding the way forward 28 Summary 29 Case studies of Progressive Labour Practices (PLP) 30

Chapter 5: Free Flow of Skilled Labour (FFSL) 40 Benefits of Free Flow of Skilled Labour (FFSL) 40 Potential risks of Free Flow of Skilled Labour (FFSL) 41 Stakeholder views of Free Flow of Skilled Labour (FFSL) 42 Lessons learned from regional bloc comparisons 43 Summary 45

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The European Union (EU) 47 North American Free Trade Agreement (NAFTA) 53 The Common Market of the South (MERCOSUR) 57

Chapter 6: Recommendations 61

Bibliography 64

List of text boxes1.1 Other issues affecting the labour landscape and

national competitiveness 5

3.1 Multiple dimensions used in evaluating location choice 12

4.1 Interview and survey questions 23

List of figures2.1 Output per worker, 1990-2006 in ASEAN, China and India 7

2.2 PLP and FFSL increase foreign direct investment quantity and quality 8

3.1 Mercer’s framework for evaluating investment locations 11

3.2 Functions/jobs considered in location choice 13

3.3 Labour factor frequency in site selection 14

3.4 Different business needs and how investment criteria weightings vary 17

3.5 Areas of national comparative advantage 19

3.6 ASEAN versus BRIC on site selection indicators 21

4.1 PLPs are key levers of sustainable development 25

4.2 Stakeholder alignment in a joined-up model 27

5.1 Remittances in ASEAN 41

5.2 Timeline of EU integration 48

5.3 Share of active EU-15 and EU-10 working age citizens resident in another country 50

5.4 Factors that discourage labour mobility in the EU 51

5.5 Timeline of NAFTA integration 54

5.6 TN visas issued in the United States of America 55

5.7 Timeline of MERCOSUR integration 58

List of tables2.1 The Global Competitiveness Index (GCI) 6

3.1 Importance of service sector to ASEAN GDP 9

5.1 Regional bloc comparisons: an overview 43

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ASEAN as a region offers strong investment opportunities for multinational organisations. However, pitched against intense competition in an increasingly borderless world where financial and human capital flow to the best destination, ASEAN has to stay ahead of the pack as it competes for foreign direct investment. Developed as well as developing economies are in a race for capital to power their economies. Against this backdrop, ASEAN faces an imperative to create a favourable investment climate that can lead to continued economic growth, provide new jobs and improve working conditions.

To become more attractive as an investment destination, ASEAN is faced with the challenge of increasing worker productivity. China’s output per worker overtook ASEAN in 2004 and that gap is widening. Moreover, ASEAN’s historical advantage over India is eroding. The gap has narrowed to 33 percent in 2006, down sharply from 70 percent in 1990. ASEAN is facing a serious challenge and labour policymakers play a key role in the outcome of this struggle.

This study shows how adopting progressive labour practices and enabling the free flow of skilled labour across borders are key levers to elevating ASEAN into a virtuous cycle of economic development and prosperity. Such a virtuous cycle begins with the creation of conditions conducive to increased investment, which leads to more and better quality jobs, more investment in human resources, better working conditions, and ultimately completes the cycle with improved workforce productivity and national competitiveness.

ASEAN labour competitiveness

As investors look for the “best” place to invest, they consider various factors that differentiate one location from another and human capital is a key factor. Labour availability, quality, and costs are critical factors for investors seeking to expand or (re)locate their operations, though the importance of each factor across businesses and functions can vary significantly.

Mercer’s research shows that in the labour realm, each ASEAN country has some comparative advantages over other countries when competing for investment. Some of these advantages, such as labour supply, have a great deal to do with a country’s natural endowment but others, such as labour quality, are highly influenced by policy makers.

Countries become more competitive as they proliferate progressive labour practices and promote skilled labour migration. While nations must play to their strengths, every nation stands to gain by ASEAN integration because taken as a whole, ASEAN labour markets are able to accommodate the varied needs of a broad range of businesses.

Achieving harmony for stakeholders through progressive labour practices

Progressive labour practices help deepen relations between employers, employee organisations, and government. These practices also function as key levers to harnessing and strengthening ASEAN’s labour

competitiveness because they cultivate conditions for long-term sustainable development. Progressive labour practices advance collaboration between stakeholders, allow more transparent and communicative input processes, increase the likelihood of informed, practical, and comprehensive policy outcomes. They also help minimise disputes as parties are able to capitalise on understanding other partners to advance labour relations and to focus on productivity-enhancing activities rather than drain resources to settle confrontations and disputes. Better government policy-making can contribute to a more productive and innovative industrial base.

At a time when international investors are increasingly conscious of socially responsible business, ASEAN has the opportunity to differentiate itself as a region recognised for high labour quality and progressive labour practices by championing its

Executive Summary

Progressive labour practices benefit all stakeholders

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own model of sustainable development. ASEAN can compete via labour quality, productivity, and turnover by capitalising on the richness of its local conditions and labour force, thereby distinguishing itself as a bloc known for a vibrant and sophisticated economy and a high-quality workforce.

The extent to which unions, employers, and government seek harmony is unique to ASEAN and creates synergies that would otherwise be impossible. Several case studies highlight how progressive labour practices can help drive productivity and competitiveness, and help retain skilled talent.

ASEAN is however faced with a lack of quality labour market data and disjointed governmental structures. Labour market data is neither well collected nor well shared. In the absence of such

critical information, it is impossible to develop labour markets strategically. This issue needs urgent attention.

Further, government structures are often disjointed such that ministries do not work cross-functionally to address labour market issues. Strategic labour market development demands that education, industrial development, and labour governmental functions are linked such that they share

information and jointly address common concerns. In highly functional governments, stakeholders are active participants in governmental processes. Operations are well linked vertically (through less central levels of government) as well as horizontally (across governmental functions). Every government stands to be more effective and can save resources by refining their operations through joined-up governance.

Mercer’s research finds that all parties express a sincere interest and willingness to invest more in advanced labour relations and to develop ways to bridge these gaps. This requires active, government-driven leadership to foster a longer-term view of relationship development amongst parties.

Progressive labour practices unique to ASEAN are present throughout ASEAN, but they remain the exception rather than the rule. The proliferation of such practices presents significant opportunities

for the co-creation of value amongst employers, employees, and governments in the region.

ASEAN countries will be more competitive if skilled labour can flow between countries

ASEAN labour competitiveness stands to gain by adopting policies promoting the Free Flow of Skilled1 Labour (FFSL) across borders. Labour availability, future labour quality, and labour flexibility (factors influencing national labour market competitiveness) receive a boost from temporary labour migration. FFSL promotion also remains an actionable way to achieve some of the long- and short-term milestones set out in the Vientiane Action Programme 2004-2010, along with the broader goals of the formation of the ASEAN Economic Community by 2015.

Skilled labour flow presents potential benefits to both sending and receiving countries. Labour pools increase strategically in line with labour demand as skilled workers boost the workforce of receiving countries.

Sending countries receive long-term gains through remittances as well migrant professionals contributing to the nation’s skills and knowledge base and networks on their return.

While stakeholder opinions regarding FFSL are divergent across country lines, interview findings indicate most stakeholder groups are receptive to the free flow of skilled labour across borders. Ongoing recognition of skills programmes need bolstering in this regard and should be complemented by focusing on high value sectors.

The integration experiences of other regional blocs such as the European Union (EU), North American Free Trade Agreement (NAFTA), and the Common Market of the South (MERCOSUR) provide an operational roadmap for ASEAN as well as cautionary tales. All three demonstrate that allowing labour mobility does not automatically translate into huge numbers of migrants. While each bloc experienced intensification of existing trends, there was no migration rush even when wage disparities between countries were high.

The EU experience demonstrates that high spending on the promotion of labour mobility is not correlated with actual mobility, thus it is appropriate to spend modestly on mobility promotion. The

1 Definitionsof“skilledlabour”formigrationpurposesvaryfrombloctobloc.Skilledlabourisoftencategorisedbyjobfamilybutdiscussedbasedonlabourinputssuchastypeofinstitutionandlengthofeducation.Forthepurposesofourstudy,“skilledlabour”referstopersonswhohavepost-secondaryeducation,butmaynotnecessarilyhaveuniversity-levelaccreditation.Post-secondarymayconsistof(certified)vocationalortechnicalskilltrainingandexperience.

Countries require better labour market data

Joined-up governance can assist stakeholder engagement and governmental efficiency

Free flow of skilled labour is beneficial

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MERCOSUR experience warns that ASEAN’s willingness to make tough choices at the outset will determine the extent to which labour mobility can help forge unity among the stakeholders. ASEAN’s labour mobility framework must protect migrating workers and promote migration in equal measure to build a sustainable, harmonious future. Ultimately, the wisdom of ASEAN’s choices in administering and implementing labour migration play a large role in determining the ultimate benefits.

In summary, the main findings of our study are:

1. ASEAN countries have important comparative advantages over global competitors, particularly in labour cost and future labour availability. However, there are areas in which labour leaders can and should take action — including labour quality and labour law flexibility — by serving as the catalyst for the adoption of progressive labour practices.

2. There is an “ASEAN way” of partnership that is unique to ASEAN and could potentially be ASEAN's competitive advantage. Hence, ASEAN should build on this and encourage tripartite consultations in the policy-making process and at strategic points in ongoing governmental operations.

3. Skills training for the workforce is critical to raise labour quality, especially by aligning education policy with industrial planning. Labour ministries should work closely with trade, industry, education, and planning ministries to integrate national manpower and education planning with economic planning.

4. Capacity building in the area of labour market statistics is necessary to enable countries to gather and use labour market data for effective governance and fact-based decision-making.

5. Regarding economic integration, experiences of other regional blocs suggest:

There is no internationally-accepted definition of skilled labour for migration purposes. ASEAN needs to find its own definition.

Free flow of skilled labour (FFSL) can benefit both labour sending and receiving countries.

Skills recognition is an important building block for FFSL.

Active FFSL promotion must be cost sensitive.

FFSL is likely to make ASEAN more competitive as a bloc.

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ASEAN is a regional grouping at the crossroads of an increasingly globalised world. A region rich in natural endowments and talent, and home to breathtaking diversity, ASEAN is faced with the challenge of integration in response to the new realities shaping the global economic landscape: Capital is becoming more global, value chains are stretching across national boundaries, and competition — especially for investment — is increasingly intense.

In particular, China and India, two ascending economic heavyweights in Asia, lure potential investors with their large consumer markets and massive talent pools. Will ASEAN be able to carve out its own compelling proposition to stay in the game? Can ASEAN harness its competitive advantages to create an entirely new playing field?

While the competitiveness of countries and regional blocs is determined by many factors, this study focuses on the labour dimensions of building a globally competitive ASEAN.

Chapter 2, The ASEAN Imperative, outlines the challenges and opportunities facing ASEAN.

Chapter 3, ASEAN Labour Competitiveness, explores the comparative advantages of ASEAN in terms of its labour market. It highlights opportunities for attracting foreign direct investment, compares ASEAN countries to Brazil, Russia, India, and China (BRIC), and presents data which can serve as a blueprint for potential value chain development at the bloc level.

Chapter 4, Progressive Labour Practices (PLP), reports the current and desired states of progressive labour practice in ASEAN. The chapter also explores progressive labour practice as a means to unleash new value in labour markets, and presents case studies of best practices from government, business, and employee organisations. Progressive labour practices positively influence competitiveness in terms of labour quality, labour turnover, and labour law flexibility.

Chapter 5, Free Flow of Skilled Labour (FFSL), evaluates the case for the free flow of skilled labour across ASEAN borders. It reflects on the experiences

in other economic blocs, namely the European Union (EU); the Common Market of the South (MERCOSUR) comprised of Argentina, Brazil, Paraguay, and Uruguay; and the North American Free Trade Agreement (NAFTA) involving the United States, Canada, and Mexico. This chapter also explores the views of ASEAN stakeholders toward FFSL and presents a way forward based on lessons learned from other blocs, the international competitive landscape, and ASEAN’s unique situation. Skilled labour flow positively influences competitiveness in terms of labour availability and future labour supply.

Chapter 6, Conclusion, presents specific recommendations to policy makers for the implementation of these policies at national and ASEAN levels.

Study background

The Ministry of Manpower, Singapore commissioned and funded this study under the auspices of the ASEAN Senior Labour Officials' Meeting. As per the terms of reference, the main objectives of the study are to:

1. Review existing labour practices and legislation in ASEAN member countries.

2. Assess the potential impact of ASEAN integration2 on the labour markets in individual ASEAN member countries, taking into account the experiences of other regional blocs that have undergone similar integration, such as the European Union.

2 ThedefinitionaspertheVientianeActionProgramme(VAP)wasused,whichisthatintegrationreferstothe“FreeFlowofSkilledLabour”.TheVAPisavailableat<http://www.aseansec.org/VAP-10th%20ASEAN%20Summit.pdf>.

Chapter 1

Introduction

To stay in the game, ASEAN must take decisive action...Many investors today see ASEAN as ten isolated, scattered national economies, too small to be worth paying attention to. If ASEAN’s integration stagnates while the rest of Asia forges ahead, we will be left behind and become irrelevant.

Lee Hsien LoongPrime Minister of SingaporeASEAN Day Lecture Aug 07

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3. Establish quantitative and qualitative scales to measure how the labour environment in each country attracts or deters foreign investments and helps or hinders the competitiveness of local businesses.

4. Use case studies from all the ASEAN countries to highlight examples of progressive labour practices that can be showcased.

5. Reflect the views of diverse stakeholders including governments, employers, and workers.

6. Recommend policies and priorities for all ASEAN member countries to pursue to establish progressive labour practices that will strike a balance in meeting the needs of the different stakeholders regarding labour issues.

Exclusions

This study does not explore issues outside the terms of reference such as non-labour issues affecting national competitiveness, gender disparity in the labour market, youth unemployment, the unskilled labour market; and the plight and contribution of workers in the extra-legal or informal sectors. While outside the scope of this study, there is an exigent need to address the compelling challenges these social and economic dynamics present in order to create a platform for sustainable economic development.

Methodology of the study

The primary research involved in this study represents broad-based participation from representatives of employers, employees, and governments throughout ASEAN. The aim was to gain a cross-section of diverse views on labour issues across the ASEAN bloc. Data sources include:

Approximately 150 interviews with employers, employees, and government representatives.

Survey responses from a diverse group of companies across different industries.

A benchmarking of 90 proprietary site-selection cases with Mercer clients globally to determine the competitiveness of ASEAN labour markets for foreign direct investment.

Secondary research of EU, NAFTA, MERCOSUR bloc data, labour migration, skills recognition, competitiveness, country data, and labour studies from international organisations such as the United Nations agencies and the World Bank.

High labour force participation, but wide gender gaps in some countriesAlthough ASEAN has high aggregate labour force participation, there are significant disparities in gender participation. In some countries, differentials between male and female labour force participation are six percent, and in others, they are as high as 34 percent.3 Differences across countries are important in considering labour policy because they have implications on income distribution and poverty alleviation as well as other aspects of labour and labour-related policy. Encouraging balanced gender participation is desirable and positively effects productivity and economic development.

Youth unemployment is a pressing concernAccording to the International Labour Organisation (ILO), ASEAN is home to nearly 11 million unemployed youths. Regional unemployment is on the rise with young persons making up a majority of the unemployed population. Young persons aged 15-24 years account for 21.6 percent of the total workforce yet disproportionately make up 58.7 percent of total unemployment figures.4 They also add to the growing numbers of the urban informal economy and working poor. The prevalence of urban, unemployed youth presents an opportunity for forward thinking policy-makers to create skills hubs and to convert a social challenge into an opportunity.

Working poor and informal sector is significant, and is growing in urban areasASEAN countries have made significant progress in recent years in combating poverty; however, poverty level is still high. Out of 263 million workers in ASEAN, nearly 150 million do not earn enough to lift themselves and their families above the US$2-a-day poverty mark. Such workers often have limited employable skills, hence are trapped in cycles of poverty that perpetuate the need to take low-wage jobs. With the population of such workers growing in urban areas, the issue demands urgent attention.

3 ILO(InternationalLabourOrganisaton),Labour and Social Trends in ASEAN 2007(Bangkok:ILOPress,2007),p.12.4 ILO,Labour and Social Trends in ASEAN 2007(Bangkok:ILOPress,2007),p.22-24.

Text box 1.1 Other issues affecting the labour landscape and national competitiveness

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Chapter 2

The ASEAN Imperative

ASEAN as a region offers very strong investment opportunities for global and multinational organisations. However, in the age of globalisation, ASEAN has to compete intensely with other emerging economies hungry for the benefits that foreign investment bring. Other strong contenders for direct foreign investment include the emerging economies of Brazil, Russia, India, and China (BRIC). It is against the backdrop of these global new realities that ASEAN faces a new imperative — to create a favourable investment climate, leading to economic growth, job creation, and enhanced working conditions.

The following table shows the relative competitiveness of ASEAN countries vis-à-vis

their most significant regional competitors, China and India:

China and India, the two emerging titans in the Asia-Pacific region, are fast ascending the ladder of economic competitiveness. Both have many natural endowments to draw on which play to their advantage as key markets and as production bases. China and India have large domestic consumer markets and massive talent pools. Taken together, these natural endowments give significant scope for

Country Global rank Score

Singapore 7 5.45

Malaysia 21 5.10

Thailand 28 4.70

China 34 4.57

India 48 4.33

Indonesia 54 4.24

Vietnam 68 4.04

Philippines 71 3.99

Cambodia 110 3.48

Note: The remaining ASEAN countries were not included in the GCI’s published list.

Table 2.1 The Global Competitiveness Index (GCI)5

specialisation and advantages of economies of scale, as well as the building of broad-based economies across the entire value chains of primary, secondary, and tertiary industries.

If recent trends continue, these countries will become more attractive as investment destinations with domestic financial markets flush with liquidity and an increasing amount of capital finding its way into the hands of a growing middle class. This growing middle class is in itself an attractive lead indicator for global businesses looking for geographical expansion opportunities.

In calculating the competitiveness index, the World Economic Forum analysis considered nine broad factors:

Institutions*

Infrastructure

Macro economy

Health and primary education*

Higher education and training*

Market efficiency*

Technological readiness

Business sophistication

Innovation*

* denotes labour-related factors

The scope of this study will focus on the labour-related aspects; it is however still important to bear in mind that labour exists not in isolation, but within a wider context. The factors that influence the competitiveness of nations are similar to those considered by global investors in their investment and site-selection decisions which we will explore in detail, in Chapter 3.

From the perspective of both businesses and workers, a favourable labour environment encompasses several components that make a labour force productive and effective. These components include strong workforce capabilities, high levels of productivity, and cost competitiveness as well as flexible labour legislation and basic

5 The Global Competitiveness Report 2007-2008ed.MichaelPorter,KlausSchwab,andXavierSala-i-Martin.(Geneva:WorldEconomicForum/Palgrave,2007).

Competitiveness

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worker protection. A favourable labour environment fulfills the ASEAN imperative to stay competitive, while simultaneously creating sustainable economic and social development. These are factors that ASEAN leaders can significantly influence to develop strategic advantages.

The benefits of building a favourable labour environment extend beyond increasing foreign investment. Home grown entrepreneurs and local companies, being employers of the majority of ASEAN’s workforce, are also key beneficiaries of a favourable labour environment as this ultimately affects their ability to compete globally. Many local companies are acutely aware of the need for global competitiveness and economic growth. They actively seek labour policies that support business and institutionalise good labour practices. The virtuous cycle brought about by foreign investment is discussed later in this chapter.

The ASEAN productivity challenge

In terms of investment attractiveness, high productivity is key. The competitiveness and productivity challenge is intense and ASEAN cannot afford to fall behind. The chart below traces output per worker, a key productivity metric, for ASEAN, China, and India.

In 2004, China overtook ASEAN in labour productivity and the gap is widening sharply. Although ASEAN workers have traditionally been more productive than their Indian counterparts, that advantage is fast eroding. India has closed in on the gap, to 33 percent in 2006, down sharply from 70 percent in 1990. ASEAN is facing a serious challenge and labour policy makers play a key role in keeping ahead of the pressure to stay competitive.

Aggregate figures only tell a portion of the story. Being a region of great diversity, large disparities exist between ASEAN countries and across different industry sectors, but the overall message is clear: ASEAN needs to take bold steps to continuously improve productivity if it wants to maintain its standing in the world economic ladder.

This study aims to show how adopting progressive labour practices and enabling the free flow of skilled labour across borders are key levers to elevating ASEAN into a virtuous cycle of economic development and prosperity. Such a virtuous cycle begins with creating the right conditions for increased investment, which creates more and better quality jobs, more investment in human resources, better working conditions, and ultimately completes the cycle with improved workforce productivity and national competitiveness.

6 ILO,Labour and Social Trends in ASEAN 2007(Bangkok:ILOPress,2007),p.34.

Note: ASEAN figures exclude Brunei Darussalam and the Lao People’s Democratic Republic; “p” denotes projection.

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2007, www.ggdc.net.

ASEAN China India

12000

10000

8000

6000

4000

2000

0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006p

Ou

tpu

t p

er w

ork

er (

1990

US$

)

Figure 2.1 Output per worker, 1990-2006 in ASEAN, China, and India6

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Figure 2.2 PLP and FFSL increase foreign direct investment quantity and quality

As will be explored in the course of this study, progressive labour practices are found throughout ASEAN, but they remain the exception rather than the rule. The proliferation of such practices presents

significant opportunities for the co-creation of value amongst employers, employees, and governments in the region.

Better workingconditions

Increased investment in human resources

More jobs and better

quality jobsProgressive

labour practices

Free flow of skilled labour

Higher productivity

and competitiveness

Increased direct investment quantity

and quality

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Many factors drive investors’ decisions about where to locate or expand their business operations. Some of these factors are non-discretionary or have little to do with human capital. Mining enterprises, for example, locate their operations where the minerals are, and providers of certain business services need to locate near their customers.

Today, investment decisions are becoming increasingly driven by discretionary factors such human capital — more specifically the availability of talents and skills in a workforce. Many governments have moved to dismantle barriers to make it easier for investors. Internet-based interconnectivity and vast improvements in land, air, and sea transport have all changed the investment landscape. In their search for the “best” place, investors look at comparative and competitive advantages of each investment location, and what differentiates one location from another. A global supply shortage of skilled talent for many occupations makes human capital a key deciding factor in investment location selections. Businesses intensely examine what distinguishes one labour market from another. Their emphasis is on a labour market’s ability to provide a stable supply of the right skills to meet their business goals. Such human capital focus applies to all sectors of industry, especially the service sector. The service sector is a large and growing component of many developed economies, including most ASEAN countries, as illustrated in Table 3.1.7

This section of the report focuses on ASEAN countries’ relative competitiveness in attracting business investment on the basis of the strength of their human capital. Two pieces of original research are combined to provide a point of view. The first research reveals the factors employers consider when making location-specific investment decisions. This research is based on an analysis of 90 actual site selection decisions. A primary objective of this analysis is to determine which factors drive actual location-specific investment decisions, their frequency of use, and their relative importance. While all decision factors were considered, we emphasise labour — that is, workforce or human capital — factors in this analysis, including such factors as the current and future supply of talent, its quality, and its cost. Our analysis deals with these components as they relate to site selection and investment decisions.

The second research reported here is a current-state assessment of how competitive ASEAN countries’ workforces are to an investor. This relates directly to the criteria that companies use to make investment decisions. Assessment information is drawn from multiple sources which are then integrated into a common framework to reveal how favourably positioned ASEAN countries are in attracting new investment based on labour force strength.

The section begins by looking at a framework used by businesses when they make location-specific investment decisions. An analysis is then reported of 90 actual decisions and the criteria used in making these decisions. The results are then used to report on the attractiveness of ASEAN countries as an investment location. The analysis also compares ASEAN countries’ attractiveness, based on a list of criteria, against a global composite of other countries as well as to BRIC (Brazil, Russia, India, and China) countries. The section concludes with a discussion on the findings and their implications for ASEAN.

Criteria used in investment decisions

ASEAN attracted over US$60 billion in foreign direct investment (FDI) in 20079 or about four percent of the global total. Liberalisation of the

Chapter 3

ASEAN Labour Competitiveness

Percentage of Gross Domestic Product (GDP)

Selected ASEAN countries

Manufacturing Services

Indonesia 28.1 41.5

Malaysia 30.5 42.6

Philippines 23.3 53.5

Singapore 26.8 69.6

Thailand 34.5 45.7

Vietnam8 41.0 38.1

Table 3.1 Importance of service sector to ASEAN GDP

7 The Economist Pocket World in Figures 2008 Edition(London:Profile,2008).8 Figurerefersto“industryasapercentofGDP”whichincludesmanufacturing.9 EconomistIntelligenceUnitandtheColumbiaProgramonInternationalInvestment,World Investment Prospects to 2011: Foreign direct investment and the

challenge of political risk(NewYork:EIU2007).

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world economy and the removal of trade and investment barriers have encouraged companies to set up operations outside of their headquarters or traditional customer markets. Demographic changes have opened large new labour markets as have improvements in education levels. The extent of FDI and the rate at which businesses choose to set up or relocate operations is a function of many factors, including economic growth, the overall business environment, labour availability; the degree of competition, technology shifts, and acquisition activity; as well as the level of transnationalism, political stability, and protectionism.

Company-location decisions involve a complex set of criteria unique to both the business and the job functions under consideration. When it comes to workforce deployment, companies have an increasing array of choices and challenges. Large companies have long had to grapple with the challenge of managing dispersed operations and making difficult decisions

about where to situate plants and offices in distant locations. What is different now is the extent of location choices, the number of factors considered, and the scale of their resulting impact. The very idea of a “home country” has become obsolete for many companies. Today, companies can draw on many sources of labour from around the world. At the same time, we are seeing the emergence of stateless talent — a small number of highly skilled “citizens of the world” who are happy to relocate wherever their rewards will be greatest.

In managing a dispersed workforce across different geographies to best meet their business goals, companies often evaluate the following:

Business requirements — typically a weighted set of selection criteria and an understanding of how the location choice will impact customers, operations, organisational needs, employee development, supplier networks, and joint venture partners.

Comparison of locations (cities/countries) — based on their advantages and external factors (including labour market), business climate, community, and risk profiles.

Investors consider many dimensions — including the labour market — in determining where to locate their operations

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Financial outputs

Summary of the financial impact of the locations under consideration

Elements considered Outputs

Financial

Cost of capital

Value (NPV)

ProfitabilityRevenues

Assets

Expenses

Capitalmanagement

Risk output

Quantification of the risk impact based on the likelihood of the event and the financial impact of the event

Currency risk

Business interruption

Natural hazards

Risk analysis

Business requirements

External factors

Labour market

Business climate

Community

External factors output

Weights external quantifiable factors impacting location decision

Labour availability

Labour costs

Labour quality

Economic development

Political and regulatory environment

Economic Incentives

Infrastructure

Risk profile

Quality of living

Figure 3.1 Mercer’s framework for evaluating investment locations

11

Each of the external factors used in the framework, labour market, business climate, and community, is made up of specific dimensions that companies

might explore. Text box 3.1 lists examples of the factors in each dimension that companies typically consider.

Text box 3.1 Multiple dimensions used in evaluating location choice

Labour marketLabour availability

Occupational headcounts

Current labour supply

Projected labour supply

Labour competition

Work schedule

Unemployment rate

Labour cost

Compensation, benefits and taxes

Recruiting

Alternatives

Training and on-boarding

Termination flexibility and cost

Labour quality

Labour productivity

Knowledge skills and abilities

Education

Proximity to educational institutions/ professional support

Language skills

Business climateEconomic development

GDP and sector growth

Inflation

Community vitality and prosperity

Political and regulatory environment

Immigration laws, visas, work permits

Access to market

Political and trading relationships with home country

Labour law rigidity/work rules/unions

Intellectual property/patent protection

Corporate/personal income taxes

Export-import/investment constraints and tariffs

Economic incentives

CommunityInfrastructure

Local cost structure for real estate, utilities, transportation, etc.

Access to technological infrastructure

Reliability of utilities

Transportation

Risk profile

Currency/banking risk

Natural disasters

Political/investment risk

Safety/security

Quality of living

Quality of living index

Costs of living/purchasing power

Access to cultural institutions

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Mercer research on location investment

Since 2004, Mercer’s Workforce Sciences Group has played a key role in helping businesses evaluate which locations in the world — including ASEAN nations — are mature, growing, emerging, and

are possible future investment sites. In 2006, Mercer evaluated 36 individual site decisions to determine the criteria used and the importance of those criteria in the selection of one location over another for the World Economic Forum. The ASEAN analysis expands that data set to include 90 location decisions.

Mercer analysed location choice criteria for 90 separate site selection decisions to distill the criteria that drive companies’ decisions about where to locate. The locations considered included hundreds of cities in over 50 countries. Decisions involving locations in at least one Asian country constituted 29 percent of the total and 18 percent were in one or multiple ASEAN member countries. While many industries were included, the most frequent industries evaluating the locations were in the technology, pharmaceuticals, insurance, and manufacturing sectors. The primary functions under consideration included:

Figure 3.2: Functions/jobs considered in location choice

Other 13%

HQ 10%

Manufacturing 11%

Contact centre 11%

S/W Engineering I/T 14%

Professional/technical 19%

Support functions 21%

A look at 90 individual investment decisions

13

As we see in Figure 3.3, labour factors heavily in site selection decisions.

Figure 3.3: Labour factor frequency in site selection10

Labour availability 99%

62%Future labour supply

79%Cost competitiveness

56%Labour demand

52%Labour quality

34%Cost of living

23%Incentives

23%Quality of living

23%Real estate

21%Infrastructure

13%Business climate

10%Travel from HQ

22%Turnover

17%Risks

13%Business proximity

10%Productivity

21%Labour law flexibility

14%English language capability

12%Industry experience

9%Key staff willing to relocate

Labour related factors

10 AnalysisofactualcriteriausedfromabroadsetoflocationdecisionsbyMercer.Percentagereferstothenumberofincidencesthefactorwascitedinthe90siteselectioncases.

14

Labour-related costs and labour quality are often the largest and most variable factor for a company looking at expanding or (re)locating. Understanding alternative labour markets requires more than simply sizing up labour costs. Companies gauge external factors such as overall competitiveness, labour demand in the region, future labour supply, and related costs such as real estate. They also are sensitive to productivity, quality, incentives, cost of living, quality of living; labour law flexibility, risks, and retention differences across location choices.

Mercer’s data on site selection criteria is corroborated by this study’s electronic survey results. The survey of ASEAN businesses cites similar factors, listed below in the order of importance:

Labour availability (skilled labour)

Total employment costs

Incentives

Future labour conditions

Labour quality (quality of education)

English speaking workforce

Quality of living

Labour availability and future labour supply reflect the size and growth of the labour pool. A key metric is growth in labour supply in specific occupations of most relevance to a business’ operations. For example, availability of labour is an important selection criterion to many businesses considering where to locate an offshore service centre. Companies increasingly look overseas when domestic labour markets do not provide either the volume or quality of workers that are needed.

Cost competitiveness refers to all costs, not just salaries and wages. For service operations this will be largely dominated by labour-related cost differentials, including rents. Companies try to evaluate locations based on costs that will actually change depending on where they are located. This includes recurring labour costs (e.g. compensation, benefits and employment taxes) and non-recurring labour costs, (e.g. recruitment, training and termination costs). Termination flexibility is also considered a non-recurring cost for the purpose of analysis. For example, Spain has relatively lower labour costs vis-à-vis the rest of the EU but Spanish laws make it far more costly to scale back operations through workforce resizing than in the UK. Often companies will directly translate the lack

15

of labour law flexibility into cost implications. What are harder to quantify are the rules around securing work permits and visas.

Labour quality is used in proxy with figures of the number of graduates in an occupation produced by local universities each year. Companies may also look at productivity rates or the size of the bilingual workforce. Most companies assume that cost reductions will not materialise in the absence of quality. There is little value to locating operations in a country if workers are ill-prepared to perform the work, and incidents of errors, delays, and customer dissatisfaction rise.

The cost of living, or relative purchasing power for its workforce, is often viewed as more important than incentives. Together with the quality of living, these two criteria explicitly have the worker’s interests in mind. They consider relative buying power of wages (i.e. the after-tax buying power), worker safety, good schools, low crime, and proximity of cultural institutions. Businesses have a vested interest in investing in environments where their employees can thrive.

Economic incentives and business climate refer particularly to the country’s economic climate and specific incentives to encourage investment. Outside of manufacturing, incentives are rarely the deciding factor in a location choice, though companies do want to understand what incentives are available (e.g. training or job creation credits, import duty exemptions, tax holidays, and subsidise land or power). Some ASEAN members have already pioneered free trade zones and other incentives. The Philippines, for instance, has been using fiscal incentives to attract offshore services. In what some see as a response to the Philippines’ incentives, India waived its 35 percent tax on corporate profits for organisations that offshored back office and IT work.

Managers face a complex array of investment decisions and assign different weightings on how they make their choices. Economic incentives offer a reduction in costs but for most companies these are not sufficient inducement to compensate for other more important criteria. Similarly, for many businesses the opportunity of locating in a country with a supportive government, economic growth, and an emerging customer base outweighs the value of economic incentives.

Risks are a broad category that, while lowly weighted overall, may actually have an early role in defining which countries are even considered.

While the efficiency of a legal system is not mentioned by many of the companies in their final ranking of importance, it is often considered a minimum standard before including a location for consideration. Risks may include:

Political (e.g. government stability and degree of regulatory predictability)

Natural hazard risks (e.g. tsunamis)

Operational risks (often tied closely to the quality of a country’s physical infrastructure, e.g. for manufacturers, road quality and the ability of suppliers to get raw materials to a site)

Impact of currency fluctuations on costs of operations.

Where a company ultimately locates its business or operation is decided by how well matched a certain location is relative to the needs of the specific function or businesses. In analysing how companies decide, it was notable that although the top

criteria consistently ranked high regardless of the functions, some decisions are driven by very specific factors. Here are a few of the examples:

Support functions11 seek locations with flexible labour laws, strong multilingual/English language skills. Distance to headquarters is also considered. Industry experience is not as important.

Contact centres find cost and labour supply paramount and labour availability becomes increasingly important.

Software engineering and IT functions place slightly less emphasis on cost while workforce stability (turnover) is more important.

Professional and technical functions consider labour quality and education carefully.

Manufacturing functions weigh economic incentives heavily. Overall costs are not as highly weighted. Real estate becomes far more important while quality of living is rarely a factor.

Although some general conclusions can be drawn about how each industry makes its selection, it is important to note that every business makes site-selection decisions that meet its unique needs. Figure 3.4 demonstrates the wide variability of importance of each of the criteria. Cost competitiveness, for example, is weighted as little as five percent by some businesses and as much as 67 percent by others.

11 SupportfunctionsincludebackofficeoperationssuchasSAPapplicationsfunctions(notITbutusertrainingforfinancemodulesetc.).Italsoincludesengineeringsupportandclaimsprocessing.

Criteria changes depending on business type

16

Mercer Workforce Sciences analysis of importance placed on actual criteria used from a broad set of different businesses’ location decisions. Percentage represent the average, minimum and maximum weights placed on a specific criteria in making a location investment decision.

From the illustration below, it is clear that companies looking to invest undergo a structured process in arriving at a decision on where to locate a business or operation. ASEAN member

countries should consider areas where they have current and future advantage, and focus on enhancing these factors as they position themselves as a global location.

Figure 3.4 Different business needs and how investment criteria weightings vary

Minimum Average Maximum

Labour availability

Future labour supply

TurnoverLabour demand

Cost of living

Labour law flexibility

Quality of living

Labour quality

Cost competitiveness

9%

25%

60%

5%

25%

14%13%

4%

20%

5%

40%

12%

1%

7%

15%

1%

6%

10%

2%

8%

15%

2%

7%

18%

5%

67%

33%

Importance placed on criteria can vary widely

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Relative competitiveness of ASEAN labour markets

This section assesses the current state of labour markets in ASEAN countries with specific reference to the most important criteria used by businesses when they make location-specific investment decisions. Mercer’s assessment is based on international and national data sources.12 A complete list of data sources is included in the footnotes of Figure 3.6.

In this exercise, ASEAN’s workforces are assessed on nine labour-related measures: labour cost competitiveness, labour availability, future labour supply, labour demand, labour quality, labour law flexibility, labour turnover, cost of living, and quality of living. Most measures are themselves based on multiple components which are then aggregated to provide a more complete picture. Since the services sector is a large component of many ASEAN economies, as demonstrated in Table 3.1, there is merit in paying attention to how ASEAN can position itself as a location suitable for the services sector.

The cost of labour is measured using four key indicators. The first indicator measures the general price of a given basket of goods in each country. The next two measures are salary for junior and senior professionals, indicating the labour cost of skilled talent at two different points in a career. In addition to current salary costs, future salary increases are also important considerations. Therefore a fourth component — annual salary growth for technical and professional workers — is included in the overall measure of labour cost.

Labour availability is assessed using the size of a country’s current labour force (age 15-64) and more specifically, the size of population over 25 years old with more than a high school (or secondary) education. Many employers want to know the availability of skilled workers in addition to the size of the overall labour force before moving to a location. Balancing labour force size and skilled talent pool is becoming increasingly important in today’s knowledge-based economies.

Future labour supply indicates whether a country’s labour market is growing or shrinking and at what rate. Three measures are used to assess future labour supply: percentage of the population aged 20-44; growth rate of the labour force aged 20-44; and growth rate of the labour force aged 15-64.

Labour demand refers to how tight the labour market is. Overall, unemployment indicates the extent to which there is a labour shortage or surplus. In addition, the amount of FDI stock is a proxy for the intensity of competition for local talent by multinational companies.

Labour quality is evaluated along multiple dimensions, including educational attainment (the percentage of population over 25 years old with more than high school education); overall efficiency (labour productivity); the prevalence of fundamental skills for business (adult illiteracy rate); and language capacity (the extent of English proficiency in a country’s workforce).

Labour law flexibility reflects how easily an employer can adjust workforce size in response to changing business needs and economic conditions. Labour law flexibility is measured using a combination of estimated costs of terminating employment and the index of employment rigidity, which reflects the degree of difficulty employers experience when hiring or terminating employees and the laws governing working hours.

Turnover is the rate at which employed individuals leave their current employer. Cost and quality of living are composite scores reflecting the prices of widely available consumer goods, such as grocery items, and the extent of available conditions and services such as access to recreation.

Raw data is collected for each of the above from various data sources.13 For all component measures, except English-language proficiency and labour turnover, a global index is created and each country is scored relative to this global index.14 Higher scores indicate greater favourability of a country on a particular measure (such as larger availability of individuals with more than a high school education or lower salary costs for senior professional). Components are then aggregated into the nine labour market measures, respectively. Since the assessment is conducted on a global basis, a higher-than-average score implies a more favourable rating compared to the global average.

12 Whereverpossible,internationallycomparabledatahavebeenused,butincaseswheredataisnotperfectlycomparable,estimatesareconstructed.13 SeeFigure3.6.14 Everysub-indexisrankedgloballyexceptEnglishproficiencyandlabourturnover,whicharerankedamongonlycountriesunderstudy(ASEANandBRIC

countries).

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The results of this analysis are shown in Figure 3.5, which reports the relative competitiveness of ASEAN labour markets on each measure. For ease of presentation, symbols indicate the comparative favourability or lack of favourability of a country on a measure. The absence of a symbol indicates that a country is of average global competitiveness on that measure.

Every ASEAN country has some comparative advantages when competing for investments. Taken as a whole, ASEAN labour markets are

able to accommodate the varied needs of a broad range of businesses. For example, Singapore is comparatively attractive to companies seeking a high quality workforce and flexible labour regulation environment. Cambodia’s labour market favours businesses that emphasise reduced labour costs and that are looking to expand the workforce in the future. The Philippines is positioned to meet business needs through a combination of low cost, large labour availability (both current and future), and relatively high labour quality (especially a large English-speaking population).

Figure 3.5 Areas of national comparative advantage

Very competitive Competitive Less competitive Least competitive

Brunei

Cambodia

Indonesia

Laos

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

Criteria Cost

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Cost

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Turn

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Country level observations

The following are high level observations for each country that are relevant to national industrial planning. These comments are grounded in each country’s relative strengths and weaknesses compared to global competitors.

Brunei may be able to successfully augment its small but highly skilled workforce by further encouraging the free flow of skilled labour. Brunei’s global advantages with regard to future labour market availability, specialised labour quality (within oil and gas, commodities trading, and banking), cost and quality of living, and labour law flexibility can be used as a foundation to attract a wider breadth of employers. Organisations that place a premium on workers with pre-existing work experience and knowledge are predisposed to such locations. Enabling additional data sharing amongst tripartite parties and additional government support, through data collection, are possible avenues to showcase and leverage Brunei’s advantages and potential to foreign organisations.

Cambodia, Myanmar, and Laos are principally attractive to organisations seeking labour cost advantages. Efforts to elevate the quality of labour (via education and industry experience) and gradually improve the quality of living will position these countries to attract higher value-added enterprises. A potential avenue for accomplishing gains in the quality of labour is targeting specific sectors requiring modest levels of prior skilled work experiences (like contact centres or specialty manufacturing). State-sponsored training can also help support private enterprises. Efforts to strengthen tripartite engagement in labour laws and enforcement, as well as collection and dissemination of labour market data, can help these countries to manage the progress and monitor its outcomes.

Indonesia’s global advantages can be found in its low labour cost and good labour availability. Entry level business functions such as software engineering, information technology, business support functions, contact centres and skilled manufacturing are sectors to focus on. Tripartite information sharing and stakeholder engagement in the legislative process, particularly regarding severance, can go a long way towards helping Indonesia effectively build on its existing successes.

Malaysia’s breadth of global labour market advantages makes it particularly attractive for

entry-level professional and technical services. Pre-training workers in business process outsourcing is one potential avenue worth exploring for workforce development.

The Philippines is well positioned to attract contact centres and similar cost-conscious business support operations. It retains significant global advantages in labour cost, current and future labour availability, labour quality, and cost of living. Legislative changes that even modestly increase the flexibility of employers may be met with greater investor/employer interest. One potential area of focus is severance costs for employees.

Singapore’s global advantages in skilled labour availability, quality, labour law flexibility, and quality of living position it as a sought-after location for businesses requiring experienced workers with deep prior knowledge and specialty skills. Further encouraging a free flow of skilled labour and attracting younger workers (or development of its resident population) support Singapore’s future ability to sustain its position. Singapore’s ability to broaden the breadth of entrenched industries — for example those vertically or horizontally positioned to support the financial services or wholesale trade sectors — will help Singapore compete in the future. Additionally, its ability to complement other ASEAN countries’ lower cost basis with its more experienced workforce many prove an effective proposition for many potential employers.

Thailand’s ability to position its favourable balance of cost and labour availability, labour quality, quality of living, and labour flexibility makes it attractive. Further efforts to increase the volume and skills of entry level workers and to ensure sufficient labour availability will be required to sustain Thailand’s current advantages. Professional and technical organisations seeking experienced workforces are business functions to target. Programmes to enable knowledge transfer from older to younger workers may help Thailand expand its reserve of experienced workers.

Vietnam’s strengths lie in cost competitiveness and labour availability. These strengths can act as a solid foundation for future workforce development. Vietnam is attractive to contact centres, entry-level professional, technical, or skilled manufacturing enterprises. Providing Vietnam’s workforce the opportunity to develop industry experience through these enterprises can act as a bridge to higher-value enterprises seeking a certain level of existing skills in the workforce.

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Bru

nei

Cam

bo

dia

Ind

on

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Lao

s

Mal

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a

Mya

nm

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Phili

pp

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Sin

gap

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Thai

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Vie

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Bra

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Ch

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Ind

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Ru

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Cost competitiveness

Relative price levela 123 16 39 26 48 10 28 94 35 22 64 28 23 64

Pay for junior professional ($)b

43,610 5,616 10,523 9,167 15,834 3,485 12,767 34,037 13,965 6,845 32,030 13,749 13,990 25,826

Pay for senior professional ($)b

62,584 11,261 17,976 16,057 24,817 8,383 20,649 49,674 22,925 12,946 52,182 22,925 21,303 39,492

Pay growth for tech/prof (%)c

3.5 8 11.4 5.9 5.8 34 8.6 3.9 6.5 8.6 7 7 12 12

Labour availability

Labour force 15-64(‘000)d

169 7,059 107,074 2,421 11,115 27,086 38,140 2,238 35,287 45,775 91,420 778,906 437,098 72,369

Population age 25+ more than high school education (‘000)e

11 82 10,615 65 2,205 1,111 9,817 1,186 5,765 2,122 9,743 27,968 30,219 25,412

Future labour supply

% of pop age 20-44f 75.6 65.5 66.2 67.4 69.6 64.7 66.6 60.4 64.0 69.8 67.4 66.0 65.5 63.3

Growth of age 20-44 (%)g

1.7 3.0 1.1 3.1 2.2 1.5 2.8 -0.2 0.1 1.7 0.9 -0.2 1.6 -0.2

Growth of age 15-64 (%)g

1.9 2.5 1.6 2.9 2.4 1.6 2.9 1.3 1.0 1.9 1.3 0.6 1.8 -0.3

Labour demand

Unemployment (%)h 4 7 11.1 1.4 3.1 4 7 1.7 1 1.7 8 5 5 7

FDI stock (MM $)i 15,613 3,459 21,266 873 50,640 5,992 15,476 232,345 72,998 40,208 258,806 413,842 67,756 233,290

Labour quality

% of pop 25+ with > high school edj 5.4 1.4 8.6 2.7 16.6 4.1 25.0 39.0 14.6 4.8 9 3 5 26

Labour productivity($)k 60,100 7,604 9,841 6,386 30,800 5,176 13,347 72,859 18,285 6,949 22,029 14,901 10,813 26,375

Adult illiterate rate(%)l 7.8 27.3 9.8 29.6 9.4 13.3 3.6 6.0 3.4 6.4 10 11 38 0

English proficiency indexm

120 80 80 80 100 80 120 120 100 80 100 100 120 100

Turnover

Turnover indexn 100 100 110 90 90 100 90 100 90 100 100 90 90 90

Cost of livingo

(Index, 100=New York) 70 79 83 64 69 70 58 97 67 84 83 94 79 129

Labour law flexibility

Termination cost (weeks of wages)p

4 39 108 19 75 19 91 4 54 87 37 91 56 17

Rigidity of employment index (higher more rigid)q

7 45 44 37 10 37 35 0 18 27 46 24 30 44

Quality of livingr

(Index, 100=New York) 83 49 64 55 89 49 74 103 78 60 77 73 61 55

Figure 3.6 ASEAN versus BRIC on site selection indicators

Brun

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21

15 ReferstoExhibit3.6.a Relativepricelevel:PurchasingPowerParity(PPP)basedexchangeratedividedbyofficialexchangeratefromInternationalMonetaryFund(IMF)2007.Index

withUS=100.b Payforjunior/seniorprofessionals:fromMercerInternationalGeographicSalaryDifferentials2007.NumbersforBrunei,Cambodia,LaosandMyanmarare

estimatedusingpricelevelsasabove.c Paygrowthfortechnicalandprofessionalworkers:fromMercerGlobalCompensationPlanningReport2007.NumbersforBrunei,Cambodia,Laosand

Myanmarareestimatedusinginflationrate.Numbersarenominalpaygrowth.d Labourforceage15-64:InternationalLabourOrganisation(ILO),databaseoflabourstatistics2007.e Populationage25+withmorethanhighschooleducation:populationage25+(fromILO2007)multipliedbypercentageofpopulationage25+withmore

thanhighschooleducation(fromBarro-Lee2000,estimatednumbersfor2007basedon1990-2005.Vietnam,CambodiaandSingaporenumbersarefromrespectivenationalstatisticalagencies.BruneiandLaosnumbersareestimatedusingtertiaryenrolmentratefromUNESCO).

f Percentageofpopulationage20-44:fromILOdatabaseoflabourstatistics2007.g Growthrateofage20-44,15-64:fromILOdatabaseoflabourstatistics2007.Growthrateistheaverageannualgrowthrateinthefollowingfiveyearsas

projectedbyILO.h Unemploymentrate:fromILOdatabaseoflabourstatistics.Numbersareprojectedinto2007usinghistoricaltrendinthepreviousfiveyears.Numbersfor

Brunei,Cambodia,Laos,MalaysiaandSingaporearefromnationalstatisticalagencies.MyanmarnumberisfromADB.ForSingapore,ILOreportshigherunemploymentratethanSingaporeMinistryofManpower(MOM)becauseILOonlyincludesSingaporecitizensandpermanentresidentsinthecalculationwhileMOMalsoincludesforeignworkforce.

i FDIstock:fromWorldInvestmentReport2006(UnitedNations).NumbersarestockofFDIprojectedinto2007usinghistoricaltrendbetween1990and2005.Numberslistedinmillionsofmillions.

j Percentageofpopulationage25+withhighschooleducation:fromBarro-Lee2000.Estimatednumbersfor2007basedon1990-2005.Vietnam,CambodiaandSingaporenumbersarefromrespectivenationalstatisticalagencies.BruneiandLaosnumbersareestimatedusingtertiaryenrolmentratefromUnitedNationsEducational,ScientificandCulturalOrganisation(UNESCO).

k Labourproductivity:calculatedasGDPbasedonpurchasingpowerparity(PPP)(fromIMF)dividedbylabourforceage15-64(fromILO).Numbersareforyear2007.

l Adultsage15+illiteracyrate:fromUnitedNationsEducational,ScientificandCulturalOrganisation(UNESCO).Numbersareprojectedinto2007usinghistoricaldatabetween2000and2003.

m EnglishProficiencyindex:Index100indicatesaveragelevelofEnglishproficiency.Numbershigherthan100indicatebetter-than-averageEnglishskills.EstimatesarebasedonwhetherEnglishisanofficiallanguageandwhatlanguagesareusedinschools,media,etc.

n Labourturnoverindex:Index100indicatesaveragelevelofturnover.Numberslowerthan100indicateturnoverrateshigherthanthenormallevel.EstimatesarebasedonturnoverratesMercercollectedintheTotalRemunerationSurvey.ForcountriesnotincludedinMercer’ssurvey,estimationsaregeneratedusingemploymentrates.

o Costofliving:fromMercerSeptember2006CostofLivingsurvey.Numbersareforcapitalcitiesineachcountry.Indexincludeshousing.Index100=NewYorkCity,US.

p Labourterminationcosts:fromWorldBankwww.doingbusiness.com.Theterminationcostindicatormeasuresthecostofadvancenoticerequirements,severancepaymentsandpenaltiesduewhenterminatingaredundantworker,expressedinweeklywages.

q Rigidityofemploymentindex:fromWorldBankwww.doingbusiness.com.Therigidityofemploymentindexistheaverageofthreecomponents:difficultyofhiringindex,rigidityofhoursindexanddifficultyoffiringindex.

r Qualityofliving:fromMercerSeptember2006QualityofLivingsurvey.Numbersareforcapitalcitiesineachcountry.Index100=NewYorkCity,US.

ASEAN advantage over other global locations

On a global basis, labour cost is low in most of the ASEAN countries, especially in Cambodia, which has a combination of low current salary as well as low salary growth. The majority of ASEAN countries have comparative advantage relative to the global index in labour availability, with the exception of Brunei (a small population) and Laos (a small pool of skilled labour). Half of the ASEAN countries show promising future labour supply with the exception of Singapore and Thailand whose ageing workforce make them less competitive in this dimension.

BRIC (Brazil, Russia, India, and China) countries represent formidable competitors as investment locations. Therefore, we compare ASEAN to BRIC countries on each labour market measure.15 Overall, ASEAN countries cannot successfully compete with BRIC countries in current labour availability in absolute terms due to the large populations of those countries. However, this is somewhat mitigated by the fact that projected labour force growth is more favourable in many ASEAN countries compared to BRIC countries. Moreover, the five most developed

ASEAN countries possess significantly higher current educational attainment than China and India.

In terms of labour cost, ASEAN countries are not as cost competitive vis-à-vis China, but lower wage growth in many countries in ASEAN makes them more attractive than India, which has seen double-digit wage increases in recent years. Lastly, ASEAN countries’ overall labour stability and labour law flexibility tend to be more favourable than BRIC countries, though many of them are in the process of reform.

All ASEAN countries have unique areas of advantage and opportunities for development as they pursue growth in foreign direct investment and workforce development. Areas of labour market advantage are visible through two different lenses — competitive advantages over other ASEAN countries and over other global locations. Countries can raise their ability to compete by adopting progressive labour practices (which positively impact labour quality, turnover, and flexibility) and by ensuring the smooth flow of skilled labour (which positively impacts labour availability and future labour). The next chapter discusses progressive labour practices in detail.

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Building competitive labour markets through progressive labour practice

As discussed in Chapter 3, while ASEAN is not likely to have a competitive advantage in the area of future labour availability relative to India and China in coming years, it is still in a unique position to make great strides in the areas of labour quality, productivity, and turnover — key drivers of competitiveness. It can do this by capitalising on the richness of its local conditions and labour force.

At a time in which international investors are increasingly conscious of the social aspects of doing business globally, ASEAN has the opportunity to present itself as a region recognised for high labour quality and progressive labour practices. This can be done by championing its own model of social and economic progress — an "ASEAN way" of sustainable development. As the 10 member countries of ASEAN march toward forming an integrated regional community, they have an historic opportunity to distinguish themselves as a bloc known for a vibrant and sophisticated economy and a high-quality workforce.

This chapter explores how the proliferation of progressive labour practices — which achieve results by deepening relations between employers, employee organisations, and government — throughout ASEAN can be instrumental in building a more competitive and sustainable future for the region.

Interview structure and data sources

The study of progressive labour practices in ASEAN is based on primary research conducted with different stakeholders across the region within this study’s terms of reference. The study reflects the views of a diverse group of stakeholders about the following: the state of labour practices across ASEAN, best practices, pitfalls, and areas for improvement.

Primary data sources for this section include approximately 150 interviews with employers, employees, and government representatives,

The data provides an interesting insight into how stakeholders perceive their roles with regard to labour, how they view other stakeholder groups; and their understanding of what the division of labour between stakeholder groups is, depending on the labour context. In some contexts, stakeholder perception is well aligned while in others, stakeholders’ views and understandings are not aligned. Common misalignments are marked by overlapping duties, redundant practices, and gaps in communication amongst the various parties.

Chapter 4

Progressive Labour Practices (PLP)

To achieve the objective of reviewing existing labour practices and legislations in ASEAN countries set out by the terms of reference, the interviewees answered questions related to the following:

Worker protection measures in law and practice

Interaction of stakeholder groups with one another, to the extent that they do

Stakeholder efforts to promote progressive labour practices

Labour market data gathering and sharing

Stakeholder perceptions of FFSL

and survey responses from a diverse group of companies across different industries. Government responses came from agencies concerned with education, labour, and industry; ASEAN businesses from medium-sized firms; multinationals; unions and professional organisations; and chambers of commerce. Research questions focused on the evaluation of the current state, visions of the desired future state, barriers to implementation, and suggestions for ways to move forward. In addition, the interviews also explored views on the potential for a free flow of skilled labour (FFSL) regional occupational mobility scheme, which will be elaborated on in Chapter 5.

Text box 4.1 Interview and survey questions

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16ASEANDeclarationontheProtectionandRightsofMigrantWorkers,13January2007.<http://www.aseansec.org/19264.htm>

One marked outcome is the strong sense of commitment to harmony across countries and stakeholders. Stakeholders are almost universally keen to invest in building good relationships. This “ASEAN way” of doing things is

unique and valuable. It gives government labour leaders a significant opportunity to facilitate harmonious relationships in which all stakeholders represent their views and agenda but remain focused on the overarching vision. The shared vision is: sustainable economic development (government’s responsibility); sustained business growth and profitability (business’ interest); and better skills, employability, and jobs (worker’s concern). ASEAN nations can achieve this shared vision through progressive labour practices, discussed at length in this chapter.

Building sustainable development the ASEAN way: progressive labour practices as a competitiveness driver

Progressive labour practices involve employers, employees, and government working in an integrated manner to create sustainable improvements in labour relations and competitiveness. These practices also involve fostering a favourable investment climate, full employment, and long-term economic development. Involving multiple stakeholders lends strength to the process because this approach allows all parties to work toward a unified and mutually beneficial goal — that of sustainable economic development. When parties work together, it creates opportunities for synergy that would not have emerged otherwise.

Basic worker protection fundamental to PLP

A fundamental building block of progressive labour practices is basic worker protection, which lays the foundation for advanced workforce development. Basic worker protection is a cornerstone in any discussion on progressive labour practices because it ensures a minimum standard of security accorded to workers. Basic worker protection promotes a stable labour force, facilitates productive dialogue and builds trust.

ASEAN has not enshrined a convention on worker protection, although it has issued a declaration on the protection and promotion of the rights of migrant workers.16 The region can aspire to building a framework from which to promote basic worker protection as a region. This may serve as an important touchstone document to begin dialogue

on the topic, and later as a goal toward which countries can strive.

Basic worker protection benefits workers, employers, and government alike. It provides a foundation for sustainable and enduring labour relations between parties; contributes to achieving greater labour productivity; and decreases turnover.

International investors are concerned with worker treatment because customers and shareholders are increasingly scrutinising firms on this basis. Therefore, this issue must be on the agenda for employers and governments if they hope to benefit from increased international market opportunities. The visibility of labour issues creates economic incentives for firms to adopt progressive labour practices as a means to stay competitive. Additionally, basic worker protection enhances productivity thereby benefiting governments, workers, and firms alike. Policy makers need to enhance worker protection and maintain economic attractiveness — imperatives that are mutually supportive, not mutually exclusive.

Progressive labour practices enable the achievement of shared outcomes

Progressive labour practices are key levers to harnessing and strengthening ASEAN’s labour competitiveness because they cultivate conditions for long-term sustainable development.

First, PLPs advance collaboration between stakeholders, allowing for a more transparent and communicative input process, increasing the chances of more informed, practical, and comprehensive policy outcomes.

Second, PLPs minimise disputes as parties are able to capitalise on understanding other partners to form a foundation for a virtuous cycle of cooperation that channels time and resources towards advanced labour relations and productive activities, away from confrontation and dispute resolution.

Lastly, all stakeholders stand to gain from promoting progressive labour practices as they share in the sustainable outcomes, whether through sustained business growth and profitability for business; through sustainable economic

development for governments; or through enhanced employability for workers. Each stakeholder has something to gain in promoting PLPs.

Stakeholders are willing to invest in bulding relationships

Progressive labour practices benefit everyone

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Figure 4.1 PLPs are key levers to sustainable development

Benefits for employers

For employers, progressive labour practices are integral to growing and running sustainable businesses. PLPs enable enhanced communication with workers, providing opportunities for operating more efficiently. More importantly, PLPs are also vital to enhancing a firm’s productivity and mitigating costs associated with disputes and strikes.

In the best of cases, progressive labour practices are part of larger business strategies which provide opportunities for skill development, advancement, and career paths for workers. Businesses willing to

invest in training and advanced technologies benefit from improved labour quality and productivity. Such businesses benefit from lower labour turnover, and therefore have lower costs associated with activities such as recruitment, new staff training, severance, and administration.

Small- and medium-sized enterprises can benefit from investments in workforce development as improved labour relations can help support an enterprise’s move up the production value chain. An engaged workforce has a better chance at producing better and more sophisticated products which in turn helps a business reach new markets looking for value-added goods.

Progressive labour practices

Advance collaboration between stakeholders, producing better policy outcomes

Minimise disputes, channelling time and resources towards better government policymaking, firm productivity and innovation

Spur a virtuous cycle of business and workforce development, and foreign direct investment

GovernmentGovernments are concerned with long-term economic and social development

Sustainable economic development

BusinessEmployers benefit from upward value-chain mobility, increased productivity, and low turnover

Sustained business growth and profitability

WorkersWorkers get protection, develop better quality skills, and get better quality jobs

Better skills, employability, and jobs

Progressive labour practices

Stakeholder benefits

Shared outcomes

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Benefits for government

From a government perspective, progressive labour practices at the firm level which promote workforce development inherently contribute to social welfare and development as the population has the opportunity to enhance its employability, skills training, and knowledge base. Progressive labour practices also create conditions which attract foreign investment, and foster business sophistication. Scarce public resources can then be put to more productive use rather than being assigned to minimise disputes which require government adjudication.

Enhanced input from stakeholder groups such as labour unions or commerce associations also aid government in collecting labour market data for effective policymaking. For example, input from the private sector on areas of labour demand is essential for education and labour ministries to craft curricula and other social policies aimed at striking a balance between labour supply and demand to reach the goal of full employment.

Benefits for employees

Progressive labour practices benefit employees and employee organisations by putting human resource development and worker welfare at the centre of sustainable business practices. Workers tangibly benefit from increased opportunities for skills training and lifelong learning so they can get better quality jobs and can increase their own employability. A company’s productivity and innovation improve when workers have a stake in the welfare of the company. This not only contributes to the growth and development of the firm, but to the extent that the firm reinvests in human capital, employees also benefit from a company’s increased competitiveness.

The challenge of stakeholder engagement

The results of the interviews reflect the diversity and multi-facetted nature of labour conditions across the 10 ASEAN countries. Some challenges are common, however, across the bloc. These challenges are:

A lack of joined-up governance in countries across the region. This refers to governmental design that allows all levels of government to look to one another for potential partnerships in areas where synergies exist.

A lack of communication and shared information on the labour market. Ministries tasked with addressing labour issues do not communicate or share information regarding labour market data.

A fragmented labour movement. Unions remain fragmented, hence lack a unified union point of view in tripartite communications and negotiations.

A lack of business-government collaboration. Businesses fall short in teaming up with governments to share best practices and labour market information. Business involvement is crucial to improving the regulatory climate; to ensuring industry-relevant education; and to investing in workforce development programmes.

A lack of reliable labour data to facilitate fact-based decision making.

A lack of joined-up governance is the most common finding amongst the 10 countries across ASEAN. In some countries, this issue was much more prominent than others, with certain ministries denying other ministries relevant labour data, resulting in duplication of efforts, in use of different methodologies, and in wastage of scarce government budgets and resources.

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Figure 4.2 Stakeholder alignment in a joined-up model

In one example, rapid economic development with a focus on large-scale infrastructure projects highlighted a serious labour mismatch in one country. The existing labour supply was concentrated in the agricultural, construction, and fishing industries while national labour demand was in need of civil, environmental, mineral, and mining engineers as well as education providers. Interview findings revealed a critical lack of intra-government communication, with several ministries acting independently without coordination or planning. The ministry of industry and commerce rushed approvals of large-scale construction projects that subsequently faced a labour shortfall in completing them. Companies began importing labour illegally to meet construction deadlines. The ministry of labour, in charge of implementing and monitoring a quota system for foreign workers and overseeing working conditions, quickly became overwhelmed with the

rapid influx of illegal workers. Meanwhile, no input from industry or other ministries on labour demand was communicated to the ministry of education to help align education policy with market demand. Little quantitative or qualitative data was available to assess what teachers were available to address the labour imbalance. Consequently, the national labour pool continued to suffer from high unemployment and lack of re-training.

Businesses can link up with government to provide skill development and educational programmes tied to business demand by investing in co-funding educational schemes, and also by providing labour market information to help link industrial planning with educational planning. The ways in which business can strategically partner with government are varied and can be highly beneficial to all parties.

Stakeholders Drivers Endgame

Law enforcers

Businesses

Labour ministry

Health ministry

Education ministry

Unions

International partners

Trade/industrial development

Civil society

Shared vision

Sustainable economic development

Sustainable business growth and profitability

Better skills, employability, and jobs

Organisation designDotted lines to

departments and stakeholders

ProcessesLinked vertically and

horizontally

IncentivesJob descriptionPerformance review

KnowledgeGood practicesWho is involved in

outcome

CommunicationDesired stateWhyWho

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The findings suggest that employee organisations must develop better vertical and horizontal communication within and across unions. Union efficacy differs widely between countries and sectors. For example, in one country, garment sector unions are well organised and effective, while the agriculture and construction sector unions lack institutional capacity. Union coverage of workers in remote areas, such as those who work in the fishery or construction sectors, is limited in many countries. Unsurprisingly, these workers experience the greatest gap between worker protection measures in law and practice.

Union networks capable of linking more-established organisations with less-developed unions across sectors are effective at consolidating national advocacy networks and speaking with a powerful “voice.” These union networks are able to embrace a wider perspective across industries.

When the voice of labour is fragmented, it drains government agencies concerned with labour adjudication and negotiation of time and resources. This decreases government capacity to enforce laws and slows the judicial process for all stakeholders. Therefore, it is good for all parties to have a unified union perspective.

Some stakeholders perceive unions as ill-informed regarding the business environment, and consequently brand unions as reactive forces rather than proactive partners in constructive policymaking. Part of this issue stems from a lack of tripartite mechanisms to aid communication and understanding. Thus, partners are unable to capitalise on understanding the perspectives of other parties due to ineffective or non-existent communication structures, resulting in an inability to shift away from narrow self-interest toward building cooperative partnerships.

All parties, however, express a sincere interest and willingness to invest more in advanced labour relations and to develop ways to bridge gaps. This requires active, government-driven leadership to foster a longer-term view of relationship development amongst parties.

Stakeholder views regarding the way forward

There was strong agreement on a number of areas relating to a way forward for progressive labour practices.

Stakeholders want governments to focus on better law enforcement and to play a more active role in facilitating positive labour relations amongst parties. Stakeholders also want governments to institutionalise tripartite collaboration and embed it into regular government operations, such as sponsoring regular tripartite platforms for diverse parties to interact. Parties agree that labour market data needs strengthening. Consolidation and dissemination of labour market data and best practices should be government-driven, but needs the synergistic cooperation of all parties. Finally, stakeholders also want governments to be proactive and impartial in developing mechanisms and structures to strike balances among the different stakeholders.

Stakeholders want union operational capacity strengthened within and across industries to enhance efficient communication and negotiation with an effective unified worker platform. A coalition approach to capacity development may build solidarity horizontally across industry sectors and vertically across various levels within organisations. Employee organisations also need to be included in more social dialogue at tripartite and bipartite levels. In these settings, unions need to adopt a proactive approach to labour relations rather than a reactive or antagonistic posture.

Stakeholders want greater private sector cooperation with government agencies to provide labour market input in the areas of workforce development, in the creation of national competency standards, and sharing best practices amongst industries to enable balanced labour supply and demand. Firms should also invest in creating structures for open and inclusive communication with employees to promote advanced labour relations.

Firms can embed progressive practices into a sustainable business model in a number of ways. They can focus on non-wage incentives such as improving working conditions, creating opportunities for skills development, and ensuring promising career paths for employees. These practices build employer-employee firm solidarity and create conditions for a virtuous cycle of productivity, quality enhancement, and innovation conducive to business success.

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Summary National labour competitiveness is enhanced

by progressive labour practices through improvements in labour quality, productivity, turnover, and flexibility.

There is an “ASEAN way” of tripartism that is unique to ASEAN and could potentially be ASEAN's competitive advantage. ASEAN should zbuild on this and encourage tripartite consultations in the policy-making process and at strategic points in ongoing governmental operations.

ASEAN countries can strengthen stakeholder relations while conducting critical organisational strengthening by refining government structures, processes, and organisational linkages to build in intergovernmental and tripartite collaboration. The “joined up” model of governance achieves this effectively while saving time and money.

Capacity building in the area of labour market statistics is necessary to enable countries to gather and use labour market data for effective governance and fact-based decision-making, ensuring a balance between labour supply and demand.

Through proliferation of progressive labour practices, ASEAN can position itself as a bloc distinguished by its labour quality and availability to the extent that all members join in reaching ASEAN’s competitive potential in terms of human capital; divergent strengths and levels of development can be harnessed into competitive advantage with strategic planning and commitment.

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Case Studies of Progressive Labour Practices

The Department of Technical Education (DTE) in Brunei was established under the Ministry of Education in 1993 to serve two broad aims; first, to plan, coordinate, and evaluate the implementation of vocational and technical education and second, to support and promote the development of human resources to serve the socio-economic needs of industry, government, and the wider community. The department has taken a proactive approach to get the best people, ideas and opportunities on the table by acting as a bridge to various stakeholders in the economic and educational communities.

Building a broad-based advisory committee…

The DTE employs a tripartite approach in its National Program Advisory Committees. These are cross functional committees that consist of some of the leading members in professional specialisations in Brunei, as well as representation from various ministries in government. In this particular case, professional societies are tasked to provide the employees’ perspective. Committees are invited to develop and review the national curriculum, with each technical group balanced out with members that represent more broad areas to generate a more holistic perspective.

…with frequent involvement and progress checks…

The average group size for such meetings is about 15 people, composed of managing directors and managers, DTE representatives, members of professional organisations, as well as representatives from other relevant government bodies. Meetings are highly focused, with strategic directions and priorities often determined within half a day. All members participate on a purely voluntary basis. Educational programmes are reviewed twice a year to evaluate both their rigour and their relevance to the current industry demands.

…creates a wealth of opportunities.

In total, nearly 84 programmes of study are kept current in this manner. In addition, as a natural path of progression from education to industry, the DTE has also developed apprenticeship programmes in partnership with businesses. Students in the schemes spent approximately 50-60% of their time with company staff, learning by doing. Such programmes make the labour market much more efficient by ensuring that people with the right skills are placed in the right jobs in minimal time and tap the collective experience of some of the most senior members in their fields. To date, the DTE has secured apprenticeship training schemes in the hospitality, catering, airlines and auto mechanic industries.

Building a close knit technical communityDepartment of Technical Education BruneiBrunei

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Finding strength in numbersPhnom Penh Small and Medium Industry Association (PSMIA)Cambodia

The Phnom Penh Small and Medium Industry Association (PSMIA) is a private business association with over 106 members in a variety of industries ranging from food and beverages to production of metals, plastics, garment, and textiles, and other items. Founded in 2003, PSMIA works to assist small and medium sized industries (SMIs) in Cambodia, particularly manufacturing enterprises with assets (excluding land) of not more than US$500,000. Its long-term mission is to develop the small and medium enterprise sector into a major force within the Cambodian economy and beyond. PSMIA is a pioneer in putting progressive and sustainable business practices at the core of its competitive strategy.

Developing small and medium enterprises with a competitive edge…

PSMIA’s focus on promotion and assistance of small-scale business development across Cambodia offers an alternative to the relative anonymous environment of large-scale factory-based businesses. PSMIA and its members strive to increase the local value-added of the goods and services they produce by improving efficiency and productivity through better product design, human capital development, improved business-government and business-labour relations — generating higher returns to their enterprises in the process.

….through the stronger communication lines of small, efficient, family-like operations….

In the realm of labour relations, PSMIA members and their employees enjoy strong communication due to the small, close-knit, and family-like nature of operations. This works to reduce conflict and generate good business practices in a country where labour relations and work-related disputes have often spilled over into violence. In particular, the PSMIA approach is widely noted for its provision of seminars, forums, and training programmes aimed at improving management issues within the broader business community.

…brings environmentally responsible and progressive labour together.

PSMIA turns better labour practices into better business. In cooperation with the EU’s Asia Invest program, the PSMIA network promotes sustainable business through a “cleaner production for better products” (CP) strategy that caters to the strict requirements of international buyers. CP projects increase capacity in a variety of PSMIA industries and open up greater export opportunities to regions like the EU. The social benefits to PSMIA workers and surrounding communities include reduced environmental degradation, increased income from higher value products, and technology-transfer-driven human capital development.

Many perspectives form one inspired voice of change in Cambodia and beyond…

PSMIA is establishing itself nationally as a unified voice to be heard, forging strategic dialogue and partnership with governmental and non-governmental bodies. Through the cultivation of tripartite linkages, PSMIA works to improve the business legislative and regulatory framework, and hopes to create a positive impact on policy-making by building more effective communication channels with government agencies. Proving that there is strength in numbers, PSMIA continues to spearhead advocacy for progressive and sustainable business in both the commercial and political domains.

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Championing a holistic view of businessGarudafoodsIndonesia

Garudafoods is one of the leading food companies in Indonesia with success defined in terms of profitability, revenue, and customer satisfaction. Its core businesses are in snacks that have a uniquely Indonesian character which it actively exports to various markets in the region and all around the world. It calls itself home to nearly 16,500 employees both within and outside Indonesia.

Progressive practice is underpinned by a holistic philosophy of business…

The firms’ articulated values are strongly humanitarian in nature, and emphasise harmony and balance between shareholders and the firm, different units of the business, and between driving business objectives and other aspects of living in a larger society. The firm values strong adherence to local ethical norms as well as sincerity in thought, speech, and action. These values are reemphasised consistently at meetings and special events and in publications to ensure that they get embedded deeply in the fabric of the corporate culture.

…which actively engages local communities

Garudafoods translates values into practice. For example, it cooperated with various non-governmental organisations to ensure the fastest possible response to a flood, providing financial, logistical, and administrative support. In addition, the firm often plays a leading role in regional disaster recovery by partnering with regional governments.

… makes constant innovation and improvement a way of life…

The firm encourages and rewards innovative ideas. It sponsors a contest, the Indonesian Quality Fellowship, at the local and regional levels to provide a forum to showcase the best ideas and innovators.

…and integrates the needs of individuals into work itself

The firm takes the personal and spiritual needs of its employees seriously by creating opportunities for personal development through training. It demonstrates sensitivity to the needs of particular employees by offering options like menstrual leave, late-night pick-ups for shift work, weaving religious practice into the workday. It also actively funds and supports various sporting, religious, and artistic activities organised by the employee union.

A holistic view of business lays the foundation for truly world-class opportunities.

The cohesive, harmonious, dynamic environment built by Garudafoods is the foundation for a globally competitive business that counts 29 countries on all seven continents in its distribution network. Having an international network creates career opportunities for employees who desire international exposure and the firm takes special care to ensure that employees who have worked abroad are not disadvantaged in their careers when their move back home. The scale and scope of Garudafoods practices are clear testament that champions of local industry can simultaneously be hugely successful businesses, as well as fundamental cornerstones of society and local communities.

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Aiding transitions to the marketLao Federation of Trade UnionsLao

The Lao Federation of Trade Unions (LFTU) is the only national workers’ organisation in the Lao People’s Democratic Republic. Established in 1966, it maintains the status of a ministry, with subsidy support from the central Party. In the last eight years, as the Laotian economic system has evolved, the LFTU has followed suit, shifting its priorities towards worker protection and education programmes, in the process aiding the country’s transition to a market economy.

Assisting labour force transitions requires a comprehensive view of all perspectives…

The Laotian labour force faces the twin challenges of transitioning from a socialist to market economy as well as from subsistent agrarian communities to industrial production. Both transition factors have contributed to high turnover rates in Laos’ fledgling FDI-led industrial sectors. A lack of socio-cultural understanding by foreign managers is often cited by workers – used to multi-tasking, and working seasonal and flexible hours – as key reasons for resignations. Employers on the other hand – in need of skilled labour working fixed hours – cite the lack of professionalism, work ethic, and minimal training as signs of low labour quality. The Laotian government’s infrastructure projects, particularly in the hydropower sector, have highlighted a mismatch with the country’s current unskilled domestic labour supply, and also sparked firms to employ foreign (and sometimes even illegal) workers as short-term stop-gap measures.

….and active community-building from the ground up to overcome barriers.

Against the backdrop of this context, the LFTU’s strengths lie in its understanding of multiple stakeholder perspectives operating within Laos’ development path, and its sensitivity to the transitional issues facing the domestic work force. Its programmes are socio-culturally sensitive and focus on community-oriented strategies for labour development and protection. For example, the LFTU partners with the Lao People’s Revolutionary Youth Union (LPRYU) to support community-based development and training programmes aimed at fostering local entrepreneurship and business. Communities exercise their own agency in self-organising and proposal development and the LFTU offers technical assistance, information, and counselling on labour/employment matters. For business, the LFTU’s work reduces hiring, training, and development costs associated with turnover.

Assisting workers goes beyond education and dispute resolution…

In the area of labour protection, the LFTU goes beyond educating workers about wages, regulations, fair working conditions, and legal rights by interjecting itself into the negotiation process before or sometimes even during contract signings. High turnover rates have led some employers to seek new labour through recruitment agencies, which sometimes charge high fees to prospective employees. The LFTU works to protect workers from exploitation by working to spread information about appropriate fee rates, explaining job specifications, and sometimes even providing staff on hand as advisors to workers during the actual contract-making process.

…to cultivating linkages and advocacy for positive change.

The LFTU engages in progressive labour practices by working directly with the Lao National Chamber of Commerce and Industry (LNCCI), the employer representative, to resolve labour disputes at the firm level before they reach the national level. At higher stages of government, the LFTU promotes tripartite communication in labour law formulation and social policymaking. An example of this is the LFTU’s efforts to promote standardised educational and non-educational skill certification programmes to bolster worker leverage and protection. It coordinates with the Ministry of Education (MOE) and Ministry of Labour and Social Welfare (MOLSW) to achieve this standardisation.

With its comprehensive outlook, community-oriented spirit and respect for where Lao has been and where it is going, the LFTU has been successful in promoting more than just narrow objectives of worker protection and development.

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Developing the most valuable resource – peopleShellMalaysia

Shell Malaysia is one of the country’s leading employers, operating multiple petroleum-related activities and five independent business units for over 100 years. One key to Shell’s durable success is its recognition that talent management is an important function within each of the company’s business units. Each business unit employs a talent manager responsible for managing the firm’s stock of human capital. Low annual staff turnover rates of two to three percent are a testament to Shell’s commitment to progressive and durable labour relations.

The process begins with the employee...

Shell’s graduate hires undergo a series of job training assignments and concentrate in an area of specialisation at the outset of joining the firm. The firm’s distinct training process pays special attention to developing the non-technical aspects of employment. To assist career development, new hires have senior staff as mentors for the first five years of their career. Career path building contributes to the nurturing personal and professional development, provides lifelong skills, deepens engagement within the area of specialisation, and builds long-term company loyalty.

The firm takes a grassroots approach to developing labour solutions by generating innovative and employee-developed policies from the ground up. In many instances, employees are empowered to provide solutions to labour issues through discussion groups. The discussion groups act as a forum for groups of employees to meet and talk about specific issues affecting their work life. In a recent example, a group of female employees met to discuss ways to encourage female Shell employees to take up overseas postings. This group identified solutions and including remote mentoring with senior leaders based outside the country and nurturing continuous development strategies.

...and ends with loyal, productive staff.

Shell’s business strategy emphasises the importance of cultivating long-term linkages, trust, and loyalty between employers and employees. The company is committed to helping employees maintain a healthy work-life balance in order to keep staff turnover rates low and to boost labour quality and productivity. Its progressive employment practice includes a comprehensive medical programme, counselling, planned career breaks for family or education reasons, and remote commuting.

Through partnering with government and employees…

Lastly, Shell Malaysia engages with broad social partners outside the firm. It actively supports government programme to improve the technical skills of engineers and other related professions through its Campus Ambassador programme. This programme, one of several, conducts joint training of engineers and IT personnel at local universities with Shell funding and staff. The company also provides financial sponsorship and speakers to support community initiatives such as the Women’s Summit or the “My Project for a Better World” programme to promote environmental awareness.

...Shell achieves results that speak for themselves.

Shell’s results are impressive. Several of Shell Malaysia’s local employees have become leaders in Shell world wide, including Chairman of Shell Malaysia, Shell Pakistan, Shell Egypt, and Shell China. Shell Malaysia alumni also currently head the Securities Commission, Malaysia Airlines System, and the multi-billion dollar Pilgrims Fund. Shell Malaysia is a pace setter in human capital development.

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Leading the nation through advances in labourPhilippines Department of Labour and Employment (DOLE)Philippines

The Department of Labour and Employment (DOLE) is the national agency in charge of labour administration in the Philippines. Its mandate includes employment promotion, human resource development, promotion and protection of worker welfare, and maintenance of industrial peace. In the era of globalisation, firms feel pressured to take the high road to productivity in order to stay competitive. With trade barriers falling, foreign investors and local entrepreneurs are increasingly forced to invest their resources where they can minimise operational costs, including labour. Such cost pressures increase the need for government oversight on labour issues.

Responding to new global realities through dialogue and social partnership…

DOLE promotes the adoption of progressive labour practices through the Enhanced Labour Education Programme, with the objective of inculcating the importance of employment relations to bring about a harmonious, productive, and competitive workforce in both workers and employers. An approach that DOLE aspires to is social partnership — extending beyond the tripartite labour relations model to include civil society, informal sector groups, and other stakeholders. DOLE also actively plays the role of harmoniser in industrial relations, allowing its regional directors to handle voluntary arbitration cases.

…coping with transitions together…

Cushioning the transitional effects of globalisation on workers involves institutionalising necessary safety nets and formulating more responsive labour policies. DOLE instituted the Adjustment Measures Program, comprised of job search assistance for local and overseas employment, provision of livelihood assistance (e.g., capital, skills training, equipment, etc.), and legal advice.

…and ensuring basic protection for disadvantaged workers.

The National Wages and Productivity Commission (NWPC) and its Regional Tripartite Wages and Productivity Boards (RTWPBs) hold regular consultations with stakeholders on important socio-economic issues to provide necessary inputs on wage guidelines and labour policy review and development. In 2006, wage orders were issued in all regions of the country, granting increases in basic pay and cost of living allowance (COLA) to 5.4 million private sector workers. The Employees Compensation Commission (ECC) also provided 124,541 occupationally-disabled workers with rehabilitation assistance. They were afforded free vocational and entrepreneurial training to enable them to become self-reliant members of society.

Strategic engagement preserves stability and harmony…

DOLE identified six industries most prone to industrial disputes, and established Industry Tripartite Councils (ITCs) at the provincial, regional, national, and industry levels to serve as avenues for resolving employment and labour disputes. Such councils include representatives from employers, employee groups, and governments. To date, the industry groupings that have ITCs are banking, clothing and textile, hotel and restaurants, automotive, construction, and sugar industries. The progress is considerable with incidences of actual strikes in 2006 at their lowest level in 53 years.

…and equips parties with the right information tools to advance labour relations to the next level.

DOLE actively engages the private sector to collect and aggregate labour market data then disseminates this information on job vacancies and skills requirements through local employment offices. Amongst the information collated are enterprise surveys/marketing surveys, labour force surveys, newspaper advertisement statistics, economic/industry bulletins, and projected investments. This increases labour market efficiency, enables policy makers to make meaningful decisions, and facilitates the design of appropriate programme interventions. DOLE’s holistic approach makes it a proactive leader in advancing the maturity of labour relations in the Philippines.

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Giving old skills a new lease on lifeEdwards LifesciencesSingapore

Edwards Lifesciences is a global leader in products and technologies to treat advanced cardiovascular disease, and established as the number one heart valve company in the world. It employs more than 5,600 employees worldwide and sells medical technologies in nearly 100 countries. The firm produces products that address specific cardiovascular opportunities including heart valve disease, vascular disease and critical care technologies. With its establishment of a new plant in Singapore in 2006 – the first of its kind in the Asia Pacific region – the firm was able to find new ways of giving workers with “old economy” skills a new career and perhaps even what some might consider new lease on life.

Working in partnership…

The production of heart valves for patients is a highly specialised process that requires dexterity and precision in sewing skills. Partnering with the Workforce Development Agency (WDA), Edwards Lifesciences actively pursued experienced workers from the textile manufacturing sector – widely considered a sunset industry in Singapore – and was committed to re-training them to use their time-refined skills in a booming sunrise industry that is currently worth US$24 billion globally. This move was welcomed by a government faced with tackling the twin challenges of structurally displaced workers and an ageing workforce in a fast growing knowledge-based economy.

…tailoring a unique talent strategy…

A senior member of the firm oversaw the recruitment exercise with a close eye on hiring operations in the production team and active involvement of employees. Edwards clearly defined a talent strategy that would pay above standard rates in the manufacturing sector and conducted work trial training for new hires (5 to 10 days), plus a 6 to 10 week on-the-job training period. Beyond basic acumen and technical sewing ability, the firm was on the lookout for evidence that potential hires had a real passion for the job. Conversion rates were high, with 65 to 70 percent of potential hires signing on as full-time employees.

…and building the pulse of a vibrant workforce…

Information flows and contact time between patients, doctors and the production team are actively built into work processes. This ensures that production workers are able to see the meaningful outcomes of their work and know that they are valued by the firm. In addition, there is a strong emphasis on a culture of personal ownership and work-life balance, which is well received by workers, who are relatively older and have families. The firm maintains highly open communication through consistent dialogue and suggestion boxes.

…helps everyone go further.

Results of the strategy have been phenomenal. The company experiences an employee attrition rate of less than two percent of the workforce. This is strategically valuable to the firm in terms of intellectual property protection, reduced hiring costs, and high levels of employee engagement. The government and workers have obviously benefitted from having a high quality employer giving a fresh look on skills that already existed in the economy – and finding the unique opportunity to co-create new value. Edwards plans to continue its active recruitment drive over the next few years after its new facility goes fully operational in March 2008.

37

Engaging employees through leadership commitmentPetroleum Authority of Thailand (Public) Company Limited (PTT)Thailand

The Petroleum Authority of Thailand (Public) Company Limited (PTT) is the country’s leading energy company. Founded in 1978 as a national enterprise, PTT now hosts a variety of operations, securing the market lead in the kingdom year after year. With its set of well-defined practical business strategies, strong leadership team, and efficient business processes, PTT is a leader in promoting both environmentally sustainable business and progressive labour practices.

PTT rose to success by putting environmental and social concerns at the center of its business strategy. The firm focuses on producing clean fossil fuel, refining oil safely and effectively, and is constantly adapting its techniques in search of better, more environmentally-friendly oil products. For example, to cut down on carbon emissions associated with transport and to help alleviate traffic congestion in Bangkok, PTT decided to transport oil via pipelines instead of trucks or rail service. In 1999, PPT won Thailand’s Prime Minister’s Award for “Best Export Organisation.”

Voicing employees’ needs through engagement surveys…

Another component to PTT’s sustainable business model is its emphasis on intra-firm labour relations and employee well-being. To ensure the company continues to excel, PTT invests in understanding employee needs, satisfaction levels, and commitment to progressive change by using Employee Engagement Surveys (EES). The survey acts as a tool for assessing employee opinion and is one trusted channel for workers to voice their needs to the leadership team.

… lead to measures to leverage satisfaction and improve engagement…

The survey captures employee satisfaction across a broad array of dimensions such as emotional rewards, material satisfaction, trust and reciprocity, status and identity, and fit and belonging within the organisation. PTT leadership uses the responses to guide its human resource practices and tracks measurements over years to ensure continuous improvement in employee satisfaction.

… and strengthening of leadership quality.

The EES links employer input with management practices and evaluation to strengthen leadership quality. PTT analyses EES results to identify root causes of employee satisfaction and engagement and leadership skills such as supervision, coaching, communication, and development practices often factor heavily. In line with the recommendations of the Thai Ministries of Finance and Labour for good corporate governance practices in state-owned enterprises, scores in employee engagement form a significant component in evaluating management performance. The evaluations cascade from middle to senior management. This particular performance metric provides a strong incentive for the management team to steward the firm with good leadership practices and to seek continuous improvement.

A systematic and integrated approach linking leadership, HR systems and employees’ engagement results in sustainable competitive advantage for the firm…

Lastly, the EES spurs other improvements in human resource tools and practices. Since the development of the EES, management continuously recalibrates other human resource tools such as performance measurement, competency models, and career management to ensure effectiveness and relevance. These tools provide the firm with a platform to create change from within, building a stronger foundation for a dynamic and agile corporation. Increasing EES participation rates over recent years indicates increasing levels of employee trust in the mechanism. More importantly, it is a testament to the long-term trust-building between employers and employees, cultivating a deep and long lasting source of competitiveness in the global arena.

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Competing globally through homespun tripartismGarment Company 10 (Garco 10)Vietnam

The Garment Company 10 (Garco 10) is a Hanoi-based apparel manufacturing company which has established its credentials both at home and abroad. Ranked as one of the top five firms in Vietnam and within the top 10 garment exporters globally, this 61-year old firm has evolved from the early days of Vietnamese industrialisation into a joint-stock company with 51 percent state control and 49 percent employee-held shares. With a skilled labour force of 8,000 working across 14 factories and 126 stores, the company produces 12 million pieces of clothing (shirts, suits, pants) a year, achieving annual sales in excess of US$85 million. The company’s business strategy seamlessly blends technological innovation with skills development, and a progressive wage and career advancement track aimed at labour retention and sustainable business growth.

Turning a “race to the bottom” the right side up through a commitment to quality…

Vietnam’s booming economy and the fiercely competitive nature of the global garment industry could have spelled disaster for a firm like Garco 10. Global market pressures to lower costs, coupled with a domestic environment facing high employment turnover rates from an investment-flushed economy could have pushed Garco 10 to enlist in the global “race to the bottom.” With Vietnam’s sizeable unskilled labour force – currently 40 percent of the overall population – the natural temptation could easily have been to produce cheap, high volume, easy-to-make garments; however, the company committed to its own unique strategic direction, focussing instead on investing in advanced technologies, higher quality products, and develop employee skills to differentiate itself from the global competition.

….and engineering a business model which more better labour practice better business...

Though Garco 10 pays one of the highest wages within Vietnam’s northern region, five times the national minimum wage, this was not enough to keep the firm immune from surging labour turnover across industries. To address the problem, Garco 10 developed a business model which placed improvement of its work environment and labour practices at the center of its sustainable business plan, hoping that its twin strategy of improving non-wage incentives and general work conditions would not only retain workers, but also prove profitable in the long term. The results have been remarkable both on and off the balance sheet.

...can lead to strong competitive positions and results.

Firstly, Garco 10 implemented a performance-based wage scale in conjunction with increased opportunities for training and skill development, through hands-on contact with advanced machinery and innovative technology. Over time, Garco 10 increasingly focused on diversifying its product line, focusing more on high-end products, adapting to global trends and whilst simultaneously developing domestic brands. All these business directions began with serious thinking about how to develop and retain the quality of its labour force, whilst increasing efficiency and productivity.

History can be re-spun with new twists as a recipe for success...

Part of Garco 10’s interesting recipe for success has included a unique ability to adapt and retain some of the labour principles and insights gleaned from its socialist past, while integrating them into a competitive business strategy. It provides in-house family support facilities such as kindergarten, medical services, day care, and yet still staying true to its history, believes in developing traditional factory floor-to-management career paths – but this time with a new twist of technological savvy. An example of tripartite cooperation has been in the area of occupational safety, where the firm works closely with relevant government departments to keep up-to-date with health regulations (provision of gloves, air conditioners, cleanliness, etc), while also partnering with workers to provide education and safety demonstrations to other industries and firms via union links. Through its homespun mix of social capitalism and tripartite business practice, Garco 10 has become a profitable and innovative global leader poised for continued success.

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ASEAN labour competitiveness stands to gain by adopting policies promoting the Free Flow of Skilled Labour (FFSL) across borders.17 As discussed in Chapter 3, labour availability, future labour quality, and labour flexibility are key drivers of competitiveness. Labour pools increase strategically in line with labour demand as skilled workers are temporarily added to the workforce of receiving countries, while sending countries benefit from the long-term gains of migrant professionals returning with more skills and knowledge, remittances, and the economic benefits of new ideas and expanded networks.

FFSL promotion remains an actionable way to achieve some of the long- and short-term milestones set out in the Vientiane Action Programme (VAP) 2004-2010 along with the broader goals of the ASEAN Vision 2020 roadmap. Two key dimensions distinguish the goals of the VAP, namely, integration of the 10 member countries into one cohesive ASEAN community and new strategies for narrowing the development gap to quicken integration.18 In this respect, FFSL remains both a means and an end to achieving the ultimate vision of forming a unified ASEAN community.

The following section discusses the potential impact of FFSL on the labour markets of ASEAN member countries by exploring the integration experiences of other regional blocs such as the European Union (EU), North American Free Trade Agreement (NAFTA), and the Common Market of the South (MERCOSUR). The lessons learned from these integrations provide an operational roadmap for ASEAN, as well as cautionary tales. Ultimately, the quality of ASEAN’s choices in administration and implementation of FFSL play a large part in determining the long-term economic gains from this exercise. ASEAN’s willingness to make tough choices at the outset will determine the extent to which this mobility forges unity.

Benefits of FFSL

The adoption of a free flow of skilled labour across borders presents potential benefits to both sending and receiving countries. Within the ASEAN context, the sixth article of the preamble to the Vientiane Action Programme aspires to, “work closely between and among ourselves to generate our own indigenous resources,” with the intra-bloc movement of skilled workers serving as the primary step in that direction.

FFSL benefits for receiving countries come in the form of short- and medium-term gains in a range of competitive factors. Labour quality, productivity, and availability receive a positive boost from the reception of skilled labour as national and international business demands are met. These short- and medium-term productivity gains are reinvested in areas such as education and infrastructure and thus converted into long-term gains from the point of view of sustainable economic and social development.

For labour sending countries, when policies and pathways are structured towards temporary work schemes rather than emigration, FFSL presents employment opportunities for unemployed or underemployed sectors. The prospect of good wages or value-enhancing experiences within the region can stimulate domestic workers to pursue education and domestic enrollment in demand-linked fields. The pool of domestic human capital therefore increases and economic growth prospects are enhanced.

Temporary labour migration offers the potential for long-term gains in improved labour quality and business climate as returning workers bring home new skills to train others. They also contribute new ideas, investments, and global network ties to develop the domestic business environment.

Remittances also account for a large percentage of GDP in some ASEAN countries, with FFSL serving to expand opportunities for migrant-driven aid and development.

Chapter 5

Free Flow of Skilled Labour (FFSL)

17 Thereisnouniversallyaccepteddefinitionof“skilledlabour,”withthemeaningvaryingfrombloctoblocandcountrytocountry.Skilledlabourisoftencategorisedbyjobfamilybutdiscussedbasedonlabourinputssuchastypeofinstitutionandlengthofeducation.Forthepurposesofourstudy,“skilledprofessional”referstopersonswhohavepost-secondaryeducation,butmaynotnecessarilyhaveuniversity-levelaccreditation.Post-secondarymayconsistof(certified)vocationalortechnicalskilltrainingandexperience.

18 10thASEANSummit,VientianeActionProgramme.Preamble10<http://www.aseansec.org/VAP-10th%20ASEAN%20Summit.pdf>.

40

Lastly, it is important to keep in mind that within a global marketplace, ASEAN remains only one of several destinations around the world that skilled professionals can choose to live and work. Enabling skilled workers to professionally develop and gain experiences outside their home countries while staying nearby and most importantly, within the bloc, ensures that ASEAN’s labour pool continues to maintain competitiveness while improving in quality.

Potential risks of FFSL

While it has not been the experience of the EU or MERCOSUR, brain drain, or the process of losing

much-needed skilled professionals to permanent emigration, has formed part of the NAFTA experience. Labour mobility for skilled professionals in NAFTA has reinforced existing trends, with Canada and Mexico losing skilled workers to the United States. In the ASEAN context, free flow of skilled labour will likely result in a greater outflow of skilled workers, but ASEAN will be only one destination of many globally. With or without ASEAN encouragement, skilled workers will emigrate to other ASEAN destinations or to the rest of the world when conditions and wages allow.

A temporary or permanent reduction in the stock of human capital in sending countries is associated

Figure 5.1 Remittances in ASEAN

Source: IFAD, Sending Money Home (2007)

MyanmarUS$511 millionGDP: –

VietnamUS$6,288 millionGDP: 11.2%

LaosUS$1,175 millionGDP: 34.5%

ThailandUS$2,424 millionGDP: 1.2%

CambodiaUS$559 millionGDP: 7.8%

IndonesiaUS$3,937 millionGDP: 1.1%

PhilippinesUS$14,651 millionGDP: 12.5%

MalaysiaUS$2,366 millionGDP: 1.6%

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19 Martin,Philip,Highly Skilled Labour Migration: Sharing the Benefits(Geneva:InternationalInstituteforLabourStudies,2003).20 Ibid.21 Lowell,LindsayandSusanMartin,“ResearchonMigrationDevelopment”(paperpresentedattheFourthCoordinationMeetingonInternationalMigration,

PopulationDivision,UnitedNationsDepartmentofEconomicandSocialAffairs,NewYork,UnitedStates,October25-26,2005).

with drawbacks such as slower productivity and economic growth. A reduction in the country’s stock of human capital can also result in a lack of dynamism, innovation and creativity in sending countries since the young and well educated are most likely to leave. The sending country becomes less attractive to local and foreign investors, though this may be offset by “brain gains” from remittance funds and taxes paid by migrant professionals.

Loss of investments made in educating skilled workers also occurs when temporary skilled migration changes into emigration. Skilled professionals in developing countries make up on average 9-16 percent of the labour force. In countries where restrictions on emigration or migration are toughest, skilled professionals are most likely to make up a sizeable share of mobile labour. In some cases such as Jamaica, Guyana, and Trinidad and Tobago, the percentage of skilled professional and technical workers working outside the sending country outnumber the stock of human capital remaining in the country.19

Some research also suggests that remittances from migrant skilled labour may not have the same beneficial impact that remittances from unskilled labour generate. Remittances from migrant skilled professionals have less of a multiplier effect than remittances from unskilled labour to rural areas. Remittances from skilled labour are likely to originate and go to urban areas and then spent on imported goods rather than infrastructure, poverty-reduction, or human development channels.20 Other research also suggests that the most educated and skilled professionals are least likely to remit funds vis-à-vis unskilled labour.21

There is also potential for the price of labour to rise in some countries in some sectors. This is a likely eventuality in any event as globalisation increases skilled labour migration around the world. FFSL may result in skilled labour shortages in some countries and in particular sectors, but the effects may be temporary rather than chronic.

It is critical to further research the potential effects of skilled labour mobility in order to better anticipate and mitigate potentially negative effects. This study assumed at the outset that national labour ministries would have quality labour market data such that labour migration effects could be anticipated. However, as reported in Chapter 4, labour ministries often report they do not know in which categories they have an excess of skilled labour and in which categories they require skilled

labour inflows. It is likely that further research at the sector level may yield this important information.

Stakeholder views of Free Flow of Skilled Labour (FFSL)

Stakeholder opinions regarding FFSL are divergent across country lines, however overall most stakeholder groups are receptive to the free flow of skilled labour across borders.

Some governments are enthusiastic about FFSL initiatives, while others remain concerned about promoting employment and are unsure about the potential impact of FFSL on specific sectors of their economies. Government responses preferred that FFSL promotion take place primarily through education policy. This entails the promotion of ASEAN’s various languages as curriculum options and the mutual recognition of qualifications and skills across borders to facilitate mobility. Governments also voiced the need for an intermediate agency across ASEAN to match labour supply and demand, as a means of organising skilled migration exchange.

Employee organisations voiced concern about securing good employment for their members, and feared that an ASEAN framework for labour flow would enshrine the lowest common denominator as the standard in worker protection. They would rather see countries be mutually supportive in raising minimum standards. Labour organisations also raised the issue of unskilled labour flow, which many are in favour of restricting. Such groups wanted assurance that skills and technology transfer would form a key component of any FFSL programme, and that there would be clear guidelines for implementation. Most importantly, labour interviewees across all countries voiced concern not only for their own union members, but also for the treatment of illegal workers. Basic worker protection and security for outbound workers across the region was a central point of consensus.

Employers had the most positive response to FFSL, many already feeling the need for improved labour demand/supply matching in their own industries to stay globally competitive. Businesses favour FFSL if it is managed well and encompasses a clear regulatory component. Many industries expect business gains from FFSL, and in some countries it is already easy to import labour. Business perceptions of visiting or immigrant labour are generally positive, with skilled migrant labour

42

Table 5.1 Regional bloc comparisons: an overview

Modest measures within limited budget; most reforms made via legislative changes

Small cost for US to add another visa category

Cost

Billions of euros in training, education, languages, and standards harmonisation

Labour rigidity due to lagging regulation harmonisation

Nearly one quarter of total immigration is intra – MERCOSUR; larger labour share flows out of bloc

Social-labour dimension is now deepening due to regional institutional development

Historically high migration levels, not promoted

Inflow of skilled labour from Canada and MexicoImpact

Low levels of mobility despite substantial investment

Intra-EU migration is less than 2% of labour force

Majority of migrants are from outside the EU

Free movement; all labour

2 year initial work permit is a pathway to permanent residency

Quota systemDetermined by

education level (baccalaureate and above) and job family

How

Free movement of all labour is encouraged

Citizens from new EU countries are gradually allowed

MERCOSURNAFTA

Trade and employment growth

Regional cooperation in free flow of goods and services

Regional counterweight to US and NAFTA

Form a free trade bloc

Ensure free flow of capital and trade

Objectives

Ensure security and political co-existence

Economic integration

Counter threat of state socialism

European Union

generally viewed as hard working and a general boost to firm productivity and competitiveness.

All stakeholders share a concern for limiting illegal migration, though there is no shared view of what constitutes “skilled labour” for the purposes of mobility. Stakeholders also feel that recognition of qualifications and skills systems is needed to facilitate FFSL, as it makes it easier for employers to identify suitable job-seekers, for potential employees to communicate employability and enhance opportunities for work, and for governments to be able to send or request labour in strategic areas.

Lessons learned from regional bloc comparisons

The experiences of other blocs may not be ASEAN’s experience and a recipe for success in one context may not transfer well to another. In reflecting on the experiences of other blocs, however, there are clear lessons learned that labour policy makers should consider. Table 5.1 is a summary of the experiences of MERCOSUR, NAFTA, and the EU regarding the labour dimension of their economic integration experiences.

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Cost sensitivity is key

A comparison of spending costs across the three blocs on labour mobility initiatives found that more spending is not correlated with higher rates of labour mobility. The EU spends nearly €2 billion yearly on a variety of programmes to enhance the circulation of people in a deliberate attempt to spur labour mobility and resettlement. Open borders and a comprehensive labour protection system still yielded only modest intra-bloc migration.

Meanwhile, NAFTA exerted relatively little effort to promote labour mobility. With each country adding a relatively inexpensive additional category to their pre-existing visa and immigration systems, labour mobility is hardly promoted. However, intra-NAFTA migration, particularly from Canada and Mexico to the US, remains strong, with bloc cooperation enhancing pre-existing migration patterns. The findings are positive for ASEAN as they indicate that FFSL policies do not have to be overly expensive and that labour mobility is contingent on many factors besides cost.

Cultural factors matter and can be potential draws or barriers to labour mobility

One factor cited for low mobility rates in the EU has to do with the linguistic and cultural barriers of the bloc’s diverse states. Attachment to one’s home country due to social and linguistic factors plays a significant role in location decisions. Investments in cross-cultural exchange programmes, travel opportunities, and language training starting at a young age, in addition to the homogenizing influences of globalisation may go some way in addressing socio-cultural and linguistic ambivalences to moving. For MERCOSUR states, while Spanish is spoken across a majority of states, with the exception of the Portuguese language in Brazil, 25 percent of all migration is intra-bloc. While linguistic and cultural barriers are lower in MERCOSUR than that of the EU, other factors such as pre-existing perceptions and patterns of migration outside the bloc to the US and more recently, Spain and the EU, play a larger role in migration decisions than the familiarity of the

surrounding bloc.

Building regional institutions can aid the pace and effectiveness of labour integration

The importance of regional institutional development should not be underestimated. The EU was able to consolidate its member states and gain unanimous consensus around the necessity of building supranational institutions from the inception of the integration process. The acquis communitaire, the total accumulated EU law is a fairly large and expansive body of work providing a clear and transparent framework for adjudication and governance within the bloc.

By contrast, MERCOSUR languished in its first decade after inception due to the lack of regional institutions with the ability to effectively, impartially, and swiftly adjudicate disputes, make decisions, implement, and enforce decisions made by the secretariat. By dealing with matters of policy harmonisation and bloc issues through traditional diplomatic and bilateral channels, relations between the member states remained tense over a variety of issues, hampering regional solidarity building and overburdening the existing capacity of government agencies to deal with an added layer of bureaucracy. MERCOSUR’s progress as a bloc suffered for nearly a decade until leaders focused on multilateral and supranational institutional development. By 2004, MERCOSUR countries only implemented half of all MERCOSUR legislation.

Political will determines the kind of approach taken to integration

Political solidarity and will make all the difference in determining the shape and direction of a bloc’s core principles. NAFTA is a clear example of the disinterest of its framers in creating anything more than a free trade zone, while the EU stands at the other end of the spectrum with a common unified market, single currency, and inter-governmental coordination in policymaking.

MERCOSUR, while exhibiting the plan to form a common market in its very name, has yet to establish one. Its 17 years of existence has been riddled with political infighting within and across states between those who view the bloc as no more than a economic entity and those who wish

44

to build upon its framework more political force and legitimacy for policymaking. Countries are promoting institutional development now, but this is an inherently slow process. It will take time for the framework to develop inertia of its own and become robust enough to withstand attempts to overturn it.

The social and political dimensions to bloc integration cannot be ignored

Perhaps the single key lesson to take away from the MERCOSUR experience for the ASEAN context is the importance of factoring the social dimension into any treaty building process at the beginning of labour integration. By focusing solely on economic and technical issues and deliberately avoiding thorny questions at the founding Treaty of Asuncion meeting, MERCOSUR leaders sparked major public and union outcry against the perceived undemocratic nature of the integration process, losing credibility and support for the initiative from large sections of the public. Furthermore, the process of addressing the labour dimensions of integration post-hoc was made more complicated by the mistrust and spoiled relations between stakeholders and the inefficiency of trying to reform existing conditions rather than focusing resources on implementation. The first three years of MERCOSUR’s inception was spent on “transition” steps to redress social matters left out of the original signing process.

Summary

The relevance of the integration experience for other regional blocs yields many key insights for the ASEAN context:

Greater temporary skills migration will raise ASEAN’s global competitiveness as a bloc.

The definition of “skilled labour” for migration purposes varies across blocs with no internationally agreed definition, so like other blocs, ASEAN must find its own definition.

Further study is necessary at the sectoral level to measure the effects of FFSL. The sectoral study should focus on high value sectors first, as national labour data is currently insufficient to clearly assess the effects of FFSL.

Recognition of qualifications and skills is a key enabler of FFSL; this requires that each country develop a structured framework as well.

The process of labour mobility between sending and receiving countries is likely to be mutually beneficial, though not without some negative effects such as the potential for higher labour costs in some countries in some sectors.

Other regional integrations experienced some intensification of existing migration trends, but none experienced massive labour flows.

ASEAN should ensure sound systems such as basic minimum worker protection covering skilled temporary workers are in place before allowing free labour movement.

ASEAN’s free flow of skilled labour schemes should also be cost-sensitive, bearing in mind the experience of the EU.

45

Overview of other regional blocs

46

Morocco

Algeria Tunisia

Switzerland

Croatia

SerbiaBosnia

Herzegovina

Montenegro

Macedonia

Turkey

Moldova

Ukraine

Belarus

RussiaRussia

Norway

Iceland

Albania

MaltaCyprus

Greece

Italy

SpainPortugal

France

Germany

Netherlands

Belgium

Denmark

UnitedKingdom

Ireland

LuxembourgCzech

Republic

Poland

Slovakia

Austria Hungary

Slovenia Romania

Bulgaria

Lithuania

Latvia

Estonia

Finland

Sweden

The European Union (EU)

Historical background

The EU as we now know it is a unique geopolitical entity, founded primarily in response to two major geopolitical trends in the post-war era. After the experience of two ravaging World Wars in the same century, countries in Europe were looking for a means to preserve security and to secure peaceful

political coexistence. European states agreed that a closer political union would help counter the threat of fascism. This bloc has evolved from its original security focus into a deeply integrated union with a broad economic and political agenda that is increasingly powerful on the world stage.

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The foundations of integration

The first push toward an integrated Europe began with the Treaty of Paris in 1951, which created the European Coal and Steel Community (ECSC). The pooling of energy resources amongst member states rendered waging war on other member states untenable. To enable this pooling of resources, governments gave workers from the coal and steel communities the right to move across porous borders, eventually creating momentum for greater labour integration. The 1957 Treaty of Rome established a common European Atomic policy (EURATOM), and 1962 saw the establishment of Common Agricultural Policy (CAP), from which the need for cross-border pooling of agricultural stock provided further impetus for movement of agricultural workers between member states.

Major developments in European integration

The 1965 Merger Treaty pooled ECSC, EURATOM, and the CAP under a single commission, known as the European Commission (EC). This supranational body carried its own mandate dedicated to steering the course towards integrating Europe. The 1986 Single European Act outlined the architecture of a European common market, and officially enshrined the free movement of goods, people, services, and capital (collectively “four freedoms”) that underpin EU legislation. In 1992, the European Union (EU) name came into effect and with it came a common security and foreign policy for the bloc. The bloc further integrated in 1995 with the Schengen Agreement which allows for free movement of all EU citizens across borders.

Investments and initiatives to promote free flow of labour in the EU

The EU invests more than €2 billion annually to support and promote the free flow of labour, including training, education, languages, and standards harmonisation initiatives.22 Such programmes go beyond economic goals, seeking to achieve cultural, social, and strategic national objectives as well. Some of the EU’s key initiatives are as follows:

Mobility in education, training, skills development, and research

Initiatives include a scheme to subsidise university staff and student mobility between states (ERASMUS), youth exchanges outside formal education (Youth for Europe), cooperation and exchanges in advanced technologies (COMETT), and language education (LINGUA). Nearly a million youths benefit from these various exchange programmes every year.

Vocational and training programmes

There are a number of programmes including a pan-European vocational training (PETRA), a life-long learning programmes on digital literary at all levels of education (SOCRATES), and a scheme for promoting innovation in life-long education (LEONARDO DI VINCI). Interim evaluations show strong support for the programmes, although SOCRATES implementation was slow at the outset.

Education & Training 2010 Work Program

The EU has specific targets and benchmarks for its regional educational goals. The objective is to improve the effectiveness of the EU education system.

Figure 5.2 Timeline of EU integration

1957 Treaty of Rome 1994 European Economic Area

1965 Merger Treaty 1995 Schengen Agreement

1973 – 1986 European Union Enlargement 1996 Treaty of Amsterdam

1986 Single European Treaty 2001 Treaty of Nice

1951 Treaty of Paris 1992 Maastricht Treaty

22 Mercerestimatesbasedonaggregatedbudgets.

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Common standards, mutual recognition, and the e-jobs portal

The most significant initiatives to promote common standards across the region are the European Qualifications Framework (EQF), a framework to provide equivalence in qualifications across the region, and the European Quality Label (EQL), a sector-led initiative to determine equivalence in education. The EU also promotes employment through the European Employment Service (EURES), which pools the resources of various public sector employment services under a single umbrella. EURES runs a highly effective web-based jobs portal, providing job seekers and businesses with a common recruiting platform.

Geographic mobility programmes

The EU continues to take significant complementary measures in other labour related areas such as social security coordination, portability of occupational pensions and health insurance cards, and providing guidelines on the non-discriminatory treatment of third country nationals. All this has served to ensure that workers outside their home countries are not disadvantaged vis-à-vis citizens of receiving countries. The comprehensive strategy to spur job creation throughout the bloc was also developed in the Lisbon strategy.23 Initial results are strong, with an estimated 6.5 million jobs created in the 2005-2007 period.

Migration trends and impact of free flow of labour in the EU

Despite large investments and initiatives to promote labour movement within the EU, intra-EU migration levels remain low, with intra-EU migrants making up less than two percent of EU workforce.24 The distribution of migrants is also uneven across the bloc.

23 EuropeanCommission,StrategicreportontherenewedLisbonstrategyforgrowthandjobs:launchingthenewcycle(2008-2010).(Brussels:EuropeanCommission,2008).<http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KAMV07001ENC/KAMV07001ENC_002.pdf>.

24 Furtherreadingin“Chapter5:GeographicmobilitywithintheEU”intheEmploymentinEurope2006(Brussels:EuropeanCommission,2006)report.<http://ec.europa.eu/employment_social/employment_analysis/employ_2006_en.htm>

49

Figure 5.3 Share of active EU-15 and EU-10 working age citizens resident in another country (as percentage of total workforce of host country)

LU IE BE AT DE SE UK FR ES NL DK FI EL PT

EU-10 0.3 2.5 0.3 1.5 0.5 0.2 0.5 0.1 0.2 0.1 – 0.3 0.3 –

EU-15 37.3 2.8 4.3 1.8 2.0 1.9 1.7 1.9 1.2 1.4 0.8 0.3 0.2 0.4

Source: Eurostat, LFS, spring results.

Note: No data available on nationality in Italy. Figures on EU-10 nationals for Denmark and Portugal not reliable due to small sample size

EU-15 EU-10

A survey conducted by the EU cites the potential loss of social networks, and language barriers as the

prime considerations that prevent EU citizens from migrating to another EU country.

40

35

30

25

20

15

10

5

0

50

Figure 5.4 Factors that discourage labour mobility in the EU (percentage of respondents who cited factor)

Source: Special Eurobarometer survey on geographical and labour market mobility – September 2005.

Note: Figures are for respondents with and without moving intentions.

0% 10%5% 20%15% 30%25% 40%35% 50%45%

To miss the direct contact with family or friends

To miss the support from family or friends (for example help with

children or the elderly relatives)

Having to learn a new language

Worse healthcare facilities

To have worse housing conditions

None

To lose your job or the one of your partner

To have a lower household income

Different school system

Worse working conditions

Other

Worse local environment and amenities

Longer commuting time or worse public transport

EU-15 EU-10

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While free flow of labour is enshrined as a basic right within the bloc, the EU uses a transition period to mitigate labour market disruptions due to labour flows from new ascension states. National governments have the right to place restrictions on mobility for up to seven years.25

In the economic realm, the direct impact of free flow of labour on levels of foreign direct investment and the wider economy are hard to establish, due to the difficulty in isolating cause-effect relationships.

Key lessons learned from the EU

The experience of the EU has much to offer ASEAN, as the bloc with the longest and deepest history of integration. The EU experience suggests that large investments in mobility promotion initiatives may nevertheless not result in high levels of intra-bloc migration. Moreover, it also suggests that blocs undergoing similar integration of labour markets should be mindful of cultural factors (such as differences in language), which in themselves can serve as potential draws, or barriers to labour mobility. Finally, it outlines the importance of regional institutions (such as the European Commission and related institutions) as key drivers of integration.

25 Krawczyk,Mariusz,“LabourmigrationintheenlargedEuropeanUnion”(conferencepaperpresentedatSeoulNationalUniversityCenterforEUStudies,2007).

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UnitedStates

Canada

Alaska

Mexico

NAFTA

Historical context

The North American Free Trade Agreement (NAFTA) came into effect on 1 January 1994, creating the world’s largest trading bloc with the combined GDP of its three members Canada, Mexico, and the United States. Its objectives are eliminating tariffs, removing barriers to the free flow of investments and services, and protecting intellectual property rights.

NAFTA is an expansion of the 1989 free trade agreement between Canada and the United States, dovetailing with the unilateral liberalisation of the Mexican economy and the gradual realignment and restructuring of capital in North American economies. While Mexico and Canada were already deeply linked economically with the United States prior to NAFTA, the agreement provided a unified

framework for increased market integration between the three major economies.

In addition, officials signed two other side accords in conjunction with NAFTA. The North American Agreement on Environmental Cooperation (NAAEC) outlines consistent environmental regulation between the three states, but only requires states to abide by their own environmental laws. The North American Agreement on Labour Cooperation (NAALC) supplements NAFTA by establishing a foundation for labour dispute resolution and fostering cooperation amongst trade unions and social groups across borders. The NAALC contributes to a convergence of labour standards in North America, but convergence lags in employment, productivity, and wages across the three economies.

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Impact of NAFTA economic integration

The World Bank concludes that NAFTA reinforced existing trends in trade, foreign investment, and labour migration between Canada, the United States, and Mexico. Between 1994 and 2003, US imports from Mexico rose 179 percent while US exports for the same period increased by 91 percent. The Congressional Budget Office estimates that 15 percent of the increase in exports and 9 percent of the increase to imports are attributable to NAFTA.26

Intra-bloc trade divisions declined with tariffs nearly disappearing with the exception of tariffs on agricultural produce. Tariffs for non-NAFTA countries have however risen since the signing of the agreement.27 Intra-bloc foreign direct investment has risen considerably across all three states, with Mexican direct investment in the US reaching US$7.9 billion and increased US direct investment in Mexico reaching US$58.1 billion between 1994 and 2002. These are increases of 244 percent and 259 percent respectively. By 2005, nearly 64 percent of foreign direct investment in Canada came from its NAFTA partners.28 The World Bank estimates that 40 percent of the annual increase in foreign direct investment in Mexico is attributable to NAFTA.29

There are still large discrepancies in wage convergence, particularly between the US and Canada on one hand, and Mexico on the other. The World Bank reports that Mexican GDP per capita is converging towards American levels, but very

slowly.30 Mexican real wages fell after the 1994 Peso Crisis and only started to recover in 1998. Wages are converging faster for skilled workers than unskilled on both sides of the US-Mexican border.31 Productivity convergence is occurring rapidly with the time needed to implement American technological innovations in Mexico between 1994 and 2004 halving in length.32

Administration and implementation of FFSL

NAFTA’s main objectives are economic and lie with establishing a free trade zone rather than a common union. At the outset, NAFTA received criticism for not addressing migration, in particular the substantial irregular migration between Mexico and the US.

NAFTA does make some provisions for the temporary migration of skilled professionals between the three member states. The agreement defines skilled labour by profession and often requires a minimum educational requirement of a baccalaureate degree or higher as well as technical or vocational experience in certain sectors. The migration mechanism is a TN visa for non-immigrant NAFTA professionals and a TD visa for dependents. Skilled professionals who qualify in one of 70 professional jobs are able to work in the US under a one-year entry permit, which is renewable indefinitely.

Figure 5.5 Timeline of NAFTA integration

1992 Signing of NAFTA

1993Signing of the North American on Agreement Labour Cooperation (NAALC) and North American Agreement on Environmental Cooperation (NAAEC)

1994 NAFTA, NAACL and NAAEC take effect

2004 The cap on skilled migrants from Mexico is removed

26 Arnold,Bruce,“TheEffectsofNAFTAonUS-MexicanTradeandGDP”(WashingtonD.C.:CongressionalBudgetOfficePress,2003).27 Lederman,Danieletal.“LessonsfromNAFTAforLatinAmericaandtheCaribbeanCountries”(WashingtonD.C.:WorldBankGroup,2003).28 Grant,HughandJamesTownsend.“FreeTrade,ForeignInvestment,andMigration:Canada’sExperienceUnderNAFTA”(PCERIIworkingpaperpresentedat

the8thInternationalMetropolisConference,Vienna,Austria,September18,2003).29 Lederman,Danieletal.“LessonsfromNAFTAforLatinAmericaandtheCaribbeanCountries”(WashingtonD.C.:WorldBankGroup,2003).30 Ibid.31 Salas,CarlosandEduardoZepeda,Wages and Productivity in Mexico: Theoretical and Empirical Issues,(papercommissionedbytheCarnegieEndowmentfor

InternationalPeace,July2003).32 Hornbeck,J.F.,“NAFTAatTen:LessonsfromRecentStudies”(CongressionalResearchServicereportforU.S.Congress,2004).

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Canadian professionals can acquire TN status at any border crossing or within American territory with proof of qualifications, an American employment letter, and proof of ability to meet applicable license requirements. Mexican professionals are required to apply for TN status at consulates or embassies before arriving in the US and pay a US$50 fee. Although the temporary TN status is indefinitely renewable, it prevents the granting of US citizenship

to TN professionals. The TN process for entering and working in Mexico and Canada for intra-bloc citizens is nearly identical to the American process.

Originally, the number of TN visas issued to Mexican citizens wishing to enter the US was limited to 5,500. However, the US removed this cap in 2004 and migration numbers have increased steadily ever since.

Graph 5.6 TN visas issued in the United States of America33

100000

90000

80000

70000

60000

50000

40000

30000

20000

10000

0

2001 2003

Year

20062004 20052002

Mexico Canada Total

33 ImmigrationYearbooks,2001-2006.Datapriorto2001isnotcomparableasTNandTDvisasareclusteredtogether.

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While some sources show Canada as having a net gain in worldwide skilled labour, it has a net loss vis-à-vis the US. Thus, both Mexico and Canada remain worried about the potential problems of brain drain associated with intra-bloc labour mobility. Approximately 12 percent of PhD-educated Canadians emigrate to the US, with figures for Mexican PhD earners living in the US reaching nearly 30 percent of the total pool.34

NAFTA is able to facilitate labour mobility despite a lack of effort and minimal cost. The addition of a TN status category to existing immigration codes in the three countries is virtually cost-free, whereas the EU spends billions of Euros to encourage labour mobility. Historically, migration from both Mexico and Canada to the US is relatively high, driven by wage differentials and business demand. With NAFTA, the existing migration pattern is simply reinforced.

Key lessons learned from NAFTA

The NAFTA experience highlights the fact that the approach governments take to bloc integration determines the character and outcome of the bloc. The framers of NAFTA never intended for trilateral relations to extend beyond creating an economic free trade area, in contrast to deeper and more ambitious projects aimed at political union. Despite this, NAFTA has been able to achieve labour mobility by simply implementing an extra immigration category at virtually no additional cost.

Despite convergence in labour standards, economic integration has not brought about wage convergence so there is still incentive for temporary skilled labour migration. For ASEAN, two lessons emerge. First, so long as wage disparities exist, migration will also. Second, the NAFTA case highlights the fact that economic integration intensifies current migration patterns rather than creating a rush of migration.

34 Vitela,Natalia,“BrainDrain”(GrupoReforma,15February2002).

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MERCOSUR

The Common Market of the South (MERCOSUR) is a regional trading bloc comprised of the South American nations Argentina, Brazil, Paraguay, and Uruguay. MERCOSUR’s combined land area makes up 67 percent of the South American continent concentrated primarily in its southern cone, 40 percent of the continental population (263 million people), and has a combined GDP of US$2.78 trillion dollars a year, making it the fifth largest economy in the world.

On the face of it, MERCOSUR straddles a position somewhere between the integrated harmony of the EU and the limitations of NAFTA. Much of its history since its establishment under the 1991 Treaty of Asuncion, is of a bloc at an evolutionary crossroads struggling with fundamental political questions over the shape and direction of its future character. Originally a regional free trade agreement, MERCOSUR struggles to build an identity while battling between those who believe it should remain a free trade area and others who aspire to political integration and a common market. MERCOSUR’s story is not unlike ASEAN’s — a group of states adapting to the push and pull of global forces, developmental imperatives, and each other.

Historical background

Latin American integration has a long history prior to MERCOSUR’s establishment in 1991. Prior attempts to form a common union include the Latin American Free Trade Association (LAFTA) in 1960 and its later incarnation as the Latin American Integration Area (LAIA) in the 1980s. Unlike the EU, Latin America’s evolution is marked by wholesale paradigmatic changes in economic development strategies, rather than by a linear and progressive process of evolution. Thus, just as ASEAN forms one part of the larger Asia Pacific context, MERCOSUR’s integration is intertwined with the politics of its neighbors on the South and North American continents.

Bolivia

Peru

Colombia

Venezuela

Chile

Ecuador

FrenchGuiana

Suriname

Guyana

Brazil

Argentina

Paraguay

Uruguay

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LAFTA and the import substitution model

The first important attempt at Latin American integration was in 1960 at the Treaty of Montevideo to establish what later became the Latin American Free Trade Association (LAFTA). Spurred by the theoretical inspiration and leadership of Argentine economist Raúl Prebisch, director of the Economic Commission for Latin America (ECLA), supportive governments rallied around the Prebisch thesis advocating a regional strategy of import substitution as a necessary means to promote industrialisation

The US’s desire to influence the course of Latin American integration was apparent as early as the Treaty of Montevideo, during which it tried to apply counter pressure to LAFTA states through its representation in the General Agreement on Tariffs and Trade (GATT) and its embassy outpost in Brazil. The US sought to support LAFTA as a free trade organisation in contradistinction to the preferential trade area sought by the ECLA. The relatively weak economic positions of many of the LAFTA member states put them in a precarious situation vis-à-vis American influence. The two markedly different perspectives on regional development stemming from the LAFTA experience left an indelible legacy on the region’s future politics of integration.

LAIA and the shift to export-oriented development

By 1980, petrodollars provided Latin American countries with unprecedented finance capital, causing a reevaluation of ECLA’s import substitution model and its limitations. Severe economic crises hit a few years later and the accumulation of industrial and social costs associated with state-directed

enterprises and the foreign debt contracted by them discredited the legitimacy of the military regimes and left states beholden to radical IMF restructuring. Therefore Latin American Integration Association (LAIA) was established firmly on export-oriented, neoclassical principles, marking the shift in economic thinking and the rise of new democratic civilian governments.

The Treaty of Asuncion and the inauguration of MERCOSUR

Argentina, Brazil, Paraguay, and Uruguay established MERCOSUR in 1991 when they signed the Treaty of Asuncion with the declared aim of constituting a “common market.” The treaty had four main goals: establishing the free circulation of goods, services, and factors of production; adopting a common tariff and trade policy; coordinating macroeconomic and sectoral policies; and harmonising domestic legislation. The treaty abstained from referring to political institutions and focused solely on the economic and trade realms, a deliberate oversight of the social dimensions of integration that immediately prompted the need for redress.

While the Treaty of Asuncion is notable for the willingness of signing governments to set aside a long history of sometimes intensely bitter political-economic rivalry, the process suffered from a lack of public discussion in any of the countries prior to signing. The treaty does not discuss labour beyond the basic institutional structure defined for integration implementation, unleashing a host of problems for national labour markets. Of the 10 thematic subgroups specified at Asuncion, labour was omitted and not addressed until union groups demanded officials add an eleventh category. The

Figure 5.7: Timeline of MERCOSUR integration

Latin America Free Trade Association Latin American Integration Association MERCOSUR

1973OPEC price hikes; global petrodollar financing

1980s‘Lost decade’: Recession; IMF restructuring

1964Goulart overthrown in coup; Brazil’s shift towards export industrialisation

1960s 1970s 1980s 1990s 2000s

Authoritarian-bureaucratic Civilian/democratic Regional bloc

Free trade area vs. common market

Export orientedImport substitution

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Labour Relations, Employment, and Social Security sub-group held its first meeting in March 1992, a full year after the start of the integration process.

Labour dimension in MERCOSUR

Interestingly, union groups responded to MERCOSUR’s missing labour dimension by communicating and organising across borders, taking a bloc-level coalition approach to demanding more democracy and participation in the bloc-building process. Unions in the four countries vigorously organised in response to the Asuncion Treaty.

Just six months after signing the MERCOSUR treaty, unions approved a resolution demanding political democracy, guarantees of fundamental rights, participation in organs of deliberation and consultation, and a hand in the development of social and labour policies. Amongst central principles of action were: demands for the guarantee of worker and social protection compatible with international norms; definition of standards based on existing legislation; concentration on the raising of current levels and not on the unification at the lowest common denominator; establishment of guarantees for the realisation of collective international negotiations; and equality of conditions for all workers.35 Union coalitions received strong public support because many people felt MERCOSUR was thrust upon them and was undemocratic.

By pushing for amendment, rather than rejecting MERCOSUR off hand, unions of the four countries made great strides in changing the future momentum and character of the bloc’s development. A three-year transition period following the Treaty of Asuncion ended with the signing of the Protocol of Ouro Preto in 1994. The protocol established a common external tariff structure for MERCOSUR and international juridical personality, enabling international negotiations outside the bloc as a single entity. Its political purpose was to finalise the transition period and give MERCOSUR a permanent institutional structure. However, despite its new international legal personality and juridical bases, by 1994 MERCOSUR had not achieved the original plan (reflected in the name of the bloc) of becoming a common market. This was in part due to the political inclinations and will of its framers, who preferred to keep MERCOSUR a free trade area

rather than a unified market. The global financial crises of 1995-1999 led to turmoil in Brazil and the near collapse of the Argentinean economy in 2001. This put the policies of economic conservatives into question and prompted a shift towards a new political climate and openness to institutional redefinition.

Administration and implementation of FFSL

The new leftist governments ushered in by the financial crises viewed the MERCOSUR framework and its symbolism with political interest its prior governments had not. After a decade of economically-oriented reform, MERCOSUR’s new 21st century leadership saw the bloc as a symbol of resistance to US-promoted hemispheric free trade, and ambitiously hoped to create a “political MERCOSUR” that would promote social rather than merely economic well-being.

The paradigm shift change in thinking and leadership prompted advancements in social and political integration to promote occupational mobility through such schemes as the Agreement on Free Residency for Nationals of the Member States, Chile, and Bolivia as well as a two-year initial pathway to applying for permanent residency in another member state of the bloc. The agreement is a tool to contribute towards promoting free circulation within the bloc. The Declaración Sócio-Laboural del MERCOSUR and the Comisiónes Técnicas emphasise mutual skills recognition and workforce development and investigate labour, employment, and social security matters.

The most striking move came in the form of the 2004 Formal Declaration of the Labour Ministers. The Declaration formalised and institutionalised their commitment to the harmonisation of labour policies and integration of labour markets as top priority. Leaders then established a Labour Market Observatory for MERCOSUR to collect, organise, and disseminate labour market information as part of the larger program of the High Level Group for the Elaboration of MERCOSUR Strategy on Employment Growth. It seems for the meanwhile, MERCOSUR is incrementally but seriously moving towards forming a common market as its chosen direction for the 21st century.

35 Hector,AlimondaandBillSteiger,“MERCOSUR,Democracy,andLabour,”LatinAmericanPerspectives(Autumn1994):31.

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Key lessons learned from MERCOSUR

The MERCOSUR experience highlights the importance of social engagement in the integration process. By focusing solely on economic and trade concerns in the bloc’s inauguration treaty, the bloc’s regional leaders missed an opportunity to set a positive momentum for the integration process. The lack of consideration for the labour dimensions of bloc integration proved costly economically, socially, and politically. Feeling ostracized and neglected, labour groups bonded across countries making calls for social inclusion, consultation, and participation in the decision-making process. Their reactive posture reflected the public backlash and mistrust sewn between MERCOSUR’s leadership and social groups, making later phases of cooperation difficult

and time-consuming. It took three additional years to formally correct the initial social oversight of the Asuncion Treaty, and a further decade to build cooperation and alignment between civic, government, and business groups at the domestic and regional levels.

The MERCOSUR case also emphasises the role of regional institutional development in forging integration. Without the political will or commitment to develop regional bodies to adjudicate, decision-make, and implement tasks for the welfare of the bloc as a whole, regional integration is likely to be bogged down by the politics of bilateral processes and slowed by the limited capacity of individual governments to deal with regional matters through traditional diplomatic channels.

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There are a number of ways ASEAN and national policy makers can direct the current and future competitiveness of ASEAN’s labour market and the following recommendations outline the way forward. Many of these focus on strengthening governmental effectiveness through greater collaboration and long-term relationship-building among various parties to ensure sustainable economic development.

A. Strengthen regulatory environment and labour policy

Countries should conduct regular reviews of labour law and policy to ensure they stay relevant as business and employee requirements evolve over time, allowing for enough flexibility to respond to changes in economic conditions. Reviews are best when done with the consultation of a balanced group of stakeholders including leaders from businesses and employee organisations. Intergovernmental collaboration on labour law enforcement and technical matters will also strengthen the regulatory environment for worker protection.

B. Host ASEAN-level tripartite platform to promote progressive labour practices

Labour policy makers can initiate an ASEAN-level platform to promote progressive labour practices. This open, participatory tripartite framework fosters communication between member states and includes representation from the private sector, unions, civil society, and professional organisations. In addition, leaders should create other formal and informal opportunities for stakeholder groups across countries to interact, network, and discuss labour-related issues.

C. Develop deep tripartite links at the national level to promote progressive labour practices

National governments should take a lead role in fostering strong relations with tripartite stakeholders at all levels (provincial, sectoral, regional, and national). This can be achieved by:

institutionalising mechanisms for communication and collaboration across organisations;

actively involving stakeholders in social and labour policy formulation, particularly on issues of wage determination and labour conditions; and

improving governmental support for dispute mediation/arbitration to aid industrial relations.

National governments can further promote progressive labour practices through providing economic incentives for cooperation and celebrating cooperative organisations and practices.

Lastly, government labour leaders can facilitate lasting tripartite relations by building knowledge across stakeholder groups, enabling parties to understand each others’ issues and perspectives and increasing their capacity to think strategically regarding human capital and labour market development. Examples include training human resource managers on business and labour law as well as worker rights; training government staff on business practices and human resource management; and training employee groups on economics and business concepts. This lays the foundation for greater cooperation through building a common working vocabulary and by building consensus rather than competition.

D. Develop strategic long-term education policy linked to industrial development and manpower planning

Harmonising education policy with manpower and industrial planning will improve the quality of future labour supply and national competitiveness. It ensures maximum returns on strategic investments in education and training, equipping the workforce with the right capabilities for growth industries. Industrial planning and economic development

Chapter 6

Recommendations

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departments are best placed to be consulted on manpower planning and allocation due to their access to information on investor needs and strategic plans in the short- to medium-term future. In particular, technical and vocational training should be closely linked to the business community. Governments can develop technical curriculum in partnership with leaders in industry, employee organisations, and professional organisations.

Co-investment between governments and the business community is positive for all parties and improves labour quality and productivity in the long run. Such co-investment schemes can be highly tailored to sector-specific needs and encourage firms to take a long-term view of their human capital development plans. Moreover, co-investment can be complemented with economic incentives to adopt higher value-added processes that encourage skills development and technology-driven skills transfer from international companies.

E. Strengthen labour data quality and dissemination

Strengthening labour data collection, quality, use, and sharing across ministries and government is fundamental to good governance and fact-based decision making in the immediate term and for accurate labour forecasting and national planning.

Businesses and employee organisations benefit from information sharing as well, since this enables issue-based discussions.

Institutionalising stakeholder collaboration and refining governmental design are key to garnering quality data and optimising information flow.

F. Develop a common ASEAN framework for managing FFSL

Definitions of “skilled” labour for migration purposes vary across regional blocs, therefore ASEAN, too, must find its own definition as a cornerstone for managing FFSL. Other bloc experiences suggest that ASEAN gains strength as a union by tackling difficult labour migration issues at the outset rather than dealing with problems as they arise. Sound frameworks and

institutions are essential to successful, sustained labour migration and include policies and systems for data sharing, policy harmonisation, frameworks for collaboration between states, and dispute resolution mechanisms.

FFSL implementation should focus first on high value and priority integration sectors in order to reap immediate gains from FFSL where it is most likely to be beneficial. A gradual approach also allows for evaluation of FFSL effects (intentional and unintentional), as well as policy and institutional fine-tuning.

G. Initiate ASEAN jobs database

The EU web-based job portal is a highly effective, low-cost method to promote FFSL between member states. ASEAN can initiate a similar web-based job portal to serve both intra-ASEAN and international job-seekers. To simultaneously maximise visibility and efficiency in service delivery, the portal can be hosted at the ASEAN level, but managed by private sector vendors with deep technical and industry specific expertise. Apart from keeping an up-to-date listing of job opportunities across ASEAN, the site should also provide links to information useful to job seekers such as schools, housing, healthcare, legal, and immigration matters.

H. Support and strengthen ongoing recognition of qualifications and skills programmes

Enhanced recognition of qualifications and skills programmes are key enablers of effective FFSL, as they serve as an important reference point for employers and potential employees in their manpower and career planning. In addition to current ongoing programmes including “Enhancing Skills Recognition Systems in ASEAN,” ASEAN stands to gain more by focusing on high value and priority integration sectors. National governments can work toward this objective where it is mutually beneficial while building national skills frameworks and then harmonising frameworks at the ASEAN level.

I. Support ongoing efforts to promote an ASEAN identity

Promoting the emergence of a distinct ASEAN identity is outlined in the Vientiane Action

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36 TheVAPisavailableat<http://www.aseansec.org/VAP-10th%20ASEAN%20Summit.pdf>.

Plan,36 and placing greater emphasis on ASEAN language education (particularly English) positively impacts labour quality as well as FFSL. English language education can be promoted at all levels of education and training, beginning in primary school. In addition, education ministries can support these efforts by promoting greater cross-cultural exchange opportunities and study-abroad schemes within ASEAN.

J. Conduct further study and follow up

1 Analyse impact of FFSL

This study finds that national level data is insufficient to predict precisely the impact of FFSL. Study at sector and industry levels can provide data that can quantify the impact of FFSL. Policy makers need this information in order to implement policies that maximise positive FFSL effects and mitigate any negative effects.

2 Investigate important, related issues that were outside the scope of this study

a. Unskilled worker migration is outside the scope of this study but merits analysis particularly since there are massive numbers of such migrants and it is in ASEAN's interest to manage migration of unskilled workers in a systematic manner. These migrants can contribute heavily to the economic success of the region, and a follow up study could examine challenges associated with unskilled worker migration.

b. Youth unemployment presents a major challenge, particularly for some urban centres. If well-managed, there is potential for creating hubs of excellence and economic development. Further study can explore opportunities to harness the human capital offered by these youth through progressive labour practices.

c. The gender disparity in workforce participation presents a tremendous opportunity for growth in ASEAN productivity. Further study may uncover strategies and best practices in labour and human resource policy that can enhance female participation in ASEAN's workforce and translate into large productivity gains for ASEAN economies.

3 Follow up on this study with country level workshops

Beyond what is contained in this report, additional country level insights were collected from stakeholders that should be debriefed at the country level. The information is not shared in this report because much it is sensitive, some of it is confidential, and all of it needs to be vetted with national labour officials and eventually with other stakeholders.

Conclusion

ASEAN’s labour leaders and policy makers share an enormous challenge — that of preparing their workers to greet an increasingly competitive global environment pivotal for the region’s sustained economic development. While this study refers to labour markets and business and stakeholders, the whole journey is all about people — the hopes of ASEAN’s entrepreneurs, its youth, its unions, and its civil servants — and their ability to carve out a future filled with opportunity. Whether ASEAN will be able to ride into the future to compete head-on with the best in the world is dependent on how policy makers and leaders respond by adopting progressive labour practices and pragmatic labour migration policy that will create an environment conducive for talent to grow, multiply, and thrive.

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