Friday, April 28, 2006

Asia Faces Jobs Crisis that Could Hit Growth

By: Jo Johnson in New Delhi
Financial Times
April 27 2006

Asia is facing a potential unemployment crisis prompted by a slow-down in economic growth which doesn’t seem to be reaching an up-turn any time soon. The pace of job creation has left an unemployment rate of approximately 30 percent, or 500 million people in a region with a total labor force of 1.7 billion. This level of unemployment could lead to “social instability, political strife, policymaking paralysis and capital flight.” If these unemployment issues are not addressed, India, for example, could face a 3 to 4 percent growth within five to six years, as opposed to the current 7 to 8 percent growth.

Newly industrialized economies, such as Hong Kong, South Korea, and Singapore have succeeded in generating many new jobs which demand high skills but pay high wages. South Asia, on the other hand, has failed in attempts at creating similar new “good jobs.” Approximately 1.9 billion Asians live on less than $2 per day, despite the region’s progress in reducing poverty. In China it getting harder to create jobs, a problem which is not alleviated by the fact that it took an 8 percent growth rate to stimulate a 1 percent increase in employment, as opposed to the much smaller 3 percent growth rate required in the 1980s.
Employment growth rates are especially low in the formal sector, which is more capital intensive and where workers have more defined employment contracts and decent working conditions. Some analysts warn that “Asia’s success will sooner or later be eclipsed by the pressures of a huge ‘reserve army’ of unemployed and underemployed workers who are constantly driven to seek out employment at substandard wages in order to survive.”

1) What effect, if any, does the increasing outsourcing of jobs to Asia have on employment rates?
2) Does the decreasing employment rate in Asia indicate that there is a slow-down in outsourcing in addition to a decrease in domestically-created jobs?

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