Mass Unemployment The New Normal In SE Asia

Source: Asia Times

A new International Labor Organization report suggests that more than one in six young people worldwide has stopped working since the start of the Covid-19 pandemic, while the rest have seen their working hours cut by almost a quarter.

In Southeast Asia, unemployment rates have spiked to almost unprecedented levels because of the pandemic, which has devastated economies to varying degrees. Until now, official unemployment rates in the region have been enviably low.

Before 2020, Cambodia’s unemployment rates had barely risen above the 2% mark since the early 1990s, while Vietnam’s had also been consistently at less than 2%, according to data from the United Nations Development Program (UNDP). For the last decade, Thailand’s jobless rate has hovered around 0.6%.

But that has all suddenly changed due to the Covid-19 pandemic. In Laos, where the formal unemployment rate was around 0.7% last year, joblessness has recently spiked to around 25%, the Vientiane Times, a local newspaper, reported this month.

Unemployment rates have risen to a ten-year high in Vietnam, where the pandemic has cost nearly five million Vietnamese workers their jobs in just the first quarter of this year, according to the country’s General Statistics Office. Experts predict that rate will climb higher when figures for the more economically-debilitating second quarter are released.

In Thailand, which is projected to suffer the worst economic contraction than any Southeast Asia state, due largely to its high dependence on global tourism, reports suggest the unemployment rate could climb to almost 25% if the economic crisis lasts for several more months.

An ILO report from the end of April predicted that six million workers would lose their jobs in Thailand’s virus-hit tourism industry, though the figure could be even higher, analysts say.

“We expect the impact on the economy to drag on for quite a while, not only three months but possibly six or nine months,” Thai Prime Minister Prayut Chan-ocha reportedly said earlier this month.

The impact on employment could last much longer, however, according to the ILO.

“The Covid-19 economic crisis is hitting young people – especially women – harder and faster than any other group,” ILO Director-General Guy Ryder said in a statement. “If we do not take significant and immediate action to improve their situation, the legacy of the virus could be with us for decades.”

The percentage of work hours lost in the second quarter in Southeast Asia was 10%, compared to 10.7% globally, the ILO report estimated.

In many ways, however, Southeast Asia’s official unemployment rates don’t tell the full picture. That’s especially true in mainland Southeast Asia, where only a small portion of the workforce is employed in the formal economy where workers are contracted by registered businesses and paid regular wages.

Instead, more than half of workers in most regional states toil in the informal sector, where they are paid day wages, have unsecured contracts, or are employed in family-run businesses or self-employed. 

In 2018, the percentage of Cambodia’s workforce considered to be in “vulnerable employment” was 50.8%, according to the UNDP. Thailand was slightly less at 47.3%, but in Vietnam it was 54.5%, in Myanmar 59.5%, and in Laos around 80%. 

Across the Asia-Pacific region, 84.4% of youths, aged between 15 and 24, work in informal employment, compared to 68.6% of adults, according to the ILO.

During usual cyclical economic downturns, the informal sector compensates for the loss of jobs in the formal one. The unemployed can return to work on family farms, head abroad to find jobs, or seek to create their own businesses.

But the Covid-19 pandemic has hit the informal sector especially hard. Lockdowns have hurt market vendors and small-scale traders, while the decline of formal tourism and manufacturing has dented the informal businesses that operate around these sectors, from delivery drivers to street-side vendors.   

Moreover, numerous reports note that informal workers, such as market vendors, domestic workers and delivery drivers, are most at risk of infection.

“Given that they have no savings or other financial cushion, most owners of informal enterprises may have no choice but to use their negligible business capital for consumption,” reads an ILO report from this month entitled “COVID-19 crisis and the informal economy.”

“As a result, they may be forced to close their informal business temporarily or permanently, leading to job losses and a surge in poverty,” it added.

A World Bank report from April, entitled “East Asia and Pacific In The Times Of Covid-19,” advised that “safety nets should be broadened in the form of enhanced unemployment insurance with extended duration, increased benefits, and relaxed eligibility.”

In addition,” it went on, “governments should design schemes to pay for sick and family leave to allow affected workers or their caregivers to stay home without fear of losing their jobs during the pandemic.”

For the most part, mainland Southeast Asian governments have done so. The Vietnamese and Thai governments have announced cash handouts for those rendered jobless by the pandemic.

Yet, for the most part, financial relief is mainly offered to formal sector workers.

In Cambodia, for instance, state relief is only provided to workers laid-off or furloughed in the vital garment manufacturing and tourism sectors, and only to those who had work for businesses formally registered with ministries, which many aren’t.

Southeast Asia’s vast number of migrant workers, most of whom head to Thailand, the largest recipient of migrant workers, have also felt the pinch.

Bangkok at first offered financial support only to Thai citizens who lost income due to the Covid-19 pandemic.

At the end of April, its Social Security Office finally agreed to pay unemployed migrant workers 62% of their daily wage for up to 90 days, though this is only available to the 2.7 million formally registered migrant workers in the country. A large proportion, however, worked informally and weren’t registered.

Moreover, many of these migrants returned to their home countries when the coronavirus crisis began in Southeast Asia in March, and so are ineligible to receive financial assistance from the Thai government. 

There are also complaints about the actual process of applying and receiving state entitlements by the newly unemployed.

In Thailand, there has been criticism that it’s hard to apply for new unemployment benefits, and that the money is slow to arrive. It’s a similar problem in other regional countries, where bureaucracy typically moves slowly and where IT systems are often rudimentary.  

There are more prosaic issues. To access government relief and unemployment benefits, people need bank accounts to receive the deposits. Yet a report last year from accounting firm KPMG found that only 27% of Southeast Asians have an active account.

Mass unemployment, moreover, will inevitably accentuate what were already dire debt problems in certain countries.

Thailand’s household debt to income ratio was 148.8% last year. In Cambodia, the average size of a microfinance loan, $3,800, is twice the nation’s GDP per capita. That’s sparked a public debate about whether the microfinance industry has effectively become legal loan sharking.

With mounting unemployment and collapsing economies, most people are already cutting back on expenses and trying to save whatever earnings they can muster.

That means there is less money circulating around domestic economies, either in the form of household consumption or business investment, that could spur new economic activity and create new jobs.  

Nomura, a Japan-based analytics group, recently opined that unemployment rates in Singapore, Malaysia and Thailand will be higher than they were during the 1997-98 Asian financial crisis, and that official rates will remain higher than pre-coronavirus levels once shutdowns end across the region.

“The resulting impact on incomes will act as a drag on demand for discretionary goods and services, and could also trigger indirect effects such as higher delinquencies on unsecured consumer loans and lower housing demand,” it said.

Meanwhile, World Bank and International Monetary Fund forecasts do not predict quick “V-shaped” recoveries in Southeast Asia, with most economies only expected to return to pre-pandemic levels of GDP growth in 2022.

That means the region’s sudden and unusually high rates of unemployment will linger and pinch for years, not months.