Publication Date

1-2008

Abstract

[Excerpt] Japan and the East Asian tiger economies of Korea, Singapore, Hong Kong, (as well as Taiwan) and more recently Malaysia are often touted as the preeminent examples of economies that attained, or have come close to attaining, at different periods of time, the desirable path of high growth, low unemployment, low inflation, that is spread enough to radically reduce absolute poverty in those respective countries.

Japan achieved what has been called its post-war economic miracle from 1952 to 1973, allowing it to wipe out poverty in the country. And while its growth has been relatively stagnant for more than a decade now, it is still the world’s second largest economy possessing one of its highest per capita incomes. Korea’s ascension to the ranks of industrialized economies was more recent but quite rapid, occurring from the early 1980s to the present, its run broken only briefly by the Asian financial crisis of the late 1990s. Estimates of the poverty incidence in Korea differ but typically place it at the low single digits. Singapore began its own climb towards developed-country status immediately after its independence in 1965 and after opening up to foreign investors - over the last four decades it has grown at an average annual rate of better than 8 percent. Hong Kong’s growth began even earlier in the 1950s and 1960s as exporter of textiles, clothes, and toys, although it has moved mainly to financial and trade services since the 1980s – it has grown more than 7 percent per year in the last four decades. Malaysia’s development is the most recent of the five countries, having in fact benefited from foreign direct investments from the earlier developers in the group, particularly Japan and Singapore.

The paths taken by the five economies towards industrialization are quite similar, with growth propelled, at least initially, by very robust industrial sectors stimulated by foreign direct investments directed towards exports. There are still disagreements on the ultimate causes of these developments, with some arguing for the large investments in human and physical capital undertaken in these economies, others from the demographic dividend from the baby boom generation, etc.

What is not in disagreement, and what has been much discussed recently, is that as a consequence of their development paths, all five economies have faced and will continue to face in the coming decades the problem of labour shortage.

There are strong demand and supply forces causing the labour shortage in the five economies. On the demand side, rapid and sustained economic growth required and will likely continue to require a steady increase in the labour force2. Further on the demand side, as a consequence of moving towards more knowledge-based economies, the need for highly-skilled and highly-educated workforce in specific sectors has outstripped what each country can domestically supply. On the supply side, as the economies of the five economies grew, their total fertility rates fell to what is now very much below the replacement level of about two. Furthermore, as per capita income and the standard of living increased in these economies, reservation wages of the domestic workforce have also increased, especially for low-skilled jobs deemed “difficult, dangerous and dirty” or 3-D jobs, thus adding to the supply pressure. The shortage in labour is thus present in the aggregate and for specificjobs or sectors.

All five economies have already implemented various responses to the labour shortages they have faced and are anticipating. Drawing from the available literature, this paper will discuss the extent of the labour shortage in these five economies and their past and present responses to it with a view towards evaluating which policies have worked and are likely to work in the future. The paper proceeds as follows: Section 2 discusses the extent of the labour shortage in Japan, Korea, Singapore, Hong Kong, and Malaysia. Section 3 outlines a model that is used to frame the labour-shortage issue. Section 4 reviews the responses to labour-shortage in the five economies. Section 5 concludes.

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Copyright © International Labour Organization 2008

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