Does the AEC spell open season for skilled workers?

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With South-East Asian borders becoming porous, skilled workers sit up and twiddle their fingers. But is it really as good as it sounds?

With the deadline of December 31, 2015 knocking at our door, there are increasing discussions on the form and bearing of the Asean Economic Community (AEC) on labour markets. Citizens in general are concerned not only about more choices of consumer products but also about employment prospects. This is because the AEC envisions Asean as a single market with a production base characterised by free flow of goods, services and investments, as well as freer flow of capital and skilled labour.

AEC’s impact on the region’s employment prospects comes from two channels: first from the structural changes in domestic economies; and second from the AEC’s promotion of free movement of skilled labour through the establishment of Mutual Recognition Arrangements (MRAs) of professional services. With structural change overtime, the AEC can potentially boost the region’s GDP by 7.1% by 2025 and generate 14 million jobs in the process. However, the gains will not be evenly distributed across countries, sectors or skill groups. It should be noted that structural shifts in domestic economies and their impact on labour markets will take time to materialise and it is expected to happen only when other AEC measures of trade, investment and connectivity have been carried out effectively.

As for the MRAs, although they have been signed for seven professions, their effectiveness in promoting greater flows of professional services within the region is negligible, as the individual economies are yet to align their domestic rules and regulations to the regional initiative and because the impact of these occupations on total employment in the Asean countries is very small. Although the changes in the labour market will take time to materialise, policymakers need to start preparing for them now. No doubt, AEC will result in higher welfare, wages and employment, but the benefits will be distributed unevenly, increasing existing inequalities.

To address this, coordinated and coherent policies will be needed at both regional and national levels to ensure inclusive and fair outcomes.

Vietnamese floating market. The AEC will result in higher welfare, wages and employment, but the benefits will be distributed unevenly, increasing existing inequalities.

Shifting manpower across the region1

AEC has the potential to influence the production process in the future, and may lead the region’s 300 million workers to move from one economic sector to another. There may be some sectors and occupations that are likely to grow as the Asean integration process matures overtime. This has been observed in the past, but the AEC could accelerate the pace of structural change.

In the last two decades, Asean saw a decline in agriculture employment, which was mainly compensated for by the services sector. Currently, while agriculture accounts for 40% of total employment, industry accounts for 19% and services for 41%. However, a regional generalisation masks the cross-country variation; even today, agriculture remains the largest employer for Cambodia, Laos, Myanmar, Thailand and Vietnam, whereas the services sector plays an important role only in Singapore, Brunei, Malaysia, the Philippines and Indonesia.

Cambodian rice field. Even today, agriculture remains the largest employer for Cambodia, Laos, Myanmar, Thailand and Vietnam.

A recent publication by the Asian Development Bank and the International Labour Organization (ADB-ILO) estimates that by 2025 – with AEC in place and for the six Asean countries for which detailed labour market data is available, i.e. Cambodia, Indonesia, Laos, the Philippines, Thailand and Vietnam – a total of 14 million new jobs could be created compared to a baseline scenario without the AEC in place. The six countries would gain jobs in agriculture, although agriculture will decline in relative terms. In addition, job gains in trade and transportation, construction and manufacturing sectors are expected. However, some of these sectors are known to be vulnerable and informal. In Vietnam, for example, two-thirds of the new jobs created because of the AEC in 2025 could be vulnerable2. Job losses, on the other hand, could be felt in food processing, private services and mining industries for some of these economies.

The impact on the labour market could also be felt in shifts in occupational demand. The largest absolute demand is likely to be for low and mediumskill occupations such as service and sales workers, skilled agriculture and fishery workers, plant and machine operators, and craft and related trade workers, though the demand for highskill occupations such as managers, professionals and technicians will grow at the fastest rate. This could worsen existing skill mismatches, as forecasted by the ADB- ILO study3.

As for gender impact, women are likely to lose out to men in their share of new jobs, especially in Indonesia, Thailand, the Philippines and Laos. The AEC, however, has potential to increase productivity, especially in the less developed CLMV countries4, which could be translated into wage gains, provided relevant wage setting mechanisms are in place5.

Red tapes and fine print6

In the AEC Blueprint, member states have adopted a framework for MRAs and have agreed on these for the following professions: engineering and architecture, nursing, accountancy and surveying services, medical and dental.

Break for lunch at a factory. AEC has the potential to influence the production process in the future, and may lead the region’s 300 million workers to move from one economic sector to another.

This allows each member country to recognise education, experience, licenses and certificates granted in another country. However, it is only engineering and architectural services that recognise the skills of registered Asean architects and engineers; the rest are frameworks for negotiating bilateral and multilateral MRAs. Hence, these could be viewed as “tools” for Asean economies to promote mobility of professionals within the region on a voluntary basis rather than under binding commitments.

For the MRAs, effective movement and subsequent benefits will be very limited. First, as the ADB-ILO study notes, the current employment in seven of the eight professions7 together account on average for only one per cent of total employment in the six Asean countries8 studied. Second, while MRAs are a regional initiative, domestic rules and regulations governing these professions still apply.

For example, although the Thai Engineer Act 1999 does not explicitly impose a nationality requirement for granting professional engineer license, it stipulates that applicants for such a license must be a “regular” or “irregular” member of the Council of Engineers. It further mentions that regular members need to be Thai citizens. Hence, foreign registered engineers qualify only as “irregular” members who have to again satisfy conditions defined by the Council. Similarly in Malaysia, foreign engineers have to be licensed by the Board of Engineers for specific projects and must be sponsored by the Malaysian company carrying out the project.

In the AEC Blueprint, member states have adopted a framework for MRAs and have agreed on engineering and architecture as one of the professions.

For architects, most countries impose restrictions on residency or nationality to become fully licensed architects. Foreign architects are often allowed to work on a project-based basis and in most cases, employers have to show proof that an equivalent national professional is not available. Under nursing, again the domestic regulations are not addressed, leading to limited cross-border movement in this profession. For example, in order for a Filipino nurse to practice in Thailand, the candidate must pass the national licensure exam in the Thai language. As for surveying, the MRA only provides the enabling framework of broad principles for further bilateral and multilateral negotiations among Asean member states.

Policies for the future

The advent of AEC by the end of next year does not mean immediate changes in the Asean labour market; as economic integration progresses over time, the region may observe structural changes that enhance employment prospects, but those changes will take time. As such, policymakers need to start preparing for such changes now.

Quality education and training will remain a key public policy issue not only because of the need to address the mismatch between skills supply and demand, but also for Asean economies to remain competitive in the future. While the AEC is expected to raise welfare, wages and employment, the benefits are likely to be distributed unevenly among countries, sectors and gender, leading to increased inequalities.

In order to address this, governments would need coordinated and coherent policy measures at regional and national levels. Such policies should relate to implementing social protection mechanisms, including portability of migrant social security, extending the MRAs to medium-skill occupations that dominate migration flows in Asean, ratifying ILO core labour standards9 to create a level playing field in the region for workers and enterprises, protecting migrant workers in line with the Asean Cebu declaration10, promoting gender equality and ensuring quality labour market information in the region to ease the monitoring of the impact of AEC on labour markets. The architecture for regional cooperation already exists – the challenge is to ensure that mechanisms for implementation are in place.

Since MRAs do not address the domestic rules and regulations of Asean economies, there will be barriers to cross-border movement of professionals, preventing any significant regional impact in the short run. In the future, much will depend on unilateral actions by member economies and on their willingness to change domestic laws to facilitate the movement of professionals. Even if these happen, policymakers will subsequently need to clearly communicate their policy directions and convince their professional bodies to share the same objective and vision.

1 This section comes from a recent publication by the Asian Development Bank and the International Labour Organization - Asean Community 2015: Managing Integration for Better Jobs and Shared Prosperity, 2014 (www. ilo.org/asia/WCMS_304022/lang--en/index. htm).
2 See ADB-ILO (2014) “Vietnam Country Brief”. Vulnerable employment is defined as employment in own account work and unpaid family work.
3 See ADB-ILO, p60.
4 CLMV countries here denote Cambodia, Laos, Myanmar and Vietnam.
5 Currently, the Asean region presents significant gaps between rate of growth of productivity and rate of growth of wages (ADB-ILO 2014 study, pp69-70).
6 This is explained in detail by Deunden, Nikomborirak and Jitdumrong, Supunnavadee (2013), “Asean Trade in Services”, in Sanchita Basu Das, Jayant Menon, Omkar L. Shrestha and Rodolfo Severino (Eds.), The Asean Economic Community: A Work in Progress, Singapore: ISEAS, pp95-140 (www.adb.org/ publications/asean-economic-community-workprogress).
7 The eighth profession is “tourism professionals” for which a single occupational category is not available.
8 These are Cambodia, Indonesia, the Philippines, Laos, Thailand and Vietnam.
9 Labour standards are legal instruments, internationally agreed upon and drawn up by the ILO's constituents (governments, employers and workers) who set out basic principles and rights at work. The ILO's Governing Body has identified eight conventions as "fundamental" or “core”, and they relate to freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation.
10 The Asean declaration on the protection and promotion of the rights of migrant workers, adopted in 2007, is commonly referred to as the Cebu declaration.

Sukti Dasgupta is the senior economist and head of ILO’s Regional Economic and Social Analysis Unit, Bangkok. She led the ILO team that prepared the Asean report, Asean Community 2015: Managing Integration for Better Jobs and Shared Prosperity.

Sanchita Basu Das is a fellow and lead researcher (Economic Affairs) at the Asean Studies Centre, Institute of Southeast Asian Studies (ISEAS), Singapore. She is the coordinator and editor of the ISEAS-ADB publication, The Asean Economic Community: A Work in Progress.

This is an abridged version of ISEAS Perspective 2014/51, published by the Institute of Southeast Asian Studies (ISEAS).



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