Unemployment in Asia (Routledgecurzon Studies in the Growth Economies of Asia)

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Unemployment in Asia

The rate of economic change in East Asia over the past two decades has been astounding. High levels of growth have been experienced by a number of the region’s developing economies, centralized systems have developed large market sectors, Japan has suffered a prolonged downturn and the 1997 crisis plunged the region into economic turmoil. This edited volume is the first work to comprehensively examine the effects of these changes on employment in the region. Chapters are devoted to market restructuring in China and Vietnam, the Asian Crisis and recovery and Japan’s business doldrums. The unique case of Malaysia – one regional economy that needs to import workers – is also brought into play, as is the example of high-tech Taiwan. Underpinning these case studies is a common theoretical framework and a strong structure for understanding. With its solid research and focus on a relatively unexplored aspect of one of the world’s most dynamic economic regions, Unemployment in Asia will interest students, academics, trade unionists, research bodies, government departments and international organizations. John Benson is a Reader in the Department of Management, University of Melbourne. Ying Zhu teaches international human resource management at the Department of Management, University of Melbourne.

Routledge Studies in the Growth Economies of Asia

10

Studies in the Economic History of the Pacific Rim Edited by Sally M. Miller, A. J. H. Latham and Dennis O. Flynn

Financial Reform in China Edited by On Kit Tam

11

Women and Industrialization in Asia Edited by Susan Horton

Workers and the State in New Order Indonesia Vedi R. Hadiz

12

Japan’s Trade Policy Action or reaction? Yumiko Mikanagi

The Japanese Foreign Exchange Market Beate Reszat

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Exchange Rate Policies in Emerging Asian Countries Edited by Stefan Collignon, Jean Pisani-Ferry and Yung Chul Park

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Chinese Firms and Technology in the Reform Era Yizheng Shi

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Japanese Views on Economic Development Diverse paths to the market Kenichi Ohno and Izumi Ohno

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Technological Capabilities and Export Success in Asia Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka Trade and Investment in China The European experience Edited by Roger Strange, Jim Slater and Limin Wang

1

The Changing Capital Markets of East Asia Edited by Ky Cao

2

3

4

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The Japanese Election System Three analytical perspectives Junichiro Wada

6

The Economics of the Latecomers Catching-up, technology transfer and institutions in Germany, Japan and South Korea Jang-Sup Shin

7

Industrialization in Malaysia Import substitution and infant industry performance Rokiah Alavi

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Economic Development in Twentieth Century East Asia The international context Edited by Aiko Ikeo

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The Politics of Economic Development in Indonesia Contending perspectives Edited by Ian Chalmers and Vedi Hadiz

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18

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Technology and Innovation in Japan Policy and management for the twenty-first century Edited by Martin Hemmert and Christian Oberländer Trade Policy Issues in Asian Development Prema-chandra Athukorala

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Japanese Economics and Economists since 1945 Edited by Aiko Ikeo

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China’s Entry into the World Trade Organisation Edited by Peter Drysdale and Ligang Song

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Hong Kong as an International Financial Centre Emergence and development 1945–1965 Catherine R. Schenk

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Impediments to Trade in Services: Measurement and Policy Implication Edited by Christoper Findlay and Tony Warren

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Economic Integration in the Asia Pacific Region Ippei Yamazawa

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Japan’s War Economy Edited by Erich Pauer

22

Industrial Technology Development in Malaysia Industry and firm studies Edited by K. S. Jomo, Greg Felker and Rajah Rasiah

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Technology, Competitiveness and the State Malaysia’s industrial technology policies Edited by K. S. Jomo and Greg Felker

The Japanese Industrial Economy Late development and cultural causation Ian Inkster

34

China and the Long March to Global Trade The accession of China to the World Trade Organization Edited by Alan S. Alexandroff, Sylvia Ostry and Rafael Gomez

35

Capitalist Development and Economism in East Asia The rise of Hong Kong, Singapore, Taiwan, and South Korea Kui-Wai Li

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Corporatism and Korean Capitalism Edited by Dennis L. McNamara

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Japanese Science Samuel Coleman

26

Capital and Labour in Japan The functions of two factor markers Toshiaki Tachibanaki and Atsuhiro Taki

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Asia Pacific Dynamism 1550–2000 Edited by A. J. H. Latham and Heita Kawakatsu

Women and Work in Globalizing Asia Edited by Dong-Sook S. Gills and Nicola Piper

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Financial Markets and Policies in East Asia Gordon de Brouwer

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Developmentalism and Dependency in Southeast Asia The case of the automotive industry Jason P. Abbott

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The Political Economy of Development and Environment in Korea Jae-Yong Chung and Richard J. Kirkby

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Law and Labour Market Regulation in East Asia Edited by Sean Cooney, Tim Lindsey, Richard Mitchell and Ying Zhu

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The Korean Economy at the Crossroads Edited by Moon Joong Icha and Chung-Sok Suh

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The Economy of the Philippines Elites, inequalities and economic restructuring Peter Krinks

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Ethnic Business Chinese capitalism in Southeast Asia Edited by K. S. Jomo and Brian C. Folk

51 41

China’s Third Economic Transformation The rise of the private economy Edited by Ross Garnaut and Ligang Song

Exchange Rate Regimes in East Asia Edited by Gordon De Brouwer and Masahiro Kawai

52 42

The Vietnamese Economy Awakening the dormant dragon Edited by Binh Tran-Nam and Chi Do Pham

Financial Governance in East Asia Policy dialogue, surveillance and cooperation Edited by Gordon De Brouwer and Yunjong Wang

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Restructuring Korea Inc. Jang-Sup Shin and Ha-Joon Chang

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Designing Financial Systems in East Asia and Japan Edited by Joseph P. H. Fan, Masaharu Hanazaki and Juro Teranishi

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State Competence and Economic Growth in Japan Yoshiro Miwa

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Understanding Japanese Saving Does population aging matter? Robert Dekle

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The Rise and Fall of the East Asian Growth System, 1951–2000 International competitiveness and rapid economic growth Xiaoming Huang

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Service Industries and Asia-Pacific Cities New development trajectories Edited by P. W. Daniels, K. C. Ho and T. A. Hutton

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Unemployment in Asia Edited by John Benson and Ying Zhu

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Development and Structural Change in the Asia-Pacific Globalising miracles of end of a model? Edited by Martin Andersson and Christer Gunnarsson State Collaboration and Development Strategies in China The case of the China-Singapore Suzhou Industrial Park (1992–2002) Alexius Pereira

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Capital and Knowledge in Asia Changing power relations Edited by Heidi Dahles and Otto van den Muijzenberg

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Southeast Asian Paper Tigers? From miracle to debacle and beyond Edited by K. S. Jomo

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Manufacturing Competitiveness in Asia How internationally competitive national firms and industries developed in East Asia Edited by K. S. Jomo

Unemployment in Asia

Edited by John Benson and Ying Zhu

First published 2005 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2005 selection and editorial matter, John Benson and Ying Zhu; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-415-34318-6 (Print Edition)

ISBN 0-203-48293-X Master e-book ISBN

Contents

Tables and figures Contributors Preface 1 Unemployment in Asia: influences and issues

ix xi xiv 1

JOHN BENSON AND YING ZHU

2 Globalisation and unemployment: East Asia and the OECD

11

MICHAEL WEBBER

3 Unemployment in Japan: globalisation, restructuring and social change

39

JOHN BENSON

4 Unemployment and labour markets in South Korea: globalisation, social impacts and policy responses

58

CHRIS ROWLEY, KIL-SANG YOO AND DONG-HEON KIM

5 Unemployment in Taiwan: globalisation, regional integration and social change

79

YING ZHU

6 Unemployment in the People’s Republic of China

97

GRACE LEE AND MALCOLM WARNER

7 The impact of economic reforms on unemployment in Indonesia

115

POPPY ISMALINA AND SARI SITALAKSMI

8 Malaysia: unemployment in the midst of full employment RAGAYAH HAJI MAT ZIN AND WENDY SMITH

133

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Contents

9 Unemployment in Thailand: social issues, challenges and opportunities

159

VIMOLWAN YUKONGDI

10 Economic reform and unemployment in Vietnam

176

NGAN COLLINS

11 Unemployment in Asia: implications of globalisation, regional integration, and social and economic transformation

194

YING ZHU AND JOHN BENSON

Index

205

Tables and figures

Tables 1.1 1.2 3.1 3.2 3.3 3.4 3.5 3.6 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5.2 5.3 5.4 5.5 5.6 5.7

6.1 6.2

Breakdown of employment in case study economies, 2002 3 Real GDP growth and unemployment in case study economies, 2002–2003 4 Changes in Japanese employment by industrial sector, 1991–2002 41 Real GDP growth, industrial output and unemployment, Japan, 1980–2003 42 Labour strategies: decreased demand for major product 48 Determinants of employment reduction (regular employees) when product demand has decreased (probit analysis) 49 Labour strategies: increased demand for major product 49 Determinants of employment expansion (regular employees) when product demand has increased (probit analysis) 50 Real GDP growth, industrial output and unemployment, 1980–2003 60 Major employment indicators, aged 15 and over 61 Employment by status 63 Unemployment by gender, age and educational attainment 64 Nominal and real wage growth, 1991–2001 65 Urban family income inequality, 1990–2003 67 UB recipiency rate, 1997–2002 68 Real GDP growth, industrial output and unemployment between 1989 and 2003 81 Employment by sector 82 Unemployment rate by age and gender 84 Unemployment by educational attainment 85 The demand for labour force in the labour market, February 2003 86 Unemployment by reasons (2003) 87 The trend of changing employment among low skilled labour force due to industrial restructuring and technology improvement between 1981 and 2000 92 Gross industrial output value in China, 1980–2002 98 Employment by sector 100

x

Tables and figures 6.3 6.4 7.1 7.2 8.1 8.2 8.3

8.4 8.5 8.6 8.7 9.1 9.2 9.3 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8

Gross domestic product (GDP) and GDP growth in China, 1980–2002 Institutional changes in Chinese labour market GDP shares by sector at current prices Sectoral distribution of the workforce, 1986–1999 Retrenchment of workers according to sector, 1996–1998 Percentage distribution of inter- and intra-state migrants by migration direction, 1986–2001 Growth rate of the GDP, population, employment and labour, 1980–2003 Educational attainment of the labour force Output of skilled and semi-skilled workers by course, 1980–2005 Educational attainment and gender of the unemployed Distribution of legal foreign workers by industrial group, March 1998 Structure of output as percentage of GDP Growth of GDP Unemployment rate GDP growth, industrial output and unemployment in Vietnam since 1986 FDI status in period 1996–2002 Workers employed by DPEs from 1996 to 2000 The number of workers in reorganised SOEs from 2000 to 2002 Unemployment rates, 1993 and 1998 Unemployment rate of labour force by working ages in urban areas Unemployment rates, 1997–2002 Rate of used working time of labour in rural areas

105 106 118 125 136 138 142 143 144 146 149 161 162 164 177 178 180 181 184 185 185 185

Figures 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 4.1 4.2 6.1 7.1 7.2

Average rates of real GDP growth, East Asian sample of countries, 1990–2001 Rates of growth of population and labour force, OECD countries, 1990–2001 Age distribution of the population, OECD countries, 2001 Average annual rate of GDP growth, OECD countries, 1990–2000 Rate of growth of productivity, OECD countries, 1990–2001 Rate of growth of employment, OECD countries, 1990–2001 Regional patterns of unemployment, OECD countries, 1990–2001 Unemployment rates in groups of OECD countries, 1990–2001 Female labour force participation rate by age, 1999 Female labour force participation rate (college and over) by age, 2001 Chinese labour market model GDP annual growth Unemployment rate

13 16 18 20 21 22 23 24 72 72 111 117 118

Contributors

John Benson is a Reader in the Department of Management, University of Melbourne. From 1994 to 1997 he was Professor of Economics and Management at Hiroshima City University, Japan. His major research interests are Japanese management and unions, the restructuring of Chinese industry, outsourcing and knowledge work. John has recently completed with Chris Rowley (City University, London) an edited volume titled Changes and Continuities in Asian Human Resource Management: Convergence Revisited (Frank Cass, London, 2004). Ngan Collins is a PhD Candidate in International Human Resource Management, Management Department, University of Melbourne. Her major area of research is the transformation of human resource management in transitional economies. Poppy Ismalina is a staff member of the Department of Economics and Development Studies and the Coordinator of the Executive Development Programme (EDP) at Gadjah Mada University, Indonesia. She holds a Master degree from the National Centre for Development Studies at the Australian National University. Her specializations are development economics, macroeconomics, labours and industrial relations, and environmental economics. Dong-Heon Kim is Professor of Economics at Dongguk University at Gyeongju, Korea. Prior to this appointment he served as a Research Fellow at the Korea Labour Institute. In 1999 he was a member of the Task Force on Unemployment Policy Planning and Evaluation, Office for Government Policy Coordination, and has participated in the design of the medium-term unemployment policy in Korea. His main research areas are employment policy, employment relations and social security system. Special interests in recent years have been comparative social policy, with a focus on North America. Grace Lee is Associate Professor of Public and Social Administration at the City University of Hong Kong. Her research interests include labour markets, employment policy and executive government. Ragayah Haji Mat Zin is Professor of Development Economics and Director

xii

Contributors of the Institute of Malaysian and International Studies at the Universiti Kebangsaan, Malaysia. She is also Director of the Malaysian APEC Study Centre and Malaysian Country Coordinator for the East Asian Development Network. She has published on income distribution, poverty and social safety nets, as well as on industry, employment and trade-related areas. Her current research focuses on employment and unemployment, high-tech industrialization as well as urban poverty and social safety nets in Malaysia.

Chris Rowley is Reader in Human Resource Management and Employee Relations at Cass Business School, City University, London. He has published widely on Asia and in particular on Korean human resource management. Chris co-edited Globalization and Labour in the Asia Pacific Region (2001), Managing Korean Business (2002) and The Management of Human Resources in the Asia Pacific Region (2003). He also wrote The Management of People: HRM in Context (2003). He was an ESRC AIM International Study Fellow in 2004. Sari Sitalaksmi is a staff member of the Faculty of Economics, Gadjah Mada University, Indonesia. She is currently pursuing her doctoral degree in management at The University of Melbourne, Australia. Her dissertation topic is the transformation of Indonesian State-owned Enterprises. Her research interests include human resource management, organizational behaviour and strategic management. Wendy Smith is Director of the Centre for Malaysian Studies, Monash Asia Institute and a Senior Lecturer in the Department of Management, Monash University. An anthropologist by training, she has lived and researched in Malaysia for over ten years and has published on management in Malaysia, Malaysian business, Japanese management transfer, Islamic work ethics and globalized Japanese new religions. Her current research focuses on social protection in Malaysia and Malaysian women managers. Malcolm Warner is Professor and Fellow, Wolfson College and Judge Institute of Management, University of Cambridge. He is the Editor-in-Chief of the International Encyclopedia of Business and Management, the author of a number of books on Asian management, and co-editor of Asia Pacific Business Review. Michael Webber is Professor of International Development at Melbourne University Private. A geographer who has worked at universities in Canada, the UK and USA as well as Australia, Michael’s long run research interests have involved the relationship between economic change and the working lives of people. He has pursued this interest through research on regional change in Canada, industrial restructuring in Australia and rural development in China. He has written ten books and about a hundred journal articles. Kil-Sang Yoo is a Senior Fellow of the Korea Labor Institute and Chief Vice Chair of the Korean Social Security Association. He served as Director General of the Employment Research Center, Director General of the Labor Market Policy Evaluation Center, and Director of the Research Planning and Coordination

Contributors

xiii

Division at the Korea Labor Institute. He has served as a Vice Chair of the Korean Labor Economics Association and as an Assistant Director of the Economic Planning Board of the Korean government. Vimolwan Yukongdi is a Lecturer in Human Resource Management in the Department of Management at the University of Melbourne. Vimolwan has worked in the oil and consultancy industries and has held previous academic appointments in Thailand, New Zealand and Australia. Vimolwan has conducted cross-national studies examining employee participation in decisionmaking in Australia and Thailand. Her current research focuses on the role of women in management in Asia, unemployment in Thailand, and HR practices and organizational performance. Ying Zhu is a Senior Lecturer in the Department of Management, University of Melbourne. His research focuses predominantly on East Asian economies, including China, Japan, Taiwan and Vietnam. His publications include books, book chapters and journal articles on human resource management, employment relations, labour law and labour market regulation, and economic development in East Asia.

Preface

Much has taken place in East Asia over the past two decades. High levels of economic growth has been experienced by a number of developing economies, centralized command economies have developed market-based business systems, Japan has suffered a prolonged period of economic downturn, and a financial crisis affected a number of East Asian economies in 1997 and subsequent years. These events have taken place in, and indeed illustrated, the increasing globalized world in which we live. As a consequence much of what we know about these economies may well be out of date. This was particularly the case with issues surrounding employment and unemployment. This book we hope will fill this gap and provide the reader with a clearer understanding of the unemployment situation in East Asia. We have focused on a range of economies that provide a mix of industrialized and industrializing economies. The choice of economies to be included is always a difficult decision in an edited volume such as this. Our decision was based on providing a variety of contexts which represented the issues referred to above. China and Vietnam were obvious choices given their market-based economic restructuring. Korea, Thailand and Indonesia were most affected by the Asian Crisis, although their recoveries took different trajectories. Japan’s transition to a low-growth economy after four decades of substantial growth presented a new context for Japanese business. Malaysia has for many decades experienced labour shortages, and this coupled with the high number of immigrant workers made their experiences with unemployment unique. The final case study was Taiwan, an advanced industrialized economy that with the opening up of China saw high levels of FDI and the relocation of much of its manufacturing activities to China. Underpinning the eight case studies were two key objectives. First, we wanted to provide the reader with an update on unemployment in each of the economies and for this reason we have included a range of statistics and references that provide a broad, but detailed coverage of unemployment. Second, we wanted the individual case studies to utilize a common theoretical framework and structure. While we wished to encourage wide-ranging discussion on this important area we also recognized the need for each author to address the fundamental themes underpinning unemployment in East Asia. The framework is included as Chapter 2 and provides a structure that allows for the nature, causes and impacts of

Preface

xv

unemployment to be explored. As part of this, comparisons with OECD countries can be drawn. The adoption of this framework for each individual case study has meant that the book explores the central issues concerning unemployment and is able to provide a basis to integrate the findings of each case study. These are presented in the concluding chapter. The contributing authors in this volume are all specialists in the economies they examine. They have access to both the English and domestic literature, statistics and government reports. We would like to thank them for their dedication and their contributions to the workshop that was held at the University of Melbourne in 2003. This workshop and the overall project were funded by the Centre for Human Resource Management at the University of Melbourne for which we are extremely grateful. Finally, we are grateful for the support we have received from Routledge and their willingness to publish on this important issue. We hope that this volume will create further interest in employment and unemployment in East Asia. If it does our objective will have been achieved. John Benson and Ying Zhu September 2004

1

Unemployment in Asia Influences and issues John Benson and Ying Zhu

Introduction and key questions The last two decades have witnessed major economic restructuring in China, Taiwan and Vietnam, a prolonged recession in Japan, and the Asian Crisis that particularly affected Thailand, South Korea, Indonesia and Malaysia. These events have all taken place within an increasingly globalised world and have had a significant impact on business activities in these economies, which in turn have impacted on employment. Yet, while much attention has been focused on the restructuring and development of these economies1 (World Bank 1993; Leipziger 1997; McLeod and Garnaut 1998) and the accompanying changes in business structures, management practices and global competitiveness, surprising little attention has been placed on how such transitions have impacted on employment opportunities and unemployment. Taken collectively unemployment represents a severe loss of skills and productive capacity from society (Sinclair 1987; Kuruvilla 1995). Governments respond to the pressures created by unemployment by instituting short-term training programmes, income support mechanisms, and a range of job creation activities. Unemployment thus becomes a part of an overall strategy of economic management. For most people, however, employment represents a central concern and a key feature of their lives (Bakke 1940; Bradbury 1993). A major reason for this is that the income from employment supports individuals and families and allows people the opportunity to function effectively, to a more or less degree, in society. Being unemployed means that individuals and families face uncertain futures and that many opportunities to participate in society are denied (Bakke 1940; Fineman 1987). Being unemployed may well be seen by large numbers in the community as an individual problem. Yet, increasingly, behind these individual and collective views is the realisation that employment, and hence unemployment, is not equally distributed throughout society but discriminates on the basis of age, gender, education, and status (Fineman 1987; Eatwell 1996; Jackman 1997; Mugtada and Basu 1997). The pace of change in Asia and the absence of current research have meant that much of what has been written on employment and unemployment over the past two decades no longer applies.2 Moreover, the recent transitions of China

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John Benson and Ying Zhu

and Vietnam to market-based economies means that unemployment, in these cases, is a relatively new concept and problem. It is thus timely to revisit the issue of employment and unemployment in Asia, and in particular, in the fast growing economies of East Asia. Given the complexities involved in any discussion of unemployment, the differing stages of economic development, and the various policy positions of the countries of this region, it was deemed that the best way of examining unemployment would be by undertaking case studies of a number of East Asian economies. This volume represents the outcome of these case studies and addresses three questions. First, how have the transitions of the past two decades impacted on the levels of employment and unemployment? Second, what are the likely prospects for unemployment and what are the key factors that will impinge on these trends? Third, are these trends and factors similar to what is happening elsewhere (for example in non-Asian OECD countries) or are they unique? By addressing these questions this volume will provide details on the dynamics of unemployment from a macro-economic perspective, an assessment of how governments have responded to unemployment and, a consideration of how unemployment is affecting workers, families and societies. As a consequence, by studying unemployment we can learn much about the economic and political strategies adopted by governments as well as improve our understanding of the impacts of globalisation, economy-wide and company-level restructuring, internal migration, the changes and development of labour markets, and the impact of law and labour regulation. While general lessons can be learnt from the experiences of individual economies it must be remembered that each economy represents a unique set of attributes.

Structure and framework In attempting to assess the impacts of economic, political and social factors on unemployment it is necessary to take into consideration the different stages of economic development of the economies represented in this volume. One way to do this is to examine the distribution of employment between the agricultural, industrial and service sectors. Where there is significant employment in agriculture this can be taken as a proxy for lower levels of industrialisation and development. The distribution of employment for the three sectors, in each of the economies considered in this volume, is presented in Table 1.1. From these statistics the economies represented in this volume can be divided into two groups. The first group includes the developed economies of Japan, South Korea and Taiwan. In these economies there has been a shift way from agriculture and a move to more urban living and work. Clear sets of institutions and regulations have been developed to guide employment and regulate labour markets, and a degree of protection and support for workers exists. The second group are the developing and more agrarian-oriented economies of China, Indonesia, Malaysia, Thailand and Vietnam. In these economies much of the population resides in rural areas, although increasing migration to cities is occurring. Labour

Unemployment: influences and issues

3

Table 1.1 Breakdown of employment in case study economies, 2002 Employment (%) Economy

Agriculture

Industry

Services

Japan South Korea Taiwan China Indonesia Malaysia Thailand Vietnam

1.4 4.4 2.0 15.2 17.0 12.0 11.0 24.0

30.9 41.6 31.0 51.2 41.0 40.0 40.0 37.0

67.7 54.0 67.0 33.6 42.0 48.0 49.0 39.0

Source: globalEDGE, Michigan State University. (http://globaledge.msu.edu/ibrd/CountryStats. asp). Accessed 13 July 2004.

market institutions and regulations are poorly developed and often little support is provided to unemployed workers. Such a breakdown is essential to understand the dynamics and ‘uniqueness’ of unemployment in each economy. In particular, it will help to analyse the differing impacts of globalisation and regional economic integration on unemployment, the unique labour markets that exist in each economy, and the possible approaches and policies adopted to combat unemployment. This division will also help to identify the similarities and differences between these East Asian economies and the OECD countries referred to in Chapter 2. The current economic health of the eight case study economies varies significant and cuts across the developed/developing division. An examination of the situation of these economies in 2002/2003 illustrates this point. South Korea, China, Taiwan and Vietnam had economic growth exceeding 6 per cent in this period, and with the exception of Vietnam all experienced relatively low levels of unemployment. On the other hand, Japan, Taiwan and Indonesia all experienced modest economic growth and had higher than average unemployment rates. Details are provided in Table 1.2. Yet it cannot be assumed that a clear relationship exists between high growth and low unemployment. Intervening in this relationship are the sectoral shifts taking place in employment as economies move from an agricultural base to a more industrial and service structure. The economies represented in this volume are typical of those that have undertaken economic restructuring, or have been affected by wider economic events. They all have a unique set of conditions underpinning employment and have addressed the social and economic impacts of unemployment in a variety of ways. These differences call for the adoption of a more holistic and multidisciplinary approach to the study of employment and unemployment. While economic factors will undoubtedly be important, an understanding of political factors, the particular social and cultural attributes, and the institutions and legal

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Table 1.2 Real GDP growth and unemployment in case study economies, 2002–2003 Economy

Real GDP growth

Unemployment

Japan South Korea Taiwan China Indonesia Malaysia Thailand Vietnam

2.7 6.3* 3.2 8.0* 4.1 4.5 6.3 7.2

5.3 3.4 5.1 4.0* 9.5 3.5 1.5 5.8

Source: Case study chapters 3 to 10. Note: * 2002 data; all other data relates to 2003.

framework of each economy will be essential if the key questions outlined earlier are to be answered. The structure adopted for each case study consisted of six sections. Each chapter commences with a brief introduction and background information for the particular economy. This is then followed by a more detailed discussion on the key contextual factors and influences. These include external influences such as globalisation, regional integration and the Asian Crisis, as well as internal influences such as economic restructuring, political, and social factors, population shifts and demographics, and the development and regulation of key institutions. The third section explores the relationships between society and unemployment focusing on factors that affect labour supply and demand, and the social impact of these factors. This is then followed by a consideration of labour markets, and the implementation of policies, such as social security, income support and job creation, to protect those who become unemployed. The fifth section of each chapter attempts to establish trends in unemployment and to make some predictions concerning future unemployment prospects. The final section of each chapter considers the key policy issues as well as how their findings contribute to a fuller understanding of unemployment. The complexity of the issues surrounding employment and unemployment in the context of economic restructuring and globalisation called for a more general chapter canvassing the key conceptual issues. Chapter 2 therefore provides the foundations for the case study chapters by considering a variety of issues necessary for a more complete understanding of unemployment in East Asia. The chapter commences by considering ‘how globalisation as a process of homogenisation and differentiation might intersect with processes of regionalisation’. This goes to the core objective of this book in attempting to compare and contrast the various approaches to unemployment in the selected economies. In short, as Webber points out, this will allow the research to ascertain whether unemployment in this region has the same attributes and whether such attributes are similar to the characteristics of unemployment elsewhere, such as in OECD countries.

Unemployment: influences and issues

5

This chapter then considers how unemployment is measured, pointing out the difficulties of this task, especially where differences in population growth, labour force participation, gross domestic product (GDP) growth, and productivity changes exist. This is made more complex by the differences in the social definitions of work and the divisions between formal and informal work. Where differences in unemployment exist, the issue of causes and policies becomes central to any discussion. This, in turn, leads on to a discussion of the effects and costs of unemployment. This framework of measurement, causes, remedies, effects and costs, leads Webber to suggest eight questions that underpins the general discussion in each chapter. The answers to these questions we hope will not only allow for the central themes of this volume to be considered but will allow the reader to reach their own conclusions on a range of associated issues.

The case study economies The recent economic histories of the eight case studies followed similar trajectories. The three developed economies all industrialised rapidly from the 1960s, although Japan was a little earlier. High levels of GDP growth were achieved in this time and unemployment was low. The manufacturing sector drove much of this growth and only in the 1990s did this growth falter due in the Asian Crisis in the case of Korea or the rationalisation of production to offshore sites in the case of Taiwan. Japan’s fall was more complex and continued through much of the 1990s and the early part of the twenty-first century. In contrast, the five developing economies have all experienced rapid growth over the past two decades. China and Vietnam undertook major restructuring of state-owned enterprises and moved to a more market-based economy. The Asian Crisis had little impact on these economies. In a similar fashion, Indonesia, Malaysia and Thailand all instituted a series of economic reforms, deregulated their economies and promoted foreign direct investment (FDI) during this period. These economies suffered badly with the onset of the Asian Crisis, although Thailand and Malaysia were to recover more quickly than Indonesia. Steady economic growth is now occurring in these economies. The social, political and institutional contexts of these eight economies did, however, differ and it is these aspects that will now be considered. Japan represents the most developed and economically successful of the case study economies, experiencing four decades of significant economic growth from the early 1950s. In the 1990s this pattern came to an end with the collapse of the ‘bubble economy’, the emergence of a number of Asian manufacturing competitors and the ‘hollowing out’ of Japanese domestic manufacturing. During this period unemployment more than doubled and was particularly high amongst the young and older workers. The ageing population has highlighted the plight of older unemployed workers who often do not have adequate pension cover and so rely on paid employment. Despite a slight fall in unemployment over the past year, unemployment is expected to continue to rise over the next few years. Much of the unemployment has occurred in the manufacturing sector,

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although these losses were more than accounted for by the rise in employment in the services sector. These service sector jobs were often, however, temporary and part-time. This has, as pointed out by Benson in Chapter 3, led to a rapid increase in non-regular employment in Japan. This means that, to some degree, unemployment is understated as many peripheral workers would prefer to have full-time employment. These workers are often denied training, and with most companies still committed to internal training the unemployed are often trapped into a life of part-time work with little opportunity to retrain and advance into full-time employment. The poorly developed external labour market only serves to consolidate these problems. South Korea represents a similar trajectory to the early post-war development of Japan. South Korea’s early success commenced with the manufacturing sector and the economy increasingly became integrated into world markets. This global integration was to take its toll with the onset of the Asian Crisis. The government was forced to turn to the International Monetary Fund (IMF) for emergency credit which, in turn, imposed significant structural reforms in the financial, corporate and labour sectors. Unlike Japan, however, South Korea recovered quickly and unemployment has fallen significantly, although not quite to pre-Crisis levels. Yet, these macro-statistics conceal important characteristics of the South Korean labour market. Nearly half of all wage and salary earners are either temporary or daily workers, and nearly a third of total employment consists of those who are self-employed. This means that the majority of workers have little job security, poor pension cover, and little chance to gain long-term permanent employment. It also means that the real level of unemployment may be seriously understated. Youth unemployment, since the Crisis, has defied the overall trend and is, according to Rowley, Yoo and Kim in Chapter 4, one of the most serious social issues facing Korean society. The ageing population and the prospects of immigrant labour being brought in to counter the shortage of skills are further issues that will need to be confronted in the future. Taiwan, in a similar fashion to South Korea, commenced its industrial development in the 1960s and enjoyed two decades of high economic growth accompanied by low levels of unemployment. By the late 1980s the growth rate of industrial production had commenced to fall, although much of the excess labour generated was absorbed by the growth in the service sector. Nevertheless, from the mid-1990s unemployment has steadily risen as Taiwanese companies rationalised their domestic production and relocated offshore, particularly to mainland China. Contributing to these problems has been political instability in the relationship between Taiwan and mainland China, as well as uncertainty over a number of major national projects. These problems, Zhu in Chapter 5 argues, have led to business uncertainty and a fall in confidence of foreign investors and local consumers. In addition, Taiwan has, like Japan and South Korea, an ageing population and a mismatch of skills that has led to long-term structural unemployment. This has caused a growing disparity of income and although the government has

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responded with various job creation programmes and changes to social security they appear to have had minimum effects and will need to be revisited in the future. The first of the developing economies to be considered in this volume is China. China represents an economy in transition as it continues with the restructuring of state-owned enterprises (SOEs) and the reform of many of the key state institutions. According to Lee and Warner in Chapter 6, the Asian Crisis had a minimum impact on China, although it did affect rural industries and reduced demand for China’s exports. Overall, China has experienced substantial economic growth since 1980 and the official unemployment figures have remained remarkably low. Yet, the large number of employees retrenched from SOEs and the migration of rural labour would suggest a substantially higher unemployment rate. One of the most serious problems facing China is the large number of unskilled workers unemployed. This is further exacerbated by the limited training opportunities available and the under-developed nature of the external labour market. This has meant that retrenched workers are likely to experience long periods of unemployment on minimum income support. China’s entry into the World Trade Organisation in late 2001 may, in the next few years, lead to further unemployment. A major concern, according to Lee and Warner, is the loss of jobs in agriculture that will result in the migration of a substantial number of unskilled workers to urban areas. This will not only increase unemployment in urban centres but place downward pressure on wages, particularly in labour-intensive industries. Indonesia, like many of the developing economies represented in this volume, experienced rapid economic growth over the past two decades. According to Ismalina and Sitalaksmi, in Chapter 7, a series of economic reforms and deregulation were the major drivers of this growth, although the diversification of the economy was also important. Indonesia, like Korea, was affected significantly by the onset of the Asian Crisis and the economy was plunged into a severe recession. Unlike Korea, however, recovery was to be slow, although by 1999 the economy was expanding again, albeit at levels substantially less than the preceding decade. Nevertheless, unemployment has continued to rise. The increase in unemployment is a result of the political and social instability that followed the Crisis as Indonesia sought to democratise and increase regional autonomy. This situation was further exacerbated by the high levels of youth unemployment, the declining employment in the agricultural sector and the high levels of urban unemployment. This has led to a higher than average employment growth in the informal sector. Jobs in this sector are, however, less secure, often part-time and lower paid. There currently exists little protection for these workers and access to income support is limited. These conditions serve to create an environment where social instability becomes the norm. Malaysia has, from the late 1970s, imported labour from neighbouring countries to meet the demand in certain sectors. As the economy grew over the past two decades foreign labour became more important to sustain this growth. By the

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early 1990s, Ragayah and Smith argue in Chapter 8, Malaysia had reached full employment. The Asian Crisis dampened demand and led to a three-fold increase in retrenchments from the previous year. Yet, many of these retrenched workers were employed in the informal sector or were foreign workers who returned home after losing their jobs. This coupled with the tight labour meant that the Crisis had only a minor effect on unemployment. With the relocation of some labour-intensive industries to China further retrenchments have occurred. Yet, the rapid increase in urbanisation in Malaysia over recent years meant that many of the retrenched workers were former rural workers who then sought temporary work in agriculture or became self-employed. This was necessary for many of these workers as the level of income support and social security is insignificant. As a consequence these retrenchments had a minimal impact on the official unemployment figures which remain low compared to other economies in this volume. In recent years a number of schemes have been introduced to improve the skill base of Malaysian workers as this is seen as important to attract FDI and to reduce the reliance on foreign workers. The high level of economic growth over the past two decades has transformed Thailand from an agrarian economy into an export-oriented developing nation. The demand for urban labour exceeded supply and this, according to Yukongdi in Chapter 9, led to a shortage of skilled labour as the majority of workers are unskilled with only primary level education. The Asian Crisis, which began in Thailand, caused a substantial retraction in the economy, although by 1999 the economy had begun to grow again. Unemployment rates have been relatively low in Thailand over these decades and peaked immediately after the Crisis. Like many of the developing economies represented in this volume a sizeable proportion of the Thai labour force are employed on a part-time or self-employed basis. These workers, along with agricultural labour, are not covered by any unemployment benefits or social security. As a consequence, the official unemployment figures probably significantly understate the real level of unemployment. More emphasis has been placed on training and skill development, and social security coverage has also been recently expanded. These programmes have, at least in part, targeted young and rural workers as these are the groups most affected by unemployment. In Vietnam the reform agenda, known as Doi moi, commenced in the mid1980s and has transformed the economy into a socialist market-driven state in a similar fashion to that of China. As pointed out by Collins in Chapter 10 this transformation has had serious ramifications for workers and led to the emergence of an independent labour market. The reform of the SOEs has led to large numbers of workers being retrenched and unemployment, a previously unknown concept, has emerged as a major economic and social problem. Yet, while FDI has brought considerable job opportunities to Vietnam, it has also changed the nature of the employment system. Job guarantees no longer exist and more qualified and skilled employees are in demand. Moreover, rural migration to the cities, particularly those in the south, has seen downward pressure placed on wages. For those unable to gain employment there is little in the way of

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income support or social security. This has led to a widening income gap between skilled and unskilled workers. While increased emphasis is now being placed on vocational training, this must be placed in the context of an increase in the export of labour and the increasing numbers of self-employed and informal sector workers.

Conclusion The economies represented in this volume have undergone economic restructuring, due to the loss of competitiveness, a wider transformation of the economy brought on by globalisation, closer regional integration, or external factors such as the Asian Crisis. The eight economies are at various stages of economic development. For convenience, Japan, Korea and Taiwan were classified as developed economies while China, Indonesia, Malaysia, Thailand and Vietnam were classified as developing economies. The developing economies have seen rapid economic growth over the past two decades, a major restructuring of their economies with a marked decline in the agricultural labour force, and a subsequent increase in urbanisation. In these economies there remains, or has developed, a significant informal work sector which has absorbed many of those displaced through the restructuring process. This is not, however, only a characteristic of these economies; Korea has nearly half of its labour force located in this sector. Developing economies such as Vietnam and China have fostered the development of an independent external labour market, although this labour market remains underdeveloped. Again, an embryonic external labour market is not restricted to these economies as Japan’s labour market remains firmly tied to the company. The institutionalisation of employment and social security through legislative and other means remains under-developed in many of the developing economies, but exceptions such as Malaysia exist. What is clear, however, is that all economies see unemployment as a major economic and social problem and that governments have a major role in both improving the demand for, and supply of, labour. As a consequence, while we have conveniently split the eight economies in terms of their level of industrial development, the situation is considerably more complex and that each economy must be analysed with these issues in mind. It is these issues that underpin the final contribution to this volume, Chapter 11.

Notes 1 2

The term economy is used so as to avoid debate about the status of Taiwan. An excellent study on employment and unemployment is that by Khan and Mugtada (1997). Most of the data for this volume is, however, limited to the period up to about 1992. As such it does not consider most of the recent events occurring in Southeast Asia such as the Asian Crisis and the rising unemployment in Japan.

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References Bakke, E. (1940) The Unemployed Worker. New Haven CT: Yale University Press. Bradbury, B. (1993) Working Families: Age, Gender and Daily Survival in Industrialising Montreal. Toronto: McClelland & Stewart. Eatwell, J. (ed.) (1996) Global Unemployment: Loss of Jobs in the ’90s. Armonk, NY: M.E. Sharpe. Fineman, S. (ed.) (1987) Unemployment: Personal and Social Consequences. London: Tavistock Publications. Jackman, R. (1997) ‘Unemployment and Wage Inequality in Advanced Industrial (OECD) Countries’, in A. Kahn and M. Mugtada, (eds) Employment Expansion and Macroeconomic Stability Under Increasing Globalization, Basingstoke, UK: Macmillan Press. Kahn, A. and Mugtada, M. (eds) (1997) Employment Expansion and Macroeconomic Stability Under Increasing Globalization. Basingstoke, UK: Macmillan Press. Kuruvilla, S. (1995) ‘Economic Development Strategies, Industrial Relations Policies and Workplace IR/HR Practices in Southeast Asia’, in K. Weaver and L. Turner (eds) The Comparative Political Economy of Industrial Relations, Madison, WI: Industrial Relations Research Association (USA). Leipziger, D. (ed.) (1997) Lessons from East Asia. Ann Arbor: The University of Michigan Press. McLeod, R. and Garnaut, R. (eds) (1998) East Asia Crisis: From Being a Miracle to Needing One? London: Routledge. Mugtada, M. and Basu, P. (1997) ‘Macroeconomic Policies, Growth and Employment Expansion: The Experience of South Asia’, in A. Kahn and M. Mugtada, (eds) Employment Expansion and Macroeconomic Stability Under Increasing Globalization, Basingstoke, UK: Macmillan Press. Sinclair, P. (1987) Unemployment: Economic Theory and Evidence. Oxford: Blackwell. World Bank (1993) The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press.

2

Globalisation and unemployment East Asia and the OECD Michael Webber

Introduction Since at least the second world war, there has been a tendency toward what many commentators have called globalisation. This tendency includes several facets: the integration of production and trade within corporations that operate across national borders (Dicken 2003); increasing flows of capital over boundaries of states (Daly and Logan 1989); increasing salience of a variety of forms of global governance, spanning such diverse arenas as economy, environment, human rights and law (Gill 2003); and a trend to the development of market forms of valuation to replace other ways of organising social life (Hinkson 1996). In effect, globalisation is the tendency for societies in many parts of the world to adopt a common system of valuation: commodities, including labour, are increasingly valued through markets that are themselves becoming more interdependent sectorally and spatially (Webber 2000). This tendency has been uneven in space (it is far less well advanced in Africa than in Europe, for example) and in time. This new characteristic of the world’s societies has been widely debated, for it impinges on many arenas of policy and of daily life.1 It is, however, widely agreed that globalisation – in the sense in which we have used the term – has an ambiguous relationship to homogenisation (see, for example, Martin 1994). On the one hand, the pressures on different states to make policy in the same way are increasing; the pressures to which states must respond are becoming more similar; the societies in different states are becoming more closely linked through trade, finance, and decision-making. It is possible that globalisation, then, implies that different states both exemplify similar social trends and adopt similar policy responses to those trends. In the arena of human resource management, this might mean that labour market trends are becoming more similar in different countries and that labour market policies are likewise becoming more similar. If both of these things happen, then we can say that labour markets in different countries are becoming more integrated. On the other hand, there are forces that resist homogenisation and even promise increasing differentiation. Local cultures and local institutions – local definitions of work and of unemployment, for example – continue to resist global pressures for uniform ways of doing things; local groups (like trade unions and small scale enterprises) persist in seeking bases for difference; and local

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difference can itself become the basis for valuing forms of production that provide employment, such as tourism and niche products. It is thus an open question whether labour markets in different countries are becoming more integrated in this sense: globalisation provides a source of pressures to converge, but there are sources of persistence or even increasing differentiation (compare Massey and Jess 1995). This chapter examines the conceptual foundations for an empirical study of this proposition within the region that is conventionally known as East Asia. The chapter begins by discussing how globalisation as a process of homogenisation and differentiation might intersect with processes of regionalisation. This discussion underpins the method of this book, namely to study whether unemployment in selected East Asian countries shares common attributes and whether those attributes are similar to the characteristics of unemployment elsewhere. (The Organisation for Economic Cooperation and Development – OECD – is taken as the ‘elsewhere’.2) The remaining sections of the chapter introduce the principal lenses through which unemployment has been studied as a social phenomenon: its history and statistical characterisation; its causes and policy responses to it; and its effects. These sections introduce unemployment within the OECD and indicate some of the directions through which subsequent chapters approach unemployment in East Asia.

Globalisation and regionalisation We can examine the question of globalisation as homogenisation or differentiation at a variety of spatial scales, for the social life of people is conducted at a variety of scales (Brenner 2001; Marston and Smith 2001). The body and the household are the most localised of these. We also live our lives in communities – villages, suburbs, and the like. Within countries are also to be found cities and regions, sometimes institutionalised in federal-state arrangements. The state is itself a central scale on which social life is organised. But above the state (and below the global scale), there is a variety of forms of region. Some are institutionalised (the European Community, North American Free Trade Agreement; Association of South East Asian Nations; and the like). Others are not institutionalised – East Asia, for example. These non-institutionalised regions have a variety of sources, including colonial histories, European and American imaginations, teaching arrangements in universities, and even the discursive strategies of map makers (see van Schendel 2002). Such places are regions either because the actors within them behave in common ways – which might reflect common cultures, common views on issues and the like – or because people outside them treat them in the same way – as, perhaps, some financial operators treated East Asia as a region during the Asian Crisis. To some extent, these regions are bound together by material flows – of capital investment, of people, and the like. East Asia, and its subsidiary regions, Southeast Asia and North East Asia, is such a non-institutionalised region. Our question thus essentially means that we focus explicitly on regionalisation processes that operate through the economy and through policy responses to economic conditions.

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East Asia, in the most basic form, is a collection of states linked by location. It comprises a set of countries that can be represented on a common map. As such it includes a complex variety of places, ranging from the very poor (Myanmar) to the very rich (Japan, Brunei), from the ethnically homogeneous to the most ethnically diverse, from those with a long independent history to those with only a recent political identity, from liberal democracies to state totalitarian. One subset of the states within the region has had a common orientation to economic development – the late industrialisers. These states are quite different in location, in levels of development, in political identity, in homogeneity, in government structure. But they have tried to pursue a roughly similar form of development over the recent past. It is this collection of states that we study in this book. However, these late industrialisers are themselves diverse and numerous. We have chosen to focus on some examples of each type of country. Some of the late industrialisers of East Asia are already rich and active members of the clubs of powerful countries: Japan is the principal example of such a country. Others began industrialising later than Japan, but have already attained mythological status in the annals of economic development: these are Korea and Taiwan. Finally, the category includes a set of countries that began to industrialise even later; some of these started from a more or less market-oriented economy (Indonesia, Malaysia and Thailand), others are in transition from a more or less command economy (China and Vietnam). Apart from the island state of Singapore, none of the countries in the region has approached the status of these countries as exemplars of late industrialisation, its successes and its pitfalls; Figure 2.1 illustrates rates of economic growth experienced by these eight countries. Our empirical examples are thus drawn from a set of states that have (or have

Figure 2.1 Average rates of real GDP growth, East Asian sample of countries, 1990–2001. Source: World Bank World Developmental Indicators World Development Report 2000 New York: Oxford University Press; World Bank Data Query, available at http://devdata.worldbank.org/data-query/, accessed on 8 March 2004; Monthly Bulletin of Labor Statistics, Taiwan Area, ROC., May 2003; Monthly Statistics, ROC, February 2004.

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had) similar general orientations to development policy (summarised in the notion of late industrialisation) and have been successful, at least in the terms of that policy. These states could thus be candidates for inclusion in a non-institutionalised region that might be identified if their labour markets are becoming integrated because of forces of globalisation or regionalisation. To become such a region, the states would need (a) to exhibit similar labour market trends and policies and (b) to exhibit different labour market trends and policies from countries that are not in the region. Given what we have stated above, our question can thus be interpreted to mean: has globalisation been associated with the emergence of common labour market trends and policy responses in East Asia? and are those labour market trends and policy responses different from those found in other parts of the world (especially in the OECD)? It is the task of this book to try to answer these important questions and this chapter provides a basis for those answers. It can be argued that countries are not the most appropriate spatial units from which to address these questions. Certainly in the larger countries and the less developed ones, there is a wide variety of conditions internally. Perhaps it is coastal China or even southeastern China that is most appropriately labelled a late industrialiser. Similarly, there are wide variations in working conditions within Malaysia – between, for example, peninsular Malaysia and eastern Malaysia. It is equally true that there are wide variations in working conditions within any single OECD country, much less within the OECD as a whole. At one level, then, this argument simply says that our chosen unit of analysis conceals regional differences; but that is true of any spatial scale. At another level, though, this particular unit of analysis – the state – is an appropriate unit from which to examine interactions between policy formation and the global political economy.

Accounting for unemployment Unemployment is difficult to define and even more difficult to measure. It depends on the social definitions of work as well as on customs that delineate those who have and those who do not have work. The tasks are even more difficult when comparing societies in which formal and informal work comprise vastly different proportions of the total. From the point of view of individuals, work is performed in order to reproduce the household or to secure the means to do so. As the feminists remind us, work occurs in a variety of social settings – on farms, in households, in family and individual businesses, in government departments and enterprises, and in capitalist enterprises. In some of these settings, that work is performed for income – either

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directly through the wage relation (as in a factory) or indirectly through sales of the produce of that work (as on a farm or in a family business). Since subsistence farming is insignificant in the OECD, the exclusion of household work leaves work performed for income, which is called employment. (The meaning of work is much debated; for a variety of recent critical views about the meaning of work and employment, see Donati 2002; Stiglitz 2002; and Fleetwood 2001.) Unemployment is then the total amount of additional work for income that people would like to do but, for a variety of reasons cannot. The labour force is the sum of these two measures of work, employment and unemployment; and the unemployment rate is the ratio of unemployment to the labour force. In principle, these variables should be measured in hours, a standard unit of work, but in practice they are measured in persons, as employed, unemployed and their sum, the labour force. In many parts of East Asia, subsistence farming is significant. Some farmers are pure subsistence producers in such countries as China and Vietnam; but many farmers produce significant quantities of food for subsistence purposes, even if they market other portions of their production. This fact breaks the neat distinction between employment (as work performed for income) and household work. In such countries, rural work has characteristics of both household work and employment – including the degree to which farmers self-regulate the amount of work they perform. Meaningful comparisons of employment and unemployment between the OECD and East Asia thus require the exclusion of rural production from East Asian calculations. By definition, the unemployment rate, u, is u = U / LF, where U is the level of unemployment and LF the size of the labour force. But U = LF − E and LF = r P, where E is the level of employment, r is the participation rate and P the population. In other words, u = [LF − E] / r P = 1 − E / r P. Thus, as a matter of statistical fact (rather than causality), the unemployment rate (measured in terms of individuals) and changes in that rate depend on three groups of variables:

•

the size and rate of expansion of the population;

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• •

the amount and rate of expansion of employment; and the institutional and other social conventions that determine how the available employment is divided up between workers (which determine r).

In most OECD countries, populations are growing rather slowly (Figure 2.2). In some countries the rate of growth of the population exceeds 1 per cent per annum – the traditional settler societies, but also Turkey, Luxembourg and

Figure 2.2 Rates of growth of population and labour force, OECD countries, 1990–2001. Source: OECD Corporate Data Environment, at http://www1.oecd.org/scripts/cde/members/ LFSDATAAuthenticate.asp, accessed on 8 August 2003. Notes: Data refer to the period 1990–2001, except Belgium (1990–1999), Switzerland and Germany (1991–2001), Hungary and Poland (1992–2001), Slovak Republic (1994–2001) and USA (1990–2000).

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Iceland. On the other hand, in Italy and the transitional economies of eastern Europe, populations are growing at less that 0.25 per cent a year (or are even declining). These growth rates reflect natural increase and migration. By contrast rates of growth of the population in East Asia average about 1.5 per cent a year, and are higher in Malaysia and Vietnam. In many countries of East Asia, urbanisation increases the rate of growth of the urban population. In turn, population is one of the principal controls over the size of the labour force. In the OECD, the correlation between the rates of growth of the population and of the labour force is r = +0.64 (see Figure 2.2). However, population is only one of the controls over the rate of growth of the labour force. The other principal control is social – the manner in which work is divided up between individuals so that some work for income and others do not. This division is measured by the participation rate, the ratio of the labour force to the population. In countries such as Luxembourg, Iceland, Ireland, Netherlands, Spain and Slovak Republic, the participation rate has been growing very rapidly – both because the working age population is growing relative to the total population and because higher and higher proportions of working age people (especially women) transfer from household work to employment. In other countries, the ageing of the population (and perhaps other forces, including even the rate of unemployment itself) is leading to declines in the rate of participation; Turkey, Denmark, UK, Finland, Sweden, Italy and Hungary all exhibit this characteristic. Debates over employment and unemployment thus range across arguments about the participation of women in paid employment and dependency ratios (proportion of the population that is of working age). In East Asia, rates of participation are higher than in any of the OECD countries (apart from Malaysia, where the participation rate is only 39 per cent, slightly above the rate in Turkey); but in Japan and Korea the rate has been falling back to a level near that in such countries as Sweden. The participation rates of men and women differ widely across the OECD (OECD CDE 2003; see, too, Ahn and Mira 2002). In Luxembourg, the male participation rate is over 78 per cent (much of the employment is taken by commuters from outside the borders) and in both Iceland and Switzerland it is over 60 per cent. In many countries, the male participation rate hovers in the range of 55–60 per cent. At the opposite extreme, male participation rates in Turkey, Hungary and Belgium are less than 50 per cent. In all OECD countries, the participation rates of women are lower than those of men (and this is true of East Asia, too3): in Ireland, Greece, Luxembourg, Spain and Italy, women’s participation rates are less than two-thirds of men’s rates; and in Turkey the female rate is about one-third of the male rate. Nowhere in East Asia are rates for men and women that different. The age distributions of populations within the OECD also differ. As Figure 2.3 illustrates, the proportion of the population that is of working age (defined here as between 15 and 65 years) varies from just over 60 per cent in Turkey to nearly 70 per cent in the Czech Republic. (These proportions are comparable to the proportions in East Asian countries, where over three-quarters of the population is of working age.) In some countries, a high proportion of the population is below

Figure 2.3 Age distribution of the population, OECD countries, 2001. Source: OECD Corporate Data Environment, at http://www1.oecd.org/scripts/cde/members/ LFSDATAAuthenticate.asp, accessed on 8 August 2003. Notes: Data are for 2001, except USA and UK (2000), Belgium and Greece (1999).

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working age – over 30 per cent in Turkey, and over 25 per cent in Iceland, Sweden and Norway; these people will be entering the group of working age in the next few years (as in Malaysia and Vietnam). Of greater concern for public policy makers, however, is the proportion of those who are older than this. More than 15 per cent of the population is now beyond working age in France, UK, Belgium, Denmark, Germany, Spain, Switzerland, Italy, Greece, Austria and Portugal. In these countries, the ageing of the population seems likely to reduce the size of the available labour force in the coming decades. Only Japan, among the East Asian countries, is near this situation. The rate at which employment expands also depends on a variety of factors. It depends first on the rate of growth of demand within the country (which is, of course, also dependent on the rate of growth of incomes). Imports and exports translate that demand within the country into demand for the products and services of that country. And finally, productivity translates demand into employment. Thus debates about employment and unemployment range over measures to raise demand in relation to incomes (which is the job of credit), globalisation and trade, investment and capital formation, and the determinants of productivity. The growth of output within an economy is most commonly expressed in terms of Gross Domestic Product (GDP). Figure 2.4 illustrates rates of growth of GDP in the OECD, in units of constant currency. These rates vary widely. At the low end, both the Czech Republic and Switzerland exhibited average annual rates of growth of GDP in the 1990s that were less than 1 per cent a year. At the other end of the scale, Australia and Poland exhibited rates of growth of over 4 per cent a year and Ireland of over 7.3 per cent a year. Apart from Ireland, the OECD growth rates are about a half of rates in East Asia (apart from Japan). In this framework, productivity is measured as the ratio of GDP to total employment, and the rate of growth of productivity is the rate of growth of GDP less the rate of growth of employment (compare OECD Employment Outlook 1988, Chapter 6). Figure 2.5 contains the relevant data. Productivity growth is strongly correlated with GDP growth (r = +0.93). Thus the growth of productivity is high in Ireland, Poland, Australia, Turkey, Norway, Finland and the USA (over 3 per cent a year); and low in Switzerland, Czech Republic, France, Germany and Italy (less than 2 per cent a year). In some East Asian countries (China and Vietnam), rates of growth of productivity are far higher than those in the OECD; in Korea, Malaysia and Thailand are comparable to the high end of the OECD scale; but in Japan is quite low. The result of GDP and productivity growth is the rate of growth of employment (see Figure 2.6). In several countries, employment fell over the decade – Poland, Hungary, Sweden, Finland, Czech Republic and Germany. On the other hand, in Ireland and Luxembourg, employment grew by over 1 per cent a year, and by nearly that in Iceland, Netherlands, New Zealand and Spain. In East Asia, only in Japan are rates of growth of employment below 1.5 per cent a year. The result of employment levels and the growth of employment on the one hand, and of the labour force and its growth on the other is the history of unemployment in the countries of the OECD. Average rates are quite different

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Figure 2.4 Average annual rate of GDP growth, OECD countries, 1990–2000. Source: World Bank, World Development Indicators 2002, Table 4.1, available at http://www. worldbank.org/data/databytopic/gdp.html, accessed on 22 August 2003; except for Iceland and Luxembourg, estimated from OECD Corporate Data Environment, at http://www1.oecd.org/ scripts/cde/members/LFSDATAAuthenticate.asp, accessed on 22 August 2003. Note: Growth rates are calculated from constant price GDP in national currency units.

in the various countries (OECD CDE 2003). In Spain the average rate of unemployment through the 1990s was 18.0 per cent, the highest in the OECD and accompanied by a low participation rate and a high proportion of temporary contracts (Astudillo 2003). In several other countries the rate comfortably exceeded 10 per cent: Italy, Belgium, France, Poland, Finland, Slovak Republic and Ireland. At the other extreme, the average rate of unemployment in Luxembourg was less than 2 per cent; and in Switzerland, Iceland and Austria was less than 4 per cent. But those averages conceal different dynamics. Figures 2.7 and 2.8 illustrate the

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Figure 2.5 Rate of growth of productivity, OECD countries, 1990–2001. Source: Calculated from data in World Bank, World Development Indicators 2002, Table 4.1, available at http://www.worldbank.org/data/databytopic/gdp.html, accessed on 22 August 2003; except for Iceland and Luxembourg, estimated from OECD Corporate Data Environment, at http:// www1.oecd.org/scripts/cde/members/LFSDATAAuthenticate.asp, accessed on 22 August 2003. Note: Productivity is measured as GDP/employment; employment = labour force − unemployment.

relevant histories. There are five distinct groups of countries, according to these histories. First is a group comprising Australia, Canada, UK, USA, Denmark, Ireland, Netherlands, Norway, New Zealand; in these countries, unemployment rates rose slowly in the early 1990s and then fell through the remainder of the decade. Average rates of unemployment were relatively high in this group – typically nearly 10 per cent at their peak, but ranging between 4 and 7 per cent by 2001. The second large group of countries comprises Iceland, Austria, Belgium, Switzerland, Germany, Finland, France, Luxembourg, Portugal, Sweden, Greece. In these countries, unemployment rates rose sharply until about 1994 and then declined. Typically, unemployment rates in this group were lower than in the

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Figure 2.6 Rate of growth of employment, OECD countries, 1990–2001. Source: OECD Corporate Data Environment, at http://www1.oecd.org/scripts/cde/members/ LFSDATAAuthenticate.asp, accessed on 8 August 2003. Notes: Final year data are for 2001, except USA and UK (2000), Belgium and Greece (1999).

first group, though by 2000 and 2001 the rates in the two groups had converged. The third group is smaller and consists of the three transition countries of Czech Republic, Slovak Republic and Poland. In these countries, unemployment rates climbed sharply though unevenly over the decade under the influence of rapid transitions from state direction (OECD Employment Outlook 1992, 2000). Fourth, Hungary and Spain exhibited a history of unemployment characterised by very high rates in the early part of the decade (over 20 per cent in Spain), that gradually

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Figure 2.7 Regional patterns of unemployment, OECD countries, 1990–2001. Source: OECD Corporate Data Environment, at http://www1.oecd.org/scripts/cde/members/ LFSDATAAuthenticate.asp, accessed on 8 August 2003. Notes: (i) Numbers within the graph are correlation coefficients between the rates of unemployment in each pair of countries, 1990–2001. Only positive correlations significant at p < 0.05 are shown. Shading is proportion to size of the correlation. (ii) Data are for 1990–2001, except USA (1990–2000), Hungary and Poland (1992–2001), Belgium (1990–1999), Switzerland (1991–2000) and Slovakia (1994–2001). (iii) Unemployment rate is defined as the ratio of the number of unemployed to the labour force.

fell through 2001. Finally, Italy and Turkey have histories in which rates of unemployment were remarkably consistent through the decade, at 8–10 per cent. As the following chapters will demonstrate, employment (measured in persons) is not the most appropriate measure of the amount of paid employment performed in a country. Nor is unemployment, which is measured in persons, the most appropriate measure of the aggregate mismatch between the demand for and supply of paid work.4 Given the aggregate amounts of paid work that are offered and demanded within a country, a host of institutional and other social considerations determine how the available work is divided up between the available workers.5 Thus, the boundaries between paid and unpaid work are themselves fluid, different between different countries, subject to the vagaries of the regulation of unemployment and other welfare benefits and not at all as precise as has been assumed here.6 Equally, societies differ widely in the manner in which and the degree to which they exclude some social groups from paid employment –

Figure 2.8 Unemployment rates in groups of OECD countries, 1990–2001. Source: OECD Corporate Data Environment at http://www1.oecd.org/scripts/cde/members/ LFSDATAAuthenticate.asp, accessed on 8 August 2003. Notes: Groups of countries are: top left: Australia, Canada, UK, USA, Denmark, Ireland, Netherlands, Norway, New Zealand; top right: Iceland, Austria, Belgium, Switzerland, Germany, Finland, France, Luxembrurg, Portugal, Sweden, Greece; lower left: Czech Republic, Slovak Republic, Poland.

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in most places there are formal and informal exclusions that affect the participation of the young (Padoa et al. 2002), the old (Rowe and Nguyen 2003), the less healthy (Fothergill 2001), women (Golder 2001), immigrant (Longva and Raaum 2002) and different ethnic groups (Brueckner and Zenou 2003) in paid work. And finally, the mismatch between the amount of work that is offered for pay and the amount that is demanded can be managed in a variety of manners – restrictions on the total number of hours worked, job sharing, student employment, age and gender discrimination – all influence the degree to which a lack of paid employment is translated into a lack of jobs for some people. Thus, there exist wide differences in rates of unemployment between men and women in the OECD (OECD CDE 2003). In several countries female rates are twice or nearly twice male rates: in some countries of southern Europe (Greece, Spain, Italy, Portugal) but also in some northern countries (Belgium, Netherlands) and in Switzerland. On the other hand, in Hungary, UK and Sweden, the female rate of unemployment is lower than the male rate. Two different processes are driving these rates and their differences (Ettlinger 2002; Golder 2001): social exclusions of women from available forms of employment; and administrative processes that encourage or discourage people without jobs from registering themselves as part of the labour force. Likewise there are wide variations in age-specific unemployment rates across the OECD. In virtually all countries, unemployment rates for persons aged 15–24 years are commonly 2.5 times higher than the rates for people aged 25–54 years; for people nearing conventional retirement age (65 years), the rate is typically also high.7 But in Greece, Italy, Sweden and Norway, youth unemployment is three times that of prime age people. Only in Germany is the youth unemployment rate only slightly above the population average. Conversely, relatively high relative rates of unemployment of older workers are found in Slovak Republic, Germany, Finland, Sweden, Denmark and Austria. Such variations again reflect a variety of forms of discrimination in labour market practices and administrative procedures (Fothergill 2001). Indigenous and immigrant groups also typically fare relatively poorly in labour markets. For a whole variety of reasons, including discrimination, language skills, experience and qualifications, unemployment rates for minorities are often high and participation rates low (OECD 2001). In Denmark, for example, the risk of unemployment is twice as high for immigrants from non-European and nonNorth American countries as it is for Europeans and North Americans (Department of Social Studies and Organisation 2003). Aboriginal Australians as a group have unemployment rates that are 2–5 times the national average and about a half of all unemployed aboriginal Australians have been without work for at least 12 months (Hunter and Taylor 2002). Given high unemployment rates in the 1990s, debate about immigration and the role of immigrants in labour market dynamics has been vigorous (OECD 2001). Nor is unemployment evenly distributed over the spaces of OECD countries. There are variations in unemployment rates between regions (Brunello et al. 2001; Dixon et al. 2001; Feser and Sweeney 2003; Fothergill 2001) and even between

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different parts of a single city (Conley and Topa 2002). Persistent regional labour market disparities are only partly explained by the composition of the labour force and the sectoral mix of regions (OECD 2000). That is, labour markets operate in regionally specific ways. Webber et al. (1996), for example, illustrate how government labour market programmes in Australia are delivered in ways that are regionally specific, reflecting the regionally varying culture within a single government department. Importantly, spatial differences in unemployment rates interact with ethnicity, both through the labour market (Clark and Drinkwater 2002) and the housing market (Brueckner and Zenou 2003). Part-time work has (like other forms of non-standard employment) been growing as a share of total employment (OECD 1999) and now represents nearly 7 per cent of male employment and about 25 per cent of female employment (OECD CDE 2003). However, the significance of part-time employment is quite different in different countries: it is over 10 per cent of male employment in Australia, Netherlands, New Zealand and Canada and over 40 per cent of female employment in the UK, Australia, Switzerland and Netherlands (compare Teicher 1996); but conversely much lower (less than 3 per cent of male employment and 10 per cent of female employment in such central and southern European countries as Slovak and Czech Republics, Hungary and Greece. In most countries, hourly earnings and training are significantly lower for part-time than for full-time workers. Thus part-time workers suffer a double disadvantage: their hourly earnings are typically lower and so are their hours, as compared to full-time workers. Despite the fact that some workers do prefer to work part-time, nevertheless it is clear that many part-time workers are underemployed. Employment and unemployment are, thus, complex – perhaps even chaotic (Fleetwood 2001) – phenomena. There are gaps between the concepts of paid work and employment, as well as international variations in the practices through which employment and unemployment are measured. In pure accounting terms, levels and rates of unemployment depend on population growth, the participation rate (and thus the age distribution of the population), the rate of growth of GDP and the rate at which productivity change relates production to employment. There are, too, wide variations between countries in the manner in which paid work is divided up between individuals and groups of workers – men and women, age groups, ethnic groups, immigrants and locals, and different regions. All of these factors operate differently in different countries, even among the advanced industrialised countries of the OECD. There is thus a delicate task of inference to identify whether the histories of the countries of East Asia indicate a tendency to converge towards those of the OECD. However, the central questions for the following chapters are:

• •

What are the levels and forms of unemployment in the various countries of East Asia? What is the experience of particular social groups within the aggregate history of each East Asian country?

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Causes and policies An immediate response to these histories is to ask: what drives the dynamics of unemployment? And what drives differences between countries? At one level, the causes of unemployment are the factors that drive changes in the terms of the accounting framework. These include the performance of an economy and domestic labour market policies. The employment relation lies at the heart of economic performance. However, two particular debates about economic performance and unemployment that are important for our enquiry in this book have flourished in the OECD in recent years: debates over the effects of more open economies (‘globalisation’) and over changing economic structures. Beginning in the early 1970s, the structures that constrain the interactions of nations have been radically transformed. Many tariff and non-tariff barriers to trade have fallen; transport and communication costs continue a long downward relative trajectory; the rules that restrict investment across borders have been eased; the international movement of money has become far easier; and more and more people are moving around the globe in search of work. These changes would be expected to affect the demand for labour within both OECD and East Asian countries (though migration affects supply as well). The nature and the magnitude of these effects are, however, much debated. On the one side are studies that claim broadly positive effects of foreign direct investment (Bailey and Driffield 2002), immigration (Gross 2002) and more open trading arrangements (Arnold 2002) on the growth of GDP and thus on the demand for labour.8 On the other side are historical studies of the experiences of particular groups of workers that point to redundancy, long-term unemployment and inequality of earnings and occupations as consequences of liberalisation in particular countries (see, for example, Webber and Weller (2001) on the restructuring of Australia’s textile, clothing and footwear industries and Dalziel (2002) on New Zealand). Economic structure – and changes in economic structure – also affect employment and unemployment rates, largely because they influence the demand for labour and the skill composition of that demand. Such changes in the structure of economies comprise one element of the debate over the influence of more open economies on unemployment. However, the effects of structural economic changes have also been analysed independently. The specific form of institutions within countries – such as the degree to which firms are competitive (Tse 2002), the structure of capital markets (Belke and Fehn 2001) and the size distribution of firms (Kirchesch 2001) – seem to be linked to the rate of unemployment. The relationship between technical change and the demand for labour is much debated, involving questions about short-run labour shedding in relation to indirect forms of job creation (Postel-Vinay 2002), and changing demands for skill, gender and occupation (ter Hollanders and Weel 2002). More grandly, some authors have claimed that the growth of information processing activities within countries really amounts to the emergence of a ‘new economy’ (Aoyama and Castells 2002), characterised by long hours and relatively high wages, new means

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of hiring labour and new relations between product demand and supply (for a review, see van Ark 2002) These debates about macroeconomic conditions and unemployment are paralleled by arguments about appropriate labour market policies (well indexed by the annual editions of the OECD Employment Outlook). These arguments centre on two naive questions: How best can we reduce rates of unemployment? If we cannot eliminate unemployment, how can we ameliorate its effects? However, the answers to these questions are, at least in the short term, obvious. Unemployment is reduced by increasing the amount of employment – that is, the amount of paid work performed in the society. Many of the effects of unemployment are ameliorated by providing a high level of income support to the individuals (or households) that lack paid work. The problem is that these resolutions have a price that many governments and their supporters have been unwilling to pay. Essentially, this price revolves around the assumption (common to orthodox and Marxist accounts of long-run economic dynamics) that high levels of employment and high rates of income support tend to drive up the price of labour and to reduce the incentive for people to work in poorly paid jobs.9 In many respects, therefore, a key issue for policy is to reconcile economic security (as embodied in minimum wages and employment protection legislation, for example) with flexibility and high levels of employment (OECD 1984, 1999; contrast Evans 2000 and Astudillo 2003). Typically, the ‘sclerotic’ labour markets of continental Europe are contrasted to the more flexible labour markets of North America and the UK in terms of a trade-off between employment protection and level of unemployment: North America and the UK are said to offer less protection against dismissal than continental Europe but also lower levels and durations of unemployment (Balakrishnan and Michelacci 2001; Blanchard and Portugal 2001). A similar argument is made about minimum wage legislation (Moore 2002).10 However, such comparisons assume that differences in employment protection are the key drivers of different unemployment histories; the simple Anglo-American: continental contrast is not really borne out in the history of unemployment in the 1990s (see second section of this chapter); and in theory, the relationship between employment protection and employment levels is not at all clear (Ljungqvist 2002) Thus, conventionally, governments are worried that economic growth and national competitiveness reflect working conditions, and that working conditions themselves are influenced by welfare provision and employment protection. OECD governments have tried a variety of policies that attempt to resolve the perceived contradiction between growth, employment levels and working conditions by introducing policies to raise the supply of labour. In many countries, governments are trying to raise the proportion of the population that participates in the labour force by eliminating retirement ages and making it easier for women with children to work for pay (OECD 2002a). Equally, it is commonly observed that unemployment coexists with unmet demand for skilled labour, so training programmes are a widespread form of labour market programme (Kluve and Schmidt 2002), even though their effectiveness in raising the aggregate demand for labour as

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opposed to redistributing existing demand is sometimes questioned (Bartik 2002). Recently, active labour market programmes have become an increasingly important feature of labour market programmes across the OECD. Such programmes require unemployment benefit recipients actively to seek work, participate in intensive interviews and action plans (see OECD 2001, 2001a on the variety of these programmes). Although such programmes have become popular, the effectiveness of their difference components is by no means clear (Gerfin and Lechner 2002). Just as the OECD countries have divergent levels and trajectories of unemployment and its accounts, so there are wide debates over the causes of and the appropriate policy responses to unemployment. Despite the diversity of these debates, they centre on several key questions:

• • • •

What are the implications of more open economies (open for trade, investment, immigration) for unemployment in East Asia? What are the effects of economic structure on unemployment in East Asia? In particular, how do the structures of institutions, technical change, and new forms of economy affect unemployment? What is the impact of well-being (particularly working conditions) on unemployment in East Asia? What are the appropriate labour market and other policies with which to manage East Asian unemployment?

The effects and costs of unemployment The discussion has so far treated unemployment as a macroeconomic quantity. But being unemployed is a characteristic that attaches to people. So levels of unemployment mean that some people are out of paid work. This simple fact means that questions associated with unemployment are also questions associated with people’s lives and their families. Unemployment is a social issue rather than merely an economic problem. The link between poverty and unemployment is one such concern. However, the link is not mechanical (Saunders 2002a). First, unemployment is a characteristic of individuals, whereas poverty is a characteristic of households. Thus a spouse’s income can provide some protection from poverty when one becomes unemployed (however, there is a correlation between the employment status of spouses: see Saunders 2002b: 179 and Dawkins et al. 2002; and one-fifth of working age households in the OECD have no adults in employment: see OECD 1998). Second, income from work may not be sufficient to avoid poverty (van Leeuwen and Pannekoek 2002). And third, social benefits may be sufficient to maintain unemployed persons and their households above the poverty line (as in Denmark: see Department of Social Studies and Organisation 2003). As a consequence, there exist historical examples (such as Finland in the early 1990s: see Uusitalo 2000) of rising rates of unemployment that have not been accompanied by rising rates of poverty in society. Conversely in the USA in the 1980s, poverty rates rose even though unemployment rates were falling (Mishel et al. 1999) and

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remained high in the 1990s even though unemployment rates were falling (EPI 2001); compare too, Ireland in the 1990s (NUI 2000). Likewise, cross-sectional evidence indicates no correlation between national rates of unemployment and national poverty rates (Saunders 2002b: 181). On the other hand, within countries the distribution of poverty reveals a clear link to unemployment. In Australia, for example, in 1996–1997: among households with one adult aged 25–55 years, if the adult worked at least part-time, 8.9 per cent of households were in poverty; if the adult was unemployed, 52.2 per cent of households were in poverty; among households with two adults aged 25–55 years, if at least one adult worked at least part-time, 8.8 per cent of households were in poverty; if neither adult was employed, 43.2 per cent of households were in poverty (Saunders 2002b: 182–183) The social implications of such a relationship between employment and poverty are made grave by the fact that in many OECD countries, patterns of employment in households with children have shifted dramatically. The former model of a single, male income earner has shifted towards a pair of models – one in which both adults work and another in which neither adult works (Dawkins et al. 2002). Thus, despite economic growth in OECD countries, a substantial proportion of households do not have sufficient income to support adequate living standards (OECD 2001). The majority of these households experience only a single, short spell of poverty; others are trapped for long periods in poverty. In all countries, poverty is closely associated with a lack of work (though this link is less clear in the USA). A second consequence of the fact that unemployment is a characteristic of people is that some spells of unemployment are long, while others are short (OECD 1983, 1987, 1993). Unemployment is persistent (Gil-Alana 2002): across the OECD as a whole, nearly half of all unemployed people are out of work for six months or more; and nearly a third for 12 months or more (OECD CDE 2003). In some countries – Belgium, Czech Republic, Greece and Italy – the longterm unemployed account for half of all unemployed people, more than five times the proportion that is found in Canada, Norway and the USA. (There is some evidence that these rates are underestimates – see OECD 2002). The dynamics of unemployment and employment spells depend on cyclical macroeconomic conditions; they depend too on gender (Abbring et al. 2002), wealth (Bloemen 2002) and previous employment history (Chalmers and Kalb 2001). Except in a few countries, then, the burden of unemployment is concentrated on a relatively small number of people (OECD 2002), particularly on people who find it hard to obtain another job once they have become unemployed.11 Parallel to this pattern

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of long-term unemployment is a pattern of reliance on income support: in Australia, about one-third of the population relies on income support for a short time in any one year, but one-sixth of recipients are in receipt of support continuously for over 5.5 years (Tseng and Wilkins 2002). However, third, the costs associated with unemployment are not confined to an immediate loss of income. For example, cross-sectional evidence indicates that the health status of the unemployed is lower than that of the employed in Italy (Preti and Miotto 1999) and Australia (Harris and Morrow 2001; Morrell et al. 1999); and longitudinal studies indicate that unemployment is associated with raised risk factors and mortality rates in Sweden (Stefansson 1991) and the USA (Kasl et al. 1975). There is also evidence that unemployment has adverse psychological effects, though the causal links are complex and not well understood (Headey 2002). It is possible, too, that unemployment is associated with crime: not that being unemployed turns law abiding people into criminals but that in areas of high unemployment economic stress disrupts normal social constraints on crime (Weatherburn 2002). Finally, there is evidence that unemployment ‘scars’ individuals, marking them for a future of constrained labour market opportunities that imply lower incomes and reduced chances of finding employment. Leontaridi (2002) and Arulampalam (2001) find such evidence in the UK, though Gregory and Jukes (2001) argue that the effect on wages is only temporary. Equally, it seems that the psychological impacts of unemployment on people persist beyond the specific period of unemployment (Clark et al. 2001). The effects of unemployment on people, then, do not simply disappear if and when they can find another job: there are longlasting consequences. Unemployment thus intersects with people’s lives. Individuals suffer longer or shorter spells of unemployment, and suffer the economic and social consequences for longer and shorter periods. The link between unemployment and people’s lives means that unemployment is a central matter of social policy that both affects people’s chances for a happy and secure life and reflects society’s attitudes to inclusiveness. Within the OECD, different weights are placed on the economic effects and social consequences of unemployment, giving rise to debates that centre on some general questions about the region we are studying in this book:

• •

What are the dynamics of unemployment in East Asia – the transitions that are typical, the durations, the effects on careers? What are the economic and social costs of unemployment in East Asia?

Conclusions The OECD is by no means a homogeneous group of countries. Their history of unemployment in the 1990s demonstrates that there are two broad groups of countries, that might be labelled Anglo-Nordic and continental European, together with smaller groups of transition and southern European countries. The levels of and trends in unemployment are quite different between the groups.

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Some argue that these differences reflect differences in economic institutions and labour market policies; others point to specific characteristics of countries – relatively low development, transition, high regional differentiation, different degrees of openness. Clearly, globalisation does not mean common levels or trends in unemployment, even among the advanced industrial countries of the OECD. Nevertheless, some of the institutions of governance do imply that the OECD countries belong to a single policy community, a group of people and institutions within which there is a debate over common issues – over, for example, the existence, extent and persistence of unemployment and its consequences (a debate that is indexed by the annual editions of the OECD Employment Outlook). To what, then, are the countries of East Asia to be compared? Though the countries of the OECD have different histories and social institutions, they do share several characteristics: 1

2

3

4

Unemployment is a policy variable: the rate of unemployment is itself something that influences government behaviour (and, indeed, sometimes the composition of the government) and is an object of policy. The social consequences of unemployment are perceived to be high. (This is one of the reasons why unemployment is important for policy.) Even so, in many countries, the economics of unemployment (its budgetary costs and its impact through working conditions on competitiveness) trump its social consequences (on people’s lives). Rates of unemployment in the 1990s have been high in all countries – relative to, for example, the 1950s and 1960s in northern and western Europe and North America. The debates over unemployment in the OECD centre on four principal issues: the effects of opening up economies; the implications of economic structure; the importance of labour market flexibility; and direct labour market policies.

This chapter has posed eight questions about unemployment in the countries of East Asia, to provide the information with which to compare East Asian experiences to those of the OECD. In summary, these questions are: 1 2 3 4 5

What are the levels and forms of unemployment in the various countries of East Asia? What are the dynamics of unemployment in East Asia – the transitions that are typical, duration, effects on careers? What is the experience of particular social groups within the aggregate history of each East Asian country? What are the implications of more open economies (open for trade, investment, immigration) for unemployment in East Asia? What are the effects of economic structure on unemployment in East Asia? In particular, how do the structures of institutions, technical change, and new forms of economy affect unemployment?

Globalisation and Unemployment 6 7 8

33

What are the economic and social costs of unemployment in East Asia? What is the impact of well-being (particularly working conditions) on unemployment in East Asia? What are the appropriate labour market and other policies with which to manage East Asian unemployment?

The characteristics of unemployment and of debates over unemployment in East Asia, as evidenced by the answers to these questions, provide a basis from which to judge the degree to which and why globalisation and regionalisation imply homogeneity as opposed to local difference.

Notes 1 Contrast, for example, the view of the institutions that encourage global integration – the IMF, World Bank, OECD – with the views of leaders of workers’ groups: ‘For a quarter of a century, the industrial nations have worshipped at the altar of conservative idols – deregulation, tight money, fiscal austerity. . . . A global market has been forged. . . . The few are prospering, but the many are not. This economy does not work well for working people. In the OECD nations, we experience the effects in different ways. In Europe, the effect is widespread unemployment, particularly among the young. In the United States, jobs are created but with stagnant or declining wages and benefits for the majority of working people – families are working harder and longer simply to keep pace. In Japan, we witness continued and deepening recession.’ (Shailor 2003; Shailor is International Affairs Director of the US AFL-CIO.) 2 The OECD is here taken to exclude Japan and Korea, which are treated separately in the chapters that follow. 3 Though in Vietnam, the participation rates of males and females are similar. 4 To be counted as unemployed, a person without paid work has to register with some agency that counts them as being in the labour force. If labour market conditions and the regulations that surround the receipt of unemployment benefits discourage people from registering in this way, they are not counted as being in the labour force and unemployed (see, for an example of this effect, Maloney 2002). Likewise, official statistics generally count as employed people who work more than a few hours a week; so underemployment is generally not counted. In New Zealand, for example, at the end of the 1990s, officially measured unemployment was 5.4 per cent; however, a statistic that includes those who are seeking work but are not registered unemployed and also the underemployed (who are working part-time but looking for more hours) measured unemployment as 14.4 per cent (NZCTU 2003). (See too OECD Employment Outlook 1987, Chapter 5.) 5 Among these social institutions is the customary length of the working year. In many countries of northern and western Europe a working year (averaged over full and parttime workers) is about 1,500 hours; in the UK, North America and Australasia, the working year averages about 1,800 hours; and in Greece and the Czech and Slovak Republics averages about 2,000 hours. A job is different things in different countries, which means that a given amount of paid employment (in hours) can result in quite different levels of unemployment in different countries, depending on how the employment is divided between individuals. 6 As Webber and Campbell (1997) argue, employment and unemployment (as measured at a moment in time by an interview) is a poor indicator of a person’s labour market experience. A person now employed may have experienced a long history of permanent, secure employment, or simply currently hold one in a sequence of insecure,

34

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8 9 10 11

Michael Webber casual and temporary jobs. Labour market experiences, then, need to be understood as histories rather than as a series of point measures. The problems associated with high unemployment rates for young people have regularly occupied the pages of the OECD Employment Outlook. Not only are unemployment rates for young people high, but there is evidence that people’s first experiences in the labour force have a continuing impact on their labour market opportunities. See for example, OECD Employment Outlook 1984, 1986, 1992, 1996, 1998, 1999. The form and the magnitude of these effects depend, of course both on the specification of the models, the institutional framework and the precise form that investment, immigration and trade take (see for example, Arnold 2002; Oslington 2002). Indeed, one of the complaints about open economies is that trade liberalisation is thought to force firms in different countries to compete, and thus forces workers in different countries to compete for jobs. Many other components of well-being have been analysed in a similar fashion, including environmental protection (for a review see Berck and Hoffmann 2002). Of all the sample of people in 11 OECD countries who were unemployed in December 1995, five out of six experienced at least 12 months unemployment in the following four years (OECD 2002). Apart from those people who became long-term unemployed are those who ‘carouselled’ in and out of short-term jobs (either temporary employment or short labour market programmes).

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Blanchard, O. and Portugal, P. (2001) ‘What Hides Behind an Unemployment Rate: Comparing Portuguese and US Labor Markets’, American Economic Review 91: 187–207. Bloemen, H. G. (2002) ‘The Relations Between Wealth and Labour Market Transitions: An Empirical Study for the Netherlands’, Journal of Applied Econometrics 17: 249–268. Brenner, N. (2001) ‘The Limits to Scale? Methodological Reflections on Scalar Structuration’, Progress in Human Geography 25: 591–614. Brueckner, J. K. and Zenou, Y. (2003) ‘Space and Unemployment: The Labor Market Effects of Spatial Mismatch’, Journal of Labor Economics 21: 242–266. Brunello, G., Lupi, C. and Ordine, P. (2001) ‘Widening Differences in Italian Regional Unemployment’, Labour Economics 8: 103–129. Chalmers, J. and Kalb, G. (2001) ‘Moving from Unemployment to Permanent Employment: Could a Casual Job Accelerate the Transition?’, Australian Economic Review 34: 415–436. Clark, A. E., Georgellis, Y. and Sanfey, P. (2001) ‘Scarring: The Psychological Impact of Past Unemployment’, Economica 68: 221–241. Clark, K. and Drinkwater, S. (2002) ‘Enclaves, Neighbourhood Effects and Employment Outcomes: Ethnic Minorities in England and Wales’, Journal of Population Economics 15: 5–29. Conley, T. G. and Topa, G. (2002) ‘Socio-economic Distance and Spatial Patterns in Unemployment’, Journal of Applied Econometrics 17: 303–327. Daly, M. and Logan, M. I. (1989) The Brittle Rim, Ringwood, Victoria: Penguin. Dalziel, P. (2002) ‘New Zealand’s Economic Reforms: An Assessment’, Review of Political Economy 14: 31–46. Dawkins, P., Gregg, P. and Scutella, R. (2002) ‘Employment Polarisation in Australia’, Melbourne: University of Melbourne, Melbourne Institute Working Paper 09/2002. Department of Social Studies and Organisation (2003) ‘Overview of Current Economic Conditions in Denmark’, Global Policy Network, available at http://www. GlobalPolicy Network.org and accessed 23 August 2003. Dicken, P. (2003) Global Shift: Reshaping the Global Economic Map in the 21st Century, New York: Guilford. Dixon, R., Shepherd, D. and Thomson, J. (2001) ‘Regional Unemployment Disparities in Australia’, Regional Studies 35: 93–102. Donati, P. (2002) ‘The Changing Meaning of Work: Implications for the New Economy’, Rivista Internazionale di Scienze Sociali 110: 333–366. EPI (Economic Policy Institute) (2001) ‘Overview of Current Economic Conditions in the U.S.’, Global Policy Network, available at http://www.GlobalPolicyNetwork.org and accessed 23 August 2003. Ettlinger, N. (2002) ‘The Difference that Difference Makes in the Mobilisation of Workers’, International Journal of Urban and Regional Research 26: 834–843. Evans, J. (2000) ‘Workers in the New Economy’, OECD Observer 11 October 2000. Feser, E. and Sweeney, S. (2003) ‘Outmigration, Depopulation and the Geography of US Economic Distress’, International Regional Science Review 26: 38–67. Fleetwood, S. (2001) ‘Conceptualizing Unemployment in a Period of Atypical Employment: A Critical Realist Perspective’, Review of Social Economy 59: 45–69. Fothergill, S. (2001) ‘The True Scale of the Regional Problem in the UK’, Regional Studies 35: 241–246. Gerfin, M. and Lechner, M. (2002) ‘A Microeconometric Evaluation of the Active Labour Market Policy in Switzerland’, Economic Journal 112: 854–893. Gil-Alana, L. A. (2002) ‘Modeling the Persistence of Unemployment in Canada’, International Review of Applied Economics 16: 465–477.

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Gill, S. (2003) Power and Resistance in the New World Order, New York: Palgrave Macmillan. Golder, S. M. (2001) ‘Labour Market Performance of First Generation Immigrants: Evidence from the Swiss Labor Force Survey’, Swiss Journal of Economics and Statistics 137: 183–197. Gregory, M. and Jukes, R. (2001) ‘Unemployment and Subsequent Earnings: Estimating Scarring Among British Men 1984–1994’, Economic Journal 111: 607–625. Gross, D. M. (2002) ‘Three Million Foreigners, Three Million Unemployed? Immigration Flows and the Labour Market in France’, Applied Economics 34: 1969–1983. Harris, E. and Morrow, M. (2001) ‘Unemployment is a Health Hazard: The Health Costs of Unemployment’, Economic and Labour Relations Review 12: 18–31. Headey, B. (2002) ‘The Psychological Impact of Unemployment’, in Saunders, P. and Taylor, R. (eds) The Price of Prosperity: the Economic and Social Costs of Unemployment. Sydney: University of New South Wales: 213–225. Hinkson, J. (1996) ‘The State of Postmodernity: Beyond Cultural Nostalgia or Pessimism’, in James, P. (ed) The State in Question. Sydney: Allen & Unwin 196–223. Hollanders, H. ter and Weel, B. (2002) ‘Technology, Knowledge Spillovers and Changes in Employment Structure: Evidence from Six OECD Countries’, Labour Economics 9: 579–599. Hunter, B. and Taylor, R. (2002) ‘An Overview of the Costs of Indigenous Unemployment’, in Saunders, P. and Taylor, R. (eds) The Price of Prosperity: The Economic and Social Costs of Unemployment. Sydney: University of New South Wales: 109–133. Kasl, S. V., Gore, S. and Cobb, S. (1975) ‘The Experience of Losing a Job: Reported Changes in Health, Symptoms and Illness Behaviour’, Psychomatic Medicine 37: 106–122. Kirchesch, K. (2001) ‘Employment and Investment of West German Industry 1968–1998: A Descriptive Analysis’, Jahrbucher fur Nationalokonomie und Statistik 221: 473–490. Kluve, J. and Schmidt, C. M. (2002) ‘Can Training and Employment Subsidies Combat European Unemployment?’, Economic Policy 35: 409–443. Leeuwen, J. van and Pannekoek, J. (2002) ‘To Work Oneself Out of Poverty: The Dutch Experience 1989–96’, Review of Income and Wealth 48: 127–140. Leontaridi, R. M. (2002) ‘Career, Experience and Returns to Human Capital: Is the Dual Labour Market Hypothesis Relevant for the UK?’, Research in Economics 56: 399–426. Longva, P. and Raaum, O. (2002) ‘Unemployment and Earnings Assimilation of Immigrants’, Labour 16: 469–489. Ljungqvist, L. (2002) ‘How do Lay-off Costs Affect Employment?’, Economic Journal 112: 829–853. Maloney, T. (2002) ‘Welfare Reform and Unemployment in New Zealand’, Economica 69: 273–293. Marston, S. A. and Smith, N. (2001) ‘States, Scales and Households: Limits to Scale Thinking? A Response to Brenner’, Progress in Human Geography 25: 615–619. Martin, R. (1994) ‘Stateless Monies, Global Financial Integration and National Economic Autonomy: The End of Geography?’, in Corbridge, S., Martin, R. and Thrift, N. (eds) Money, Power and Space. Oxford: Blackwell 253–178. Massey, D. and Jess, P. (1995) ‘Places and Cultures in an Uneven World’, in Massey, D. and Jess, P. (eds) A Place in the World? Places, Cultures and Globalization. Oxford: Open University: 215–239. Mishel, L., Bernstein, J. and Schmidt, J. (1999) The State of Working America: 1998–99. New York: Cornell University.

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Moore, D. (2002) ‘Minimum Wages: Employment and Welfare Effects, or Why Card and Krueger Were Wrong’, Australian Bulletin of Labour 28: 163–183. Morrell, S., Taylor, R., Quine, S., Kerr, C. and Western, J. (1999) ‘A Case-control Study of Employment Status and Mortality in a Cohort of Australian Youth’, Social Science and Medicine 49: 383–392. NUI (National University of Ireland, Galway) (2000) ‘Highlights of Current Labor Market Conditions in Ireland’, Global Policy Network, available at http://www.GlobalPolicy Network. org and accessed 23 August 2003. NZCTU (New Zealand Council of Trade Unions) (2003) ‘Labour Market Conditions in New Zealand’, Global Policy Network, available at http://www.GlobalPolicy Network.org and accessed 23 August 2003. OECD (1983) OECD Employment Outlook 1983 Paris: Organisation for Economic Cooperation and Development. OECD (1984) OECD Employment Outlook 1983 Paris: Organisation for Economic Cooperation and Development. OECD (1987) OECD Employment Outlook 1987 Paris: Organisation for Economic Cooperation and Development. OECD (1988) OECD Employment Outlook 1988 Paris: Organisation for Economic Cooperation and Development. OECD (1992) OECD Employment Outlook 1992 Paris: Organisation for Economic Cooperation and Development. OECD (1993) OECD Employment Outlook 1993 Paris: Organisation for Economic Cooperation and Development. OECD (1998) OECD Employment Outlook 1998 Paris: Organisation for Economic Cooperation and Development. OECD (1999) OECD Employment Outlook 1999 Paris: Organisation for Economic Cooperation and Development. OECD (2000) OECD Employment Outlook 2000 Paris: Organisation for Economic Cooperation and Development. OECD (2001) OECD Employment Outlook 2001 Paris: Organisation for Economic Cooperation and Development. OECD (2001a) Labour Market Policies That Work Paris: Organisation for Economic Cooperation and Development. OECD (2002) OECD Employment Outlook 2002 Paris: Organisation for Economic Cooperation and Development. OECD (2002a) Babies and Bosses – Reconciling Work and Family Life (Volume 1) Australia, Denmark and the Netherlands, Paris: Organisation for Economic Cooperation and Development. OECD CDE [Corporate Data Environment] 2003. http://www1.oecd.org/scripts/cde/ members/LFSDATAAuthenticate.asp, accessed on 8 August. Oslington, P. (2002) ‘Trade, Wages and Unemployment in the Presence of Hiring and Firing Costs’, Economic Record 78: 195–206. Padoa, S., Fiorella, K. and Lupi, C. (2002) ‘Family Income and Wealth, Youth Unemployment and Active Labour Market Policies’, International Review of Applied Economics 16: 407–416. Postel-Vinay, F. (2002) ‘The Dynamics of Technological Unemployment’, International Economic Review 43: 737–760. Preti, A. and Miotto, P. (1999) ‘Suicide and Unemployment in Italy, 1982–1994’, Journal of Epidemiology and Community Health 53: 694–701.

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Rowe, G. and Nguyen, H. (2003) ‘Older Workers and the Labour Market’, Perspectives on Labour and Income 15: 55–58. Saunders, P. (2002a) ‘The Direct and Indirect Effects of Unemployment on Poverty and Inequality’, Australian Journal of Labour Economics 5: 507–530. Saunders, P. (2002b) ‘The Impact of Unemployment on Poverty, Inequality and Social Exclusion’, in Saunders, P. and Taylor, R. (eds) The Price of Prosperity: the Economic and Social Costs of Unemployment, Sydney: University of New South Wales 175–193. Schendel, W. van (2002) ‘Geographies of Knowing, Geographies of Ignorance: Jumping Scale in Southeast Asia’, Environment and Planning D: Society and Space 20: 647–668. Shailor, B. (2003) ‘Internationalism for Working People’, OECD Observer 28 January. Stefansson, C. G. (1991) ‘Long Term Unemployment and Mortality in Sweden: 1980– 1986’, Social Science and Medicine 32: 419–423. Stiglitz, J. E. (2002) ‘Employment, Social Justice and Societal Well-being’, International Labour Review 141: 9–29. Teicher, J. (1996) Non-Standard Employment in Australia and New Zealand, Melbourne: Monash University National Key Centre in Industrial Relations. Tse, C. Y. (2002) ‘Monopoly, Employment and Wages’, Labour Economics 9: 681–697. Tseng, Y. P. and Wilkins, R. (2002) ‘Reliance on Income Support in Australia: Prevalence and Persistence’, Melbourne: University of Melbourne, Melbourne Institute of Applied Economic and Social Research Working Paper 6/02. Uusitalo, H. (2000) ‘Social Policy in Deep Economic Recession and After: The Case of Finland’, Helsinki: National Research and Development Centre for Welfare and Health. Weatherburn, D. (2002) ‘The Impact of Unemployment on Crime’, in Saunders, P. and Taylor, R. (eds) The Price of Prosperity: the Economic and Social Costs of Unemployment, Sydney: University of New South Wales 226–248. Webber, M. (2000) ‘Globalisation: Local Agency, the Global Economy and Australia’s Industrial Policy’, Environment and Planning A 32: 1163–1176. Webber, M. and Campbell, I. (1997) ‘Labor Market Outcomes among Retrenched Workers in Australia: A Review’, Australia and New Zealand Journal of Sociology 33: 187–204. Webber, M. J. and Weller, S. (2001) Refashioning the Rag Trade: Internationalising Australia’s Textiles, Clothing and Footwear Industries, Sydney: UNSW Press. Webber, M., Weller, S. and O’Neill, P. (1996) ‘Participation in Labour Adjustment Assistance’, The Economic and Labour Relations Review 7: 295–324.

3

Unemployment in Japan Globalisation, restructuring and social change John Benson

Introduction For much of the second half of the twentieth century Japan experienced substantial economic growth and low levels of unemployment. This high level of growth ceased in the early 1990s following the collapse of the ‘bubble’ economy, the rising competitiveness of a number of Asian countries and the financial crisis which spread through Asia in the late 1990s. These events took place within an increasingly globalised world, where many Japanese companies had relocated parts of their operations to other Asian countries to take advantage of lower labour and production costs. These factors led to a loss of competitiveness of Japanese industry and a rise in the unemployment rate. Much of the Japanese post-war success was driven by the manufacturing sector and, in particular, the automotive and electronic industries. In the period 1955 to 1982, Japanese share of the world motor vehicle production rose from just over 1 per cent to 30 per cent (Womack et al. 1991). This trend was repeated in many other sectors of manufacturing and by the mid-1980s, Japanese companies had captured over 80 per cent of the world market in cameras, video recorders and watches, over 70 per cent of calculators and microwave ovens, and in excess of 50 per cent of the market for motorcycles and colour televisions (Oliver and Wilkinson 1992: 5). This success was not, however, replicated in other Japanese industrial sectors such as banking, telecommunications, retailing and the service sectors (Porter et al. 2000). The importance of the manufacturing sector to the Japanese economy meant that the events of the last decade would have significant repercussions on manufacturing employment. An analysis of unemployment in Japan and the likely future trends in employment must, therefore, be located within this context. The chapter will begin by outlining some of the key economic and social events affecting Japan over the last half of the twentieth century. This will be followed by sections that will analyse the relationships between Japanese society and unemployment, and institutions and social problems. These sections are followed by an analysis, using data from three surveys conducted by the author in the period 1991 to 2001 that examines how Japanese manufacturing companies have responded to these events. This will allow for predictions to be made concerning

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future labour strategies of Japanese companies and employment in this sector. The chapter concludes by considering the issues raised in Chapter 2 of this volume.

Contextual factors and issues The post-war Japanese economy experienced high and sustained economic growth until the end of 1991. The first period, 1950 to 1970, saw economic growth of around 10 per cent, while for the next 20 years real GDP growth averaged about 5 per cent. These periods were, however, characterised by declining real GDP growth and significant variations in the growth of industrial output. This pattern was not unexpected as the larger the economy became the lower the possibility of maintaining high levels of growth. Moreover, as much of the growth was driven by an expansion of production and facilities, the imposition of export restrictions on Japan meant that a lower growth rate was unavoidable (Nakamura 1981: 54). For most of this period unemployment was low, ranging between 1 and 2 per cent for the 1960s and 1970s, and slightly higher, between 2 and 3 per cent for the 1980s (Ito 1993: 212). At the end of 1991 unemployment was 2.1 per cent. In this strong economic environment companies concentrated on expanding market share and were prepared to support a range of human resource management practices such as lifetime employment. The commitment to these practices was necessary if companies were to be able to recruit, retain and reward employees during this period of rapid growth (Morishima 1995: 122). The collapse of the ‘bubble’ economy in the late 1980s and increasing globalisation over the past two decades meant that the 1990s have been characterised by very low rates of economic growth and rising unemployment. Real GDP growth, which in 1991 was 3.8 per cent, fell to less than 1 per cent in 1992. Only in 1996 did real GDP growth reflect the conditions that prevailed a decade earlier, although this growth was primarily due to substantial spending on government projects1 (Nikkei Weekly 1996: 35). Much of this downturn was the result of poor consumer demand and the rising competitiveness of other countries. In over a third of these years, industrial output declined and was lower at the end of 2002 than in 1992. Part of the reason for this is that Japanese manufacturers relocated parts of their operations overseas, particularly to other Asian countries. This ‘hollowing out’ of manufacturing saw employment in this sector fall from 15.5 million in 1991 to 12.2 million in 2002. This represented a fall in employment of 3.3 million employees; 21.3 per cent of the manufacturing workforce. While this loss of jobs was compensated by an increase in service sector employment of 3.58 million employees (24.8 per cent) many of these jobs were temporary or of a parttime nature. This shift partly accounts for the rapid increase in non-regular employment in Japan, and the lower wages paid to these workers have raised concerns ‘whether such employment can support career development and family aspirations’ (Whittaker 2004: 30). Details of employment by industry over the period 1991 to 2002 are presented in Table 3.1.

Unemployment in Japan 41 Table 3.1 Changes in Japanese employment by industrial sector, 1991–2002 (millions of employees) Industrial sector

1991

1997

2002

Agriculture, forestry, fishing and mining Construction Manufacturing Utilities Transportation and communications Trade Finance, insurance and real estate Services Government Total

4.33 6.04 15.50 0.33 3.78 14.33 2.63 14.46 1.99 63.69

3.57 6.85 14.42 0.36 4.12 14.75 2.53 16.48 2.15 65.57

2.81 6.18 12.22 0.34 4.01 14.38 2.41 18.04 2.17 63.30

Source: MCA (1992, 1998); MPM (2003).

These economic difficulties were exacerbated by the Asian Crisis. The Crisis developed in Thailand in 1997 as a result of a drastic fall in confidence in the Thai currency, and quickly spread to a number of other Asian countries including key Japanese trading partners such as Indonesia, Malaysia, Taiwan and Korea. This led to a further fall in demand for Japanese consumer and capital goods. In 1998 real GDP declined by 1.3 per cent. Although the Asian Crisis had a severe impact on many of the Asian economies at the time, by 2001 most of these economies had recovered. This was not the case for Japan. A series of financial scandals in the latter part of the 1990s, a 67 per cent increase in the consumption tax in 1997, a decrease in public spending, and the use of public money to support the ailing banking system added to the economic difficulties facing Japan. These factors led to a continuation of economic decline and a record annual level of unemployment of 5.4 per cent by 2002. Details of the pattern of economic activity for the past two decades are presented in Table 3.2. Economic downturns are not a new phenomenon to Japan. The most notable post-war recession occurred in the period December 1973 to February 1975. This followed the shortage of oil brought on by the October 1973 decision by oil producing countries in the Middle East (OPEC) to raise prices five-fold and limit supply (Nakamura 1981: 227). This in turn led to lower production and, coupled with higher costs, led to significantly lower operating profits for Japanese companies (Nakamura 1981: 233). Companies responded by reducing working hours and cutting back on employment. Although some companies dismissed regular workers this was not a widespread practice. Nevertheless, five years later in the slump of 1977–1978 Japanese companies were more likely to dismiss employees (Dore 1986: 99). This pattern accelerated in the 1990s. Globalisation and the appreciation of the Yen over a number of years led to falling export demand and higher relative labour costs. These factors resulted in a decline of Japanese manufacturers’ share of global exports from nearly 10 per cent to a under 7 per cent over the 1990s (Development Bank of Japan 2002: 47).

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Table 3.2 Real GDP growth, industrial output and unemployment, Japan, 1980–2003 (%) Year

Real GDP growtha

Industrial outputa

Unemploymentb

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

3.6 3.6 3.2 3.0 4.3 5.0 2.6 4.1 6.5 7.3 4.8 3.8 0.9 0.4 1.0 1.6 3.5 1.8 −1.3 0.7 2.4 −0.6 1.2 2.7c

4.8 1.0 0.3 2.9 9.5 3.7 −0.2 3.4 9.7 5.8 4.1 1.8 −6.1 −3.6 0.7 3.4 3.0 4.1 −7.1 0.5 5.1 −6.6 −1.3 –3.3d

2.0 2.3 2.3 2.7 2.7 2.6 2.8 2.9 2.5 2.2 2.1 2.1 2.2 2.5 2.9 3.2 3.4 3.4 4.1 4.7 4.7 5.0 5.4 5.3e

Sources: a. IMF (2002), International Financial Statistics Year Book, Washington, DC: International Monetary Fund, pp. 606–609; IMF (2003), International Financial Statistics Year Book, Washington, DC: International Monetary Fund, pp. 361–363. b. OECD (2001), Labour Force Statistics, Paris: Organisation for Economic Cooperation and Development, pp. 82–83; OECD (2003b), Quarterly Labour Force Statistics, Paris: Organisation for Economic Cooperation and Development, pp. 24–25. c. Cabinet (2004), Economic and Fiscal Policy, 18 February (www.cao.go.jp). d. Statistical Handbook of Japan 2004, Tokyo: Ministry of Public Management, Home Affairs, post and communications, p. 67. e. OECD (2004), Main Economic Indicators, Paris: Organisation for Economic Cooperation and Development, January, p. 16.

Society and unemployment The poor state of the Japanese economy over the past decade and the factors discussed above have led to record levels of unemployment. The annual unemployment rate for 2003 was 5.3 per cent, although some signs of improvement were evident with the December 2003 quarterly unemployment rate falling to 4.9 per cent (The Japan Labor Flash 2004). Unemployment was more predominant among young people (15–24 years of age) with just over 10 per cent of the labour force in this group being unemployed in 2002; a five-fold increase over the past decade. Unemployment was also higher than the average for the 25–34 years and the 55–64 years age groups (Development Bank of Japan 2003: 8).

Unemployment in Japan 43 Long-term unemployment has increased four-fold over the last ten years; and by 2001 some 26.6 per cent of all unemployed have been unemployed for longer than 12 months (OECD 2004: 236). As Japan undertakes further industrial restructuring in an attempt to overcome the present deflationary economic downturn and improve competitiveness it is predicted that the unemployment rate for Japan will increase in the next few years (OECD 2002, 2003a). The Development Bank of Japan (2003: 22–23) has predicted unemployment will peak at 5.9 per cent in 2004/05; nearly 4 million unemployed workers. Whether this level of unemployment ultimately occurs will depend, to a large degree, on a number of factors affecting the supply and demand for labour. Labour supply A major supply factor is the aging of the population which has been brought about by a higher life expectancy and a falling birth rate. These conditions have led to a declining workforce. In 2002, the total workforce had declined to 63.3 million workers; down some 390,000 workers from the 1991 figure (see Table 3.1). The youngest section of the labour force (15–29 years old) is expected to decrease significantly by 2010 with a reduction of approximately 4,000,000 employees from the peak of 16,310,000 employees recorded in 1998. At the opposite end of the age spectrum, the older workforce (55 and older) is expected to increase dramatically; from 23.1 per cent in 1998 to about 29 per cent by 2010 (MOL 2000). These demographic trends suggest that Japan will suffer from a skilled labour shortage in the future. The current extensions to the mandatory retirement age and the better utilisation of women will, in part, serve to counter these trends (MHLW 2002). Another labour strategy affecting supply, one that has been gaining increasing attention, is the importation of foreign labour (United Nations 2000). As of 2001, some 740,000 foreign workers resided in Japan (JLB 2003c: 3); a three-fold increase over the last decade. Many of these workers were, however, unskilled or illegal workers rather than skilled foreign workers needed in areas of significant labour shortages. The value of such a policy is made more doubtful as a substantial increase in immigration into a relatively closed and socio-culturally homogeneous society would likely give rise to a number of social problems. Labour demand The aging of the current workforce is also contributing to demand problems. The older workforce, coupled with a seniority pay system, has led to higher labour costs and lower demand. In the past, it was possible to maintain a seniority-based pay system without increasing total payroll costs as the exit of older employees matched the entry of younger and less expensive workers. This situation has changed dramatically. The ratio of employees aged 55 or over among full-time regular male employees at companies with 1,000 or more employees increased from 22 per cent in 1979 to 36 per cent in 1998 (MOL 1999). Together with the

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loss of job opportunities for young people the growing cost of maintaining the employment of middle-aged workers has created a displacement effect between those two segments of the population (Genda 2001). This has led to a number of proposals for reform of the employment system. The best known of these proposals is the plan by Nikkeiren (1995), the peak employer body, to establish a new Japanese human resource model. Nikkeiren argued that the current employment model based on regular and non-regular forms of employment has limited quantitative flexibility and has added substantially to the cost of employment. Their proposal is to replace this dual employment system with three forms of employment each with a different level of flexibility: full-time regular employees, contractors and specialists, and temporary and parttime workers. The Nikkeiren proposal aims to increase flexibility by allowing companies to have greater ability to adjust their labour to short- and long-term economic trends. Companies appear to be moving towards such a model. The conventional Japanese employment system is found in the first category of employees, namely those in regular, full-time employment. The percentage of workers in this group has declined, although it remains a significant group that will serve as a social and economic buffer against changes that might have a destabilising effect on Japanese society. Increasingly, however, within this group workers are being rewarded for individual efforts. Workers employed on a contractor or specialist basis have grown in numbers as companies realise the need to acquire expertise at various levels within the company. While some of these will stay with the enterprise for many years most will move on after their contracts have expired. Companies are, however, increasingly relying on temporary and part-time workers who have no employment security and where wages and conditions are considerably lower than their full-time counterparts. This is evidenced in the finding that non-regular workers now account for 27.2 per cent of the total workforce (MHLW 2003a). It is this group that will bear the brunt of unemployment in future years and will serve as a buffer in periods of economic decline. Japanese management may be able to overcome the problems of labour shortages by undertaking strategies that could lead to a fall in labour demand. The first of these strategies is attempts to improve productivity. It has been estimated that if a more efficient use of capital investment, deregulation and technological progress is achieved then this would compensate for the 0.7 per cent annual decline in the working-age population (EPA 1999). A second strategy involves increasing foreign direct investment. The relocation of part of Japanese company’s productive capacity overseas has led to a significant decrease in the demand for labour in the manufacturing sector and a significant rise in the rate of import of components made in Asia by Japanese multinational corporations (METI 2001). A third managerial strategy that will affect the labour demand is an overall reduction of wages and benefits. This strategy is, in many ways, complementary to the new employment model proposed by Nikkeiren (1995), although it has been advocated by Nikkeiren (2002) as a way to reverse the declining state of Japanese industry without adding to the unemployment problem. This strategy, however,

Unemployment in Japan 45 may work against attempts to improve productivity as it would act as a disincentive for workers to adopt new practices and technology. The government, through a variety of financial incentives, has also attempted to increase the demand for labour. These schemes have generally been structured around subsidies to companies to create new employment opportunities in industries or regions that suffer from a high level of unemployment, to enable them to employ older workers, or to create employment in new and growth industries (JLB 2001: 1–3; Ohtake 2004). These schemes are aimed at a number of key social and economic problems such as the high levels of unemployment among older workers and attempting to improve employment in depressed regions. While these programmes were designed to encourage employment, other subsidies have been introduced to improve employee mobility. Overall, these strategies are short-term in nature and designed to address the current problems of the day, such as the most recent measures to minimise the unemployment that will result from the liquidation of non-performing loans (Ohtake 2004: 40–41). As such it is unlikely that these strategies will have a major effect on long-term labour demand.

Institutions and social problems Labour markets Twentieth-century Japan was marked by a sustained expansion of the workforce. The growth was largely a product of demographic changes; a tripling of the working age population and a declining birth rate that led to a rising participation by women in the labour market. These factors meant that a sufficient supply of young people were available to enter the workforce. By the beginning of the twenty-first century demographic factors have become responsible for the declining workforce. In part, the problems associated with the decline in the workforce will be offset by the phasing in of a higher retirement age (from 60 to 65 years of age), the increased participation of women in the labour market, and a general improvement in productivity. Beyond these broad labour market changes lie a number of issues that only surfaced with the decline in the manufacturing sector. The first of these is the level of excess labour, particularly white-collar employees that exist in many companies. Successful manufacturing companies could afford to carry surplus employees, although such excess labour was represented in most sectors of the economy (MHLW 2001). The excess of employees over the numbers actually required by the company, however, is difficult to calculate and so economy-wide estimates are problematic. Nevertheless, Ono and Rebick (2003: 16–17) suggested that the number of redundant Japanese workers ranges between 0.3 and 5 per cent of total employment. Part of the reason for Japanese companies wishing to retain excess employees is the investment they have made in training. As a consequence these companies, during periods of economic downturn, will exhibit ‘sluggish labour force adjustment’ (Hart and Kawasaki 1999: 20). A further issue alluded to in the 2002 White Paper on Labour (MHLW 2002) is

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latent or hidden unemployment. Again, the number of people wanting to work but have given up job searching is difficult to estimate. Darby et al. (1998) found that there existed a ‘discouraged worker effect’ in Japan and this was most pronounced among older women. Taken collective, the inclusion of excessive employment and latent unemployment in the unemployment figures would add significantly to the overall unemployment rate. For example, for 1995 Hart and Kawasaki (1999: 14–15) estimated that this would amount to 5 per cent of the employed workforce. These conditions have major implications for the long-term trends in unemployment as labour surpluses will tend to dampen demand while latent unemployment under-estimates supply. Much of the new employment in Japan is now temporary work sourced partly from the latent unemployment, particularly women workers (JLB 2002a: 2). In addition, the recent relaxation of the laws governing dispatched workers – increasing the number of job categories and the length of time workers can be dispatched for – will allow for the greater use of this provision. Manufacturing companies, for example, can now dispatch workers for up to three years and guidelines have now been developed to allow for such workers to gain regular employee status in their new company (JLB 2003b: 2; MPM 2003). These changes have led to a 15 per cent growth in the number of dispatched workers over the previous year (JLB 2003b: 2–3). In short, these developments will encourage companies to substitute regular employees with dispatched workers. This will serve to lower employment demand and will provide a convenient mechanism by which Japanese companies can reduce their number of excess employees. Social security and unemployment For those workers who are unemployed the benefits received from public and private sources are substantially less than most other industrialised countries (Ostrom 1997). In general, unemployment benefits are linked to periods of employment and are restricted to those that have paid a premium during their working lives (OECD 1999). In the event of becoming unemployed, the employee will be paid a benefit for a limited period time, usually less than one year. Such minimal support mechanisms have forced many people to cope with the financial problems associated with unemployment by utilising their own resources. A government survey found that more than half of unemployed workers (51 per cent) had no income in the month prior to the survey (MPM 2002). Of those that had an income, over 40 per cent relied on savings or the income of family members. Of the 3.57 million people unemployed in 2002 only 29 per cent or 1.03 million people were, or would be shortly, receiving an unemployment benefit (MPM 2002). These figures disguise the differences between the various groups of unemployed. Older workers were substantially more likely to have access to pension plans and unemployment benefits. Younger unemployed workers had not generally worked for a sufficient time, or were ineligible to access pension funds and so were less likely to be receiving an income. This latter situation was also more likely to be the case with temporary and part-time workers, females,

Unemployment in Japan 47 and workers who were not the head, or spouse of the head, of the household (MPM 2002). The substantial increases in unemployment over the past decade have led the peak trade union body, Rengo, to argue for improvements to benefits so as to reduce individual risk and to lessen the political resistance to economic reform (Rengo 2002). These arguments appear to have carried little weight with government. From 1 May 2003 the revised Employment Insurance Law came into effect. The purpose of this change was to stabilise the financial base of the fund which was deteriorating rapidly under the weight of the increasing number of unemployed (JLB 2003d: 3). Under the changes the annual premium will have risen from 1.4 per cent of a worker’s wage to 1.6 per cent in April 2005. Payments have been reduced substantially; from a minimum range of 60 to 80 per cent to a minimum range of 50 to 80 per cent of the unemployed person’s previous income. In addition, the maximum daily rate has been cut by 24 per cent for all age groups with the exception of the 60 to 64 years age group that have had their maximum daily benefit cut by 27 per cent. The revised programme has, however, made a limited attempt to gear the fund to the growing number of long-term unemployed. The number of people who have been unemployed for one year or longer during 2002 rose by 90,000 people to 1.12 million people. This increase represented three times the average increase in unemployment of those unemployed for less than a year (JLB 2003e: 1; MPM 2003). In recognition of this trend the maximum length of time an unemployed worker can receive benefits has been increased by 30 days for all age groups. This does not apply to those workers that voluntary left employment; for these workers the maximum length of payment was reduced by 30 days. One key aspect of these reforms was the development of a single scheme to cover all workers irrespective of whether they were regular or temporary workers. A second important aspect was the relaxation from five years to three years a person must be in the fund to receive support for educational and training costs. In these cases, however, the unemployed worker will only receive 20 per cent of the cost of their education up to a maximum of 100,000 yen (JLB 2003d: 5).

Trends and prospects for unemployment The preceding sections have outlined the economic, social, and political parameters that have contributed to the present state of employment and unemployment in Japan. In particular, deteriorating economic conditions, some significant changes in labour markets, and the relocation of manufacturing facilities overseas were significant factors behind the rising level of unemployment. To a limited degree government policy has served to moderate the rate of increase. This section will extend this analysis to a focus on company labour strategy in an attempt to understand how globalisation and economic restructuring has affected employment prospects and future trends. The analysis will focus on the manufacturing sector and will use company level data collected by the author in 1991, 1995 and 2001 in the Kansai region of Japan.3

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The last decade was characterised by low economic growth coupled with a substantial decline in manufacturing employment (see Table 3.1). For the companies surveyed this environment resulted in more competitive product markets where price had replaced quality as the second most important criteria for company success after ‘meeting customer needs’. Product demand had contracted and more companies were reporting excess production capacity. Overall company profits had fallen substantially. It was in this context that companies were asked to indicate what their labour strategies would be in two scenarios; a decline in demand, and an improvement in demand, for their major product. An increasing number of companies, if faced with a decline in their major product, would lay off regular as well as temporary workers. Extra labour, where required, would be achieved by increasing overtime and sub-contractors. Wages for those workers remaining were, in nearly a quarter of the companies, likely to be decreased. Details are presented in Table 3.3. These findings suggest a move towards some form of a core-peripheral employment (Atkinson 1985, 1987; Benson 1996) which is consistent with the model proposed by Nikkeiren (1995). To explore what led to these changes, a simple probit model containing the variables of product demand, labour productivity and active unionism, and controlling for size, casual employment and capitalisation, was tested.4 Results are presented in Table 3.4. In 1991, only low productivity would impact on the decision to reduce regular employment (p