ADB chief economist Izfal Ali has dropped a minor bombshell into the annual meeting with a report warning that Asia could be faced with 750 million unemployed or underemployed people over the next 10 years. Some have called the report alarmist but yesterday Ali insisted to Emerging Markets that he is “definitely not scare-mongering and this is a real danger to the region.”
The advent of this threat into what was supposed to be the ADB’s glowing medium-term growth scenario for Asia could add to pressure for the bank to focus more on poverty issues and less on regional economic integration. One official told Emerging Markets that the ADB should “take the lead” in championing policies for job creation since this has been shown to be a major potential threat to regional stability.
ADB president Haruhiko Kuroda acknowledged yesterday that “job creation is critical to poverty reduction” but said the challenge is difficult and complex. It requires provision of national and cross-border infrastructure to link “high growth areas” with low growth regions, and a better climate to attract foreign investment in many Asian countries, as well as improved “financial intermediation” to channel local savings into investment, he said.
Ali told Emerging Markets that he had been “overwhelmed” by the reaction in India to the report on the “challenge of job creation in Asia” after it was unveiled in Delhi last week. “It has really struck a chord,” he said, while noting that China as well as India has realized the danger of rising social tensions and growth disruption arising from growing joblessness and income inequality.
“With at least 500 million Asians conservatively estimated to be unemployed or under-employed, and some 245 million new workers expected to enter the region’s labour markets over the next decade, Asia faces the formidable challenge of creating large number of productive and better paying jobs to absorb its underutilized labour force,” the report said.
These dangers are being largely ignored, said Ali, who claimed that the ADB’s “groundbreaking” two-year research into these issues has revealed previously unrealized threats to economic growth and social stability. Despite very high “headline” growth rates in Asia, new job generation is not keeping pace with rising expectations and with the rate of new entrants into the labour market.
“The increasing inequality between rural and urban areas seen in many parts of Asia can be traced in part to the neglect of poverty-enhancing public investments in rural areas, where a majority of Asian reside,” the report said. “Labour regulations such as minimum wage laws or restrictions on laying off workers may be playing a role in constraining job growth in the formal sector in some countries.”
Another problem is that “limited investment in the face of a rapidly expanding labour force has led to slow growth in jobs,” the report added. Spending on rural infrastructure is needed on a major scale in order to diversify growth from urban to rural areas and emphasis has to be put on raising the productivity of the agricultural sector, so as to boost demand and employment in the services sector.