briefs NO. 17OctOber 2013 Key Points Social Protection Index Brief: • Labor market programs feature little in social protection programs in Asia and the Pacific. Labor Market Programs in • Investments in active labor market programs in 35 countries Asia and the Pacific are mostly food- or cash-for- work and skills development and training programs. Terry McKinley Sri W. Handayani • South Asia is doing more on labor market programs when Professor Principal Social Development Specialist compared to other parts of Asia School of Oriental and African Studies Regional and Sustainable Development and the Pacific, but expenditures University of London Department remain relatively modest. and Asian Development Bank • Coverage of labor market Consultant programs remains low at 22% Asian Development Bank of potential beneficiaries. • Men tend to receive more benefits from labor market Introduction programs than women, underlining the gender gap in access to economic The Asian Development Bank (ADB) report The Social Protection Index: Assessing Results opportunities such as jobs. for Asia and the Pacific (2013) documents the negligible role of labor market programs in social protection programs across the region. Figure 1 shows the modest role of labor market programs in the overall social protection programs in Asia and the Pacific. They account for only about 5% of total expenditures and total beneficiaries. The extent of coverage (breadth) of labor market programs is measured by the ratio of actual beneficiaries to potential beneficiaries. In Asia and the Pacific, potential beneficiaries of labor market programs are unemployed and underemployed persons. Figure 2 shows that labor market programs have the narrowest coverage among the three major categories of social protection; only 22% of the unemployed and underemployed benefit from labor market programs. These results suggest that the major priority for labor market programs in Asia and the Pacific is to substantially expand their coverage. However, knowing the breadth of the program is not enough. The reach of the program also needs to be gauged against the depth or size of benefits received to assess the adequacy of the labor market program. Using data generated under ADB’s Social Protection Index (SPI) project, beneficiaries from labor market programs receive average benefits that are equivalent to about 37% of poverty-line expenditures. This is higher than the average benefits provided by social assistance. The poor and the nonpoor derive similar (though marginal) benefits from these ISBN 978-92-9254-296-2 (Print) programs. The poor receive 47% of all benefits and the nonpoor receive 53%. Part of ISBN 978-92-9254-297-9 (PDF) the explanation for this result is that in countries such as Bangladesh and India, which ISSN 2071-7202 (Print) both support substantial food- or cash-for-work programs, the poor appear to benefit ISSN 2218-2675 (PDF) roughly as much as the nonpoor. In India, for example, the SPI for the poor of labor Publication Stock No. ABF136069-2 market programs almost equals the SPI for the nonpoor (0.010 vs. 0.011). 2 ADb briefs Figure 1 Share of Social Protection Programs, 2009 by Expenditures by Beneficiaries Labor market Labor market programs programs 5% 5% Social Social insurance Social insurance 37% assistance 59% Social 36% assistance 58% Source: ADB. 2013. The Social Protection Index: Assessing Results for Asia and the Pacific. Manila. This pattern appears to prevail fairly consistently across Th ough economic growth has most countries in the region. been rapid, quality employment It is important to note that labor market programs are has lagged intended to promote employment, an objective that can only be met by multiple coordinated policies and actions. Social protection can support job creation, but it cannot The results for gender are somewhat different. Overall, determine its success. the SPI for women of labor market programs is only 0.001 while the SPI for men is 0.002. In other words, men One of the major problems in the region is that garner about two-thirds of the benefits of such programs. although economic growth has generally been strong, Figure 2 Adequacy of Coverage (Breadth) and Size of the Benefits (Depth) for the Three Major Categories of Social Protection 1.5 1.419 1 0.5 0.388 0.368 0.297 0.283 0.217 0 Social insurance Social assistance Labor market programs Breadth Depth Source: ADB. 2013. The Social Protection Index: Assessing Results for Asia and the Pacific. Manila. Social Protection Index Brief: Labor Market Programs in Asia and the Pacifi c 3 improvements in the quality and quantity of employment have not followed. For instance, informal workers account Expenditures on passive labor for two-thirds of those employed in Asia and the Pacific. This is one of the highest regional averages in the world market programs only benefi t (ADB 2011). Moreover, about 44% of the employed are a relatively small group of still engaged in mostly low-productivity work in the agriculture sector. benefi ciaries Subcomponents of Labor Market Programs account for 22% of total expenditures on labor market programs, but reach only 10% of the total beneficiaries. The SPI defines labor market programs to include Expenditures on passive labor market programs tend to both active labor market programs (e.g., food- or cash- benefit only a relatively small group of beneficiaries, such for-work schemes) and passive labor market programs as urban formal sector workers, and those working in the (e.g., unemployment insurance, maternity leave, and public sector or in sizable private sector firms. disability insurance). Only active labor market programs are included in Skills Development and Training the general labor market program category of the SPI. Passive labor market programs are included as part of Skills development and training is an important social insurance because they are contributory schemes. subcomponent of labor market programs in Asia and The two active labor market programs covered by the the Pacific and often overlaps with technical and SPI project are skills development and training, and vocational education and training (TVET) programs. food- or cash-for-work programs. Food- or cash-for-work However, while some forms of TVET can be part of social programs are slightly more prominent, accounting for protection, others can represent general education sector 54% of all expenditures and 52% all beneficiaries of interventions that promote human capital and support active labor market programs. Correspondingly, skills general economic growth and development. development programs account for a little less than half of all expenditures and all beneficiaries. TVET’s link with social protection programs depends on whether it is designed to address the needs of Figure 3 examines all labor market programs, whether the unemployed and the underemployed. Whereas active or passive. Passive labor market programs unemployment can be clearly defined, underemployment Figure 3 Share of Labor Market Program Expenditures and Beneficiaries by Major Components, 2009 Expenditures Beneficiaries Other passive LMPs Other passive LMPs 4% 2% Unemployment benefits Skills Skills8% development developmentUnemployment and training benefits and training 18% 35% 44% Food- or Food- or cash-for-work programs cash-for-work programs 43% 46% LMP = labor market program. Source: ADB. 2013. The Social Protection Index: Assessing Results for Asia and the Pacific. Manila. 4 ADb briefs does not have a generally accepted operational definition. Such workers have few economic options since they The SPI considers underemployment to be a deficiency lack skills and cannot even obtain credit to start of work based on a lack of working hours per week, or microenterprises. In addition to providing training, intermittent, insufficient work over a longer period of time. the program has tried to motivate people to engage in productive activities, and thereby contribute economically Despite the definitional challenge, using the unemployed to their communities. and underemployed as the potential beneficiaries of labor market programs helps to clarify the aspects of Initiating successful skills development and training skills development and training that should be regarded programs in South Asia, the subregion with the lowest appropriately as social protection. income per person, is a particularly severe challenge. While this region’s unemployment rate is low, its Most countries in Asia and the Pacific devote minimal underemployment rate is estimated to be over 30%. resources to skills development and training. In a Furthermore, over 70% of its labor force works in the few countries, such as Bhutan, the Maldives, and the informal sector (Panth 2013). In India and Nepal, more Marshall Islands, skills development and training is the than half the labor force has not even completed primary only form of labor market program. education (Panth 2013). These countries also have a relatively young population, a factor that creates the Thailand implemented a program to assist the jobless, additional challenge of finding jobs for the large number Tonkla-Archeep, as part of its countercyclical response of new entrants into the labor force each year. Hence, to the global economic downturn that started in skills development and training needs to be scaled up 2008. Accounting for about 4% of all of Thailand’s significantly to prepare young workers for productive social protection spending in 2009, Tonkla-Archeep employment. combined a skills development and training program with an unemployment insurance program that helped 140,000 unemployed workers secure employment, and Programs Providing Food- or Cash-for-Work provided benefits and training to another 200,000. When labor market programs constitute a significant share The program also provided financial support to companies of total expenditures on social protection in a country that were willing to postpone the layoffs of roughly in Asia and the Pacific, food- or cash-for-work programs 200,000 additional workers. Thus, the total number are predominant. This is the case, for example, in of the program’s beneficiaries, 540,000, represented Afghanistan, Bangladesh, Cambodia, India, and Samoa. almost 7% of the estimated 8 million unemployed and underemployed in Thailand. In India, SPI data suggest that the large-scale Mahatma Gandhi National Rural Employment Guarantee Act In the Philippines, skills development and training (MGNREGA) program accounted for 40% of all of central accounted in 2009 for 57% of all expenditures on labor government social protection spending in 2009. Initiated market programs, and over 90% of all the beneficiaries in 2005, this program is designed to guarantee, as a legal of such programs. This was a community-based training right, 100 days of employment per year at the minimum scheme designed to address the needs of poor and wage to rural workers willing to engage in unskilled marginalized workers who lack access to formal training manual work on local infrastructure projects. programs. While it is true that the MGNREGA program provides significant employment opportunities, especially for unskilled workers, the program cannot fully satisfy the widespread demand for productive jobs in rural India. Although the program provided employment to 50 million Countries in Asia and the Pacific workers in 2009, twice that number had applied for the job cards that would give them the right to such employment. devoted little funding for labor The program has also been criticized for failing to provide market programs meaningful skills development and training. This factor Social Protection Index Brief: Labor Market Programs in Asia and the Pacific 5 might explain why even though the MGNREGA Unemployment benefits constitute an important part program has often been successful in building useful of the Republic of Korea’s broad Employment Insurance rural infrastructure (Deininger and Liu 2013), some of System, which includes an Employment Stabilization the irrigation works and roads built by semi-skilled or Program and a Vocational Ability Development Program. unskilled workers have been found to be of poor quality. Few countries, however, are in a position to finance A possible response to this shortcoming would be to such an extensive system. The unemployment benefits more closely integrate skills development and training program consists of three separate components: initiatives with such food- or cash-for-work programs. (i) standard job-seeking allowances; (ii) extended job- search benefits for those participating in vocational Afghanistan’s food-for-work program was set up with training once the standard allowances have expired; and assistance from the World Food Programme (WFP) to (iii) employment promotion allowances that are still paid address the country’s high level of unemployment, which to individuals even after they are employed, in cases was caused, in part, by the return of 3 million refugees in where workers have found a new job quickly. the early years of the new millennium. SPI data for 2009 indicated that 841,000 benefited from this food-for-work In general, both the number of unemployment benefits program. The program mobilized local communities to recipients and the level of their benefits have increased identify their priorities for local infrastructure. The value with the expansion of the program’s coverage. Between of food rations provided to beneficiaries was deliberately 1998 and 2008, the cost of the unemployment benefits kept lower than the wages of a day laborer, but there program increased from 0.17% to 0.28% of the country’s were claims that labor devoted to local projects had been gross domestic product, while the number of covered diverted away from other agricultural activities (World workers increased threefold (S. T. Kim 2010). One reason Bank 2005). Some beneficiary households expressed a for the success of the program has been the relatively high preference for cash payments rather than the food rations. degree of formalization of employment in the Republic of However, a WFP evaluation of the program found it to be Korea, relative to other countries in Asia and the Pacific. generally successful in helping households cope with food shortages, and build or rehabilitate local infrastructure However, even in a highly formalized economy, there (WFP 2009). remain a significant number of irregular workers, including part-time, contract, and self-employed workers, who are not covered by unemployment benefits. In 2009, this category Passive Labor Market Programs represented over a third of the workforce in the Republic of Korea. A comprehensive unemployment insurance system Passive labor market programs play a modest role in could help such workers (M. J. Kim 2010), where it is also providing social protection for workers in Asia and the accompanied by active labor market programs. Pacific. Unemployment benefits are, by far, the largest component of such passive programs. Other passive labor market programs, like severance payments and work-injury insurance, are quite weak in Unemployment benefits account for 18% of all Asia and the Pacific. These are shown as part of “other expenditures on both active and passive labor market passive labor market programs” in Figure 3. Such programs programs, but they cover only 8% of all beneficiaries of account for only 4% of all labor market expenditures and labor market programs (Figure 3). Such beneficiaries a mere 2% of all beneficiaries. Only in a few countries, tend to be concentrated among workers who have such as the Republic of Korea, Samoa, and Singapore, been employed in the public sector or sizable private do they constitute a significant share of expenditures on enterprises. labor market programs. In general, unemployment benefits play a significant role in high-income countries (such as the Republic Limits of Labor Market Programs of Korea) and transition economies (such as Armenia and Uzbekistan). In 2009, unemployment benefits Labor market programs, both active and passive, have accounted for about 39% of all expenditures on labor accounted for only a small share of the total expenditures market programs in the Republic of Korea and 48% in and the total beneficiaries of social protection programs in Uzbekistan. Asia and the Pacific. These programs are poorly linked to 6 ADb briefs the other two major categories of social protection—social Bibliography insurance and social assistance. The poor tend to receive somewhat fewer benefits than the nonpoor from active ADB. 2011. Part 1: Special Chapter: Towards Higher and passive labor market programs, but for such programs Quality Employment in Asia. In Key Indicators for Asia women are at a much greater disadvantage than men. and the Pacific. Manila. Passive labor market programs, including unemployment ———. 2013. The Social Protection Index: Assessing Results for insurance, have been relatively insignificant, except in Asia and the Pacific. Manila. some high-income countries and transition economies. In these contexts, their importance has increased since Deininger, K., and Y. Liu. 2013. Welfare and Poverty the latter half of the 1990s. However, they are unlikely to Impacts of India’s National Rural Employment become significant forms of social protection in the short Guarantee Scheme: Evidence from Andhra Pradesh. to medium term, particularly in lower-middle income and Policy Research Working Paper. No. WPS 6543. low income countries. Washington, DC: World Bank. Active labor market programs, particularly special work Khera, R., and N. Nayak. 2009. Women Workers and programs, are important, especially in South Asia. Perceptions of the National Rural Employment Such programs have had some notable success in Guarantee Act in India. Economic and Political Weekly. providing income and food security to poor and vulnerable 44 (43). pp. 49–57. workers through temporary employment on infrastructure projects. Across Asia and the Pacific, skills development Kim, M. J. 2010. Employment Insurance System in [the and training programs that address the needs of the Republic of] Korea and Recent Revision. Report for the unemployed and underemployed are generally small. Social Resilience Project. Japan National Committee for Pacific Economic Cooperation. Data from the 2009 SPI report suggest that food- or cash- for-work programs could be a viable option for addressing Kim, S. T. 2010. [The Republic of] Korea’s Unemployment unemployment and underemployment in many developing Insurance in the 1998 Asian Financial Crisis countries in the region, where many workers are unskilled and Adjustments in the 2008 Global Financial and laboring in precarious conditions in agriculture or in Crisis. ADBI Working Paper Series. No. 214. Tokyo: the urban informal service sector. However, to be more Asian Development Bank Institute. sustainable, special work programs should have skills development and training as a core component. Panth, B. 2013. Skills Training and Workforce Development with Reference to Underemployment These active programs are primarily designed to provide and Migration. In R. Maclean, S. Jagannathan, supportive benefits to workers who are either unemployed and J. Sarvi, eds. Skills Development for Inclusive and or remain trapped in low-paid employment. Yet, they Sustainable Growth in Developing Asia-Pacific, Technical cannot guarantee the kind of quality employment that and Vocational Education and Training: Issues, many workers need in order to escape poverty and Concerns and Prospects. Vol. 19. Published by vulnerable circumstances. Hence, it is important to Springer for the Asian Development Bank. recognize that skills development and training, and special work programs, cannot in themselves overcome World Bank. 2005. Afghanistan – Poverty, Vulnerability and the structural deficiencies of economies in which quality Social Protection: An Initial Assessment. World Bank employment is not widely available to low-skilled workers Report No. 29694-AF, March. (ADB 2011). World Food Programme (WFP). 2009. Post Conflict Relief Ultimately, countries would reap more positive impacts and Rehabilitation in the Islamic Republic of Afghanistan. of labor market programs if they are designed and WFP Evaluation Report. Italy. implemented within an overall national development framework that fosters both growth and widespread productive employment, as well as within a coherent national social protection strategy. Social Protection Index Brief: Labor Market Programs in Asia and the Pacific 7 8 ADb briefs About the Asian Development Bank © 2013 Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve The views expressed in this publication are those of the authors and the quality of life of their people. Despite the region’s many successes, do not necessarily reflect the views and policies of ADB or its Board of it remains home to two-thirds of the world’s poor: 1.7 billion people Governors or the governments they represent. 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