Growth has fallen from an average 2.1 per cent between 1980 and 1990, to 1.5 per cent in the year 2008. Population growth has slowed substantially in Thailand, Vietnam and Brunei, and even in labour-intensive industrial countries like Indonesia. In all member countries, crude birth ratio is diminishing while life expectancy is expanding. The dependency ratio is increasing in high-income countries like Singapore, which experienced a doubling in the proportion of dependents to working population from 2004 to 2008. This phenomenon no longer exempts developing countries such as Thailand and the Philippines in which dependency ratios are also widening. If this trend continues the demographic divide is likely to cause significant economic difficulties.
Labour-intensive industries are vital to many Southeast Asian economies. The theory of comparative advantage, which underpins international trade, stipulates that countries with cheap labour costs will export labour-intensive products and import capital-intensive goods, and vice versa. A declining labour force in a labour-abundant country is therefore likely to deteriorate both its importing and exporting capacity. Additionally, a declining population means in the future there will be fewer people to collect taxes from and accordingly decreases the government’s ability to provide fundamental public services and infrastructure. ASEAN governments need to urgently and effectively respond to their changing demographic situation.
A popular and desirable option is to increase member countries’ competitiveness by applying superior technology to the production processes. This requires ongoing investment and technically skilled workers. Given it may take a very long time to develop the required technical capacity, in the meantime labour liberalisation should be considered.
Governments are historically concerned that the free movement of labour could create an influx of labourers from developing countries into developed economies: a potential threat for both receiving countries (in terms of unemployment), and sending countries (in terms of brain drain). Moreover there are several areas of potential dispute between ASEAN members: parts of the South China Sea, believed to be rich in oil and valuable minerals, have long been claimed by Indonesia, Brunei, the Philippines, Malaysia, Singapore, and Vietnam. Such antagonism between member countries could potentially obstruct cooperation within ASEAN.
On the other hand, free trade has increased intra-regional labour mobility. For a region with an abundant workforce like Southeast Asia, the free movement of labour presents a great opportunity to increase its comparative advantage against external trade counterparts such as China and India. By pooling human resources, member countries could create an enormous industrial workforce that would benefit the entire region. Unemployment and underemployment would be addressed as workers would move to where they are most productive, which also give them the opportunity to improve their lives.
Changes to demographic structure are slow and thus governments are likely to prioritise immediate concerns such as economic recession and internal political conflicts. However the dependent ratio is not going to decrease and the increasing competitiveness of the global market means that action needs to be taken soon. Labour liberalisation might not be the most straightforward option to the future demographic divide problem in ASEAN, but utilising their most abundant factor endowments may offer a speedy remedy to regional unemployment.
Boonwara Sumano is a postgraduate research student at Queen Mary, University of London.
This article was as an entry in the recent EAF Emerging Scholars competition.