26 March 2014
LN-SL007 World Bank

Asia's low quality jobs

Behind the rosy picture of Asia's dramatic reduction in poverty is the reality that the overall quality of employment in Asia remains low.

Behind the rosy picture of Asia's dramatic reduction in poverty is the reality that the overall quality of employment in Asia remains low. Even the subcontrators of Apple, that wonderful company that makes our iPhones and iPads, need to improve the quality of their jobs.

The proportion of developing Asia's population living on or below the $1.25-a-day poverty line fell from 51.8% in 1990 to 20.8% in 2008, as 714 million were lifted out of poverty. And yet, over this same period, the share of Asian workers in low quality employment (in the "informal sector") only declined slightly from 69% to 67%, reports the Asian Development Bank. (Informal workers only account for about one-third of total in Latin America.) More recently, one consequence of the global financial crisis has been an expansion of informal employment.

Workers in the informal sector in developing countries are considered to have "low quality" jobs because they typically do not have a formal contract, job security or social security. This can lead to exploitation of workers through low wages, long and variable working hours, no overtime pay, and no benefits. Typically, own-account workers and unpaid family workers all belong to the informal sector. Productivity in the informal sector is around 5-10 times lower than the formal sector.

In developing Asia, there is a strong inverse relationship between informal employment and per capita income. There are however exceptions. India has a much higher rate of informal employment (82%) than expected for a country at its level of per capita income -- India has been slow at creating higher quality employment. Same goes for Thailand. Malaysia has a much lower share of informal employment. Overall, informal workers go from over 80 per cent of total employment in Bangladesh and India, to 50-70% for countries like the Philippines, Thailand, China, Pakistan and Indonesia, and down to around 10% for Hong Kong and Singapore.

Asia's weak performance in generating high quality employment is because Asia's economic development has been driven by a massive shift from low-productivity agriculture to low-cost manufacturing created by high export-led growth. And due to the virtual unlimited supply of low-skilled labor, wages and job quality have been kept relatively low, and the enterprises leading these new manufacturing activities have been able to make large profits. Globalization has added to the challenge, as the pressure to remain competitive has created even greater incentives to keep the labor costs low, and employment relations informal.

Despite Asia's very rapid development, the shift of workers out of agriculture towards manufacturing still has a long way to go. Between 1990 and 2008, the percentage of agricultural employment in total fell from 66% to 44%, compared with a declines from 19% to 17% in Latin America and 7% to 4% in the OECD countries. Although developing Asia is widely touted as the factory of the world, industrial employment only rose from 17% in 1990 to 24% in 2008. Over the same period, industry's share of total employment fell from 27% to 24% in Latin America, and from 31% to 24% in the OECD region. An important services sector is the hallmark of an advanced economy, and in the OECD region, services employment rose from 62% to 72% over this period. Service sector employment rose from 55% to 59% in Latin America and from 16% to 33% in developing Asia.

This is why the International Labour Organisation has committed itself to an "Asian Decent Work Decade". The ILO's decent work agenda comprises four goals: a legislatively guaranteed right to work; social protection to ensure safe working conditions, sufficient leave time, access to health care, and adequate compensation in case of lost or reduced income; and worker representation.

But in a report last year, the ILO highlighted major decent work deficits. Young men and women are three times more likely than adults to be unemployed, while at the same time millions of children who should be in school are engaged in child labor. Women have not the same opportunity as men to engage in the labor force and represent a critical source of untapped potential. Female labor force participation for the region is 51%, nearly 30 percentage points lower than the rate for men. Women also earn less than men in similar jobs, and they are overrepresented in certain unskilled occupations and in the informal economy.

Most workers in the region lack basic social protection in times of economic hardship, family illness, disability or old age, and occupational injuries. There is also a wide range in standards of occupational safety, health and working conditions -- from conditions on par with international standards to the most dangerous and exploitative conditions.

The global economic crisis has intensified existing tensions in industrial relations systems, which in recent years have led to a substantial increase in disputes. This challenge is compounded by the low level and slow pace of ratification of the fundamental ILO Conventions, particularly those relating to freedom of association and the right to collective bargaining. The region needs a strong and fair institutional basis for enabling workers to share in productivity gains. Between 2001 and 2007 – a period of tremendous economic growth in Asia and the Pacific – average real wages in a sample of economies grew by only 1.9 per cent per year, far below the average annual growth in labour productivity.

In Asia and the Pacific, regional migration is an important source of economic dynamism. Migration for employment in the region has grown 6 per cent annually, with increasing flows within Asia itself. The flows of migrants and remittances may have slowed temporarily as a result of the global crisis, but the pace has already picked up again as a consequence of uneven labour supply and persistent income differentials between receiving and sending countries. Unfortunately, however, the crisis has also highlighted major concerns about the management of migration, including high recruitment costs, worker abuse, exploitation, and cases of forced labour and human trafficking. There are particular problems with regard to freedom of association and the poor record of ratification of ILO instruments on migration and migrant workers.

Let's move now on to the case of Apple's iPhone. This product represents the classic case of the creation of new low-cost manufacturing activities and also the fragmentation of manufacturing production. It was designed and conceived in the US. Its components are produced in Japan, Korea, Germany and the US. All the iPhone components are then shipped to Foxconn, a Taiwanese company, located in Shenzhen, China, for assembly into final products and then exported. It only costs $6.50 per unit to assemble all parts and components into a ready to use iPhone, merely 3.6% of the total manufacturing cost. In fact, Apple is not the only major customer of Foxconn. Others include: Amazon.com, Cisco, Dell, Hewlett-Packard, Intel, Microsoft, Motorola Mobility, Nintendo, Nokia, Samsung, Sony, Toshiba, Vizio.

Apple claims that it is committed to driving the highest standards for social responsibility throughout our supply base. "We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made. Our suppliers must live up to Apple’s Supplier Code of Conduct as a condition of doing business with us."

Thus Apple conducts an annual audit of its supply chain, most recently in February 2012. Even though you could expect this report to provide a fairly rosy picture, more than half of the suppliers audited by Apple have violated at least one aspect of the code of conduct every year since 2007, according to Apple’s reports, and in some instances have violated the law. While many violations involve working conditions, rather than safety hazards, troubling patterns persist.

The case of Foxconn was spread across the international media in 2010 following a series of suicides linked to low pay in 2010. A report by twenty Chinese universities described Foxconn factories as labour camps and detailed widespread worker abuse and illegal overtime. In response to the suicides, Foxconn installed suicide-prevention netting at some facilities, and it promised to offer substantially higher wages at its Shenzhen production bases. Workers were also forced to sign a legally binding document guaranteeing that they and their descendants would not sue the company as a result of unexpected death, self-injury, or suicide.

China Labor Watch, an NGO, has been particularly critical. According to Li Qiang, the founder of China Labor Watch: "Foxconn is not good. But if we compare all industries, electronics, textile, toys, Foxconn is one of the best. The biggest problem for Foxconn is the workers are working under a lot of pressure. They’re standing 10 to 11 hours a day. Foxconn treats the workers like they are machines. They think about how many products they can produce, not about giving the workers a rest. But in the electronics industry all the companies are the same. They say they’ve increased salaries, but Foxconn doesn’t say the workers have to produce more products per hour. So they have to work even harder. And the worst thing is that Foxconn is the biggest company in the industry. So they set the standard in the industry. And the working intensity has already been audited by the multinational companies, thus meeting the standards set by Foxconn’s clients."

After growing criticism during 2011 about the working conditions at Foxconn (China's largest employer), including those conditions that led to deadly accidents, Apple agreed to allow the Fair Labor Association to conduct a thorough investigation of those suppliers, beginning with three factories at Guanlan, Longhua, and Chengdu in China. Much more than an audit for compliance, this investigation is best described as an in-depth, top-down and bottom-up examination of the entire operation. The FLA is a unique collaboration among companies, universities, and labor and human rights civil society organizations.

The findings of FLA’s nearly month-long investigation revealed serious and pressing noncompliances in the areas of working hours, health and safety, industrial relations, and compensation and social security insurance. Because of the nature of Apple's affiliation with the FLA, the company has two-years to comply with FLA standards. Foxconn has agreed to meet legal requirements by July 1, 2013. The manufacturer must also protect workers' pay while reducing working hours.

Some concluding comments

Many might say that it is natural that people in poor countries should have low quality jobs. While that may be right to some extent, cheap labor should not be a pretext for abuses of labor and other human rights, or cheating workers, as often occurs. Governments, trade unions and NGOs have an important role to play in protecting the rights of workers and ensuring that employers follow minimum safety and other regulations. Even for low-income countries, these should include basic safety in the work place, absence of discimination against women, and absence of child labor.

Ultimately, a sustainable increase in higher quality employment is possible only with sustained growth in prodictivity -- which is also key for countries seeking to climb the value-chain and making serious progress in development.

Policy recommendations for low-income countries include: increase trade and foreign direct investment; manage migration from lower productivity to higher value-added sectors; support productivity increase in rural non-farm activities; develop more skill-specific human capital through quality technical and vocational education; and extend basic level social protection.

For middle income countries, policy recommendations are: continue to promote open trade and foreign direct investment; invest in human capital development through general and higher quality secondary and tertiary education; and improve social protection systems by broadening basic health care and enhancing pension systems.

Thus, both business and government have an interest in improving the quality of work. In fact, as the endless supply of cheap labor dries us, businesses have no alternative but to improve the quality of employment. Further, as a developing country makes progress, respecting labor rights is a key element in the democratization which should go hand-in-hand with development.


John West
Executive Director
Asian Century Institute
Tags: asia, Asian Development Bank, International Labour Organisation, Apple, informal sector, decent work

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