Employment in East Asia and the Pacific: Pacific constraints require Pacific solutions

The World Bank's new regional report on linkages between employment and development celebrates the employment gains from recent economic transformation across much of the 'East Asia Pacific' region:

In the last 20 years, East Asia Pacific saw rising productivity amid a brisk structural transformation, with large movements of people into cities and higher output in agriculture, manufacture and services. Countries that were poor a generation ago successfully integrated into the global value chain, taking advantage of low labor costs. The unprecedented economic development in East Asia Pacific has provided jobs that lifted millions of people out of poverty and has been a triumph of working people.

But a dedicated chapter (also available as a standalone report) shows that this experience has not been shared by Pacific island countries. For them 'there is little sign…of the broader economic changes that are transforming much of the region' and 'access to regular paid work is limited and labor productivity remains almost static'.

These findings build on previous World Bank analysis regarding the impacts of economic geography on Pacific development. Small Pacific Island countries' unique combination of small and dispersed populations and isolation from global markets impose binding constraints to the adoption of East Asian models of economic diversification and development. New approaches are needed that go beyond typical business environment reforms often called for by major donors.

More than half of the Pacific population is under the age of 24 and there is growing dissatisfaction among youth with the limited opportunities for advancement offered by agricultural subsistence. Urbanisation can therefore be expected to continue, imposing pressure on social cohesion and living standards in many Pacific countries.

To meet the needs for new employment opportunities, governments and donors should revisit some assumptions about what constitutes 'good' employment. The focus needs to be on generating employment that improves living standards, increases productivity and builds social cohesion, rather than on work in particular geographical locations or sectors of the economy. Policymakers should also recognise that not all good employment comes in the form of full-time, permanent jobs.

The World Bank's report presents several specific priorities: [fold]

• Increase international labour mobility through the erosion of regulatory barriers and investment in transferable human capital. Employment opportunities in small, dispersed and isolated economies are less extensive than those in larger, more integrated economies. Providing Pacific islanders expanded access to larger labour markets is therefore vital. This will require both changes in the immigration policies of the nearest large economies and careful investment by small Pacific governments to support the transfer of skills between countries. Aging populations in nearby large markets and the potential for increased labour shortages suggest additional benefits for receiving countries.
• Maximise the positive potential of urbanisation through investment in improved rural services, connective infrastructure, and improved urban administration. Urbanisation, if well managed, can bring important employment benefits. Policies should not be biased toward employment in either urban or rural areas. Instead, they should seek to ensure acceptable standards of living across all communities and allow individuals to respond as they choose to the inevitable concentration of economic opportunities in urban areas. This will require (1) movement away from policies aimed at preventing urbanisation; (2) sufficient public investment in infrastructure links between agricultural areas and urban areas; and (3) improved land administration and increased investment in services in urban areas.
• Leverage public spending to support new employment opportunities. Public sector employment is likely to continue to provide a substantial share of work in Pacific island countries. Policy attention can usefully focus on ensuring that such employment is productive and sustainable rather than on reducing the number of public sector jobs. Private participation can provide incentives for efficient delivery of public services, but needs to be approached carefully and selectively. Broader public sector reforms to ensure efficiency and effectiveness need to continue. Donor agencies and governments can also work to ensure that the domestic economic impact of public expenditure is maximised to support creation of local employment opportunities.
• Take account of the costs of subsidising employment in natural resource industries. Natural resource industries can flourish in Pacific island countries despite higher cost structures. But work in natural resource industries is often unsustainable and contributes little to improving living standards. Judgments about policy interventions to create employment within these industries should consider the quality and sustainability of the work they are likely to create. Pacific island countries may often benefit more from converting rents from extractive industries into improved infrastructure, services, and human capital, than from seeking to create direct large-scale employment in those industries through implicit or explicit subsidisation.

The messages in the World Bank report are especially relevant to Australia and New Zealand, not only because of the importance of their aid relationships within the region, but also because of the key importance of labour mobility as a channel for better employment opportunities for Pacific islanders. Expansion of seasonal employment schemes presents a non-contentious and highly effective short-term option. If Australia was to improve and expand its Pacific Seasonal Worker Program to the point where participation was equivalent to that in New Zealand's Recognised Seasonal Employer scheme (relative to population), remittances from participants in the scheme could grow to the equivalent of 10% of GDP across participating Pacific countries, or 60% of current aid flows.

But such obvious opportunities from temporary schemes shouldn't blind us to the historically much more important role that permanent migration has played and should continue to play in Pacific development. As the World Bank report concludes:

Pacific Islanders have proven adept at taking advantage of living standards wherever they exist, and converting these opportunities into widely-shared improvements in living standards. Facilitating internal and international mobility is likely to be more successful in improving employment opportunities than encouraging people to remain in areas where, by accidents of history and geography, opportunities are inevitably limited.

Photo courtesy of Department of Foreign Affairs and Trade

Tobias Haque