11

The Middle Class and Employment in AsiaNatalie ChunEconomist, Asian Development Bank25 September 2013

Based on the Special Chapters of theKEY INDICATORS FOR ASIA AND THE PACIFIC41st and 42nd EditionsThe Rise of Asia’s Middle ClassToward Higher Quality Employment in Asia

2

Middle class grew rapidly in size and purchasing power

Region YearTotal Pop (millions)

Percent of Population Annual Exp. (2005 PPP$ billion)

Poor (<$2)

Middle ($2-20)

High ($20+)

Poor (<$2)

Middle ($2-20)

High ($20+)

Total(Per Person Day) (Per Person Day)

DEVELOPING ASIA1990 2681 80 20 0 841 703 38 15822009 3363 40 59 1 672 3423 428 4523

DEVELOPING EUROPE

1990 352 11 86 2 24 612 97 7332009 351 2 83 15 19 980 657 1656

LATIN AMER./CARRIBEAN

1990 409 28 66 6 49 645 341 10362009 536 20 71 10 39 1031 777 1847

MIDEAST/N AFRICA1990 154 18 80 2 18 234 38 2902009 203 10 87 3 14 365 76 456

OECD1990 626 0 26 74 74 775 7860 87092009 713 0 15 85 85 480 13874 14439

SUB-SAHARAN AFRICA

1990 259 74 25 1 68 106 43 2172009 389 59 39 1 95 234 99 428

Source: PovcalNet Database

Emerging consumers to assume key role in rebalancing

Source: Staff Estimates based on PovcalNet Database

Developing Asia

Developing Europe

Latin Am./Car-

ribean

Mid East/North Africa

OECD Sub-Saharan Africa

05000

100001500020000250003000035000400004500050000

Annual Expenditures

1990 2009 2030

Annu

al E

xpen

ditu

res (

Billi

ons)

4

Middle class demand more consumer durables

Household ownership of refrigeratorby per capita expenditure/income decile

0

10

20

30

40

50

60

70

80

90

100

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile based on per capita expenditure

Perc

ent

Philippines, 2006 India, 2004-2005 China, 2002

Household ownership of carby per capita expenditure/income decile

0

5

10

15

20

25

30

35

40

45

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10

Decile based on per capita expenditurePe

rcen

tP hilippines, 2006 India, 2004-2005 China, 2002

5

Middle class tend to invest more in education and health

Mean Percentage Share of Household Expenditures Spend on Education and Health

0

2

4

6

8

10

12

14

16

< $2(poor)

$2 - $4(lower middle)

$4 - $10(middle middle)

$10 - $20(upper middle)

> $20(upper)

Class

% sh

are

Bangladesh, 2000Bhutan, 2003Cambodia, 2003China, People's Rep. of, 2002India, 2004Indonesia, 2002Malaysia, 2004Nepal, 2003Pakistan, 2001Philippines, 2003Sri Lanka, 2002Thailand, 2002

6

But majority of middle class between $2 and $4; still vulnerable

Percent Middle Class and AboveMost Recent Survey Year

0

10

20

30

40

50

60

70

80

90

100

AZERBAIJAN

MALAYSIA

THAILAND

KAZAKHSTAN

GEORGIA

CHINA

SRI LANKA

ARMENIA

PHILIP

PINES

VIETNAM

MONGOLIA

BHUTAN

KYRGYZ REPUBLIC

INDONESIA

PAKISTAN

CAMBODIA

INDIA

UZBEKISTAN

LAO PDR

NEPAL

BANGLADESH

Perc

ent

$2-4 (2005 PPP $) $4-10 (2005 PPP $) $10-20 (2005 PPP $) >$20 (2005 PPP $)

7

Middle class to increase burden on environment and health

Per capita water consumption (cubic meters), 1997-2001

702849

896980

1,1531,179

1,2181,245

1,2921,3171,324

1,3931,5431,545

1,5912,223

2,3442,483

0 500 1000 1500 2000 2500

ChinaNepal

BangladeshIndiaJapan

S. KoreaPakistan

U.K.Sri LankaIndonesiaVietnamAustralia

PhilippinesGermanyMyanmarThailandMalaysia

USA

8

Middle class more likely to hold stable jobs

Percentage share of regular/permanent wage employmentto total labor force of each economic group

0

10

20

30

40

50

60

70

80

< $1.25(poor)

$1.25 - $2(near

poor/vulnerable)

$2 - $4(lower middle)

$4 - $10(middle middle)

> $10(upper middle &

rich)

% sh

are

India, 2004-05 Philippines, 2006 PRC, 2002

9

Stable Jobs Are Important for Reducing Poverty and Income Inequality

Informality, Poverty and Inequality (1990 -2008)

10

Developing Asia has had high growth and low unemploymentLabor and Employment Statistics by Region

Levels (2010)Compounded Annual Growth

(1990-2010)

Region

GDP per Cap (2005

PPP$)

Labor Force ('000)

# Employed ('000)

UnempRate

Real GDP

per Cap (2005 PPP$) Pop.

Labor Force

Employment

Developing Asia 4,728 1,759,693 1,709,072 4.8 6.2 1.3 3.5 3.9Developing Europe 12,037 145,261 132,558 9.8 0.8 0.1 0 -0.1Latin America & Caribbean 9,843 255,206 234,954 7.8 1.7 1.5 3.4 3.3OECD 33,517 507,965 465,260 8.5 1.5 0.6 0.8 0.7

11

Sizable structural transformation has occurred in Developing Asia

Developing Asia Developing Europe Latin America & Caribbean

OECD0.00

0.20

0.40

0.600.61

0.270.17

0.070.18

0.33 0.26 0.320.21

0.400.57 0.61

1990

Empl

oym

ent S

hare

0.000.400.80

0.430.16 0.15 0.03

0.24 0.26 0.23 0.220.340.58 0.63 0.752010

Agriculture Industry Services

Empl

oym

ent S

hare

12

Informal employment in Developing Asia remains high…

0.000.400.80 0.73

0.160.43

0.170.26

0.780.53

0.80

0.01 0.06 0.04 0.03

1990

Empl

oym

ent S

hare

0.000.400.80 0.70

0.17 0.360.130.27

0.810.60

0.85

0.03 0.02 0.04 0.03

2010

Informal Workers Employees Employers

Empl

oym

ent S

hare

13

Informality uneven and persistent

Singapore(1991-2008)

Hong Kong, China(1990-2008)

Malaysia (1990-2008)

Korea, Rep. of(1990-2008)

Philippines(1990-2008)

Thailand(1990-2008)

PRC(1995-2008)

Pakistan(1990-2008)

Indonesia(1992-2008)

Nepal(1991-2001)

India(1991-2008)

Bangladesh(1991-2005)

0.0 25.0 50.0 75.0 100.0

10.0

10.7

21.9

24.8

43.5

54.2

58.9

63.1

67.9

71.6

81.9

85.9

8.1

10.2

31.4

32.6

53.1

70.3

64.3

74.2

68.5

74.3

80.1

88.3

Percentage of Informal Workers to Total Employment

Start EndYear

Cou

ntry

(yea

rs)

14

Informality is becoming more common even in non-agriculture jobs

Informal Sector Employment in Latin America and Asia 1980-2008

1980-1985 1990-1995 2003-200830

40

50

60

0

2

4

6

8

10

12

Latin America

Informal Employment (%)Per capita real GDP (2005 PPP constant $ '000)

Shar

e of

Info

rmal

Em

ploy

men

t

Per c

ap re

al G

DP (2

005

PPP

$ '0

00)

1980-1985

1990-1995

2003-2008

30

40

50

60

0

2

4

6

8

10

12

Developing Asia

Informal Employment (%)Per capita real GDP (2005 PPP constant $ '000)

Shar

e of

Info

rmal

Em

ploy

men

t

Per c

ap re

al G

DP (2

005

PPP

$ '0

00)

Data source: ILO LABORSTA, CHIP, NSS-EUS

15

Formal versus Informal EmploymentInformal employment is typically lower quality and associated with: • Lower income• Underemployment • Less security • Absence of social safety nets

Benefits Received by Formal and Informal Wage Workers(% of total formal/informal wage jobs with benefit)

Arm

enia

Bang

lade

sh

Bant

en

Yogy

akar

ta

0

20

40

60

80

100

Pension

Arm

enia

Bang

lade

sh

Bant

en

Yogy

akar

ta

Sick Leave

Arm

enia

Bang

lade

sh

Bant

en

Yogy

akar

ta

Maternity/Paternity Leave

Arm

enia

Bang

lade

sh

Bant

en

Yogy

akar

ta

Vacation Leave

Formal Informal

16

Income and stability are most important for majority of workers

Azerbaijan

Armenia

Kyrgyz Rep.

Malaysia

OECD

Bangladesh

Thailand

PRC

Georgia

India

Indonesia

Philippines

Viet Nam

0 10 20 30 40 50 60 70 80

Safety/Security

OECD

Indonesia

Viet Nam

Philippines

PRC

India

Kyrgyz Rep.

Georgia

Thailand

Bangladesh

Armenia

Malaysia

Azerbaijan

0 10 20 30 40 50 60 70 80

Good Income

Source: Staff estimates based on unit record data from the World Values Survey, 2000 -2008

Percent of Workers Reporting Certain Attributes as Most Important in a Job

17

Quality of Employment Enhances Worker’s Well-Being

Fully-employed workers are more likely to report the highest well-being.

Unemployed

Employed part time, looking for full time

Employed part time, not looking for full time

Employed full time (by self)

Employed full time (by employer)

0 5 10 15 20 25 30 35

Workforce Well-Being, Thriving Worldwide2009-2010

percent

18

Better Employment Can Enhance Firm Productivity and Profits

• Efficiency wage hypothesis implies worker effort and productivity depends positively on wages (Stiglitz 1976)

• Human resource management literature indicates pay for performance schemes, target setting, and communication associated with higher productivity and profits (Bloom and Van Reenan 2010)

19

Productivity Growth Key to Promoting Higher Wage Employment

Brun

ei D

arus

sala

m

Sing

apor

e

Japa

n

Phili

ppin

es

Thai

land

Taip

ei,C

hina

Bang

lade

sh

Kore

a, R

ep. o

f

Sri L

anka

Mal

aysia

Hong

Kon

g, C

hina

Indo

nesia

Mon

golia

Indi

a

Viet

Nam

PRC

-5

0

5

10

15

20

Real Wages and Labor Productivity Growth 2001 to 2008

Labor Productivity

wage

Perc

ent

2020

Summary

• Middle class in developing Asia is rapidly expanding and key to rebalancing.

• Growing Asian middle class provides business opportunities.

• Vulnerability of middle class, requires policies targeted to their needs.

• Generating more formal employment opportunities may be key way to support and build the middle class.

21

Many Challenges• Skill biased technological change

• Restrictive labor and industrial policies

• Uncompetitive markets (SOEs and Monopolies)

• Demographic changes

22

Policies to Nurture Middle Class and Improve Employment• Stable and sustained economic growth• Greater infrastructure development• Increased FDI• Skill development through quality technical

and vocational education• Managed migration from lower productivity to

higher value added sectors.

• Safety nets especially for informal workers

23

Concluding Remarks• General policy prescriptions given tell us little

about how to implement the policies.

• Need greater in-depth micro studies to better understand true effects of policies on distribution.

2424

Thank you.

KEY INDICATORSFOR ASIA AND THE PACIFIC

http://www.adb.org/publications/key-indicators-asia-and-pacific-2010

http://www.adb.org/key-indicators/2011/main