The Asia Pacific jobs market is vulnerable to future shocks, according to a new briefing from Oxford Economics.

At the height of the coronavirus pandemic, employment in Asia had fallen by 83mn jobs, or 5.2%, from Q4 2019. Three years later, employment in the region has largely surpassed its pre-pandemic level.

APAC map

However, the report warns that employment has not yet reached pre-pandemic trends.

Comparing Oxford Economics’ forecast in early 2020 (before the pandemic struck) with the actual employment outturn, its estimates show that Asia likely lost a total of 31mn employments (or 2% of the total employments) in 2020.

While the gap narrowed slightly in 2021, it is expected to widen again to 39mn employments (2.4%) in 2023, due to the deteriorating growth outlook

The report’s authors said: “We believe the post-pandemic rise in job precarity in EM Asia will likely dampen wage growth in the medium to long term and render the labour market more vulnerable to future shocks.

”While we have not adjusted our medium- to long-term forecasts for the region, we are closely monitoring governments’ efforts to support the labour market recovery to gauge if the current trend is merely transient or the beginning of a deeper structural change.”

Advanced versus emerging economies

Oxford Economic’s research shows that the regional employment recovery has been uneven across advanced and emerging economies.

Employment losses are concentrated within EM Asia, where average employment growth has been much slower rate than it could have been if there had been no pandemic.

The employment deficit is worst in China and Hong Kong, which is unsurprising given the prolonged lockdown in China that delayed the recovery in economic activity.

Even in Thailand and the Philippines where job growth has outpaced its pre-pandemic trend, weakness lies below the surface.

Oxford Economics notes that a lot of the gains in Thailand, the Philippines, and Indonesia were driven by a surge in own account and unpaid family workers - the more precarious forms of employment.

”Employment losses are concentrated within EM Asia”

Working hours have also dwindled, signalling that labour demand has not fully recovered. These are likely to drag on long-term wages and overall GDP growth.

By contrast, employment in most advanced economies has surpassed its pre-pandemic trend and has been led by secure formal jobs. The greatest challenge continues to be adverse demographic changes, where labour supply constraints will drive wages higher.

Among the advanced economies, Japan posted the slowest employment growth versus its pre-pandemic trend.

The report found that Japan’s labour market entered the pandemic on a relatively weak footing. Not only had a VAT hike in Q4 2019 resulted in a consumption dip, the automobile sector – one of the largest sectors for employment in the economy – was already suffering due to carbon emission regulations.

Hence, after the economy was slower to reopen from the pandemic than its advanced economy counterparts, the demand for labour in Japan was drastically impacted.

Hours worked show worrying trends

In Japan, per capita working hours were declining before the pandemic, due to structural factors such as the rise in part-time workers and a labour reform law that cap overtime work.

The pandemic has further accelerated this fall. During the crisis, firms avoided slashing employment drastically thanks to rigid labour market regulations and generous subsidies from the government.

However, adjustment to labour input was mainly done via shorter working hours to avoid an over-supply of labour in times of low economic activity.

”We notice that average weekly hours worked have also fallen below trend in some economies, such as Japan, Malaysia, and the Philippines”

The Philippines posted the most significant decline in working hours since 2019, countering the uptrend prior to the pandemic. This likely reflects the side-effect of the general switch to more precarious forms of employment, where working hours are often not guaranteed.

With rising job uncertainty and the hit to household incomes, it is also no wonder that the Philippines has witnessed an accelerated rise in the labour force participation rate compared to pre-pandemic years.

The authors said: ”Where data is available, we notice that average weekly hours worked have also fallen below trend in some economies, such as Japan, Malaysia, and the Philippines, indicating that there are more slacks in the labour market than meets the eyes.

Why risk managers should care

Oxford Economics warns that these trends could have significant consequences for Asian companies. These include:

Modest wage growth

The perpetuation of the uptrend in own account and unpaid family work and dwindling working hours (particularly given these will not be driven by an increase in labour productivity) would result in slower wage growth in the emerging economies in the medium to long term.

Deepening vulnerabilities that stem from the lack of social protection and job security means that if left unsupported, the labour market will be more prone to future shocks, making economic recovery even more challenging than before.

In advanced economies, the consequences of adverse demographics should continue to loom large, which will constrain labour supply and push wages higher. 

Subdued private consumption and government revenue growth in emerging economies.

Slower wage growth will likely translate into more cautious consumer spending, especially in a climate of global economic uncertainty. 

The narrowing tax base could result in slower revenue growth and reduce the government’s fiscal capacity.

Higher innovation and investment.

The rise in own account workers, although risky in nature, may boost innovation in the economy. This could eventually spur investment and expand the country’s growth potential, should meaningful start-ups manage to thrive.

However, the types of emerging business (e.g. high versus low value-adding, high versus low productivity) and the ease of doing business (e.g. infrastructure readiness) are two important factors in determining if rising own account works would improve innovation.