One challenge for some countries is that while
they have increased manufacturing employment,
their manufacturing bases remain narrow. Textiles
and apparel, for example, account for 60.7 per cent
of total manufacturing employment in Cambodia,
and in Viet Nam 35.2 per cent (Figure 3-2). In Lao
People’s Democratic Republic, a third of manufacturing
employment is in food processing. These
labour-intensive industries (textiles, apparel, and
food) are critical in these countries to productively
absorb jobseekers, including those leaving agriculture.
Nevertheless efforts are also required to lay and
strengthen the foundations for higher productivity
manufacturing industries.2
Structural shifts in the labour market have
played an important role in raising aggregate
labour productivity. For seven countries, Table 3-1
compares labour productivity (GDP per worker) in
each subsector with that of agriculture – showing
that it is highest in finance, insurance and real
estate. A key challenge for some countries is that
2 For a comprehensive discussion, see UNIDO: Industrial
Development Report 2013: Sustaining employment growth:
The role of manufacturing and structural change (Vienna,
2013).
the bulk of job creation in recent years has taken
place in subsectors where levels of productivity are
not significantly higher than in agriculture – and
sometimes lower. In the case of Cambodia, whereas
labour productivity is highest in services subsectors,
the bulk of job creation has taken place in manufacturing,
where levels of productivity are marginally
lower than in agriculture. In Malaysia, services have
accounted for the bulk of job creation in recent
years, but levels of productivity in wholesale and
retail trade, hotels and restaurants and community,
social, personal and other services are also lower than
in agriculture or in manufacturing, whose share of
total employment has declined. In Indonesia and
the Philippines, the bulk of job growth has also been
in wholesale and retail trade, hotels and restaurants
and community, social, personal and other services,
where levels of productivity are double that in agriculture,
but a third of that in manufacturing: in the
case of Indonesia between 2003 and 2013, the same
two services sectors accounted for 71.9 per cent of
additional jobs created, while in the Philippines
they accounted for 54.8 per cent.
The wide differences in levels of productivity
between sectors reveal opportunities for structural change to further boost productivity and competitiveness.
Policymakers in the region, in consultation
with employers’ and workers’ organizations, can
facilitate such structural change. Further investment
in agriculture, with a view to significantly accelerate
agricultural productivity and promote off-farm
activities in rural areas, is particularly important in
the ASEAN Member States where the majority of
labour and the poor are in agriculture (Box 3-1).3
3 On the importance of agriculture, see ILO: World Employment
Report 2004-05: Employment, productivity and poverty
reduction (Geneva, 2005); World Bank: World Development
Report 2008: Agriculture for development (Washington, DC,
2007).
At the same time, it will be important to support
the growth of manufacturing and services linked to
agriculture (such as agro-businesses), in particular
so as to provide a stepping stone for those workers
leaving agriculture.
For the higher-income ASEAN Member States,
concerted policy attention will be required to move
to higher-value-added manufacturing activities – to
ensure that the bulk of job creation is not concentrated
in low-productivity services but is broad
based. As illustrated in Figure 3-3, the likelihood of
vulnerable employment (own-account workers and
contributing family workers) in wholesale and retail trade, restaurants and hotels is not significantly
different to that of agriculture. Workers in vulnerable
employment are less likely to have formal work
arrangements, and are therefore more likely to lack
elements associated with decent employment, such
as adequate social security and a voice at work.
Hence, structural change dominated by lower-productivity
services is unlikely to make a significant
contribution towards efforts to address the high
rates of vulnerable employment (see Chapter 1,
Figure 1-4) or to promote decent jobs.
ASEAN integration, bringing together a
population of 600 million and a rapidly growing
middle-class workforce, offers opportunities for
countries to strengthen their manufacturing
bases.4 As a result of rising wages and purchasing
power, developing economies and regions are fast
becoming centres of demand for manufactured
products, rather than mere suppliers of the goods.5
The region is in a position to take advantage of such
4 The share of middle-class workers, defined as workers living in
households with per capita income of $4 and above, is projected
to increase from 35.1 per cent (108 million) to around 44 per
cent (144 million) between 2013 and 2017 in Southeast Asia
and the Pacific. See S. Kapsos and E. Bourmpoula: Employment
and economic class in the developing world, ILO Research
Paper No. 6 (Geneva, ILO, 2013).
5 McKinsey & Company: “Shaping the future of manufacturing”,
in McKinsey Quarterly (2014, No. 1).
trends as a result of the global trend towards “nextshoring”
– companies re-allocating production less
on the basis of lower labour costs and more on the
basis of ready sources of demand and innovation.6
Furthermore, the productivity gaps between
sectors reflect in part the characteristics of enterprises
found in each sector. In ASEAN Member
States, smaller firms account for a large proportion
of total employment, but a significantly smaller
proportion of value-added, pointing to substantial
productivity gaps between smaller and larger firms.
As illustrated in Figure 3-4, there are also clear
differences in the sectors in which smaller and larger
enterprises tend to operate. In the case of Indonesia,
more than half of micro-enterprises operate in the
primary sector (agriculture, livestock, forestry and
fisheries), whereas another 28.4 per cent are found
in trade and hotels/restaurants.7 On the other hand,
less than one per cent of small and medium-sized enterprises (SMEs) are in agriculture while 71.9 per
cent are in trade and hotels/restaurants. Facilitating
structural change will consequently require strengthening
the capacities of micro-firms and SMEs to
seize opportunities in higher value added activities
and sectors, including through good management
and improved labour practices (Box 3-2), facilitated
access to finance, tax incentives, business development
services, partnerships with larger enterprises,
and integration into the formal economy.