Labour Productivity Low Or Stagnant In Se Asia

[Prakanong]

"Labour Productivity Low In South-East Asia

By D. Arul Rajoo

BANGKOK, Sept 3 (Bernama) -- Labour productivity in South-East Asia and the Pacific is "stagnant" compared to the rest of Asia and not enough employment opportunities are being created, the International Labour Office (ILO) said in a new report today.

The ILO report, "Key Indicators of the Labour Market, Fifth Edition", showed that the region recorded an average annual increase of only 1.6 percent in productivity in the past 10 years and workers produced only a seventh of their developed economy counterparts.

By comparison, East Asia's workers now produce twice as much as they did 10 years ago, the most considerable productivity increase in the world but this was still only one fifth of what a worker in the developed economies produces, the ILO said.

In South Asia, productivity rose by around 50 percent or one eighth of what a developed economy worker does.

Worldwide, the productivity gap between the United States and most other developed economies continued to widen, with US$63,885 of value added per person employed in 2006, followed at some distance in Asia by Hong Kong (US$56,223), Australia (US$48,694), Singapore (US$47,975), Malaysia (US$22,112), Thailand (US$13,915), Indonesia (US$9,022) and the Philippines (US$7,271).

ILO director-general Juan Somavia said the huge gap in productivity and wealth was cause for great concern, adding that raising the productivity levels of workers on the lowest incomes in the poorest countries was the key to reducing the enormous decent work deficits in the world.

The report showed that the percentage of working poor in South-East Asia and the Pacific almost halved, from 22.1 percent in 1996 to 13.6 percent in 2006.

The ILO said increases in productivity are mainly the result of companies combining capital, labour and technology better while a lack of investment in people (training and skills), equipment and technology can lead to an underutilisation of the productive potential of labour and so perpetuate poverty.

"The United States still leads the world by far in labour productivity," it stated.

Development in South-East Asia and the Pacific has been less impressive than in East Asia but the region has profited from the economic boom in China and India and the good economic performance of most developed economies in recent years, the report said.

However, unemployment remains higher than before the Asian economic crisis."

[samran]

you want the real reason for Thailands sluggish economic performance, here it is...

[BADBRAD]

Is it because your cat's breath smells like cat food?

[Prakanong]

you want the real reason for Thailands sluggish economic performance, here it is...

I have been trying to find the figures from 96 to compare with 2006.

They have a wide range of economy types in there for SE Asia as well - it would be interesting to see how those match up too.

South Asia is coming from a low base 10 years ago to is it not?

I wonder about Vietnam as well.

[capaotung]

you want the real reason for Thailands sluggish economic performance, here it is...

In "The Thai economy is in crisis" thread, weren't you advocating that the closures, the sluggishness and the general bad news there being pointed out were because Thailand was at a necessary passage point in moving up the value added chain and so there wasn't any real crisis?

Now you seem to be saying exactly the opposite: Thailand's economic woes are because it is in fact NOT moving up the value added chain (and since the gap is widening I guess we can also sort of talk about a "crisis", can't we?).

[samran]

you want the real reason for Thailands sluggish economic performance, here it is...

In "The Thai economy is in crisis" thread, weren't you advocating that the closures, the sluggishness and the general bad news there being pointed out were because Thailand was at a necessary passage point in moving up the value added chain and so there wasn't any real crisis?

Now you seem to be saying exactly the opposite: Thailand's economic woes are because it is in fact NOT moving up the value added chain (and since the gap is widening I guess we can also sort of talk about a "crisis", can't we?).

I haven't changed my tune at all.

move up the chain by increasing productivity. Working smarter, better education, adding value, doing more than the bare minimum or producing the most simple of products. Importantly for Thailand, moving away from relying a cheap agricultural products and cheap manufactured goods. It involves opening up the economy, reducing barriers to entry in sectors such as banking and fiance, and allowing increased foreign competition.

It takes time and it is hard, but until it happens the Thai economy will be stuck in second, or maybe third gear, rather than humming along in 4th gear. If nothing is done, it won't fall over in a heap however, just fall progressively further behind. It will continue to grow at 2-3% when sustainable growth requires 4-5%.

My point, as always is that there is a cycle of creative destruction happening. I work for and advise companies here which are grabbing the opportunity by the throat. Others who aren't (and you find them in any country) are the ones whinging to the papers and the press - and they grab a lot of attention. Basically these are the ones who had 10 years since 1997 to build businesses based on an unrealstically cheap baht, but did very little to invest in making their companies more flexible and able to survive in a compettive global envrionment.

But others have. The key thing though is for government to realise that things need to change. I get a feeling that they are starting to realise it, but it hasn't really been articulated as a proper government wide policy. Until this happens, most of the country will still be at the cross roads, waiting to cross, while a few smart companies have zoomed ahead.

[antsinmypantsouch]

Much of the difference in labor productivity is due to the level of technology use and inefficient internal policies within an organization in addition to the overall work ethic. These factors play roles in SEA. Yet even Japan, on average (across various sectors), is about 40% less productive than the US and this is much to do with weak innovative technological solutions and inefficient internal policies, which ultimately lead to delays. Only a few Japanese companies could be considered ideal business models of efficiency and labor productivity, hence the overall low level of labor productivity is low.

However, in Thailand, I am sure that there are a couple of firms that do much much better in terms of labor productivity than that of other Thai firms. Strong business models are indeed important to learn from in order to increase productivity overall.

[soundman]

When labour is cheap (for every business) in any given market, it can be really hard for SME companies to make the decision to invest big money in technology that will maybe allow them to replace five jobs with one. Its only when labour becomes expensive that the decision is reached more easily.

A personal example:

I employ about five staff to router shapes out of board products. This costs me about 6000B per week in wages. If I were to invest 6,000,000 Baht in a CNC machining centre that same productivity and output could be achieved with about one staff working a three day week - call it 1000B in wages.

A direct saving of 5,000B per week (if I paid cash for the machine & not taking into any account for depreciation or maintenance or utilities.)

Thats more than one thousand weeks to pay off the machine.

Now multiply the labour cost by a factor of ten & the idea becomes viable. Two years to pay it off.

Very simple example as to why cheap labour forces don't improve productivity.

Cheers,

Soundman.

[capaotung]

When labour is cheap (for every business) in any given market, it can be really hard for SME companies to make the decision to invest big money in technology that will maybe allow them to replace five jobs with one. Its only when labour becomes expensive that the decision is reached more easily.

A personal example:

I employ about five staff to router shapes out of board products. This costs me about 6000B per week in wages. If I were to invest 6,000,000 Baht in a CNC machining centre that same productivity and output could be achieved with about one staff working a three day week - call it 1000B in wages.

A direct saving of 5,000B per week (if I paid cash for the machine & not taking into any account for depreciation or maintenance or utilities.)

Thats more than one thousand weeks to pay off the machine.

Now multiply the labour cost by a factor of ten & the idea becomes viable. Two years to pay it off.

Very simple example as to why cheap labour forces don't improve productivity.

Thailand has been losing its competitiveness in the regional pool of cheap labour countries since many years already and this ILO report highlights how the shift towards higher value added manufacturing and higher productivity has NOT been happening.

If you are here for the cheap labour I think you are, NOW, in the wrong country. Like many other foreign small enterprises which are trying to live off the cost of labour differential with the countries they export/sell to, you are here (assuming you are one of these) most probably because you came when Thailand WAS a good choice RE cheap labour or because you are motivated by something other than business reasons (for example, family, "lifestyle" etc).

The reasons for this are, I believe, business laws (actual and announced), the business climate (the previous reason + the socio-political environment in which those matured), the lack of real investment in infrastructure and the lack of improvement in education of the work force.