Sameer Khatiwada, a Senior Public Management Economist whose research has focused on education, skills development, social protection, and jobs, among other areas, defines key terms related to labor markets and skills development policies.
Why it Matters
Asia and the Pacific’s labor markets are going through unprecedented changes. Some countries in the region have largely moved past the pandemic but others are still reeling from its devastating impact on labor markets. Unlike previous crises, mobility restrictions and workplace closures prevented workers from seeking jobs elsewhere, causing unemployment rates to surge. Young workers and women suffered the most. The situation exacerbated growing inequalities in the region, hurting low-skilled and middle-skilled workers whose jobs were already at risk from automation.
A skills mismatch is an inconsistency between the skills available to the labor market and the skills demanded in the labor market. A skills mismatch is an inconsistency between the skills available to the labor market and the skills demanded in the labor market. In other words, it is a mismatch between skills and jobs. This happens when the education and training received by an individual does not equip them with the skills demanded by the labor market.
This mismatch negatively affects individuals, firms, and the overall labor market. At the individual level, there can be wage penalties for a worker who is in a job where they are overqualified. This is also a waste of human capital. For firms, a skills mismatch negatively impacts their productivity and competitiveness. It could also lead to higher staff turnover. At the national level, a skills mismatch can lead to higher unemployment and an increase in informal employment.
Informal employment is work in areas not taxed, regulated or registered by the government. It also includes employees not protected by national labor laws, those not affiliated with a social security program, and those without benefits such as paid vacation and sick leave. Examples of these workers include market vendors, pedicab drivers, and farm workers. Entrepreneurs who own their businesses, and family workers, such as housekeepers and drivers, are also often considered informal workers.
The informal sector – which is where more women earn their livelihood than men in many countries – represents an integral part of the economy and the labor market. It provides employment and income for workers who do not have access to salaried jobs. In lower-income countries with high population growth rates and urbanization, the informal sector absorbs a large share of the expanding labor force. However, reducing informal employment is critical for inclusive development and poverty reduction, including bringing more women into the formal workforce and giving them the protections it offers.
Active labor market policies are government programs designed to improve the functioning of the labor market by inducing changes in labor demand and supply and their matching process. Active labor market policies aim to preserve existing jobs and create new job opportunities. These policies also help the unemployed regain employment by assisting with job searches and matching processes.
Governments in Asia and the Pacific used active labor market policies in response to the COVID-19 pandemic. For example, wage subsidies were critical in preserving existing jobs and creating new ones. Similarly, training targeted at workers displaced by the pandemic effectively enhanced the employability of unemployed workers.
Labor market matching aligns job vacancy requirements with workers' skills. Policies facilitating this process are carried out through public employment services, including those run by the private sector. These public employment services play a critical role in the labor market and are increasingly used in developing countries.
Labor market information systems are essential for effective matching. Without good labor market data, matching is not possible. Furthermore, countries are leveraging digital technology to improve matching between job seekers and employers. LinkedIn is an excellent example of a privately-owned public employment service. There are national and local versions of LinkedIn across countries in Asia and the Pacific.
Employment guarantee schemes are public works programs that guarantee people the right to work for a certain amount of time each year at a specified compensation level. One of the most well-known employment guarantee schemes is Mahatma Gandhi National Rural Employment Guarantee Scheme in India.
One of the largest public works programs in the world, the program provides a right to work for up to 100 days annually at the legal minimum wage for all rural households. On average, it reaches around 50 million households and about 70 million individuals yearly. Evidence shows that India’s program has increased employment, labor force participation, and wages. Studies have shown that women’s labor force participation and wages went up in areas where it was introduced.
Employment guarantee schemes can be a form of social protection for poor and vulnerable households. In rural areas where employment opportunities are scarce, guaranteed employment raises labor force participation and provides much-needed income support.
The COVID-19 pandemic and the megatrends that are transforming the labor market have significant implications for job quantity, quality, and inclusiveness, now and in the future. New challenges emerge as the type and nature of work change, interacting and exacerbating existing inequalities. Governments in the region have made great strides to address the challenges in the labor market. However, as potential long-term and more profound impacts become more evident, enhancing skills for evolving labor market needs and digitalization are more critical. Labor market and skills development policies underpin the capability of the workforce, displaced workers, and vulnerable populations to build back better. These policies help workers find good jobs, make training available to those who need it and provide reskilling opportunities that reflect labor market needs.