Women and young people were hit the hardest by job losses during the pandemic but some governments used innovative policies to improve the situation.
The pandemic has had a devastating impact on labor markets worldwide, including in Southeast Asia. A new ADB study covering Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam shows that this has been a crisis like no other.
In the first year of the pandemic, Southeast Asia managed to contain the virus relatively well compared with most other regions, but with some heterogeneity across countries. All countries implemented strict containment measures including lockdowns, workplace closures, and mobility and travel restrictions. While playing a crucial role in mitigating the health impacts, these measures had important repercussions on labor markets. Job losses peaked in the second quarter of 2020, when containment measures were at their most stringent.
Unemployment rates surged as mobility restrictions and workplace closures prevented labor reallocation across sectors, while many other displaced workers exited the labor force. Job losses only partially accounted for working hour losses, as labor market adjustment also took the form of reductions in working hours. The extent to which working hour reductions were used by firms and workers varied across sectors and countries.
As containment measures weighed heavily on economies and labor markets, most countries began lifting restrictions in the second half of 2020. Transitions into employment in the second half of 2020 consisted primarily of movements to own-account work, contributing family work, and informal work, reflecting a lag in the recovery of formal employment. Estimates suggest that informal employment has increased compared to pre-pandemic period.
Youth were hit hard across the region, through disruptions in education and training, delayed school-to-work transitions, and a disproportionate share of job losses among young workers. Young workers, who represent only 10%–15% of the workforce in Indonesia, the Philippines, Thailand, and Viet Nam, accounted for a disproportionate share (between 22% and 45%) of job losses at the height of the pandemic’s impacts on labor markets. In all countries, and across virtually all age groups, women were more likely to exit the labor force following job loss.
In all countries, and across virtually all age groups, women were more likely to exit the labor force following job loss.
Our research found five key findings regarding governments’ response to COVID-19 in Southeast Asia.
First, as the labor market impacts of COVID-19 across Southeast Asia in 2020 was unprecedented, so were the government responses. Fiscal measures announced or implemented since the onset of the crisis ranged from 2.7% of GDP in Viet Nam to 18.8% of GDP in Thailand, with spending on social protection constituting between 65% and 91% of the fiscal response packages in our five countries. Most policy measures were announced in the early stages of the crisis, with countries implementing additional measures, extending the duration of programs, and increasing spending commitments over time.
Second, social assistance measures represented the lion’s share of the social protection response in these countries. Key interventions across our sample countries consisted of massive horizontal expansion (increased population coverage) of existing programs, although new programs were also introduced, and other measures involved the vertical expansion (increase in benefits) of existing programs. In general, the speed and timeliness of interventions were aided by the use of social registries or beneficiary databases from existing programs and electronic methods for benefit disbursement.
Third, social insurance measures benefited a small segment of formal workers, but the coverage of these policies remained limited, emphasizing the need to intensify formalization efforts. Social insurance programs, where they exist, target formal employees and as such had very low incidence (less than 4%) among the poorest quintile of the population in these countries. Social insurance response measures to COVID-19 were generally linked to existing measures and pertained to four social protection areas: unemployment insurance, health insurance, sick leave and employment injury, and contributory pensions. The limited social insurance coverage highlighted by the pandemic has further emphasized the need to tackle persistent informality in these countries.
Fourth, labor market policies have also played a key role in the response, with some form of wage and training subsidies implemented across all five countries. Active labor market policies including wage and training subsidies played an important role in country responses, although the scope and coverage of interventions differed significantly across countries. The highest coverage by labor market policies (in terms of targeted percentage of the workforce) in these countries was afforded by Thailand’s informal workers subsidy program and Malaysia’s employment retention program.
Fifth, the pandemic provided an opportunity for countries in the region to fill preexisting social protection gaps and expand coverage to new beneficiaries. Before the pandemic, Southeast Asia had significant social protection coverage gaps: a large share of workers, often informal, were neither covered by social insurance nor social assistance. These gaps were further exposed and highlighted by the pandemic. All countries in this study have attempted to fill these gaps, by extending social protection to informal workers and expanding coverage to vulnerable groups.
The crisis is not over. At the time of writing of this report, newly identified variants of COVID-19 such as the Omicron are spreading through the world, and vaccine coverage remains highly uneven. There are considerable downside risks to economic and labor market recovery. The study gives initial evidence to identify priorities, constraints, and opportunities for developing effective policies and strategies in the recovery period and beyond.