Waiting to make their move Asia’s looming labour shortage

http://www.economist.com/news/asia/21716584-there-obvious-solution-asias-looming-labour-shortage

There is an obvious solution

Feb 11th 2017

THE agencies are anonymous and unobtrusive amid the glamorous hustle of Shanghai, the better to stay in the shadows. They deal in an illegal but highly desirable product: people, specifically Filipina domestic workers to serve China’s growing middle class. Filipina helpers, says one agent, will follow your exact instructions, whereas locals are choosy and tend to handle only one task: if they clean, for instance, they will not look after children. Filipinas’ diligence makes them popular. The Philippine consulate in Hong Kong estimates that more than 200,000 undocumented Filipinas work as domestic helpers in China, earning 5,000 yuan ($728) per month, far more than they could make back home. As for legal troubles, the agents are reassuring. Fines can be hefty but are rarely imposed. One agent admitted that a client was caught employing an illegal worker; the worker was sent home, but the client was not fined.

Another Filipina no doubt took her place. The Philippines abounds with labour, and China needs domestic workers. This exemplifies two demographic trends in Asia. Poor, young South and South-East Asian countries suffer low wages and underemployment, while richer, ageing countries in the north need more people to bolster their workforces. Theoretically, this problem contains its own solution: millions of young workers should go north and east. Receiving countries would benefit from their labour, while their home countries would benefit from their remittances and eventually from the transfer of skills when the workers return, as many migrant labourers do.

Practice, however, is less accommodating than theory. The Asian “model” of migration tends to be highly restrictive, dedicated to stemming immigration, rather than managing it. Entry is often severely curtailed, permanent settlement strongly discouraged and citizenship kept out of reach.

Rich in people, poor in migrants

Asia is home to about half of the world’s people, but is the source of only 34% of its emigrants and host to only 17% of its immigrants. About a third of Asians who have left their country have laid their hats somewhere else in Asia. But despite wide income and age gaps between one end of Asia and the other, two-thirds of intra-Asian migrants remain in their own part of the region. South Asians migrate elsewhere in South Asia, East Asians stick to East Asia, and so on.

Much of this labour is irregular. Thailand, for instance, may have as many as 5m migrant workers, mainly from neighbouring Myanmar, Cambodia and Laos. Many of them lack visas—particularly those in construction and services. Three years ago, a rumoured crackdown on illegal labour sent around 200,000 Cambodians fleeing for the border. The resulting paralysis of the construction industry, among others, prompted Thailand to reverse course quickly and implement a brief amnesty during which workers could apply for temporary documents. Some workers do not bother with those, complaining that the process of getting them is too time-consuming and expensive. Still, millions remain willing to take the risk of working illegally or semi-legally in Thailand because wages back home are so low.

China has long been able to satisfy its demand for labour by moving rural citizens to cities. Over the past 30 years around 150m Chinese have left the countryside to staff factories, cook in restaurants and clean homes. But with China’s population ageing, foreign workers have begun filling the gap: as many as 50,000 Vietnamese illegally cross the border into the southern province of Guangxi each spring to help harvest sugar cane. In 2015 the provincial government started a programme to bring Vietnamese workers into local factories in one city. Off to a good start, it is being introduced in other parts of Guangxi.

China remains a net exporter of labour, but the balance is shifting quickly. Over the next 30 years its working-age population will shrink by 180m. How China handles this fall will play a large role in shaping Asian migration patterns. Manufacturers can move factories to labour-rich countries, or invest in automation. Other industries lack that option. The ILO forecasts that China will need 20m more domestic workers as it ages.

The impending collapse of the workforce is not an exclusively Chinese problem. To keep the share of its population at working age steady, East Asia would have to import 275m people between the ages of 15 and 64 by 2030. South-East Asia would have to attract 6m, though that number masks wide gaps: Singapore, Malaysia, Vietnam and especially Thailand need workers, while Myanmar, Indonesia and the Philippines have too many. South Asia, meanwhile, could afford to lose 134m workers—India alone could send more than 80m abroad—without worsening its dependency ratio. China’s projected shortfall in 2030 is equivalent to 24% of its current working-age population; in Bangladesh the likely surplus is 18% (see map).

Some countries have become more flexible. Foreign workers are around 40% of Singapore’s workforce, with slightly less than half of those on restrictive domestic-work and construction visas. To prevent foreigners from undercutting domestic wages, employers must pay levies for each foreign worker they hire.

Paid leave

Such financial incentives can help regulate inflows of foreign workers. They can also help encourage outflows, ensuring that temporary migration does not become permanent. In 2003 South Korea introduced a quota scheme allowing small firms, mostly in labour-intensive manufacturing, to employ foreigners from poor countries for limited periods—“sojourns”, as the authorities put it, of up to four years and ten months. To make sure that the sojourners do not overstay their welcome, they are charged in advance for the cost of returning home. Their employers also deduct a percentage of their salary, which is given back to them only as they leave the country. (It can be paid to them in person after they pass the immigration desk.) These temporary workers account for about a quarter of the 962,000 foreigners (3.5% of the labour force) now working in South Korea.

Japan has long preferred exporting capital to importing labour. Its multinationals have set up plants across South-East Asia to make Japanese goods, bringing factories to foreign workforces, not the other way around. But this approach has its limits. For the sort of non-tradable services especially in demand in ageing countries, such as domestic care and nursing, it is useless. Japanese companies can build their cars in Vietnam, but their executives cannot (or at least ought not to) send their mothers to Danang when they start to get frail.

Hong Kong has opened its borders to foreign nurses, nannies and maids. It introduced a scheme to import domestic workers in 1974: the same year, coincidentally, that the Philippines adopted its policy of encouraging people to find jobs overseas. By the end of 2015 Hong Kong had over 340,000 foreign domestic “helpers”—one for every 7.3 households. Over half still come from the Philippines, with another 44% from Indonesia. Their employers must provide food, board, travel to Hong Kong and wages of at least HK$4,310 ($556) a month. Including those costs, as well as the implicit cost of their rent, they earn a little less than a Hong Konger working 60 hours a week at the minimum wage—but much more than they would at home.

By the mid-2000s, over half of married mothers with a college degree in Hong Kong employed foreign domestic help. By taking on duties traditionally shouldered by wives and mothers, these foreigners have made it easier for many local women to pursue careers outside the home.

Governments often worry that immigrants will be a substitute for native employment, rather than a complement to it. Hong Kong’s foreign maids were both. They “displaced” local women from unpaid employment in the home. But in so doing, they provided a powerful complement to their paid employment outside it.

Foreign domestic workers may have other beneficial side-effects. A study of the United States showed that immigrant inflows lower the cost of child care and modestly increase fertility rates among native women with college degrees. Immigration may therefore have a triple benefit for Asia’s ageing societies. Foreign workers add to the labour force themselves, they help native women take fuller part in it, and they help them bear the workers of tomorrow. What a pity Asia does not make more use of them.