Improving Job Prospects for Young, Low-Skilled and Female
Workers in the Mekong Region: Agenda for GMS Research
Network
Draft Background Paper
30 June 2015
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1. Motivation
The GMS is one of the most dynamic sub-regions within Asia. In the last couple of decades,
most GMS countries have experienced strong economic growth. Three of the six member
countries of the GMS—Thailand, China and Vietnam—belong to the global list of 16 post-war
high-growth economies, that is those that have grown at an average annual rate of more than 7
percent for 25 years or more. Both Cambodia and Laos, which had growth rates of more than 7
percent over the last 20 years, are on course to join the high-growth country list in the next few
years (Madhur and Menon 2014). They are now included in the select list of what the IMF has
recently referred to as the dynamic low-income countries that started their economic take-offs in
the 1990s (IFC 2013).Myanmar, too, with its recent opening-up initiatives, is now facing the
prospect of stronger growth in the future.
Demographic changes skewed towards youth will create both opportunities and challenges in
fast-growing Mekong countries. On the one hand, they can harness the potential of their young
workforce. On the other, as these countries continue their economic transformation and climb the
development ladder, the generation of more and better jobs for growing numbers of youth will
become a major challenge. Although total and youth unemployment rates are low in almost all of
the GMS countries, underemployment—a phenomenon of large numbers of workers engaged in
low-paid, vulnerable and low-skilled formal and informal sector jobs—exists to a significant
extent. In the next stages of development, these countries will face the dual challenge of creating
not only more but also better jobs—formal sector jobs that provide better pay and more security.
Ample research on a wide range of labour market issues in high and middle-income economies
has been conducted. However, relatively few studies in this field, particularly policy ones, have
been done in low- and lower-middle-income countries. That the results of previous studies for
high- and middle-income economies are not necessarily applicable to low-income countries due
to differences in stages of development and economic structures and the significant size of the
informal sector in those economies necessitates more research.
In this background paper, we outline the characteristics of labour market structures in countries
of the Greater Mekong Subregion. We pay specific attention to challenges facing subpopulations
of workers, in particular youth, low-skilled, women and ethnic minorities. Then we present a
review of selected literature on the issue from both positive and normative perspectives aiming to
understand what has been researched and to identify knowledge gaps and, importantly, policies
that can help fill those gaps. The literature review also presents theoretical and empirical models
that are commonly used in labour market research. Lastly, we propose and discuss directions of
future research.
2. Labour market situation in the GMS
Youth
A labour market issue that has received growing attention from involved stakeholders in GMS
countries is youth unemployment and employability. The challenges seem to focus on youth
labour force participation rates, education, competency and the relevance of chosen skills. Young
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people have a higher probability of being unemployed than their older counterparts. Entry into
the chosen and preferred sector is difficult, resulting in young job seekers accepting low-paid and
low standard employment (Archaya 2004, 6). This phenomenon is, however, not unique to the
region: it is a global concern. At global level, two crises prevail are that youth unemployment
remain high and that there is a shortage of people with critical job skills (Mourshed, Farrel and
Barton 2013).
The youth (ages 15-24) labour force to population ratio in Cambodia, for instance, averaged 60.1
percent in 2008, a 0.6 percentage point drop from 1998. The ratio for female youth was 6.1
percentage points higher at 63.2 percent (UNDP 2011, 36). Albeit high relative to levels in other
GMS countries, one of the challenges is the overwhelmingly low educational qualifications that
young people have when they enter the labour market. In 2008, of youth employed, 33.2 percent
had not completed and 31.8 had completed primary education. Only 1.0 percent of youth
employed had a secondary diploma and 0.6 percent had a degree. A high degree of skills
mismatch and youth employment readiness in the community and national markets and in
integrated markets like ASEAN are concerns. In its Investment Climate Assessment report, the
World Bank (2014) found that the most severe constraints faced by firms operating in Cambodia
are the high cost of electricity, corruption and anti-competitive practices, and high-cost and
insufficient transport and logistical infrastructure and services. In addition, one of the main
challenges faced by firms in special economic zones (SEZs) is a lack of relevant skills. About
20.5 percent of all surveyed firms reported that inadequately trained/educated workers are a
constraint on growth and productivity, compared to 18 percent in Laos, 8 percent in Vietnam, 7
percent in the Philippines and 4.5 percent in Indonesia. Other GMS economies face similar
constraints: 16.4 percent of surveyed firms in Laos and 12.4 percent of firms in Myanmar
reported that inadequately educated workforce constrains firms’ growth (World Bank 2014).
Another challenge in developing countries in general and GMS countries in particular is youth
underemployment. In 2010, some 536 million employed youth in developing economies were
underemployed (World Economic Forum 2013). Youth underemployment could be in the form
of low pay, unfavourable working conditions, temporary contracts, jobs for which they are overqualified, or informal and unpaid work. World Economic Forum (2013) estimated that in
developing countries more than 200 million youth are working-poor, earning less than USD2 a
day usually in the informal economy. The lack of public and private sector job creation compels
youth to accept less than full-time employment or less than expected conditions.
An important part of labour agenda, therefore, is to stimulate decent job creation and growth and
to narrow skills mismatch between young jobseekers and employers. That would demand
concerted action and partnerships between governments, development partners, private sector,
and skills and education providers.
Low-skilled workers
One of the main challenges facing GMS countries is the significant number of people working in
low-skilled and low paid jobs. Cambodia’s labour force, for instance, is characterised by a large
number of young and low skilled workers. Majority of the workforce are self-employed in the
agriculture sector or work in family business in the informal sector. Much of the country’s
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industrial growth is still dependent on the supply of low-skilled and lowed educated labour.
Access to and the quality of higher education is also relatively low in comparison to other
ASEAN countries. For instance, Cambodia has the second lowest literacy rate in ASEAN,
followed only by Laos. Enrolment rates in secondary and tertiary education are also low and
depict gender and geographical disparities (e.g., see Roth and Lun 2015). Thus, moving forward
to ensure sustainable growth, Cambodia is no longer able to capitalise on large supplies of lowcost labour. The country needs to aggressively invest in the education and skills development of
its labour force, particularly for youth. Public policies and their systematic implementation in
these areas would offer timely support to the new 10-year Industrial Development Policy 20152025(RGC 2015) and help mitigate negative effects, if any, of the ASEAN Economic
Community (AEC).
In Laos, economic growth over the last decade has contributed to high labour demand in all
sectors, particularly in the non-agricultural sector. But the share of labour in agriculture remains
relatively high. In additional, rapid industrial growth has not fully translated into high
employment growth in this sector. This is partly because industrial development is driven by
natural resource-based industries, which by nature are highly capital-intensive. Most of the
workers are still engaged in low- to semi-skilled jobs. Based on the 2010labour force survey,
employment is in low-skilled occupations (i.e. elementary jobs) such as crafts and trades, and
plant and machine operators, and or assemblers accounts for almost 50 percent of employment in
the non-agricultural sector. About 26 percent of workers are engaged in semi-skilled
occupations, for example, as clerks, services and sales workers, and technicians. The reason why
employment in high-skilled jobs is low is the level of education of the labour force. According to
the 2010 labour survey, less than 10 percent of workers graduated from vocational college and
university, 37.5 percent completed primary school while 21.7 percent had no education. In
addition, both industry and service sectors have high labour turnover rates. This has been
claimed to be one of the main obstacles facing both domestic and foreign businesses in Laos.
A similar issue prevails in Vietnam, where the labour force has been characterised by
educational improvements over the last decade. The proportion of trained workers, however,
remains very low. In 2010, of the total workforce of 50.5 million (age 15 years or old), only 7.37
million people (or 14.6 percent) had received training. Despite its young labour force, Vietnam
still suffers from a lack of professional and qualified technical workers. About 43.1 million
workers have not undergone any formal training to gain skills and qualifications. Improving
labour quality poses a big challenge to Vietnam. Moreover, the highest proportion of workers
with professional and technical training is concentrated in the more developed regions such as
the Red River Delta (21.4 percent), while the Mekong River Delta has the lowest (7.8 percent).
Of the economically active population, in all areas and regions, more men than women have
undergone training.
Women
In Cambodia in 2013 total labour force participation was 83.0 percent (77.8 percent for women
and 88.7 percent for men).At 85.5 percent the rate was higher in rural areas than in Phnom
Penh(74.0 percent)and other urban areas (77.0 percent) (NIS 2013).This is because rural workers
are more likely to self-employed in agricultural jobs (ADB 2014a). Myanmar’s total labour force
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participation rate in 2012 was 66.3, with a significant difference of 32.4 percentage points
between the rates for men (82.7 percent) and women (ADB 2014b) Similarly in Vietnam, the
total labour participation rate in 2013 was 77.5 percent, though with a smaller difference of about
11.0 percentage points between the rates for men (82.2 percent) and women. Women are often
discriminated against in the workplace, preventing them from actively participating in the labour
market.
Under the framework of inclusive growth, it is imperative that sustained and environmentally
friendly growth is non-discriminatory (e.g., gender and social status) and socially responsible
aiming to benefit all in society. GMS governments acknowledge the role of women in social and
economic development specifying a number of priority actions in their national strategic plans.
However, in the GMS countries, little is known about the micro and macro trends of women’s
labour force participation, the determinants and economic and social consequences of women’s
labour force participation or, indeed, whether distinctly different approaches and supports are
needed to promote women’s greater engagement in productive sectors with better pay and
working conditions.
3. Conceptual framework and public policy in labour markets
This section highlights selected conceptual frameworks that have been proposed in analysing
labour markets and designing public policy. The section also discusses the role of governments
in improving, or probably hindering, labour market outcomes through regulations and
interventions. It also reviews selected empirical studies on the impact of labour market policies
and regulations on the demand for and supply of labour both at macro and micro levels.
Figure 1 presents a life-cycle development approach to creating and securing decent work that
the ILO uses to examine employment opportunities across generations. What is clear from the
figure is that opportunities for decent work pass from one generation to the next. That means
analysis of decent work in adolescence and youth cannot be separated from early childhood
education and development and of course child labour. This is because missing out at a crucial
stage of childhood growth and development can have implications for the quality of life and
work during adolescence and youth and later life. Therefore, policies and interventions need to
consider strong intergenerational connections.1
The ability to grasp a job opportunity is attributable to individual efforts, job availability and
circumstances over which individuals have no control. Government could certainly play a role
through policies and programme interventions in ensuring that the number of jobs keeps pace
with the number of young people entering the labour force and that all job seekers have an
opportunity to compete fairly for work in an environment free from discrimination, prejudice and
stereotyping.
1 List and Rasul (2011) present the use of experimental design in labour economics under the life-cycle framework
of individuals; that is, from accumulation of human capital, labour market entry and labour supply choices,
behaviour within firms and household decision making. This, to a large extent, is consistent with the framework
presented in Figure 1.
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Figure 1: Decent work over the lifecycle
Childhood
Education,
physical, mental
and emotional
development
Adolescence
and youth
Human resource
development,
school-to-work
transition
Secure aging,
social protection
Adulthood
Old age
Quality
employment,
equitable,
adequate and
secure incomes
Source: Adapted from ILO (2007)
Researchers sometimes utilise MILES framework proposed by the World Bank (Table 1) for
labour market policy analysis. The framework takes into account various inter-related macroand micro-economic factors in the process of creating decent jobs and making job opportunities
available to most, if not all, in the society.
Table 1: MILES framework
Policy issues
Conditions for high and sustained growth
Macroeconomic stability
Macroeconomic conditions
Investment climate
Regulatory environment
Government transparency
Taxes
Financing
Infrastructure
Legal environment
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Labour market policies and institutions
Labour market regulations
Wage-setting
Non-wage costs
Education and skills
Basic education
Higher education
Training and lifelong learning
Safety net for workers
Income support
Active labour market policies
Source: World Bank framework cited in Fields (2007, 4)
The World Bank (2013) recently proposed a policy pyramid framework (Figure 2) for labour
market policy and priorities.
Figure 2: Labour policy pyramid
Priorities
Labour Policies
Fundamentals
Source: Adapted from World Bank (2013, 257)
The framework contains three layers the bottom of which is to set some fundamentals (e.g.,
macroeconomic stability, enabling business environment, strong enforcement of the rule of law
and human capital accumulation) as the building block for sound and effective policy
interventions. The second layer outlines policies that help enhance decent job creation and ensure
voice and protection particularly for vulnerable groups. At this stage, policies should not
introduce additional barriers that impede job growth. The top layer suggests prioritising types of
jobs given different values that various jobs would contribute to growth of its possessor and the
economy. It is also important at this stage that labour market bottlenecks and imperfections are
removed to lay ground for more decent and productive jobs created.
Other job-related framework is embedded in the concept of inclusive growth. It has been argued
that Developing Asian Countries would need to embody the principle of development
inclusiveness to ensure that growth is fast and sustainable (Ali and Zhuang 2007). The concept
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rests on three main pillars: (1) sustained high growth and expansion of opportunities, (2)
broadened access to opportunities for moist, if not all, members of a society” and (3) adequate
provision of social safety nets (ADB 2011). One of the subcomponents under Pillar 1 is growth
and employment. Creating decent and productive jobs and making such opportunities available
to most, if not all, in a society are crucial for inclusive growth and poverty eradication (Bhalla
2007; Ianchovichina and Lundstrom 2009; McKinley 2010; Ranieri and Ramos 2013). Broadly,
faster growth of decent and high productivity employment is both necessary and sufficient for
inclusive growth. This implies the need for a set of policies and institutional arrangements that
can facilitate the whole growth process.
3.1 Selected government- and firm-specific policies explaining unemployment and wage
differentials
Job search
Government could help reduce frictional unemployment by facilitating job search through
various public policies. One of the programmes could be government-run employment agency
that provides information on job vacancies so that workers and employers could reduce matching
time. Another method is training programmes provided by government to help workers transit
from one job to the other. Proponents argue that such programme interventions could help
improve economic efficiency by keeping labour force more fully employed and reduce
inequalities accompanying the changing economic environment. Critics of the intervention
postulate that government should not involve given the private decision of job offers and
rejection.
Minimum wage laws
The issue of a minimum wage has generated significant disagreement among researchers and
between researchers and policymakers. In spite of the voluminous literature devoted to this topic,
it is almost impossible to draw a broad conclusion about its effects. Theoretically, a binding
minimum wage implemented under a competitive market framework results in labour surplus
particularly among low-skilled workers because it sets an artificial price that cannot be adjusted
by market supply of and demand for labour. Once it stays above the market-clearing wage, the
theory predicts that a minimum wage would be more likely to negatively affect employment of
youth who have little or no work experience and low-skilled workers who are less attractive to
employers and find it hard to switch jobs. A recent study by the US Congressional Budget Office
(2014)of the impact of an increase in the minimum wage on the employment and family income
of low-skilled workers found two effects. Under scenarios of USD10.10 and USD9.00 per hour
most low-skilled workers would have higher incomes. The increase, however, comes at the
expense of other low-skilled workers who become jobless. To be more precise, once fully
implemented in 2016, increasing the minimum hourly wage to USD10.10 will reduce total
employment by 500,000 workers. Brown, Curtis and Andrew (1982), in their meta-regression
analysis of studies on the effects of minimum wages on youth employment in the US, summarise
that a 10 percent increase in federal minimum wage would result in a 1-3 percent reduction in
teenage employment.
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However, there is another side of the argument. That is, implemented in a non-competitive
setting, such as a monopolistic market, minimum wages could increase employment and reduce
wage inequality particularly among young and low-skilled workers (e.g., O’Neill 2004 for
Ireland; Dickens, Machin and Alan 1999 for Great Britain).One of the earlier proponents of
minimum wages is Webb (1912).Examining the effects of minimum wage legislation under the
social cost of labour framework, Kaufman (2009) finds that minimum wage often increases both
economic efficiency and social fairness, unlike what mainstream neoclassic economists claim.
Using payroll data and minimum wage arrangements in the Finnish retail trade sector,
Böckerman and Uusitalo (2009) find that minimum wage reduces “only modestly” the average
wages of eligible groups of young workers and that there are no significant effects on
employment. Using a meta-analysis, Leonard, Stanley and Doucouliagos (2014) find no
practically adverse effects of minimum wage on employment. However, they point to the
particularly adverse effects of minimum wage in the residential care homesindustry. Other
scholars using time-series and cross-sectional data who find practically negligible effects, or
sometimes positive a relationship, include O’Neill, Brian and James (2002) for Ireland;
Wellington (1991) for USA; Card (1992a, 1992b)for United States; Katz and Krueger (1992) for
Texas, USA; Card and Krueger (1994) New Jersey and Pennsylvania, USA; and Machin and
Manning (1994) for Great Britain.
The inconclusive empirical results might point to the fact that the effects of minimum wage
whether on wages and employment of youth and low-skilled workers or the economy are
heterogeneous depending on country- and sector-specific factors. Effects might also depend on
the types of market in which the minimum wage is implemented because various market types
use different price adjustment strategies and price responsiveness. The quicker the price adjusts,
the bigger the labour surplus. That most research focuses on minimum wages in high and
middle-income economies necessitates detailed investigation of the issue in low-income
countries.
Relevant stakeholders in the GMS need to answer the following questions before any decision
about minimum wages is taken—should there be minimum wage laws? If so, what level should
the minimum wage be set at so that it does not negatively affect production efficiency? Should
the minimum wage be scaled up economy-wide? Should the minimum wage be increased? If so,
how often should it be increased? What are the characteristics of an effective minimum wage?
Unions and collective bargaining
There seems to be no, or something close to, consensus among labour economists whether
unions are good or bad for certain groups of workers or for the economy. Critics argue that
unions are cartel that operates to benefit members usually at the expense of non-unionised
workers. Theoretically, unemployment would occur if unions raise wages above equilibrium
level benefiting those who are still employed after the increase and negatively affecting those
who were previously employed but unemployed given the higher wages. That said, increased
unionised wages could cause conflict of interest between insiders and outsiders. Empirical
evidence has shown that unionised workers earn about 10-20 percent more than similar workers
who do not belong to unions. Proponents argue for benefits of having unions to help guard
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against exploitation and increase workers’ voices when they see that wages and working
conditions are not improved.
Disagreement on whether unions and collective bargaining help or deter production growth and
workers’ wellbeing arose during a roundtable discussion on working conditions in garments in
the Mekong region organised on March 26, 2015 by Cambodia Development Resource Institute
with support from International Development Research Centre (IDRC) of Canada. While some
advocated for the imposition and implementation of minimum wage laws and improved
collective voice of workers through the rights to unionise, others seems to be critical of the
efficiency of such interventions. A few participants voiced concerns over the corrupt practices
and vested interest of unions’ leaders who work for personal benefits rather than collective ones.
While we know quite significantly about the effects of unions on wages of unionized workers
and the spill-over effects on not unionized workers in developed economies, we have not come
to grip with the relation in low-income economies. The governments in those economies are also
eager to understand that for informed policy making and implementation.
Theory of efficiency wages
A certain level of unemployment might be due to the results of firms who set wages above
equilibrium level even though there exists surplus of labour supply—the sco-called theory of
efficiency wages. The theory contributes to the perception that firms will be better off if they
keep wages above market clearing wages.
There are several kinds of efficiency-wage theory that provide various reasons to why firms want
to pay high even though they have the ability to do otherwise. They are worker health, turnover,
effort and quality.
A number of models have been developed to explain how a firm’s productivity or cost might be
dependent on the firm’s wage structure. Early contributors to the framework, wholly or partially,
include Stiglitz (1974), Salop (1979), Weiss (1980), Akerlof (1982, 1984) and Shapiro and
Stiligtz (1984). These thinkers model that a firm sets efficiency wage to induce work efforts and
productivity and the fact that wage is a negative function of costs.
Testing the proposed hypothesis is difficult in even developed economies given the lack of firm
level data on wages and other firm characteristics. The estimation is even more challenging in
developing countries. Early reserach empirically testing the hypothesis are Leonard (1987),
Krueger and Summers (1988) and Campbell (1993).
3.2 The role of governments and private sector in job creation and training
Another discussion seems to be the role of government in job creation. Although there seems to
be an agreement that market is superior to planned economy in resource allocation through price
signals, markets are imperfect that result in so-called market failures. In such circumstances, the
government is often seen as a player in correcting the failures. In the labour markets instead of
serving as the epicentre of job creation, the government could set regulations that define the
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ground rules guiding the interaction between workers and firms. The government, for instance,
could impose taxes on a worker’s earning and payroll taxes on employers, provide training
subsidies to employers to encourage more training courses, and set minimum and living wages to
avoid possible exploitation, just to name a few. These labour market regulations and
interventions, however, could affect efficiency and equity of resource allocation—those that
impede production efficiency simply because they discourage employers to hire enough
employees to produce at maximum efficient point and those that affect the movement of labour
from one sector to the other. The regulations and interventions could also reallocate resource
from certain groups of employees at the expenses of the other groups (e.g., Besley and Burgess
2004).
The government, for instance, provides and/or encourages private firms to set up training for
employees and target groups aiming to increase employment and earnings. However, empirical
results of the effects of various public or private training programmes on labour market outcomes
of treated groups are still mixed and largely context-dependent. Card et al. (2011), for example,
evaluate an innovative training programme that combines classroom training with a period of onthe-job experience. The intervention targets less-educated youth in Dominican Republic. Using
randomised design, the authors find little evidence of the positive effects on employment of the
target groups. Using the same research design, Attanasio et al. (2011) find, however, that the
subsidised training offered to disadvantaged youth in Columbia increases earnings and
employment for women by about 19.6 percent more. Friedlander, Daniel and Philip (1997) also
find that women are more likely to benefit from training programmes than men. The authors
conclude by highlighting remaining concerns, particularly on the lack of understanding on which
training works best, the heterogeneous effects of training programmes among target groups and
geographical location, and appropriate policies that could improve total programme effects, for
further research. Blattman and Ralston (2015) are particularly critical with the benefits of
training programmes most governments and development partners have spent million, or billion,
of dollars on. The authors argue that skills training and microfinance do little in poverty
reduction. They seem to advocate a combination of ‘capital-injection’ initiatives and low-cost
‘complementary’ interventions.
That said, the effects of training and on-the-job programmes are yet to be conclusive and much
of the programme evaluation happens in developed economies. Given differences in economic
structure and characteristics of labour market in both these economies, it is likely that results
found in developed economies are less applicable to those in low-income countries. Thus,
rigorous evaluation of training programmes on labour market outcomes in developing countries
and specifically among GMS countries remain a knowledge gap to be filled.
In addition, the private sector is perceived to assume a significant role as far as creating jobs and
providing both training and work experience are concerned. World Bank (2013) postulates that
the role of the government is not a centre for job creation since that task is best done by the
private sector—9 out of every 10 jobs are created by the private sector. Encouragingly,
governments around the Mekong region acknowledge the role of the private sector in creating
productive and decent jobs to absorb the growing numbers of young labour market entrants every
year. For instance, Cambodia’s recently launched National Strategic Development Plan 2014-18
(RGC 2014) identifies job creation and improvement of working conditions as a key
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development priority. In its Seventh National Socio-Economic Development Plan 2011-15, Laos
stresses the importance of strengthening the labour market to upgrade the skills and knowledge
of Lao workers and of extending social protection to workers, especially the disadvantaged (MPI
2011, 25). Vietnam in its Sustainable Development Strategy 2011-20 pays attention to
professional development, sustainable job creation and support for vocational training (Viet Nam
Government Portal, 2014). The Thai government emphasises in its Eleventh National Economic
and Social Development Plan 2012-16 broad-based implementation of strategic activities that
actively engage the private sector in improving and strengthening socio-economic security for
Thai citizens (Office of the National Economic and Social Development Board, 2011). Across
the region, greater attention is being paid to policies that promote opportunities for women’s
employment and ethnic communities’ greater participation in the workforce.
4. Methodology and data used in labour market research
In the field of labour economics, there are two traditional models: (1) the Mincer model, which
determines wages by years of education, and (2) the neoclassical labour supply model.
Traditionally, labour economists use ordinary least squares (OLS) to estimate such labour market
models. However, the estimators of both models are inconsistent and biased given that the
classical assumptions for using OLS are violated by the endogeneity problem. An alternative
approach to address endogeneity bias is to use instrumental variables, but in practice it is
extremely difficult to identify appropriate, or a set of, instrumental variables. In addition, labour
supply estimates are affected by sample selection; the outcomes for individuals who do not work
are not observed and the decision not to participate in the labour market is based on an
individual’s preference. To deal with this problem, Heckman (1979) introduces the sample
selection model.
Labour economists are sometimes interested in the causal effect of a specific variable on future
outcomes, for example, the causal effect of a training programme on income. They often frame
research questions in terms of what would happen if participants do not receive training. In this
case, participants either receive or do not receive training, so only one potential outcome can be
observed. The comparison of outcomes between individuals in the treatment and control groups
does not provide a proper estimate of the effect of the programme because individuals self-select
into the programme. In other words, programme participation is not independent of the potential
outcome. Dehejia and Waiba (1999) and Heckman, Ichimura and Todd (1997) show that
propensity score matching developed by Rubin (1974), an econometric model of the probability
of participating in a programme given observed characteristics, is popularly used to establish a
credible comparison group.
Difference-in-differences estimation has become more popular if the outcomes for participants
and non-participants are observed both before and after programme intervention. Ashenfelter and
Card (1985) used this method to estimate the effect of a training programme on earnings. More
recently, Smith and Todd (2005) emphasised that the combination of propensity score matching
and difference-in-difference methods, that is the difference-in-difference matching estimator
proposed by Heckman, Ichimura and Todd (1997), performs best in measuring the impact of
programme intervention.
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Fields (2007) discusses six kinds of data that have been used extensively in empirical research on
labour markets and labour market policies—aggregate cross-sectional quantitative, micro crosssectional quantitative, panel, cross-country time-series, experimental and qualitative. Among
those, qualitative data analysis has complemented quantitative data analysis. But, Fields (2007,
41) argues that “qualitative data analysis in no way should supplant quantitative data analysis”.
Recently, there has been a surge in research using experimental data, not restricted to labour
market research (e.g., Banerjee and Duflo 2009; Duflo et al. 2013; Dupas and Robinson 2013;
Karlan and Zinman 2010, 2011; Giné, Goldberg and Yang 2011; Fafchamps et al. 2011; Brune et
al. 2011; Crépon et al. 2011; De Mel, McKenzie and Woodruff 2008, 2009; Akoten, Sawada and
Otsuka2006; Harrison and List 2004). Proponents of randomised controlled trials, either
laboratory or social, argue for the explanatory power of the method to deal with endogeneity bias
relative to other quasi-experimental data analysis such as propensity score matching and
instrumental variables. Nonetheless, experimental research does not simply present a one-sizefits-all solution and analysis is not without caveats including usually small treatment and control
groups that limit insights and generalisations about observed phenomena, results that are contextdependent and the relatively short duration of programme evaluation. Experimental data
collection is also more expensive and demanding in terms of field management.2
A challenge in low-income countries in general and GMS economies in particular is the lack of
disaggregated data (firms and households). Better news, however, is that growing attention from
GMS governments over the last five years or so has led to the compilation of datasets that allow
researchers and policymakers to address issues in a more disaggregated fashion. For instance,
Cambodia has a number of survey datasets readily available for quantitative analysis: Labour
Force and Child Labour Survey (2012), Cambodia Socio-Economic Surveys conducted every
five years for 15,000 and yearly for 3500 households. The World Bank has just released its 2013
round of Cambodia enterprise surveys. The first round was in 2007. Laos also has a good stock
of micro household and firm survey data—Expenditure and Consumption Surveys (2002-03,
2007-08, 2012-13), Multiple Indicator Cluster Survey (2006), Social Indicator Survey (2011-12),
Labour Force and Using Child Labour Survey (2010) and Employment and Livelihoods Survey
(2009). There are other kinds of surveys, censuses and longitudinal studies for specific purposes
that are useful for researchers. A range of survey and census data is also available in Vietnam:
Labour and Employment surveys (yearly since 1996), Population and Housing Census (every 10
years, and Vietnam Household Living Standards surveys (every two years). Availability of and
access to micro and macro data in Myanmar are particularly challenging given the current
political landscape. However, the Myanmar Development Resource Institute (MDRI) is working
with both government and development partners to construct a database for scientific research,
the results of which are used in policy making.
Despite growing availability and accessibility of datasets, more needs to be done to construct a
panel database that would enable researchers and policymakers to better understand labour
2Levitt and List (2009) provide a concise review of the evolution of experimental design in observational settings
and important caveats that require attention to ensure validity and reliability of results. Deaton (2010) also gives a
comprehensive account of the drawbacks of randomised controlled trials. Banerjee and Duflo (2009) present pros
and cons of using experimental approaches in development economics. List and Rasul (2011) briefly present
potential weaknesses of social experiments employed in labour economics.
13
market dynamics. If possible, experimental design is worth exploring. Yet regional efforts to
address this remain uneven.
5. Research priorities
The following recommended research themes and questions on labour markets and labour market
policies and institutions have benefited from the rich literature review and roundtable discussion
organised by CDRI and IDRC. Some of the specific research questions are from Fields (2007,
60-63) and Cho et al. (2012). The list is certainly not exhaustive but it represents areas that
demand immediate attention from policy makers and other involved stakeholders.
Research Theme 1:
Inequality of earnings by gender, geographical location, and
ethnicity
One of the challenges facing GMS economies is to understand labour market dynamics in terms
of growth and distribution of earnings by gender, region and ethnicity. The lack of panel data has
proven difficult to achieve the goal—but not impossible. Below are selected research questions
to be further explored.






Is there gender discrimination in the labour market?
What are the determinants of gender gaps in earnings and productivity?
What is the relationship between women’s unpaid work and entry into paid work?
Who are the self-employed? What determines selection into self-employment and wage
work?
How can wage employment be generated?
What is the extent of youth underemployment? Who are they and what determines their
first choice of occupational?
Research Theme 2:








Labour market regulations and wage-setting
What policies and institutional arrangements can enhance the transition from informal to
formal employment?
What policies and institutional arrangements can enhance degree-to-job transition among
youth?
Which jobs make a greater contribution to earnings growth and poverty reduction?
What skills do employers seek for production and management jobs?
How do employers identify qualified job applicants?
What are the institutional and market barriers constraining competitive and productive
job creation by the private sector?
What are the effects of an increased minimum wage and other forms of collective
bargaining on youth employment?
Is it really about structural unemployment, having fewer jobs to offer to those who want
one, or it is more about frictional unemployment given the lengthy process of job search
and skills mismatches?
14

How do firms set wages? Is there evidence that firms pay efficiency wages as a strategy
to increase profitability? If so, does it vary by sector?
Research Theme 3:




Which types of programmes are most effective in improving the quality and security of
employment among youth and women?
Does a high level of employment protection have an adverse effect on young workers?
What are the effects of piloted social protection programmes on the treatment compared
to those of controls?
How can piloted social protection programmes be scaled up?
Research Theme 4:




Implications of ASEAN Economic Community for labour
market policies and institutions
What are the effects of AEC on different occupational types?
What are the effects of AEC on low-skilled and vulnerable workers?
What are the effects of AEC on occupational types of youth and women?
What kinds of institutional arrangements could maximise labour market outcomes for
youth and women?
Research Theme 6:

Private sector development and its role in skills development
What are the cross-country differences in management practices, social determinants of
effort and interventions to improve firms’ management and productivity?
What are the determinants inducing private firms, including small and medium
enterprises, to engage in training and re-training of new and existing workforce?
Are there market failures that affect employers’ decision to invest in skills training for
new and existing workers?
Research Theme 5:




Safety nets for youth, low-skilled and women
Scaling up champion programmes for decent job creation and
skills development for youth, lowed-skills and women workers
How can champion programme increase youth employment and employability be scaled
up?
What are the effects of the programme interventions on labour market outcomes of those
who are treated compared to those who are not?
15
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20
Annex: Recommended reading
Yoonyoung Cho, David Margolis, David Newhouse and David Robalino. 2012. Labour Markets
in Low- and Middle-Income Countries: Trends and Implications for Social Protection and
Labour Policies. Discussion Paper No. 1207. Washington, DC: World Bank.
The authors identify five key issues in enhancing labour market growth and opportunities in developing
countries. They include: (1) a high and growing share of the labour force that is self-employed or working
in household enterprises, (2) exposure to income shocks with limited access to a risk management system,
(3) low female participation rate in the labour market, (4) high youth unemployment rate, and (5) the need
to better manage migration flows (both internally and cross-border) and remittances.
Nicholas Bloom, Aprajit Mahajan, David McKenzie and John Roberts. 2010. “Why Do Firms in
Developing Countries Have Low Productivity? American Economic Review 100(2): 619-623.
Paper and Proceedings of the One Hundred and Twenty Second Annual Meeting of the
American Economic Association.
Firms in developing countries have, as many believe, low productivity—either labour or capital or both.
Many studies have documented a range of factors of poor infrastructure; large size of informality; rigid,
often unfair, regulations that favour the well-connected; unfavourable trade policies that jeopardise
incentives to exports; and low human resources as binding constraints. It seems that these factors are
more external while internal issues could have tremendous implication on firms’ productivity. Bloom et
al. (2010) provide a short, but convincing, account of three internal areas—management practices,
financial constraints, and the delegation of decision making—that could explain low productivity of firms
in developing countries. Therefore, addressing constraints to improve productivity could result in more
decent and productive jobs created.
Tito Boeri, Brooke Helppie and Mario Macis. 2008. Labour Regulations in Developing
Countries: A Review of the Evidence and Directions for Future Research. Social Protection
Discussion Paper 0833. Washington, DC: World Bank.
The paper highlights the debate among economists on the effect of labour market regulations on
economic outcomes in developing countries. The review and subsequent conclusion rest mainly on the
results of empirical evidence even though the authors stress the importance of theories and models to
guide empirical works. The authors particularly focus on the effects of minimum wages, mandatory
benefits, employment protection legislation, and unemployment insurance benefits. In addition to
surveying the literature on each policy or intervention, the authors discuss possible factors explaining
inconclusive results of various studies.
Wendy Cunningham, Maria Laura Sanchez-Puerta and Alice Wuermli. 2010. Active Labour
Market Programs for Youth: A Framework to Guide Youth Employment Interventions.
Employment Policy Primer 16. Washington, DC: World Bank.
The authors provide a framework that the government and organisations working on youth-related issues
can use to diagnose constraints impeding decent and productive job creation for youth and to accordingly
design appropriate employment interventions. The framework consists of four steps. First, users are
required to identify target youth population and diagnose constraints for finding jobs. Once constraints
have been recognised, interventions are selected to address the identified bottlenecks. Constraints could
be in the forms of job-relevant skills, lack of labour demand, job search constraints, not enough start-up to
create new jobs, discrimination and exclusion of disadvantaged groups that adversely affect their labour
21
participation. Step 3 involves making possible adjustment of the intervening employment programmes to
fit country’s specific context and align with the needs of the identified population. Step 4 requires
conducting impact evaluation of implemented programmes to better understand the effects and to improve
programme effectiveness.
Souleima El Achkar Hilal. 2014. The Impact of ASEAN Economic Integration on Occupational
Outlooks and Skills Demand. Regional Office for Asia and the Pacific. Bangkok: ILO.
The study examines potential impacts of the Association of Southeast Asian Nations Association’s
ASEAN Economic Community (ASEAN-AEC) on labour market outcomes in six countries, namely
Cambodia, Indonesia, Laos, the Philippines, Thailand and Vietnam. The paper utilises a computable
general equilibrium (CGE) model. Results show that employment growth in services in the six studied
countries will be the greatest and in agriculture in some countries. AEC might also contribute to
employment growth that is linked to informal sector. In all countries, except Vietnam, AEC contributes to
narrowing both actual and potential mismatch of skills. A policy implication of the study is that ASEAN
governments need to ensure that the current growth path is inclusive, particularly to protect the most
vulnerable groups of the population.
Richard B Freeman. 2009. Labor Regulations, Unions, and Social Protection in Developing
Countries: Market Distortions or Efficient Institutions? NBER Working Paper Series 14789.
MA: NBER.
The study provides an overview of lessons learned about the impact of labour market institutions, defined
as government regulations and unionised activities, on labour market outcomes in developing countries.
The author outlines a range of lessons a selected few of which are: (1) most empirical studies find modest
negative effects of minimum wages on employment (2) minimum wages in most countries also produce
“spill-over” effects on the wages of uncovered sectors, and (3) employment protection regulations and
other related laws would shift output and employment to informal sectors and reduce gross labour
mobility.
International Labour Office. 2015. World Employment and Social Outlook: Trends 2015.
Geneva: ILO.
The report provides trends of global employment, partially illustrating the impact of the financial crisis on
unemployment. The report finds that the outlook of global employment will worsen in the next five years.
Youth continue to have higher unemployment probability—three times higher than that of adult
counterparts. Young female workers are particularly vulnerable. In addition, vulnerable employment
remains a challenge for emerging and developing countries. The deteriorating employment outlook, the
report argues, partially contributes to increased income inequality given the decreased in, for instance,
medium-skilled routine jobs. The report warns that countries with high or rising youth unemployment are
prone to social unrest.
To boost employment and social outlook, the report suggests that there is a need to increase aggregate
demand and enterprise investment, paying particular attention to small enterprises. Inclusive labour
market reforms, therefore, are needed.
International Labour Office. 2013. Global Employment Trend for Youth. Geneva: ILO.
The report outlines the global youth employment in 2013. It finds that increased unemployment among
young workers between 2012 and 2013 was attributable to the weakening global economy. Specifically,
22
around 73 million young job seekers were unemployed in 2013 resulting in a global unemployment rate
of 12.6 percent. The weak global economy also contributed to increased informal youth employment.
Skilled mismatch further aggravated youth employment particularly their employability. Thus,countryspecific policy solutionsare needed to break the vicious circle that keeps youth stuck in vulnerable and
low-productivity employment.
World Bank. 2013. World Development Report: Jobs. Washington, DC: World Bank.
The report outlines the global employment situation and investigates the “centrality” of jobs in
development processes using a multidisciplinary approach. One of the important aspects of the report is
its analysis of the types of jobs believed to contribute the most to development. Those jobs make society
function better, help connect the economy to regional and global markets, are environmentally friendly,
increase trust and civic engagement and reduce poverty. The report also provides a conceptual framework
that policymakers and practitioners can use for labour market analysis. The policy pyramid consists of
three layers: fundamentals, labour policies and priorities. Each involves not only setting a conducive
policy environment for more decent and productive job creation, but also is selective for the kinds of jobs
that contribute the greatest development payoffs.
23