Labour productivity trends in Asia and Pacific highlight uneven Covid impacts

Enhancing labour productivity is key to boosting living standards and hence is prioritized in the Sustainable Development Goals. In Asia and the Pacific, growth in labour productivity has been instrumental in reducing poverty in recent decades.1 The COVID-19 crisis, however, has reversed these productivity trends in parts of the region, reflecting both weak economic activity and labour market slack.2 Spurring a robust, human-centred recovery will necessitate a focus on creating more productive jobs, particularly in hard-hit sectors.

Figure 1. Labour productivity by employment and hour worked (% change, year-on-year), 2020
Note: Labour productivity measured as real gross domestic product (GDP) in constant national currency units per employed person or per actual hour worked. Estimates for labour productivity by hour worked are not available for Hong Kong (China) and Sri Lanka.

Source: ILO estimates based on ILO, ILOSTAT Database and IMF, World Economic Outlook Database, Oct. 2021, except Singapore (Department of Statistics, Ministry of Manpower and Ministry of Trade and Industry) and Taiwan, China (National Statistics Taiwan).

Sustained growth in labour productivity is fundamental for improving working conditions, increasing wages and boosting enterprise competitiveness and profitability. In 2020, however, labour productivity (as measured by gross domestic product per employed person) contracted in the majority of developing and advanced economies across the Asia-Pacific region (Figure 1).

Mongolia and Thailand, for example, recorded productivity losses of around 6-7 per cent. In both countries, sizeable decreases in economic activity outweighed marginal employment gains. Likewise, output per worker declined by 3-5 per cent in such countries as Japan, Malaysia, New Zealand and Singapore.

By contrast, trends in labour productivity by hour worked varied widely across the region, and increased in eight of the thirteen economies with available data. However, such labour productivity gains should be interpreted cautiously as it reflects deteriorated labour market conditions in which significant working-hour losses exceeded the contraction in gross domestic product. In the Philippines, for example, output per worker contracted by 2.6 per cent while output per hour worked grew by 14.2 per cent. These dynamics were underpinned by a year-on-year decrease in gross domestic product of 9.6 per cent, coupled with considerably higher working-hour losses of 20.8 per cent compared to employment losses of 7.2 per cent.

Moreover, labour productivity increases were likely driven by a compositional effect.3 Smaller enterprises, which on average tend to be less productive than larger firms, were disproportionately impacted by the pandemic. Smaller firms suffered comparatively greater working-hour and employment losses and were less likely to survive the crisis. Thus, the aggregate productivity increases indicate the asymmetric devastation of the pandemic, with the benefits of any productivity gains likely concentrated among larger enterprises.

Figure 2. Labour productivity by hour worked in accommodation and food services and transportation and storage (% change, year-on-year), 2020

Note: Labour productivity measured as real gross output in constant national currency units per actual hour worked. Estimates for accommodation and food services in New Zealand and the Republic of Korea are not available.

Source: ILO estimates based on ILO, ILOSTAT Database and official national accounts data, except Singapore (Department of Statistics, Ministry of Manpower and Ministry of Trade and Industry) and Taiwan, China (National Statistics Taiwan).

The impact of the crisis on labour productivity has been uneven not only between economies but also across economic sectors, shaped by public health policies to contain the spread of COVID-19. Some of the most critical measures adopted included widespread lockdowns and restrictions on internal mobility. In addition, border closures mostly halted international travel in 2020, and domestic tourism also contracted, albeit to a lesser degree. Consequently, service industries related to transportation, tourism and hospitality were among the hardest-hit sectors.

In Thailand, an economy heavily dependent on tourism, losses in output per hour worked in the accommodation and food services industry amounted to 32.2 per cent in 2020, driven primarily by a sharp decline in sectoral gross output (Figure 2). By comparison, productivity in accommodation and food services contracted by around 18-22 per cent in Malaysia and Singapore. The exceptional case of Mongolia, the only economy with available data that recorded labour productivity increases in accommodation and food services, reveals a situation in which substantial working-hour losses of 28 per cent actually outweighed the contraction in sectoral gross output of 23.7 per cent. Lower labour productivity, and consequently worsening job quality, in the industry is particularly detrimental to women who account for the bulk of employment.

In the transportation and storage industry, declines in labour productivity were sizeable overall and exceeded 21 per cent in Malaysia, New Zealand and Singapore. These trends were driven by substantial declines in sectoral output of more than 15 per cent in all economies with available data. The unique situation of the Philippines, where transportation output per hour worked increased by 9.5 per cent, actually masks the worsening employment situation in which working-hour losses reached 36.9 per cent compared to a contraction in sectoral output of 30.9 per cent.

Figure 3. Labour productivity by hour worked in manufacturing and wholesale and retail trade (% change, year-on-year), 2020
Note: Labour productivity measured as real gross output in constant national currency units per actual hour worked. Estimates for wholesale and retail trade in New Zealand and the Republic of Korea are not available.

Source: ILO estimates based on ILO, ILOSTAT Database and official national accounts data, except Singapore (Department of Statistics, Ministry of Manpower and Ministry of Trade and Industry) and Taiwan, China (National Statistics Taiwan).

For comparison, figure 3 shows the change in output per hour worked in manufacturing and wholesale and retail trade, two critical sectors that respectively accounted for about 16 per cent and 15 per cent of total employment in Asia and the Pacific in 2019 before the COVID-19 crisis.4 Overall, labour productivity in manufacturing made gains in 2020 in most economies with available data. In Brunei Darussalam, Mongolia and Singapore, manufacturing productivity increases were driven by growth in sectoral output. Conversely, growth in manufacturing productivity in Indonesia, Republic of Korea, Malaysia, Philippines and Thailand was shaped by a contraction in manufacturing output that was smaller than the losses in sectoral working hours.

Productivity trends in wholesale and retail trade were mixed. Excluding Brunei Darussalam – where sectoral labour productivity was flat – all economies under analysis recorded a shrinking in sectoral output. As a result, the productivity increases in wholesale and retail trade in the Philippines and Singapore were driven by substantial declines in working hours that were considerably larger than the corresponding decreases in gross output.

Footnotes:

1 ILO, Asia-Pacific Employment and Social Outlook 2020: Navigating the crisis towards a human-centred future of work, 2020.

2 ILO, COVID-19, labour market slack and what it means for recovery, 2021.

3 ILO, ILO Monitor: COVID-19 and the world of work. 8th edition, forthcoming.

4 Regional employment estimates are based on ILO, ILOSTAT Database.

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