AEC promises freer movement of labour … at the margin

Will AEC help labour shortages in Lao PDR?

We often hear that the ASEAN Economic Community (AEC) will free up the movement of labour between ASEAN countries. This, we are told, will have big implications for Laotian businesses and workers. However, we shouldn’t lose sight of the country’s biggest labour market challenge: a shortage of low-skilled workers.

Under the AEC, governments are trying to make it easier for skilled workers in a few specific occupations to work in any ASEAN country. It should become easier, for example, for an Indonesian accountant to work in Vientiane.

These AEC commitments are praiseworthy, and EMC hopes to work with governments and donors in the years ahead to turn this ambition into reality. However, we should keep in mind that only 1.3% of all Laotian workers are employed in the seven regulated professions that will be covered by AEC.

A much bigger issue, in our view, is the shortage of low-skilled and medium-skilled workers in Lao PDR. Through EMC’s work for clients such as the ADB and ILO, we speak with hundreds of Laotian business owners about their challenges. A consistent message we hear is that firms’ ability to grow is constrained by a lack of low-skilled and medium-skilled workers. The World Bank has some interesting research on this topic.

Unfortunately, there are no quick fixes to these challenges. In the long term, raising agricultual productivity will free up more workers to move to urban areas. And increasing manufacturing productivity will enable factories to pay higher wages and thereby encourage workers to stay in Lao PDR rather than migrate to Thailand.

A recent report by the ILO and ADB raised the idea of ASEAN countries creating mutual recognition arrangements for medium-skill occupations such as construction workers, garment workers and plantation labourers. These arrangements would “help to legitimise and regulate much of the migration already taking place in ASEAN as well as to boost the overall calibre of the workers coming through”.

Extending AEC labour provisions to cover medium-skilled workers is an interesting idea, but for now policymakers have their hands full implementing the mutual recognition arrangements for high-skilled occupations.