Asian employment at risk in downturn

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Mumbai: Asian unemployment is running at lower levels than in major economies for now, but a reliance on exports and rising commodity prices mean an aversion to large layoffs may soon be put to the test.

Many Asian economies rely on exports to the United States and Europe to drive growth. But if demand is falling and consumers are losing their jobs, there can be little upside for suppliers.

"The headwind that concerns us most is unemployment," Nomura economists said in a report on Asian economies.

"Granted, it is a lagging indicator of the cycle, but without a strong recovery in aggregate demand it will be difficult to create new jobs, and so unemployment can remain stubbornly high, hindering the economic recovery."

Hong Kong, Korea, Malaysia, Singapore, Taiwan and Thailand are most exposed in Asia to the global crisis, Nomura said.

All are registering double-digit peak-to-trough declines in GDP growth and the impact on the region's economic activity as a whole is now worse than during the Asian crisis, it said.

"In the six most exposed economies there is increasing evidence of negative second-round effects, as export-related firms are cutting capex and jobs," it said.

In a vicious cycle, exporters would feel pressure to cut costs as consumers in recession-hit economies cut spending, so eroding spending power throughout Asia.

Analysts say Indonesia, China and India have large domestic sectors to buffer their economies against the slump in world trade. That should mean these economies avoid recession, although growth will slow.

STIGMA

Unemployment rates in major economies are heading towards double-digits, and while rates in Asia are rising, they remain far lower and headlines of mass firings are rare.

Singapore's jobless rate is at a three-year high of 3.3 per cent, South Korea's is at 3.9 per cent, its highest in nearly four years, and in Japan unemployment has hit a 5-½ year high of 5 per cent.

Cutting jobs in Asia can be difficult. While unpalatable anywhere, the social stigma attached to cutting jobs, labour laws and a lack of a social security safety net make layoffs a difficult process.

Beyond unemployment, there is also disguised unemployment, where more people are employed to do a job than are needed, and underemployment, where workers are not fully utilised.

Even in extreme cases, layoffs can be hard to push through.

Satyam Computer Services, once India's fourth-largest outsourcing firm, was left struggling for survival after its founder revealed a massive accounting fraud this year.