Young Workers Give Southeast Asia an Edge

The Philippines, Malaysia, and their neighbors are thriving
Laborers work at a shoe factory in Marikina City, east of Manila Photograph by Ted Aljbe/AFP/Getty Images

Jose Winylito Tanquis has reason to be proud as he raises a flag to signal the launch of the 58,000-ton Ocean Symphony in the Philippines. Not only did he help build the cargo vessel, his son John works at the yard. “Now he can buy his own stuff, like shoes and clothes,” says Tanquis, 47, a foreman at the Tsuneishi Holdings yard in Balamban on Cebu island. At 21, John is the oldest of six siblings who will enter the workforce in the next decade.

The so-called demographic dividend, the benefit derived from an increasing supply of young workers, is one reason Japan’s second-largest shipbuilder expanded in the Philippines, where workers are on average half the age of its Japanese employees. Tsuneishi is considering Indonesia, the Philippines, and Myanmar for another shipyard, says Hitoshi Kono, chief of the company’s local operation.

The demographic dividend—a term popularized by economists David Bloom, David Canning, and Jaypee Sevilla in a 2001 National Bureau of Economic Research study—happens when most of a country’s population is in the 15-to-64 working-age range. If supported by the right policies in public health, education, and finance, the dividend increases productivity, the study concluded. The labor forces of the Philippines, Malaysia, and Indonesia will all grow by double-digits through 2020.

Asia’s manufacturing powerhouses—Japan, South Korea, and China—are among the fastest-aging countries in the world, while developing nations in Southeast Asia are among the youngest in the region. As factories, jobs, and investment flow south to tap younger and cheaper labor, economic growth in the 10-member Association of Southeast Asian Nations (Asean) is poised to accelerate, propelling the area’s currencies and fueling consumer and property booms, Bank of America says.

“The demographic dividend is over for Japan and Korea, and it will be over for China soon,” says Yoshimasa Maruyama, chief economist at Itochu, Japan’s third-largest trading company. “It’s happening now in the Asean area, and it will continue for some time.” The Chinese workforce will peak at about 970 million in 2020 as the population’s median age rises to 37.8, Merrill Lynch forecasts.

Tsuneishi has launched 11 ships this year from its yard in Cebu, supporting more than 15,000 workers. Mitsumi Electric, with more than 14,000 staff on Cebu, is among the businesses looking to move more manufacturing out of China, says Yoshitsugu Murakami, a spokesman in Tokyo for the electronic-parts maker. “Labor costs in China have been rising,” Murakami says. “It’s good for us to shift production to the Philippines little by little. It’s easy to recruit talented workers.”

The Philippines is a “standout” among countries set to benefit from a bigger labor pool, says Chua Hak Bin, an economist in Singapore at Bank of America’s Merrill Lynch. The International Monetary Fund predicts the Philippines will be growing at an annual rate of 5 percent by 2017, compared with 3.7 percent last year. Growth in Vietnam will reach 7.5 percent a year by 2017, up from 5.9 percent in 2011. Chua thinks that over the long run the Indonesian rupiah and the Philippine peso may prove stronger currencies than the yen or won.

India has the biggest potential dividend of all, with a projected labor-force expansion of 95 million by 2020, a 12 percent gain from 2010. Even so, businesses such as Larsen & Toubro, India’s biggest engineering company, and Leighton Holdings, Australia’s largest builder, say a lack of skills means there aren’t enough trained workers to build the roads, railways, and ports India needs. Adult literacy is above 92 percent in the Philippines, Malaysia, and Indonesia, while in India it is 63 percent, according to the United Nations’ Human Development Report 2011.

Another advantage for Southeast Asia is proximity to Japan and China, which have billions to invest overseas. Japan’s foreign direct investment into the Asean region more than doubled in 2011, to $19.6 billion, from the year before, surpassing the $14.2 billion it invested in China and Hong Kong, according to the Japan External Trade Organization. “Asean labor costs are becoming relatively cheaper because China’s wages are rising,” says Satoshi Osanai, a Daiwa Institute of Research economist in Tokyo. Migrant workers’ average pay rose 21 percent in China to 2,049 yuan ($322) a month in 2011, according to the country’s National Bureau of Statistics. The average wage in Japan is 26 times higher than in the Philippines, government and International Labor Organization data show. A Japanese laborer makes an average daily wage of $209.20; a Manila worker paid at the high end of the minimum wage makes about $11 a day.

Japanese investment has transformed the village of Balamban, which got its first shopping mall last year. “There were practically no jobs before, none. Nothing was happening until Tsuneishi came,” says Renold Macasi, 34, a general foreman at the shipyard. The company forecasts the yard will have 35 billion pesos ($832.4 million) in sales in 2012, more than double the revenue of five years ago. A rich dividend indeed.

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