Asian employment at risk in prolonged downturn

Asian reliance on exports and rising commodity prices is running a challenging rising unemployment but lower levels than in major economies for now. 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 supplier. Nomura economists said in a report on Asian economies that Hong Kong, Korea, Malaysia, Singapore, Taiwan and Thailand are most exposed in Asia to the global crisis.

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 added. Spending power throughout Asia are eroded where exporters under pressure to cut costs as consumers in recession-hit economies cut spending. This vicious cycle is offset in Indonesia, China and India by their large domestic sectors to buffer their economies against the slump in world trade. Though these economies may avoid recession, growth will slow. Singapore's jobless rate is at a three-year high of 3.3 percent, South Korea's is at 3.9 percent, its highest in nearly four years, and in Japan unemployment has hit a 5-½ year high of 5 percent.

Cutting jobs in Asia can be difficult with the social stigma attached to cutting jobs, labour laws and a lack of a social security safety net make layoffs a difficult process. Take for example loss-making Jet Airways in India. It sacked 800 flight attendants but after protests and political pressure the workers were reinstated and the chief executive apologised to staff within days.

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.

Thailand, Malaysia and Japan are taking similar steps to South Korea's government who is giving tax benefits and other advantages to companies that keep or add jobs by "adjusting" wages and work hours.

Hitachi Ltd, Japan's biggest industrial electronics group, and Cathay Pacific Airways Ltd are trying to keep jobs by asking staff to take unpaid leave.

Unemployment can be a leading indicator of a prolonged slump when there is uncertainty about whether a recovery will be quick, slow of occur at all. Employers wait to see that the upturn is sustainable before making a commitment to hiring new staff in coming out of a downturn. People who have lost their jobs don't have the spending capacity they did while employed. Those still in jobs rein in their spending and increase their savings in case they are next.

The fall in commodity prices since last year had reduced business costs and improved profit margins for Asian firms, limiting the need to cut jobs but with the recent rise in oil prices raises the risk that firms in Asia face greater pressure to lay off workers. Profit margins would be squeezed as raw materials prices rise just as manufactured goods are under pressure to fall. China's growing demand for commodities may push up raw material prices globally and therefore undermine prospects for a global recovery, especially in developed markets. VIA
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