Free flow of skilled workers: the pitfalls and positives for Asean

Meanwhile, a major challenge facing the international development community is how to confront widening income inequality. 

That prompts the question of whether greater skills mobility within Asean is an inclusive type of economic integration – ie, integration that contributes to a reduction in income or wealth inequality.

There are at least two major reasons why greater skills mobility can lead to greater inclusivity and lower inequality:

 

Workers empowered

First, it strengthens the bargaining power of people relative to firms. 

In the absence of MRAs, many multinational firms transport workers within Asean anyway. Large hotels in Malaysia, Singapore or Indonesia, for example, currently employ a small army of Filipinos as chefs or entertainers.  In other words, without the Asean agreement on mobility, the primary way for skilled workers to take advantage of wage differentials across national borders is to rely on multinational firms hiring them in one country and placing them in another. This dependency on large firms weakens workers’ bargaining power. The agreement on mobility will significantly empower skilled professionals, allowing them to get a bigger share of the gains from skill reallocation. In this sense, the agreement represents an inclusive type of increased integration.

 

SMEs cash in

Second, the skill mobility agreement also helps to level the playing field for small and medium-sized enterprises (SMEs) relative to large firms. Having human-resource machinery that hires workers in one country and places them in another entails fixed costs. By being able to spread the fixed cost over a larger workforce, larger firms are not challenged by barriers to skills mobility as much as smaller firms. In this sense, barriers to skilled mobility favour large firms relative to small firms. And lowering these barriers reduces one relative disadvantage for SMEs. Again, as such, the agreement on skills mobility in this way represents an inclusive type of increased integration.

 

Widening income gap?

On the other hand, there are risks that greater skills mobility can increase inequality and reduce inclusion.

Precisely because mobility enhances the skill premium for professionals, it could widen the income gap between high-skilled and lower-skilled workers, resulting in worsening inequality. Is this a big risk? It depends. 

First, it depends very much on whether skills mobility is an endpoint in itself or a stepping stone towards, eventually, a broader mobility that includes workers of all skill levels. 

Second, it also depends on Asean member countries’ policies and programmes on education and skills training. If greater mobility prompts more people to return to education and upgrade their skills, and students and workers who wish to acquire more skills have both the means and access to do so, then this can lead to a rise in the general skill level of the workforce, and result in a more inclusive outcome. There are encouraging signs that this has started to happen. Some of the lower-income Asean members have shown efforts to improve their curricula for education and training, and to strengthen their certification and accreditation processes.

Also, because greater mobility allows foreign skilled professionals to compete more easily with local professionals for jobs, locals could lose their jobs or experience pay stagnation. How big is this risk? It depends on whether Asean member countries have policies and programmes to offer re-training or to otherwise help their workers to adjust. In the end, only professionals and firms with a global or regional comparative advantage can be assured of good jobs and decent wage growth.

All in all, the greater skills mobility launched by the Asean Economic Community has the potential to promote more equal opportunities and more equal incomes, but it is not automatic. 

Complementary reforms by governments are needed to ensure that the economic integration is truly of the more inclusive type.

 

Shang Jin Wei is chief economist at the Asian Development Bank.