Rob Subbaraman is head of global macroeconomic research at Nomura. Sonal Varma is the bank's chief Asia ex-Japan economist.
As the COVID-19 pandemic has progressed, Asian nations' unemployment rates have generally not set alarm bells ringing.
Hong Kong's unemployment rate had only risen to 5.9% as of May compared with 2.8% a year before, even though its economy was already in recession before the coronavirus. In the Philippines, though, joblessness more than tripled between January and April to reach 17.7%.
Official rates for most other Asian economies have been relatively stable. Yet beneath the surface, the region's labor markets are hanging on by a thread. There is a growing cohort of marginally attached workers who could flood the ranks of the unemployed if a new wave of COVID-19 cases emerges here or when the coming slump in exports, thanks to the slowdown in Western economies, hits the region. Asian governments must prepare for action.
Asia's current jobless numbers give an incomplete picture. Those who lose their jobs but choose not to search for new ones now, out of fear of COVID-19 infection, are not counted. Nor are aging workers who chose instead to retire, likely a common scenario in Northeast Asian economies. The informal nature of labor markets in some of Asia's lower-income countries can hide the extent of unemployment.
Asian people who still have jobs are generally working fewer hours for less pay now than before COVID-19. This is likely because stricter employment protection legislation and cultural factors mean that Asia's labor markets are not generally as flexible as that of the U.S. when it comes to laying off workers.
In Hong Kong, the number of underemployed workers rose to 135,100 in May, a 185% increase from December and the sharpest rise on record. The ranks of Japanese classified as employees "not at work" rose in April to a record 6 million, or 8.8% of the labor force, from 2.5 million in March.
In Asia's lower-income countries, where most are employed in the informal sector, hidden unemployment is growing and largely untracked by official figures. For example, migrants who have returned to their home villages because urban job opportunities disappeared as lockdowns closed factories and shops are still counted as employed though they may not be actively farming.
In China, the official urban unemployment rate was 5.9% in May but is known to undercount migrants. While an estimated 90% of migrant workers had returned to work by April 30, that would still amount to 30 million in lost jobs. In fact, we estimate that nearly 48 million workers are at risk of losing their jobs in China's service and export sectors.
The picture is similar in India. Private sector surveys placed the unemployment rate at 8.5% in the third week of June, without factoring in millions of migrant workers who have returned to their villages.
The worst is likely yet to come for Asia's fragile labor markets as a severe export slump lies ahead. The COVID-19 shock has been most devastating for discretionary services, from restaurants and hotels to travel and entertainment, which face a slow recovery but account for a high proportion of employment. It is only a matter of time before many of these service businesses have to choose between cutting workers or facing bankruptcy.
From a risk management perspective, Asian policymakers should be providing more direct support to companies in the form of tax relief, subsidies or grants conditioned on keeping workers on the payrolls, as a few governments in the region including Singapore and Hong Kong have started to do. For countries with large informal sectors and hidden unemployment problems, especially China, India, Indonesia and the Philippines, the authorities should offer more direct support to households.
Asian central banks can play a greater role, too, by purchasing corporate bonds and incentivizing commercial banks to maintain lending to small businesses by providing them with zero-cost funding. Moving deeper into the realm of unconventional monetary policy could lead to weaker currencies but that would be a small price to pay to reduce the risk of a tsunami of unemployment, reduced productivity improvements and lower long-term potential growth.
Some countries in Asia are starting to appreciate the urgency. In recent weeks, the governments of Japan, Singapore and South Korea have announced larger-than-expected supplemental fiscal stimulus packages, focused on preserving jobs. The People's Bank of China has announced a special purpose vehicle to provide funding at no interest to smaller banks to provide loans to small business. Hopefully, others in the region will take note and quickly follow to avoid tumbling over a labor market cliff.