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Promoting inclusive economic integration: Skills mobility within ASEAN

A key component of the newly established ASEAN Economic Community is greater mobility of workers in eight skilled professions (engineering, nursing, surveying services, architecture, accounting services, medical practice, dental practice, and tourism) within ASEAN member countries, as reflected in the signing of Mutual Recognition Arrangements (MRAs). The number of covered sectors could increase over time.

Meanwhile, a major challenge facing the international development community is how to confront widening income inequality. The question at hand is whether greater skills mobility within ASEAN is an inclusive type of economic integration – i.e., integration that contributes to a reduction in income or wealth inequality.

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

1. Greater mobility by skilled professionals strengthens the bargaining power of people relative to firms. In the absence of MRAs, many multinational firms can transport workers within ASEAN anyway. When you go to large hotels in Malaysia, Singapore, or Indonesia, you will see many Filipinos there working as chefs or entertainers. In other words, without the ASEAN agreement, skilled workers cannot move easily and directly; the primary way for them to take advantage of wage differential 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 skills mobility will significantly empower skilled professionals, allowing them to get a bigger share of the gains from skill reallocation. In this sense, the agreement on skills mobility in ASEAN represents an inclusive type of increased integration.
2. The skill mobility agreement helps to level the playing field for small- and medium-sized enterprises (SMEs) relative to large firms. Having HR 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 work force, larger firms are not as challenged by barriers to skills mobility as much as smaller firms. In this sense, barriers to skilled mobility favor large firms relative to small firms. And reductions in these barriers reduce one relative disadvantage for SMEs. Again, as such, the agreement on skills mobility in this way represents an inclusive type of increased integration.

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

Precisely because skills mobility enhances the skill premium for professionals, it could widen the income differential 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 by 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 programs on education and skills training. If greater skill mobility raises returns to education and skill upgrading, 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 work force, and result in a more inclusive outcome. There are some encouraging signs that this has started to happen. Some of the lower income ASEAN members have shown efforts to improve their curriculums for education and training, and to strengthen their certification and accreditation processes.

Also, because skill mobility allows foreign skilled professionals to compete more easily with local professionals for jobs, locals could lose their jobs or experience a stagnation in their pay. How big is this risk? It depends on whether ASEAN member countries have policies and programs 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 envisioned 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.

Subjects: Regional cooperation and integration
Tags: Shang Jin Wei, ASEAN, ASEAN Economic Community, AEC, skills mobility, skilled professions, Mutual Recognition Arrangements, income inequality, economic integration, inclusive integration, bargaining power, wage differential, multinational firms, skill reallocation, SMEs, skill premium, education, skills training, competition

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