This study investigates the background and causes of the major changes in the labor market environment in Southeast Asia, while also identifying the characteristics of the labor market. In particular, the increase in foreign direct investment (FDI) in Southeast Asian countries serves as a starting point for this analysis, because the flow of FDI, we believe, is the most important cause of changing conditions in the labor market. In addition, we have explored whether the investment decisions of Korean firms are affected by the changes in the labor markets in the area, through both empirical analysis and a corporate survey on their strategies to respond to the changes. We find that Korean firms, particularly, small and medium sized enterprises, mainly focus on localization at the management level. Furthermore, based on the findings, we have proposed better ways to support the Korean firms operating in Southeast Asian markets.
In chapter 2, we have listed the causes of labor market changes in Southeast Asia. First, as increases in income made workers in the region to devote greater attention to democracy and human rights, the government could not ignore the workers' demands for higher pay and better working conditions. Second, the governments in the region have recognized that high external dependence may hinder sustainable development after the global financial crisis. Since the governments are aware of the necessities of expansion of domestic markets to avoid the risk, they have become noticeably pro-worker in terms of their labor policies. In addition, populist political activities also led to pro-worker policies. Since the changes in the labor market environment can reflect the needs of both the governments and their workers, in sum, we conclude that changes in the labor market environments will continue to occur for some time.
In chapter 3, we analyze the characteristics of the labor market structure in Southeast Asia as to labor supply and demand aspects. The features of labor supply in the region can be summarized as follows. First, this area exhibits a relatively high population growth rate as well as a high proportion of youth among the entire population. Second, the quality of human resources is expected to improve. In Vietnam, Indonesia, and Cambodia, where Korean corporations have been relatively active expanding their business compared to other countries, we have observed a rapid increase in the enrollment rate in tertiary education. Third, if the ASEAN Economic Community succeeds in its plan, skilled workers can migrate more freely within the region. The characteristics of labor demand can be summarized in the following two sentences. First, the structure of labor demand is becoming diversified in Southeast Asia. Second, we find that economic growth creates a number of jobs in the area through the elasticity of employment. In addition, comparing the wages of white-collar and blue-collar workers, we find that the white collar workers receive more wages than blue-collar workers across all countries. However, we could not confirm whether these wage differences are attributable to individual capabilities, due to limitations in the data.
In chapter 4, two analyses were carried out. First, we empirically analyze the Korean enterprises' determinants of foreign direct investment in Southeast Asia. Moreover, we investigate how they respond to the current changes in labor market environments through a corporate survey. According to the results of our empirical analysis, Korean firms continue to choose these areas as bases for labor intensive production process, despite the increase of local production costs such as labor cost. This result accords with survey results that the firms already working in these areas will not move, either back to Korea or to other countries. Interestingly, 57.3% of the companies responding to the survey answered that they overcame the recent wage increase through increase in productivity. Furthermore, where the labor market conditions are worsening, 73.3% of firms chose a localization strategy, such as productivity increases, to surmount the difficulties, rather than moving to other countries. The reason for these interesting results can be shown in the following two sentences. Firstly, the increase in variable costs currently being experienced is less than the increase in the fixed cost of relocation of production facilities. Secondly, countries that are generally considered as alternative locations, such as Myanmar, have also experienced similar changes in labor market environments.
Based on the above discussion, we believe that Southeast Asia still has potential for the inflow of FDI from Korean firms. Ongoing changes in labor market conditions in Southeast Asia are likely to have an adverse impact on Korean firms operating there, though the extent of the impact will differ across industries and technology levels. In chapter 5, therefore, we suggest that business support policies in overseas markets should widen the scope of their application, because current support policies tend to focus on supporting only the initial advances. Hence, for firms already operating in Southeast Asia to successfully expand their markets, the Korean government should provide additional support measures for localization of these firms. Of course, since the companies located abroad do not use the domestic production process, the additional support of the firms located abroad may reduce the creation of domestic jobs. However, given the existence of previous research indicating that Korean firms' OFDI can positively affect domestic productivity and employment, the Korean government should identify the impact of additional support by industry.