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Approaches to Forecasting Labor Demand in Developing Countries and Their Implications for Korea’s ODA economic development, labor market

Author Young Ho Park, Jae Wook Jung, Yejin Kim, Minji Jeong, and Gyu-hee Hwang Series 연구보고서 19-06 Language Korean Date 2019.12.30

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   Technical and vocational education and training (TVET) programs are a critical area within the official development assistance (ODA) mandate of Korea. Korea is implementing TVET projects in a wide range of regions, including Southeast Asia, Central Asia, Latin America and the Caribbean, the Middle East, and Africa. Considering the increasing demand for TVET from developing countries, Korea is expected to continue and expand its TVET projects. Korea has not been conducting systematic labor market forecast in the preparation and implementation of TVET projects. Developing systematic labor forecast methods and increasing predictability of labor demand should precede actual hardware supports, including the construction of job training centers and distribution of training materials as well as curriculum development, in order to increase the efficiency of TVET projects. However, the labor demand forecasts conducted by Korea up to now largely fall short of these expectations.
   This study aims to develop systematical labor forecast methods, thereby contributing to increasing the efficiency of TVET ODA. Towards this, the study suggests a labor forecast method that considers characteristics of developing countries, and applies the method to Vietnam as a pilot application. Based on the results, this study estimates Vietnam’s future labor demand by industry and by occupation. In addition, this study introduces alternative labor market projection methods that can possibly deal with new changes observed in the labor markets of emerging countries.
   Chapter 2 reviews Korean TVET ODA projects and evaluates the demand side of the projects, for instance whether any labor market forecasts had been conducted for these projects or not, and the scope and method of labor market forecast. We examine project proposals, project validity studies, and evaluation studies for evaluating how much the demand side was considered in the process of implementing TVET projects.
   In Chapter 3, as a precursor to developing an alternative labor projection method, we introduce labor forecast models used in developing and advanced countries and compare their characteristics. Labor forecast studies started as the issue of effective human resource allocation emerged as a national task for many countries after World War Ⅱ. Accurate macroeconomic projection is critical for labor forecast, because labor demand is basically derived demand generated as the aggregate demand of economic increases. Recently, econometric methods based on the general equilibrium model are largely used in order to include inter-related effects of sectors, by using population, macroeconomic, industrial, and labor time series data. As the model becomes larger, several countries divide the economy into several blocks (e.g. macroeconomy, international economy, labor market, etc.) and focus on the dynamic estimation in each block. Furthermore, qualitative methods are used to take account for the impact of emergence of new industries and decline of existing industries due to technological innovation and international trade environmental change.
   In Korea, the Korea Employment Information Service was established to perform projections of labor demand and supply starting from 2006. This labor forecast reflects changes in population, society, economy, and industry structure. The projection model is largely composed of a section dealing with aggregate labor supply and demand forecast, and a forecast of new labor force. The section on aggregate labor supply and demand forecast estimates the stock of labor supply and demand based on the composition and trends in the labor force, and industrial growth prospects. The section on new labor force forecast estimates the flow of labor supply and demand and the supply-demand gap for a certain time period and looks at how new labor supply and demand change by education, major, and technology. The labor supply forecast estimates the labor force based on population prospects using census data and economic participation rate projections using labor force survey data. The labor demand forecast estimates real value-added based on industry prospects using an industry-macro econometric model with national income account data, and labor demand forecast by industry by multiplying employment coefficients earned from labor and production time series data by industry. This is used for estimating labor demand forecast by industry and occupation in addition to an estimated industry-occupation labor demand matrix. Finally the recursive structure of the model satisfies the matched aggregate labor supply and demand at the natural unemployment rate level. Labor forecast methods used in most advanced countries are similar to the Korean model. The US Bureau of Labor Statistics model uses segmented data by industry and occupation, while the Dutch ROA model is characterized by segmenting and forecasting job prospects by sector or level of education in the underlying labor markets.
   In most developing countries, the lack of statistics data or forecasting capacity and experience makes it difficult to implement a systematic labor market forecast. Some countries are developing methodologies to build statistical information and forecasts for industrial labor demand with the support of international organizations such as the International Labor Organization or donor countries. However, these projects are likely to end as one-time events while performing forecasts on industrial labor demand involves huge expense and experts. This makes it difficult to systemize and maintain the industrial labor demand forecasting system independently.
   Quantitative and qualitative analysis have different strengths and weaknesses. It is necessary to increase prediction power through a “combination” of the analytical methods rather than relying on any one method. Combining analytical methods needs more time and cost than using one method, but various methods can be utilized to increase the reliability of predictions.
   In Chapter 4, we applied our labor forecasting methodology to Vietnam, an exemplary emerging country, to estimate future labor demand by industry and occupation, as a pilot analysis that combines quantitative and qualitative analyses for emerging countries. Vietnam was chosen for the pilot because of the following reasons. The level of labor market statistics is relatively high compared to other emerging economies, while the manufacturing industry, a key industry in vocational education ODA projects, accounts for a high proportion in the economy. Also, Vietnam is the largest recipient of TVET assistance from Korea. First of all, we use data from the General Statistics Office of Vietnam to forecast labor demand for 20 major classification industries and nine major classification occupations. Based on the forecasting methodology used in Korea, the outlook for industrial and occupational classification was implemented, but due to the characteristics of emerging countries that have short time series data and less stable macroeconomic prospects, we could only perform a mid-term forecast for the period of 2019 to 2024. Our results indicate a significant trend difference by industry though the total number of employees is expected to increase by 0.5% annually on average by 2024. Employment in the manufacturing sector is expected to increase by 2.4% per year, while employment in primary industries such as the agricultural and mining sectors is expected to decrease by 0.8% to 3.1% per year. By occupation, employment in professional groups is expected to increase by 5.3% per year, while elementary occupations and skilled agricultural, forestry and fishery workers are expected to decrease by 1.9% to 3.5% per year. In addition, according to the purpose of this study, we implemented a labor demand forecast for detailed industries and occupations within the manufacturing industry, which is at the core of vocational training. Due to the lack of detailed statistics on the manufacturing industry within the data from the General Statistics Office of Vietnam, we chose to use data taken from the UNIDO Industrial Statistics (INDSTAT) Database 4 on value-added and number of employees by industries in the manufacturing industry. Total employment in the manufacturing industry is expected to increase by 1.7% annually during the 2017-2024 period. Employment in the manufacture of communication equipment (Industry 263 in ISIC Rev. 4) increased by 47.3% and 35.8% annually for 2007-2012 and 2013-2016, respectively, but the annual growth rate of employment in this sector is expected to adjust to 3.9% annually during 2017-2024.
   Currently, traditional quantitative forecasting methods can be applied only to 161 minor groups (3 digits) of industries in Vietnam, because unit-level (4 digits) statistics have not been fully established. Accordingly, using non-traditional methods is necessary in labor forecast for further detail industries at unit level. We applied a hybrid method of quantitative and qualitative approaches to the manufacture of wireless communication equipment, one of the most prominent sectors recently in the Vietnamese manufacturing industry, and given that TVET projects mostly target the manufacturing sector, this study chose model cases among the manufacturing industries. Import and export statistics, enterprise survey, and interview of Vietnamese government officials and experts on Vietnamese industry are conjointly used in the labor forecast of wireless communication equipment, based on the quantitative projection of its upper level category, the manufacture of communication equipment. UNIDO currently provides data on the Vietnamese communication equipment manufacturing industry at minor group level, thus an enterprise survey was implemented in order to gain more detailed statistics. Since the International Standard Industrial Classification of All Economic Activities (ISIC) does not specify unit level categories, we follow the Korean Standard Industrial Classification (KSIC) and divide the manufacture of communication equipment industry into manufacture of “wire communication equipment” and “broadcasting and wireless communication equipment (hereinafter wireless communication equipment).” We conducted an enterprise survey in only one of the two unit level industries due to time and budget concerns. Considering how cellular phones and relevant parts take a large part of Vietnamese exports, the manufacture of wireless communication equipment was selected for our enterprise survey. The enterprise survey asked respondents for their outlooks on the industry, the current employment status and future labor demand of the industry, and the future labor demand of three types of occupation (professionals, technicians and associate professionals, plant and machine operators and assemblers) that are closely related to TVET ODA within the industry. In order to compare trend changes over time, survey questions on the future outlook were subdivided into short-term (next year) and medium-term (next five years) expectations. Most of the respondents were foreign-owned companies, with companies producing cellular phones and related parts constituting a substantial part. Additionally, the portion of large companies with 500 or more employees was relatively large in the sample compared to the portion of large companies in the entire Vietnamese industry. Regarding the development of the wireless communication equipment industry, most companies evaluated the industry as showing stable growth. Particularly, enterprises with 500 or more employes appeared to have more positive expectations on the future of the industry. With regard to labor demand, more than half of the respondents had employed workers during the previous year. Among them, newly established companies, defined as companies established within the past five years, were more actively hiring new employees. Considering the future labor demand, most enterprises answered that they plan to further increase their employees over the medium term (five years) than over the short term (one year). The labor demand for the three occupations asked in the survey is expected to gradually increase over the medium term. The demand for “plant and machine operators and assemblers,” in particular, was higher than demands for other occupations. In the longer term, together with the technological development of Vietnam, the “plant and machine operators and assemblers” occupation can possibly replace unskilled elementary occupations. In order to include qualitative analysis in our hybrid-type of labor forecasting method, we interviewed Vietnamese stakeholders in institutes and ministries in charge of economy planning, economic forecast, and statistics. The interviews aimed to identify the characteristics and problems of the Vietnamese labor market, stakeholders’ expectations on the outlook of wireless communication equipment industry and labor demand, and the demand for TVET assistance. The information collected from interviews was used in adjusting estimated labor demand by industry and occupation, gained from a combination of quantitative analysis and enterprise survey, and in deriving policy implications for TVET assistance. Firstly, the Vietnamese labor market is characterized by a large informal sector, less skilled workers, and substantial portion of foreign-owned companies in labor-intensive industries. Secondly, the experts’ opinions on the outlook of wireless communication equipment were divided into largely positive and negative expectations. Some experts predicted that the wireless communication equipment industry would continue to show a high level of growth, and accordingly, labor demand growth rate would be high. These experts suggested the possibility of foreign direct investment increasing, the Vietnamese government’s drive to promote wireless communication equipment industry, and local enterprises’ participation in cellular phone production as factors supporting their views. On the other hand, other experts with a somewhat pessimistic view expected a slowdown in the growth of the wireless communication equipment industry. These respondents presented the decrease in Samsung Electronics’ production in Vietnam, and the possible decrease in foreign investment due to lack of capacity among local laborers and enterprises as arguments for their opinions. Lastly, regarding TVET ODA, the demand for training of unskilled laborers is high.
   Finally, we combined the quantitative analysis, enterprise survey, and stakeholder interview, and subsequently estimated labor demand for the three key occupations in the Vietnamese wireless communication equipment industry. To be specific, we estimated the industry prospect of the wireless communication equipment industry, the overall labor demand prospect of the industry, and the labor demand for the three occupations in the industry, by applying the result of our enterprise survey to the estimated value added of the Vietnamese communication equipment industry calculated in Chapter 4 and trade statistics. The estimated numbers were adjusted to reflect the result of stakeholder interviews to supplement the lack of data. According to the quantitative analysis, the communication equipment industry annually grew by about 60% for the last 10 years, and accordingly its largest subdivision, the wireless communication equipment industry, was estimated to have expanded at a similar rate. Regarding the future prospects of the wireless communication equipment industry, the quantitative analysis estimated that this growth rate would slow to 20% per year over five years. Considering the survey results and interviews supporting views that the growth rate of the industry in the next five years will be 5?10%, however, the medium-term growth rate of the industry was adjusted to 10%. Concerning the labor demand, the annual employment growth rate was estimated at around 2% for the next five years, based on combining the trend of employment inducement coefficient from quantitative analysis, the enterprise survey, and stakeholder interviews. Currently, element occupations take the largest portion in the labor demand by industry and occupation, but over the next five years, the “plant and machine operators and assemblers” group is expected to gradually increase, thus becoming the largest occupation group in the wireless communication equipment industry in the near future.
   This study estimated labor demand by occupations in the wireless communication equipment industry in Vietnam, by combining quantitative analysis and quantitative survey. This method is readily applicable to other emerging countries. Although most emerging countries have less-detailed labor statistics compared to Vietnam, many of them still provide time series data on the major (1 digit) and sub-major (2 digits) group level. Thus, quantitative analysis, one of the bases for our new method, is feasible on these levels. Furthermore, many developing countries are establishing national and labor statistics system with the help of the International Labor Organization and other developed countries. Therefore, in the medium and longer term, the use of quantitative analysis is likely to increase.
   For the labor demand forecast in the industry integrated in the international division of labor, the Global Value Chain method introduced in Chapter 5 can be applied. When considering the active participation of emerging countries in global value chains, this method may be practical. Lastly, big data analysis, which has been used but limitedly so far even in advanced countries, can also be practically used to forecast labor demand in developing countries, taking increased internet use and online job advertisements in these countries into account. While the big data method has certain disadvantages considering the large informal sector in developing countries, this method also has some advantages compared to traditional labor demand surveys, such as being cost-efficient and increasing the frequency of information collection. As the method can immediately reflect labor market changes in the labor forecast, it could be widely useful in emerging industries rather than traditional industries. ODA implementing agencies would benefit from paying attention to the labor forecasting methods presented in this research and devise policies supporting these methods in order to properly apply these methods in reality.
 

국문요약 


제1장 서론
1. 연구 배경 및 목적
2. 연구방법 및 구성·범위
3. 연구의 의의 및 한계


제2장 한국의 직업교육 ODA  현황 및 인력수요 조사방법
1. 한국의 직업교육 ODA 현황
2. 한국 직업교육 ODA 사업의 인력수요 조사방법
3. 소결: 인력수요 조사방법 개선의 필요성


제3장 신흥국 산업인력 수요전망 방법론: 전통적 방법
1. 정량분석
2. 정성분석
3. 분석방법의 결합


제4장 신흥국 산업인력 수요전망 방법론의 시범적용: 베트남
1. 베트남 적용 이유 및 의의
2. 계량분석 결과
3. 기업체 설문조사 결과
4. 이해관계자 면담조사 결과
5. 정량분석과 정성분석의 결합: 무선통신장비 제조업의 중기 인력수요 전망


제5장 신흥국 산업인력 수요전망의 새로운 접근방법 모색
1. 새로운 분석방법론 모색의 필요성
2. 국제 분업체계에 따른 글로벌 가치사슬 분석 접근
3. 디지털 데이터 접근에 따른 빅 데이터 분석


제6장 맺음말


참고문헌


부록


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