Final Report18.08.

TA-8277 LAO: Support for the Human Resource Development Strategy – Regional Research Institute (46068-001) Final Report August, 2015 Thailand Development Research Institute Foundation CONTENTS EXECUTVE SUMARY ............................................................................................................. 1 I. INTRODUCTION ............................................................................................................. 6 II. AN OVERVIEW OF THE LABOR MARKET IN LAO PDR .......................................... 9 A. Labor Supply and Employment of Lao Nationals .................................................... 9 B. Employment of Foreign Nationals in Lao PDR ........................................................ 19 C. Related Laws and Regulations on Foreign Labor Employment.............................. 22 D. Problems and Challenges ........................................................................................ 23 III. AN OVERVIEW OF THE LABOR MARKET IN THAILAND ........................................ 27 A. Population and Labor Force in Thailand .................................................................. 27 B. Documented Foreign Workers: Skilled Workers ..................................................... 36 C. Related Laws and Regulations on the Employment of Foreign Labor ................... 39 D. Problems and Challenges ........................................................................................ 45 IV. EMPLOYMENT OF HIGH-SKILLED FOREIGN WORKERS IN SELECTED SECTORS IN LAO PDR: EVIDENCE FROM AN EMPLOYER SURVEY................... 49 A. Characteristics of the Surveyed Firms ..................................................................... 49 B. Employment of Foreign-skilled Workers in the Surveyed Firms ............................. 52 C. Impacts of Foreign-skilled Workers on Productivity................................................. 61 D. Problems/Obstacles related to the Employment/Recruitment of Foreign-skilled Labor ................................................................................................ 62 E. Conclusion................................................................................................................. 63 V. EMPLOYMENT OF HIGH-SKILLED FOREIGN WORKERS IN SELECTED SECTORS IN THAILAND: EVIDENCE FROM AN EMPLOYER SURVEY ................ 65 A. Characteristics of the Surveyed Firms ..................................................................... 65 B. Employment of Foreign-skilled Workers in the Surveyed Firms ............................. 67 C. Employment Decisions Locally Made By the Firms ................................................ 76 D. Problems/Obstacles in Employing Foreign High-skilled Labor ............................... 88 E. Conclusion................................................................................................................. 90 VI. LABOR FORCE PROJECTION IN LAO PDR .............................................................. 91 A. An Overview of Labor Supply Projection ................................................................. 91 B. Outlook of the Population and Labor Force (2013-2025) ........................................ 93 C. Labor Force Participation Rate................................................................................. 95 D. Labor Force by Skill-type .......................................................................................... 96 E. Conclusion................................................................................................................. 102 b VII. THE REGIONAL MIGRATION MODEL ........................................................................ 105 A. The model’s main structure ...................................................................................... 105 B. Simulation results ...................................................................................................... 113 C. Conclusion................................................................................................................. 124 VIII. CONCLUSION................................................................................................................. 125 References ................................................................................................................................ 149 Appendix 1 ................................................................................................................................ 129 Appendix 2 ................................................................................................................................ 130 Appendix 3 ................................................................................................................................ 134 Appendix 4 ................................................................................................................................ 141 Appendix 5 ................................................................................................................................ 143 Appendix 6 ................................................................................................................................ 145 Appendix 7 ................................................................................................................................ 147 Appendix 8 ................................................................................................................................ 148 c TABLES CHAPTER II Table A1: Population and Labor Force .................................................................................... 9 Table A2: Enrolment Rate in Basic Education Level ............................................................... 13 Table A3: Employment by Sector (%) ...................................................................................... 15 Table A4: Share of Workers in Non-Agriculture Sector by Occupation .................................. 15 Table A5: Number of Lao Tertiary Level Students Studying Overseas by Destination (MOES) ................................................................................................................... 17 Table A6: Number of Lao Tertiary Level Students Graduating from Overseas by Field of Study (MOES)......................................................................................................... 18 Table A7: Number of Lao Tertiary Level Students Studying Overseas by Destination (UNESCO) .............................................................................................................. 19 Table B1: Total Employment by Sector in 2006 and 2012...................................................... 20 Table B2: Foreign Workers in Lao PDR by Occupation and Sector in 2012.......................... 21 Table B3: Relative Costs of Employing Laotian Skilled Workers to........................................ 22 Table D1: Lao and Thai Worker’s Productivity in 2010 ........................................................... 25 CHAPTER III Table A1: Employment by Skill-Level Assigned to Particular Occupations 2001–2013 ........ 33 Table A2: Estimated Foreign Population in Thailand .............................................................. 35 Table A3: Number of Foreign Workers in Thailand Classified by Type of Immigration ......... 36 Table B1: Number of Documented Foreign Workers .............................................................. 37 Table B2: Number of Temporary Foreign Workers (Article 9) by Occupation ....................... 37 Table B3: Number of Foreign Workers under the Investment Promotion Act by Occupation .............................................................................................................. 38 Table B4: Number of Temporary Foreign Workers and Foreign Workers under the Investment Promotion Act Classified by Sector .................................................... 39 CHAPTER IV Table A1: Characteristics of Employers in the Survey ............................................................ 50 Table A2: Number of Surveyed Firms by Industry, Size, and Ownership .............................. 51 Table B1: Employment of Foreign High-skilled Labor of the Surveyed Firms by Industry, Size, and Ownership .............................................................................................. 52 Table B2: Employment of Foreign-skilled Workers by Position and Industry......................... 53 Table B3: Positions filled by Foreign-skilled Workers ............................................................. 55 Table B4: Positions filled by Foreign-skilled Workers ............................................................. 57 Table B5: Relative Compensations by Industry and Position ................................................. 60 d CHAPTER V Table A1: Characteristics of Employers in the Survey ............................................................ 66 Table A2: Number of Surveyed Firms by Industry, Size, and Ownership .............................. 67 Table B1: Employment of Foreign High-skilled Labor of the Surveyed Firms by Industry, Size, and Ownership .......................................................................... 68 Table B2: Employment of Foreign-skilled Workers by Position and Industry......................... 69 Table B3: Positions of Foreign High-skilled Personnel Recruited by the Parent Company............................................................................................... 70 Table C1: Positions of Foreign-skilled Workers Recruited by Surveyed Firms ...................... 76 Table C2: Relative Compensations by Industry and Position ................................................. 85 Table D1: Minimum Monthly Salary Requirements for Work Permit Applicants (By Nationality)........................................................................................................ 89 CHAPTER VI Table A1: Number and percentage of high-skilled workers in the labor force (age 15-64) ............................................................................................................. 92 Table D1: Number of Workers (age 15-64) in Each Education-occupation Group in 2013 .................................................................................................................... 100 Table D2: Number of High-skilled and Low-skilled Workers (age 15-64) from 2003-2025 (in thousands) ............................................................................. 102 CHAPTER VII Table A1: Comparison of Cumulative Average Growth Rates (CAGR) of Actual data and Simulated Results ........................................................................................... 110 Table A2: Root Mean Square Errors (RMSE) of GDP Components ...................................... 111 Table B1: Growth rate of Simulated Employment of High-skilled Labor in Lao PDR ............ 116 Table B2: Growth Rate of Simulated Employment of Low-skilled Labor in Lao PDR ............ 117 Table B3: Growth Rate of Estimated Employment of High-skilled Domestic Workers in Lao PDR ................................................................................................................. 117 Table B4: Estimated Employment Level of High-skilled Domestic Workers in Lao PDR (in thousand persons) ............................................................................................. 118 Table B5: Growth Rate of Estimated Employment of Low-skilled Domestic Workers in Lao PDR ……………………………………………………………………………118 Table B6: Estimated Employment Level of Low-skilled Domestic Workers in Lao PDR (in thousand persons)………………………………………………………………..119 Table B7 Growth Rate of Simulated Employment of High-skilled Migrant Workers in Lao PDR.............................................................................................................. 120 Table B8: Estimated Employment Level of High-skilled Migrant Workers in Lao PDR (in thousand persons) .................................................................................................. 121 Table B9: Growth Rate of Simulated Employment of Lao Low-skilled Workers in Thailand .................................................................................................................. 122 e Table B10: Estimated Employment Level of Lao Low-skilled Workers in Thailand (in thousand persons) ............................................................................................. 123 Table B11: Annual Growth Rate of Simulated Employment of Lao Low-skilled Workers in the Rest of ASEAN Countries ................................................................................ 124 f FIGURES CHAPTER II Figure A1: Labor Force Participation Rate .............................................................................. 10 Figure A2: Population Pyramid 2000, 2010, and 2020 ........................................................... 11 Figure A3: Population Share by Region (% of total population).............................................. 12 Figure A4: Educational Attainment of Work Force by Age Group .......................................... 13 Figure A5: Share of Lao PDR’s Gross Domestic Product by Sector ...................................... 14 Figure A6: Sectoral Employment Share by Education Level .................................................. 16 Figure B1: Registered Foreign Workers (thousand persons) ................................................. 20 Figure D1: Net Migration (% of population) ............................................................................. 24 CHAPTER III Figure A1: Population Pyramids of Thailand 1960-2030 ........................................................ 27 Figure A2: Numbers of Working-Age Population and Workforce 1985–2013 ....................... 28 Figure A3: Employment by Sector 1985–2013........................................................................ 29 Figure A4: Labor Productivity by Sector 1985–2013............................................................... 29 Figure A4: Average Real Wage among Private Employees in the Economic Sector ............ 30 Figure A5: Educational Attainment of Work Force by Age Group 2001-2013 ....................... 31 Figure C1: Summary of the Thai Government’s Foreign Employment Policy........................ 44 Figure D1: Country’s Demand and Supply of Labor ............................................................... 45 Figure D2: Percentage of Surveyed Firms that Rated Selected Skills as Poor or Very Poor in 2004 and 2007 ........................................................................................... 46 Figure D3: Current and Expected Skills in 2007, 2011, and 2013 .......................................... 47 Figure B1: Reasons for Hiring Foreign Personnel................................................................... 54 Figure B1: Reasons for Hiring Foreign Personnel................................................................... 70 CHAPTER VI Figure A1: Labor Supply Projection Procedure ....................................................................... 92 Figure B1: Lao PDR Population Projection (2000-2025) ........................................................ 93 Figure B2: Percentage change of working-age population in Southeast Asian Countries from 2013 to 2025................................................................................................... 94 Figure B3: Number of Population by Age group in 2010, 2025 and 2030 (in 1,000 people) .................................................................................................................... 95 Figure B4: Number of Population by Education and Age Group in 2013 (in 1,000 people) .. 95 Figure C1: Labor Force Participation Rate by Age Group from 2003-2025 ........................... 96 Figure C2: Total Population and Labor Force from 2003-2025 (in 1,000 people) ................. 96 g Figure D1: The 3 Skill Classifications....................................................................................... 97 Figure D2: Number of Workforce (age 15-64) by Education .................................................. 98 Figure D3: Number of High-skilled Workers (age 15-64) from 2003-2025............................. 101 Figure D4: Number of Low-skilled Workers (age 15-64) from 2003-2025 ............................. 101 CHAPTER VII Figure A1: Main Structure of a Single-Country CGE Model.................................................... 105 Figure A2: International Trade Linkage in the Regional Migration Model……………………106 Figure A3: Nested Structure of a Production Function ............................................................ 107 Figure A4: International Migration in the Regional Migration Model ....................................... 108 Figure A5: Comparison between Actual Values of GDP Components and Generated Values for Lao PDR ................................................................................................ 110 Figure A6: Comparison between Actual Values of GDP Components and Generated Values for Thailand ................................................................................................. 111 Figure B1: Simulation Results of Lao PDR’s Macroeconomic Indicators ............................... 113 Figure B2: Simulation Results of Thailand’s Macroeconomic Indicators................................ 114 Figure B3: Simulated Employment of High-skilled labor in Lao PDR ..................................... 115 Figure B4: Simulated Employment of Low-skilled Labor in Lao PDR .................................... 116 Figure B5: Simulated Employment of High-skilled Migrant Workers in Lao PDR .................. 120 Figure B6: Simulated Employment of Lao Low-skilled Workers in Thailand .......................... 122 Figure B7: Simulated Employment of Lao Low-skilled Workers in the Rest of ASEAN Countries ................................................................................................................. 123 EXECUTVE SUMARY This study focuses on the flows of skilled and unskilled labor between Lao PDR and Thailand. It consists of three distinct parts. The first part, chapter 2 and 3, reviews the existing labor market data for both countries, including in particular the currently available data on the employment of foreign skilled labor. The second part, chapter 3 and 4, describes the findings of employer surveys that were conducted in both countries as part of the study, with a focus on the role of foreign skilled labor and foreign-trained domestic labor. The third part, chapter 5 and 6, presents projections of labor supply and demand by skill level, including the projected flows of migrant labor between the two countries. Review of existing labor market data The study assembles and reviews data on the labor force and employment in both countries. Related laws and regulations on the employment of foreign labor and current labor market challenges are also briefly reviewed. The demographic data for Lao PDR indicate that it still has a rapidly growing labor force (unlike Thailand), although labor force participation rates have decreased sharply in recent years among the age group 15-24 due to large increases in school enrollment. The labor force data for Lao PDR show that agriculture still accounts for two-thirds of all main jobs reported. The most reliable data on foreign skilled workers in Lao PDR are obtained from the 2006 and 2012 Economic Censuses, which however do not include selfemployed workers working at home (e.g., most farmers). According to this source, there were 26,725 foreign workers in 2012 (including temporary workers), up from 13,578 in 2006. More than half of the foreign workers are working in only three sectors: wholesale and retail trade (not including hotels and restaurants), manufacturing and construction. Altogether, foreign workers accounted for 3.93% (3.35%) of all (permanent) workers enumerated in the 2006 Economic Census and 6.50% (6.08%) of all (permanent) workers enumerated in the 2012 Economic Census. Data on the annual registration of foreign workers obtained from the Ministry of Labor shows a sharp increase in the number of foreign workers registered during the period 2008-2012, compared to the period 2003-2007. According to data from the 2012 World Bank Enterprise Survey, most foreign workers are working in managerial or professional occupations, although there are also significant numbers of foreign technicians and service workers. The largest number of foreign skilled workers have traditionally come from Thailand. However, the numbers of Vietnamese and Chinese workers are believed to have increased rapidly in recent years. Thailand also has large numbers of foreign skilled workers (more than 83,772 in 2012), but the number has been fairly stable in recent years. Most foreign skilled workers are working in the manufacturing, education, wholesale and retail trade, and hotel and restaurant sectors and most are working as managers, professionals and technicians. 2 For Lao PDR, data on the overseas training of nationals were also assembled and analyzed in the study. There are two main sources of information on foreign training: the Ministry of Education and Sport (Department of Student Affairs) and estimates prepared by UNESCO. Although the total numbers of overseas students are broadly similar between the two data sources, information on the countries in which they are studying differs markedly. For example, according to the MoES data, the largest numbers of tertiary-level students are studying in Vietnam, followed by China and Japan. According to UNESCO data, Vietnam also accounts for the largest number (though substantially fewer than in the MoES data), but Thailand is in second place, while Japan is a distant third, and no students are reported to be studying in China. According to the MoES data, the number of Lao graduates from foreign tertiary institutions was 1,391 in 2013, up from 912 in 2010. The reported fields of study of graduates were mainly business, economics, engineering, law and other social sciences. Employer surveys The study also conducted employer surveys in both Lao PDR and Thailand that focused on the roles of foreign skilled labor and foreign-trained domestic labor in the surveyed enterprises, including the relative wages paid to foreign and foreigntrained skilled labor as compared to domestically-trained skilled labor; and the extent to which domestic labor can substitute for foreign labor. The employer survey in Lao PDR was conducted from May to August 2014. The surveyed firms employ foreign-skilled labor in various positions, ranging from the top-level, e.g., executive chefs and managing directors to mid-level management and technical positions, e.g., engineers, supervisors, and assistant managers. The main reason why the surveyed firms hire foreign workers is because the supply of similarly qualified domestic workers is very limited. For 100% foreign-owned firms and affiliates of foreign firms, it is common for the headquarters to send their current staff or staff in affiliates based in other countries to work in their affiliated firms in Lao PDR to fill high-level management and technical positions. Employers indicated that it is generally very difficult for local personnel to substitute for foreign personnel. The existing pool of skilled local workers is not yet up to the required international standards. Headquarters wants to put the right persons in the right jobs in their affiliates to ensure that they function according to international standards. The need for foreign labor in Lao PDR is not restricted to high-skilled jobs. Since domestic vocational education is of poor quality, there is substantial need for foreigners for semi-skilled jobs such as technicians. It is not surprising that many positions, both skilled and semi-skilled, are held by foreigners even when the firms can make their own employment decisions. Skills-upgrading attempts at firm-level such as on-the-job training, overseas training, technology and knowledge transfers from foreign to local workers, and scholarships can be found in many sectors. 3 Leading examples of such attempts include the partnership projects between Toyota Company or Kubota Company with the Lao-German technical school. Given the current quality of formal and vocational education and lack of personnel and resources in the education sector, employers indicated their belief that it will take many years before the education system in Lao PDR can produce graduates that can substitute for foreign skilled workers. Lao workers are normally able to benefit through the skills and knowledge transfer from working and collaborating with foreigners. In addition, working with foreigners helps improve the language skills and work attitudes of domestic workers, resulting in their increased productivity. The productivity and performance of the firms can be improved substantially through employing foreign workers, since they can help reduce the cost of production and can do the jobs that domestic workers are not very productive at. Despite these benefits, foreign workers can sometimes cause misunderstandings, conflicts, or tensions with the domestic workers, which in turn hinders the performance of the firm. Cultural differences and language barriers are the main factors discouraging collaboration and understanding between foreign and domestic workers. Since foreign skilled workers receive more compensation than their local counterparts, the main obstacle to employing more foreign skilled workers is their relatively high cost. Generally, only large firms can afford to hire foreign workers. In addition to their high cost, another important obstacle is the cost and time required to obtain the necessary work permit, which employers feel are needlessly high. The employer survey in Thailand was conducted from May to August 2014. It found that high-skilled foreign workers are usually employed in high-level management positions or technical expert positions. Some workers are sent by company headquarters to supervise the operation of the factories or offices in Thailand. This type of worker comes to Thailand in order to ensure that the management and production qualities meet the standards set by headquarters. Since the affiliates in Thailand have no control over the employment of the foreign employees and the parent company still feels the need to send its own people to the affiliates, it is unlikely in these cases that Thai personnel can substitute this type of foreign personnel. There are also high-skilled foreign personnel hired by the firms (both Thai firms and foreign affiliates) in response to their own needs. This is mainly because some firms face difficulties in finding Thai workers with the required qualifications. For example, one integrated circuit firm indicated that it is difficult to hire Thai engineers who can analyze the data for the purpose of R&D. Similarly, a sugar producer reported that it could not find a Thai worker who is familiar with its byproduct business, while hotels indicated that they have to hire foreign general managers because they cannot find Thai personnel with an equivalent international experience. However, because it is usually more expensive and more complicated to hire foreign personnel, firms only hire them when they really need to. The firms may 4 compromise by hiring less-qualified Thai personnel. In summary, it can be said that Thai firms hire foreign personnel because they have three main types of skills (i) management skills, (ii) specific technical skills and/or (iii) foreign language skills. Improvement in these skills is needed to promote the substitutability between Thai and foreign high-skilled workers. Regional labor market projections A regional labor market model was developed as part of the project. The model consists of two modules: (i) a labor supply module for projecting the future supply of labor by skill level, and (ii) a regional economic module to project employment and migration. The labor supply module used three alternative definitions of highly skilled labor. The first definition is the broadest and includes all labor who have had one or more years of post-secondary education (i.e., vocational/technical or higher education). The second definition limits the first group to those who report that they are working in either a managerial or professional occupation. The third definition, which is the narrowest, is limited to those with one or more years of higher education who are working in either a managerial or professional occupation. Projections of skilled labor using these three alternative definitions indicate that the percentage of highly skilled labor in 2025 would be 24.0 percent, 11.5 percent and 5.97 percent of the total labor supply respectively. However, it is felt that the broadest definition of highly skilled labor is too generous, given the current uneven quality of post-secondary education in Lao PDR. The projections using the two more restricted definitions are considered to be more realistic measures of the quantity of highly skilled labor. The estimates suggest, therefore, that the proportion of the highly skilled workforce in 2025 is more likely to be between 6-12 percent. A rough comparison between the projected share of highly-skilled workers in 2025 and the current situation in OECD countries or other Southeast Asian countries suggests that the projected proportion of high-skilled workforce in Lao PDR (even using the least restrictive definition) is still very low. According to the results from the survey of adult skills, conducted by OECD between 2011 and 2012, about 79.8 percent of adults in OECD countries can perform simple mathematical calculations and interpret relatively simple data and statistics in texts. Almost half (46.8 percent) can perform tasks involving several steps of problem-solving and can also interpret and perform basic analyses of data and statistics in text, tables and graphs. In the case Southeast Asian countries, data from the World Bank suggest that the percentage of the workforce with tertiary education in Singapore, Malaysia and Thailand were 29.4, 24.4, and 17.1 percent in 2012 respectively. The comparable percentage for Lao PDR is no more than 13 percent.1 1 Using LECS data, the proportion of workforce with at least 1 year of tertiary education (including technical/vocational education and university/institute) was estimated to be around 13.3 percent in 2013. However, if only those who complete the tertiary degree are counted, the proportion would be less than 13.3 percent. 5 Despite the lack of high-skilled workforce, the prospect of catching up with neighboring countries can be possible. Our projection (i.e. scenario 1) shows that from 2013 onward, about 24 percent of the workforce will have some tertiary education by 2025. This 24 percent breaks down into 14 percent for vocational/technical education and 10 percent for college/institute education. However, evidence from the LECS data suggests that, in 2013, only about 4-5 percent of workers with tertiary education are assigned to high-skilled occupations. The rest actually work in occupations which do not require high skills. Given such a big room for improvement, promoting quality and increasing graduation rate at the tertiary level would be a more practical solution than expanding coverage. A computable general equilibrium (CGE) model linking the economies of Thailand and Lao PDR is used in the study to project the demand for skilled and unskilled labor in the two countries. In developing such a regional economic model, the study fills the gap in the projection model developed by the World Bank for the 2014 Lao Development Report by adding a foreign labor module to (i) project the migration of domestic unskilled labor from Lao PDR to Thailand which responds to the differences in the projected wages of unskilled labor between the two countries, and to (ii) project the supply and demand for foreign skilled labor in Lao PDR, again in response to skilled wage differentials between Thailand and Lao PDR. The model also disaggregates the economy into sectors. The simulation results from the regional migration model suggest the significance of the non-agriculture sector as the sector in high demand for highskilled workers in the long run. The extraction sector, the service sector, the utility sector and the manufacturing sectors will maintain positive employment growth during 2013-2025. The employment of the high-skilled labor in the extraction, service, utility, and manufacturing sectors is expected to grow by 70%, 112%, 86%, and 102% respectively from 2013 to 2025. In the extraction and utility sectors, the employment of the high-skilled migrant workers is projected to increase, implying that the domestic high-skilled workers will not be sufficient to serve the future need in these sectors. Consequently, significant numbers of migrant workers will need to be imported to fill the gap. The employment of high-skilled workers will certainly be a key factor, enabling sustainable economic growth in the long run. Therefore, it is important for Lao PDR to develop more local skilled labor. The Lao PDR government should support the education system, particularly at the university and technical education levels, to produce more high-skilled graduates in order to serve the rapidly increasing domestic demand. In addition, the employment of the high-skilled foreign workers should be encouraged to help serving the increasing demand. Barriers on the employment of high-skilled immigrants should be removed to facilitate more employment. 6 I. INTRODUCTION The Asian Development Bank (ADB) is currently providing policy and advisory technical assistance (PATA) to the Ministry of Education and Sports (MOES) to support the preparation of a revised human resource development (HRD) strategy, including the required analytical work.2 HRD is a top priority for socioeconomic development as reflected in government policy and plans. In this regard, the government is planning to prepare an up-to-date and evidence-based HRD strategy to help meet national development priorities that include reducing poverty, accelerating the achievement of Millennium Development Goal targets, and moving out of least-developed country status by 2020. One of the eight ongoing World Bank-supported HRD studies provides forecasts of Lao PDR’s aggregate supply and demand for labor by completed education levels.3 Preliminary forecasts were presented at the World Bank’s Third Learning Forum in Vientiane (June 12-13, 2013).4 However, there are areas in which the current version of the model might need further development to better aid policy decision-making. Specifically, the current model forecasts the aggregate demand and supply of domestic labor while neglecting the large outflows of unskilled labor (mostly to Thailand) and the smaller, but critically important inflows of foreign skilled labor. This research project5 aims to fill the gap in the previous model by 1) project the migration of domestic unskilled labor from Lao PDR to Thailand which responds to the differences in the projected wages of unskilled labor between the two countries, and 2) project the employment of foreign skilled labor in Lao PDR, again in response to skilled wage differentials between Thailand and Lao PDR. All projections are at sectoral levels. In addition to developing the new forecasting model, enterprise surveys are conducted in both Lao PDR and Thailand to collect quantitative and/or qualitative data on the roles that foreign skilled labor and foreign-trained skilled domestic labor 2 ADB, Technical Assistance Report “Lao People’s Democratic Republic: Support for the Human Resource Development Strategy.” Policy and Advisory Technical Assistance (PATA), Project Number 46068 (December 2012). 3 There are currently no reliable data on labor qualifications or skills in Lao PDR apart from educational attainment and occupation. For an example of an effort to forecast the supply and demand of labor by education, occupation and skill level in the European region, see European Centre for the Development of Vocational Training (CEDEFOP). 2010. Skills supply and demand in Europe: Medium-term forecast up to 2020. Luxembourg. 4 The World Bank has been holding a series of consultations with the government and development partners to present preliminary findings of the eight studies for discussion as part of an effort to lay the groundwork for revision of the HRD strategy. The eight studies are: (i) STEP Skills Measurement Household Survey; (ii) STEP Skills Employer Survey; (iii) TVET Graduates Tracer Survey; (iv) Education Institutions Survey; (v) SABER Education Policies Survey; (vi) Labor Market Transformations Study; (vii) Labor Market Regulations Study; and (viii) Skills Forecasting Study. 5 The research team consists of Jirawat Panpiemras, Suwanna Tulyawasinphong, Yongyuth Chalamwong, Srawooth Paitoonpong, Devina Pandey, and Khanittha Hongprayoon from Thailand Development Research Institute Foundation (TDRI); Nattapong Puttanapong and Wanwiphang Manachotphong from Economics Department, Thammasart University, Thailand; and Sthabandith Insisienmay, Vanxay Sayavong, and Soulaxay Bounthideth from National Economic Research Institute (NERI), Lao PDR. 7 play in enterprises in the non-agriculture sector; the relative wage rates paid to foreign and foreign-trained skilled labor as compared to domestically-trained skilled labor; and the extent to which domestic labor can substitute for foreign labor. Another purpose of conducting the survey is to identify possible lessons for the developing Lao economy. The structure of the report is as follows—Chapter 2 provides an overview of labor supply and employment of foreign and domestic labor in Lao PDR. Related law and regulations on employment of foreign labor and current labor market challenges are also briefly introduced. An overview for Thailand’s case is provided in Chapter 3. Chapter 4 and 5 explains the survey samples and presents the important findings of the employer survey in Lao PDR and Thailand. Chapter 6 explains the projection procedure and provides projected labor force by skill group in Lao PDR. In Chapter 7, we develop the regional migration model and present the projected employment of local and foreign workers in Lao PDR and the employment of Lao workers in Thailand, the most important destination of Lao workers. Chapter 8 is a conclusion. 9 II. AN OVERVIEW OF THE LABOR MARKET IN LAO PDR A. Labor Supply and Employment of Lao Nationals Table A1 provides information on the population and the labor force in Lao PDR calculated from the 1995 and 2005 Population Censuses and the Labor Force Survey 2012. While the population had increased from 3.5 million in 1985 to 5.8 million in 2010, the ratio of the working age population to the total population had increased from 60.55% in 2005 to 66.8% in 2010, demonstrating that more young population had turned into working age population. In 2010, the estimated labor force was 3.08 million persons. The labor force participation rate and employment rate in 2010 was around 79% and just above 98% respectively, which are roughly the same as the rates 5 and 15 years ago. Table A1: Population and Labor Force 1995 2005 2010 Total population 4,574,848 5,621,982 5,818,447 Working age population 2,551,195 3,404,043 3,886,618 55.77% 60.55% 66.80% 2,074,785 2,640,064 3,079,852 81.33% 77.56% 79.24% 2,035,667 2,606,471 3,021,212 98.11% 98.73% 98.10% 39,118 33,593 58,640 1.89% 1.27% 1.90% Labor force Employment Unemployment Note: The working age population was classified differently in different census years. It was from 15 years old and above for the 2010 Labor Force Survey. Therefore, for the sake of comparison, the working age population for male and female in 1985, 1995 and 2005 census was adjusted from 10 years old and above to 15 years old and above. The labour force defined here are people in the working ages of 15 and above who are not students and people with household duties and retired/sick/old people regarded as economically inactive population. Source: Data for 1985, 1995, 2005 from Population Census; for 2010 from Labor Force Survey 2010. According to the National Human Development Report (NHDR) 2006, around 10% of labor force out-migrated to work in neighboring countries, particularly Thailand. The recent news from the Thai media, the Nation6, reported that more than 150,000 illegal Lao migrant workers were registered into the system in 2014, but a very large number of Lao people are still working illegally in Thailand. Also, there are Lao workers who cross the border to work on a daily basis in bordering cities such as 6 http://www.nationmultimedia.com/business/Meet-held-on-Lao-migrant-workers-30242632.html 10 Nong Khai, Udonthani, and Mukdahan. However, there is no official record or estimate of the magnitude of these cross-border workers. The Lao migrants are mainly lowly educated workers from rural areas, aged between 16 to 24 years old. Based on the ILO/LBS survey in 2005, around 56.3% of all migrants did not finish primary schools; about 26% finished primary education; and only 9% finished lower secondary school. The Lao migrants work as housemaids and in various sectors such as construction, agriculture, fishery, food processing, garment, and hotel and restaurants. Figure A1 presents labor force participation rates for male and female calculated from the Labor Force Survey 2010. The male labor force participation rate is relatively higher than that of females throughout their working life. After 49 years of age, the participation rate for females starts to decline at a faster rate as compared to that of males. This pattern probably reflects the differences between males and females in terms of lifestyle and work culture. Figure A1: Labor Force Participation Rate 100 90 80 70 60 50 40 30 20 10 15-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-69 0- 4 Male 5 Female Source: author’s calculation based on Labor Force Survey 2010 Figure A2 demonstrates the differences in age structure of the Lao population in 2000, 2010, and 2020 (forecasted structure). The proportion of the male population has been slightly higher than that of the female population (never higher than 4 percentage points), and the male proportion is expected to remain higher in 2020. The change at the base of the pyramid reflects the change in the number of new comers into the labor force. Due to a continuously declining birth rate, it is clear from Figure A2 that the age groups of 0-4 and 5-9 constitute for a small number of the population in 2010 as compared to the number in the year 2000. However, based on the projected age structure in 2020, the declining trend of the birth rate seems to 11 have been halted, and the new cohort of 0-4 age group will be as large as the previous cohort, helping sustain the future labor force. Figure A2: Population Pyramid 2000, 2010, and 2020 Source: Lao Statistics Bureau (LSB) and National Economic Research Institute (NERI) Based on the population census, in 2005, around 73% of total the population lived in rural areas, which is a significant decrease from 83% in 1995. The 2005 census indicates that more than 100,000 people had moved between provinces, most of them young persons. A large proportion of the rural population had moved to cities, particularly the Vientiane capital and cities in the central region which are regarded as major urban areas with more vibrant business activities. At the regional level, evidence of the movement of people between regions can be observed from various rounds of the Lao Expenditure and Consumption Survey. Using the LECS 3 (2003 data), 4 (2008 data), and 5 (2013 data), we calculate population shares (% of total population) of various regions in Lao PDR, namely Northern7, Central8, Southern region9 and the capital city of Vientiane and present them in Figure A3. There seems to be a movement of the population from the northern region to other regions, especially to the southern region. Strictly speaking, Figure A3 depicts net outmigration in the northern region and net immigration in the southern region. The share of population in the southern region has increased from 20.10% in 2003 to 23.23% in 2013, while the share of the northern region has decline from 32.3% in 2003 to 29.85% in 2013. 7 Provinces in the northern region are Phongsaly, Luangnamtha, Oudomxay, Borkeo, Luangprabang, Huaphanh and Xayaboury. 8 Provinces in the central region are Xiengkhuang, Vientiane province, Vientiane Capital, Borikhamxay, Khammuane, Savannakhet, and Xaysomboon. 9 Provinces in the southern region are Saravane, Sekong, Champasack, and Attapeu. 12 Figure A3: Population Share by Region (% of total population) Source: author’s calculation based on LECS III, IV and V Figure A4 shows the population share by educational attainment for 4 age groups during 2000 to 2013. For all the age groups except 15-24, the population with primary education has the largest share. For the youngest group (15-24 years), the population with lower secondary has been the largest group throughout 2000-2013. This reflects that the young generation has better access to basic education as compared to older generations. It is also encouraging to observe that for the age groups 15-24 and 25-34 years, the share of the population with college and vocational education has increased steadily. If the trend in schooling attainment continues, the future young generation of Lao workers will be much more educated than the current generations. In terms of schooling enrolment, Lao PDR has made a steady progress in increasing the enrolment rate, especially in the primary level. Table A2 shows the enrolment rates in various levels of basic education (as % of population in relevant age groups) during 1992 to 2012. In general, the enrolment rates have been on an increasing trend. The enrolment rate of primary level reached 95.2% in 2012, which was a substantial increase from 58.8% in 1992. For the lower secondary level, the enrolment rate had increased from 28.9% in 1992 to 64.4% in 2012. The enrolment rate of the upper secondary level had risen from 11% in 1992 to 36.8% in 2012 and then dropped slightly to 34.7% 2012. Although the enrolment ratio has been increasing, there is a concern that a large proportion (30%) of children had not continued their study to upper secondary level, which might negatively affect the overall education level of the future population (Lao Gov&UN, 2013). 13 Figure A4: Educational Attainment of Work Force by Age Group Source: author’s calculation based on LECS III, IV, and V Table A2: Enrolment Rate in Basic Education Level (% of population in relevant age group) 1992 1995 2000 2005 2012 Primary education 58.8 65.2 77.3 84 95.2 Lower secondary education 28.9 39.3 53.3 62.7 64.7 Upper secondary education 11 17.4 34.6 36.8 34.7 Note: The enrolment rate for primary education is net enrolment. Enrolment rates for lower and upper education are gross enrolment. Source: Gov&UN 2013 14 Figure A5 shows the share of the gross domestic product by sector from 2000 to 2013. The agriculture sector used to be the sector with the highest share of GDP until the service sector took the top position in 2004. The GDP share of the nonresource sector was relatively small but showed an increasing trend. In contrast to the economic structure, employment in agricultural sector, even though it was on a decreasing trend, still dominates with the highest share. Employment by sector can be estimated by using the data from the 3rd, the 4th and the 5th Lao Expenditure and Consumption Survey (LECS) conducted in 2003, 2008 and 2013 respectively. It is unfortunate that the sectors included in the older surveys (LECS1 and 2) are different from the sectors included in the more recent surveys; therefore making a comparison is impossible. Table A3 shows employment by sector in 2003, 2008 and 2013. From the table, it can be seen that the nonresource sector’s employment shares in three years, including agriculture, was more than 99% of the total employment. Despite a significant drop in the non-resource sector’s share of the GDP, the employment share only decreased slightly from 99.8% to 99.5% and 99.4%. The agriculture sector has been dominating, holding the highest position in the employment share (more than 70% of the total employment). However, its GDP share was small, clearly reflecting low labor productivity in the sector. Unsurprisingly, the mining and electricity sectors had not been a laborintensive sector, even though a small increase in their employment shares were observed. Furthermore, the non-tradable sector, including construction, service and the public sector saw a small rise in their employment share. Figure A5: Share of Lao PDR’s Gross Domestic Product by Sector Source: author’s calculation based on data from the Lao Statistics Bureau (December, 2014) Almost half of the workers in the non-agriculture sector are still engaged in low-skilled occupations. Table A4 provides information on the distribution of workers in the non-agricultural sector (public, private, and overall) by occupation, calculated from the Labor Force Survey in 2010 and LECS5 in 2013. Estimates from the surveys suggest that elementary, craft and trades, and plant operators or assemblers, which require low-skilled labor, account for almost 50% of the workers in 15 the non-agriculture sector (most of them are in the private sector). High-skilled occupations such as managers and professionals account for only 22% and 27% in 2010 and 2013 respectively. Recent results from the 2012 Lao enterprise survey (STEP) also support the previous findings. In 2011, employment of the same lowskilled occupations accounted for roughly 57% of the total workers. In addition, the share of workers engaged in high-skilled occupations was smaller in the manufacturing sector than that of the services sector, about 10% compared to 27%. Table A3: Employment by Sector (%) Items 2003 2008 Resource 2013 0.3 0.5 0.6 Mining and quarrying 0.1 0.2 0.3 Electricity and water supply 0.1 0.3 0.3 99.7 79.0 99.5 76.1 99.4 73.2 6.2 7.7 7.0 72.8 20.7 68.5 23.4 66.1 26.2 3.0 3.5 3.7 14.0 17.1 19.3 3.7 2.8 3.2 Non-Resource Tradable Manufacturing Agriculture, forestry and fishing Non-Tradable Construction Services Public admin & defence Source: author’s calculation based on LECS 3, 4, and 5 Interestingly, the distribution of high-skilled occupations across private and government sectors changed rapidly during the three year period. Government sector clearly employs higher share of the high-skilled (65% compared to 17% in private sector in 2013). However, the share in private sector doubles from 2010 to 2013. Table A4: Share of Workers in Non-Agriculture Sector by Occupation Occupation 2010 2013 Gov. Private total Gov. Private Total Armed forces 3.25 0.01 3.26 1.87 0.10 1.97 Manager 3.11 2.42 5.53 1.39 10.46 11.84 Professional 13.63 3.33 16.96 12.60 2.54 15.14 Technician 2.37 2.03 4.41 2.10 2.24 4.34 Clerical 1.20 1.16 2.36 1.29 1.12 2.42 Sales 2.11 17.14 19.25 1.82 12.70 14.52 Craft & related trade 0.23 11.24 11.48 0.03 14.60 14.63 Plant operator 0.26 8.88 9.15 0.22 9.16 9.37 Elementary 0.17 27.45 27.62 0.12 25.64 25.76 Total 26.33 73.67 100.00 21.44 78.56 100.00 Source: author’s calculation based on Labor Force Survey 2010 and LECS 5 16 Figure A6 shows the employment share by sector and education level obtained from LECS3 (2003), LECS4 (2008), and LECS5 (2013). Although all the sectors employ all types of workers ranging from no education to highly-educated workers, the educational composition of workers varies across sectors. For instance, the agricultural sector employs the largest share of lowly educated workers whereas the electricity, mining and service sectors require relatively high-skilled workers, therefore employing a higher share of vocational and college workers as compared to other sectors. From 2003 to 2013, the share of no education and primary education workers clearly showed a declining trend in the agriculture, manufacturing, and service sectors. It seems that the drop in the share of lowly educated workers (no education (NS) and primary education (PR) workers) in the service sector had been largely offset by an unceasing increase in the share of workers with a high level of education (technical and vocational training (TVET) and college (CO)), while the drop in the agriculture and manufacturing sectors had been predominantly offset by high school (HS) workers. Figure A6: Sectoral Employment Share by Education Level (% of sectoral employment) 100 90 80 70 60 50 40 30 20 10 0 22 26 29 34 43 45 33 48 42 21 41 41 38 27 23 4 6 40 40 30 23 20 4 agriculture 47 41 48 32 24 41 40 22 31 47 8 8 mining and electricity NS 35 10 manufacturing PR HS TVET 36 16 38 8 43 8 construction 30 9 services CO Source: author’s calculation based on data from LECS III, IV, and V According to the World Bank (2013a), the demand for workers, both skilled and unskilled, has been rising in all economic sectors. The total employment in manufacturing and service sectors is expected to grow rapidly at 13.8 percent from 2012 to 2013, compared to 8.1 percent growth from 2011 to 2012. When looking at the demand for particular occupations, craft and elementary workers is be expected in relatively higher demand, compared to other occupations. Employers also express their interested to hire more professionals, technicians and managers between 2012 17 and 2013 (World Bank, 2013a). Therefore, there is a need for skilled labor in the near future. The findings also shed lights on the importance of foreign educated Lao workers who currently study abroad in various fields of study. When graduating and returning to Lao PDR, they would definitely contribute to the pool of skilled labor force to help serve the need. Regarding the number of foreign educated nationals, registered data could be obtained from Ministry of Education and Sport (MOES). Table A5 provides the number of Lao tertiary level students studying overseas by destination from 2010 to 2013, and Table A6 presents the number of overseas graduates by field of study. In 2013, there were 5,470 students studying overseas, increasing from 4,363 students in 2010. Of those students, about 50% were pursuing a bachelor degree, 21.5% going for master level, 15% for diploma level, 3.56% for doctoral level and 9.9% for short-term training. The most popular destination for Lao students is Vietnam, followed by China, Japan, Australia, and Thailand respectively. In 2013, there were 1,391 Lao students graduating from abroad in 2013, increasing from 912 students in 2010. Among the graduates, economics and business are the most popular fields of study (27.5% of the graduates study the two fields), followed by medical, engineering, law, international relations and politics, agriculture, and IT, communication, and computer. Table A5: Number of Lao Tertiary Level Students Studying Overseas by Destination (MOES) Country 2010 2011 2012 2013 Viet Nam 2,038 2,317 3,000 3,773 China 689 446 502 723 Thailand 640 339 215 88 50 26 33 38 Japan 407 326 322 322 Australia 165 157 173 195 France 11 19 22 27 South Korea 38 61 59 70 USA 18 7 1 2 New Zealand 27 8 20 41 Germany 11 11 11 12 1 6 7 6 Other 268 149 133 173 Total 4,363 3,872 4,498 5,470 Cambodia United Kingdom Source: Department of Student Affairs, Ministry of Education and Sport (MOES), Lao PDR 18 Besides the information from MOES, information regarding the number of Lao tertiary level students studying overseas can be found in the UNESCO database (as shown in Table A7). The total number of Lao tertiary level students studying abroad from the two sources is different. In fact, the data from both sources are likely to be underestimated. The MOES data are likely to be incomplete because they may not include students who have studied abroad but do not report to the MOES, whereas the UNESCO data are only estimates. Table A6: Number of Lao Tertiary Level Students Graduating from Overseas by Field of Study (MOES) Subject 2010 2011 2012 2013 60 60 79 88 Business, market and finance 121 119 161 192 Economics and Development 115 134 147 191 Engineering and other science 143 150 155 156 Environmental Sciences 30 39 50 46 IT, communication and computer science 52 54 63 77 Law, international relation and politics 79 136 106 152 Letters 33 81 76 53 Medical 72 109 104 162 160 159 285 214 47 89 22 60 912 1,130 1,248 1,391 Agricultural Other social science Pedagogy Total Note: Other social sciences include ecology, psychology, arts, sport management, social science, public management, human resource management, sociology, journalism, public administrative sciences, and teacher education. Source: Department of Student Affairs, Ministry of Education and Sport (MOES), Lao PDR By observing the UNESCO data in Table A7, it appears that the numbers from the UNESCO dataset are likely to include the unreported students in Thailand, but are also likely to underestimate or even exclude the students studying in other important destinations, especially Vietnam, China, and Japan. For example, in 2012, the MOE recorded 215 students studying in Thailand, while UNESCO reported as high as 1344 students. The UNESCO database has no record of Lao students studying in China (may have been included in “others”), which is the second most popular destination for Lao students according to the MOES data. Although it is possible that the number of Lao students in China may be included in the “others” category, the number is still much lower than what it should be. 19 Table A7: Number of Lao Tertiary Level Students Studying Overseas by Destination (UNESCO) Country Viet Nam Thailand Japan Australia France South Korea USA New Zealand Germany United Kingdom Others Total 1999 2001 2003 2005 2006 2007 2008 2009 2010 2011 2012 233 301 64 145 663 4 90 370 79 90 129 214 1 83 700 141 173 125 183 9 108 1477 229 255 111 151 15 66 1859 436 256 125 137 24 67 2280 493 257 162 132 37 46 2465 664 251 162 104 35 69 2125 1301 264 167 117 33 79 1809 1254 275 163 102 47 63 1954 1311 268 170 112 57 48 2241 1344 246 180 106 63 42 2 1 2 1 1 19 26 29 32 28 31 46 20 18 10 3 6 9 3 9 7 11 8 9 4 11 11 8 7 8 12 8 11 73 1629 107 1103 105 1568 48 2374 89 3008 49 3489 92 3884 150 4276 111 3877 183 4146 94 4369 Source: UNESCO, http://www.uis.unesco.org. Accessed on 13 May 2014 B. Employment of Foreign Nationals in Lao PDR During the past two decades, foreign labors have been playing an increasingly important role in various economic sectors. The only available official estimates of the stock of foreign workers in Lao PDR could be found from the Economic Census 2006 and 201210. Table B1 shows information on the employment of foreign labor in Lao PDR in 2006 and 2012. There were 26,725 foreign workers including temporary workers in 2012 increased from 13,578 in 2006. More than half of the workers are mainly working in three sectors: wholesale and retail trade, manufacturing, and construction sectors. Nevertheless, the official figures might underestimate stock of foreign workers. This is because the economic census did not include self-employed foreign workers, some enterprises in remote area difficult for access and foreign workers not registered for work permit. The more recent but unofficial estimated number of foreign workers, reported by the International Organization for Migration (IOM), is approximately 200,000 persons in 201011. Figure B1 depicts the number of registered foreign workers from 1996-2012. Although the number is a flow not a stock, it can still suggest that the employment of foreign workers has been on increasing trend, especially after 2007 when there was a surge in foreign direct investment in mining and hydropower 10 Lao Economic Census 2012 is the preliminary result disseminated by National Statistic Bureau in September 2014. 11 The figures are taken from the International Organization for Migration (IOM), available at http://www.iom.int/cms/en/sites/iom/home/where-we-work/asia-and-the-pacific/lao-pdr.html#rm. Last access 25 May 2014. 20 sectors. Given the scale of registered foreign workers during 2007-2010, the unofficially estimated stock of foreign workers in 2010 is quite questionable. Table B1: Total Employment by Sector in 2006 and 2012 Lao labor Sectors Foreign labor Foreign labor share (% of total labor) 2006 2012 2006 2012 2006 2012 Agriculture, forestry and fishing 19,675 20,031 602 1,424 Total 2.97 Permanent 2.72 Total 6.64 Permanent 6.02 Mining and quarrying 7,101 6,806 607 2,101 7.87 7.30 23.59 19.82 Manufacturing Electricity, gas, steam and air conditioning supply Water supply; sewerage, waste management and remediation activities Construction Wholesale and retail trade; repair of motor vehicles and motorcycles Transportation and storage Accommodation and food service activities Other service activities 102,051 94,016 3,183 4,702 3.02 2.27 4.76 4.28 3,094 4,961 73 201 2.31 0.19 3.89 3.31 1,699 2,682 125 20 6.85 6.36 0.74 0.74 10,013 14,180 2,483 988 19.87 14.40 6.51 4.25 130,469 136,592 4,971 10,475 3.67 3.52 7.12 6.98 10,678 11,448 63 134 0.59 0.57 1.16 1.16 17,207 42,414 572 1,822 3.22 2.87 4.12 3.95 29,573 51,377 899 4,858 2.95 2.62 8.64 8.43 Total 31,560 384,507 13,578 26,725 3.93 3.35 6.50 6.08 Note: Lao Economic Census 2012 is the preliminary result disseminated in September 2014. Source: Lao Economic Census 2006 and 2012. Figure B1: Registered Foreign Workers (thousand persons) Source: Ministry of Labor and Social Welfare Table B2 presents the number of foreign workers by occupation and sector, estimated from the World Bank’s 2012 Enterprise Survey (STEP). Generally, foreign workers were mostly employed in skilled positions i.e. manager, professional, and technician. In manufacturing and other service sectors, foreign workers were 21 engaged in all listed positions. However, the largest share of them worked in management, professional, and technician positions, while only few of them were employed for unskilled works. The World Bank’s finding is in line with the result from the ADB report on labor market assessment survey conducted in early 2010 (Asian Development Bank, 2010). 12 That is foreign workers were generally employed in management and skilled positions, while less than 9% of them were employed for unskilled works. Table B2: Foreign Workers in Lao PDR by Occupation and Sector in 2012 Manufacturing Occupation Number of workers Retail Foreign share (%) Number of workers Other Service Foreign share (%) Number of workers Foreign share (%) Manager 225 19.6 69 2.9 549 12.4 Professional 178 21.3 6 16.7 1,047 10.6 Technician 210 8.1 9 - 873 15.0 Clerical 315 1.0 42 - 817 6.5 Service 187 2.7 7 - 2,974 11.4 Sales Craft and trade Plant and machine 119 0.8 121 2.5 245 3.3 5,187 2.8 32 - 649 1.4 438 4.8 70 - 725 2.1 Elementary 1,853 4.1 71 - 3,151 1.7 Total 8,712 4.0 427 1.4 11,030 7.2 Source: World Bank, Enterprise Survey 2012 The 2010 ADB report also points out that the majority of foreign workers come from Thailand, accounting for 39% of the total foreign workers; 23% are from Vietnam, 12% are China; and 26% are from unspecified countries. Geographical characteristics of provinces also explain the pattern of foreign workers employed. The foreign workers working with the surveyed enterprises in Savannakhet and Champasack are mainly from Thailand; those working in Khammaune are mainly from Vietnam; those working in Luangnamtha are mainly Chinese; and the enterprises in Luangprabang, where tourism is its major industry, employ foreign workers mostly from unspecified countries. An interesting aspect of the ADB’s survey is that it collects the data on the cost of employing both foreign and Laotian skilled workers. Table B3 presents relative costs of employing local skilled workers to foreign skilled workers. Almost 90% of the surveyed enterprises say that the costs of employing a foreign worker are higher than the costs of employing a Lao skilled worker. 30% of those firms express that they pay the skilled foreigners more than double of what they pay the skilled 12 The survey was carried out through the ADB Project Preparatory Technical Assistance (PPTA) (TA 7299-Lao) in conjunction with the Ministry of Education and the Ministry of Labor and Social Welfare. The survey covers 817 economic units in different sectors with more than 60,000 workers, representing approximately 20% of the total registered labor force. 22 local.13 In addition, the ADB report also provides the reasons why the surveyed enterprises employed skilled foreigners. The most common reason is that the foreign labors are more productive and more qualified than the local labors. 14 Table B3: Relative Costs of Employing Laotian Skilled Workers to Foreign Skilled Workers Province -50% to -21% n % -20% to -1% n same 1% to 20% % n % n % 21% to 50% n % 51% to 100% n % Over 100% n % Vientiane Cap. 2 2 2 2 7 6 8 7 36 31 24 21 38 32 LuangNamtha 0 0 0 0 0 0 0 0 2 29 3 43 2 29 LuangPharabang 0 0 0 0 0 0 1 13 2 25 1 13 4 50 Vientiane Prov. 0 0 0 0 2 17 1 8 3 25 3 25 3 25 Khammuane 0 0 0 0 4 24 0 0 1 6 4 24 8 47 Savannakhet 0 0 0 0 2 13 2 13 2 13 7 47 2 13 Champasack 0 0 0 0 1 14 3 43 1 14 2 29 0 0 Attapeu 0 0 1 0 1 50 0 0 0 0 0 0 0 0 Total 2 1.1 3 1.6 17 9.2 15 8.1 47 25.4 44 23.8 57 30.8 Source: Asian Development Bank (2010) C. Related Laws and Regulations on Foreign Labor Employment This section describes the existing regulations and laws regarding to foreign labor employment in Lao PDR. Basically, the regulation on foreign labor is mainly stated in the Decree No. 5418/MLSW by Ministry of Labor and Social Welfare. The law is very comprehensive, covering important aspects, for example, from the recruiting process, the role of the organizations in charge of working permission and management, and some other policies related to the employment of foreign labor. Article 18 of the law indicates that foreign labors are permitted to work in Laos for 2 years, and if permitted can work for another 2 years. Thus, the maximum working period is 4 continuous years, thereafter, foreign labors are not allowed to work in Laos for at least 2 years. After the 2 year period, the foreign labors will become eligible to apply for another working permit. Article 7, which is another substantial article regarding the policy on foreign labor, states that employment agencies, business units, or investment projects are allowed to import unskilled foreign labors no more than 10 per cent of the total employment and are allowed to import skilled foreign labor no more than 20 per cent of the total employment. Nevertheless, Article 66 of the Investment Promotion law grants the promoted firms an exemption to the 13 This finding is based on the surveyed question comparing the cost of foreign skilled workers with Laotian workers. This needs to be treated with caution as there were only 23% of the surveyed economic entities responded to this question which are unlikely to be a representative sample of all those surveyed. 14 The reasons that foreign workers are more productive and more qualified are provided by 113 and 112 of 376 surveyed enterprises respectively. Other reasons include: more accurate in their work (with 41 respondents), more reliable in relation to working hours (23 respondents), cheaper than Lao workers (5 respondents), and other reasons (82 respondents). 23 limit imposed by the foreign employment law, allowing the firms to recruit foreign labor beyond the limit if necessary and upon approval from the Ministry of Planning and Investment and the Ministry of Labor and Social Welfare. Skill and technology transfer from foreign labor to domestic labor during the employment contract is strongly encouraged by the Labor Law and the Investment Promotion Law, with the objective being to promote substitutions between domestic and foreign labor. According to the Labor Law, employers are obligated to train and upgrade the professional qualifications and skills of workers and pay the minimum salary as announced and updated by the Lao government. Employers and employees are required to have contracts between them, and to have working rules, stipulating rights and obligations of each party relating to hours of work, time counted as work, overtime, holidays, and other working conditions. Furthermore, for the enterprises in Lao PDR that employ 10 or more employees, they must register to the Social Security Office and make contributions to the Social Security Fund. The employers must contribute the amount equal to 5 percent of gross salary, while the employee must contribute 4.5 percent per month of gross salary, with a minimum contribution of LAK 1,500,000. Decree No. 5418/MLSW also specifies the procedure of importing foreign labors and regulations on fees, fines, and other punishments. In principle, the process of importing foreign labors needs to be done through three government organizations: the Ministry of Labor and Social Welfare, the Ministry of Interior, and Ministry of Foreign Affairs. Initially, business units or investment projects that want to import foreign labors need to submit a proposal, requesting for a permission to import, along with relevant documents to the Department of Skilled Labor Development and Recruitment, the Ministry of Labor and Social Welfare. Listing of foreign labors will be checked and monitored by Ministry of Interior for security reasons. Then, a Visa may be issued through the Lao embassy in the foreigner’s country of residence or otherwise in the nearby countries where Lao embassy is located. Finally, the foreign labor may be registered and receive a working permit from the Ministry of Labor and Social Welfare. D. Problems and Challenges The most common problems concerning the Lao labor market is the limited availability and low productivity of Lao labors. At the annual government forum, held in September 2013, the Minister of Labor and Social Welfare expressed the concern on labor shortage of about 90,000 persons from 2011 to 2015 15. At the sector level, some sectors are already facing the shortage. According to the Lao Garment Association, the garment industry is now dealing with not only a shortage of skilled labors but also unskilled labors (Lao Garment Association, 2013). 15 Lao News Agency Online (September 2013). http://www.kpl.net.la/lao/record/2013/September/19.09.2013/dnl%203.htm. 24 The shortage of labor is connected to complex issues of out-migration to neighboring countries, high turn-over rate and skill needed by the industry. World Bank (2013b) suggests that Laos has the largest negative net migration compared to other Asian countries (Figure D1). The net deficit accounts for about 5.3% of its population in 2010. Based on the STEP survey in 2012, the majority of the Lao outmigrants go to work in Thailand (83.13% of all surveyed out-migrants), followed by Vietnam (12.84%). Estimates from unofficial sources suggest that the number of Lao migrants working in Thailand vary from 100,000 to 300,000 annually. The main reason for the high rate of out-migrants is to seek job opportunities with higher wage and skills development (NHDR 2009, p. 158). Moreover, better job information and social network also contributed to attracting sizable number of Lao workers to work in Thailand rather than in domestic industry. According to NHDR (2006), most of Lao migrant workers work in industrial and service sector such as construction, food processing, garment, hotels and restaurants. This implies that agricultural labor could adjust to structural economic change even though it could not be well observed within the boundary of domestic industry. By adding the migrant number to those working domestically in industrial sector, it could be about enough to fill the labor demand gap. High turn-over rate is another key factor contributing to the availability of labor supply. According to NHDR (2006, p. 56), the turn-over rate in garment industry as an example is as high as 35 per cent of total workers per month. Such high turn-over rate could be explained by poor working conditions and low wage in the industry. As a result, workers search for job opportunities in other sector such as service sector (i.e. hotels, restaurants and entertainment) with relatively higher or similar wage expecting better working condition or to seek for new challenges. There are a few workers moving out for establishing their own small business or returning to their original hometown. Figure D1: Net Migration (% of population) Source: author’s calculation based on data from World Development Report Statistical Annex 2013 25 The labor shortage, both in terms of quantity and quality, makes it very difficult for the Lao government to strictly enforce the regulation controlling the number of imported foreign workers. By the Labor law, the number of skilled and unskilled foreign workers cannot exceed 20% and 10% of total employed workers respectively. However, in reality, the employment of foreign labor often exceeds the limit. 16 Unavailability and lack of quality of Lao workers are regularly used as good reasons by firms to import foreign workers more than the proportion specified in the law. Recognizing the firms’ need, the Ministry of Planning and Investment and the Ministry of Labor and Social Welfare have no choice but allow the firms to do what is necessary. Low productivity and mismatch between the supply and the demand for labor are also prevailing problems in the Lao labor market. Table D1 compares labor productivity between Lao and Thai workers in various sectors. In the manufacturing and agricultural sectors, the Thai workers are 3.6 and 6.5 times more productive than the Laos workers respectively. The mismatch problems are not only in terms of quantity but quality. For instance, the vocational education system fail to produce workers of the quality level that employers satisfy and are willing to properly reward (World Bank, 2013a). The large and growing mismatch between the skills available and those required by the enterprises is partly due to a lack of accurate, consistent, and up to date labor market information, which make it very difficult for relevant authorities to design a vocational and skills training curriculum that best serve the present and future needs in the labor market.17 Table D1: Lao and Thai Worker’s Productivity in 2010 Items Productivity (USD/worker) Thai/Lao (Times) Lao Thai 517 1,875 3.6 Mining and quarrying 17,049 201,279 11.8 Electricity and water supply 14,081 45,433 3.2 Manufacturing Construction 2,324 2,786 15,160 3,106 6.5 1.1 Services 2,333 8,182 3.5 1,167 6,799 5.8 Agriculture, forestry and fishing All sectors Note: Productivity = Real GDP (USD) / Number of employ (person) Source: author’s calculation based on Thai data from Office of the National Economic and Social Development Board (GDP) and National Statistical Office, Ministry of Information and Communication Technology (Labor) and Lao data from Lao Statistic Bureau 16 According to the speech by Minister of Labor and Social Welfare in the annual government forum in 2013. Lao News Agency Online (September 2013). http://www.kpl.net.la/lao/record/2013/September/19.09.2013/dnl%203.htm. 17 Based on the technical report to the 38th ASEAN Confederation of Employer (ACE) CEOS and Board of Directors Meeting on 12 January 2013. 27 III. AN OVERVIEW OF THE LABOR MARKET IN THAILAND A. Population and Labor Force in Thailand Currently, Thailand is in the state of the demographic transition, where the country is enjoying ‘the window of opportunity’- the maximum level of workforce. However, ‘the window of opportunity’ will disappear in a couple of decades, as depicted by the population pyramids in Figure A1. During the past forty years, the demographic structure in Thailand has significantly transformed. The birth rate has significantly dropped partly due to the success of the Third National Economic and Social Development Plan (NESDP) (1972-1976) in reducing the birth rate. Consequently, the growth rate of the working-age population has been starting to decline, and the country has become an aging society. The National Economic and Social Development Board (NESDB) estimates that the dependency rate will increase from 17.6 percent in 2010 to 24.6 percent in 2020, and then to 28.1 percent in 2025. With the limited workforce in the future, Thailand has to focus more on human capital development. Figure A1: Population Pyramids of Thailand 1960-2030 Source: Population in 1960-2000 from the Thailand Population Census. Population in 2010, 2020, and 2030 from World Population Prospects: The 2008 Revision. United Population Division, 2009 (low variant), cited by Impact of The National Economic and Social Development Board (NESDB) and UNFPA (2011), Demographic Change in Thailand Situation and Policy Response. Figure A2 shows numbers of the working age population and workforce from 1985-2013. The working-age population has significantly increased in the past 28 years, from 32.35 million in 1985 to 55.09 million in 2013. Similarly, the workforce has also grown from 26.04 million in 1985 to 39.46 million in 2013. Nonetheless, the growth rate of the working-age population and the labor force has been on a declining trend. 28 Figure A2: Numbers of Working-Age Population and Workforce 1985–2013 Unit: in Thousand S ource: The Labor Force Survey (LFS), the National Statistics Office (NSO) 1. Employment Situation in Thailand Since 1985, the employment rate in Thailand has remained high (more than 95 percent). However, the employment structure has significantly changed during the past four decades, as the country has shifted from an agricultural to an industrial economy. Figure A3 depicts the evolution of the employment by sector from 19852013. Tremendous workers had moved from the agricultural sector to the industrial and service sectors, where they can receive much higher wage. Despite the massive outflows of the workers, the agricultural sector still has the largest employment share, followed by the service and industrial sectors. The employment in the service sector has continuously increased, nearly catching up with the agricultural sector. Most of the employed persons work in the wholesale and retail trade and the hotel and restaurant sectors. Although employment in the industrial sector ranks the lowest, it is the main sector that drives the Thai economy, in terms of the contribution to GDP. In fact, the GDP share of the industrial sector is much higher than the GDP share of the agricultural, but is lower than the share of the service sector. Figure A4 shows labor productivity by sector from 1985-2013. The industrial sector has had the highest labor productivity. The labor productivity in the agricultural sector has continuously increased but at a much slow pace as compared to the industry sector. It is possible that the increased productivity in the agricultural allows the sector to free up labor for non-agricultural employment. However, the rapid increased labor productivity in the industrial sector has played a more important role in attracting labor from the agricultural sector to move to the industrial sector. 29 Figure A3: Employment by Sector 1985–2013 Unit: in Thousand Note: 1. Data before 2001 is using comparing the code - the Classification of Industries based on the International Standard Industrial Classification (ISIC) 1958 – with ISIC Revision 32. Data from 2001–2010 is using the classification ISIC Revision 33. Data from 2011 – 2013 is using the classification of ISIC Revision 4 Source: LFS Figure A4: Labor Productivity by Sector 1985–2013 Unit: in Baht per Person Source: NESDB and LFS 30 As mentioned earlier, the enormous wage differential directly attracts workers to shift from the agricultural sector to the industrial and service sectors. Figure A4 clearly shows that the real wage in the industrial (and service) sectors is more than twice that of the real wage in the agricultural sector. It should be noted that the average wage has dramatically escalated since 2012, when the government announced the new daily minimum wage rate of 300 Baht 18. The new minimum wage directly affected the wage structure in the country, especially that of the private sector. The average real wage in the private sector shifted from 8,311 baht per month in 2011 and increased to 9,247 baht per month in 2012, or approximately 11.26 percent. Considering at the sector level, the private enterprises in the service sector have long been paying the highest average wage, followed by the industrial sector and the agricultural sector. Figure A4: Average Real Wage among Private Employees in the Economic Sector 1985-2013 Source: author’s calculation using LFS Thailand is experiencing a hard time trying to shift from a labor-intensive to a technology-intensive economy. The most important reason is because a majority of the current workforce still has low education. The expansion of compulsory education from six years to nine years has been implemented since 1999, aiming to increase the average year of schooling to 10 years (about 8.7 years at the present). The new compulsory education will obviously benefit younger generations of the labor force, which is expected to play a more important role in future development. Figure A5 shows that the younger age group (15–34) has the smaller proportion of the labor force with primary and lower education and a larger proportion of the labor force with 18 The policy was firstly launched in April 2012. It applies to all sectors except the agricultural sector. 31 tertiary and upper education, which is rarely the case for the older age groups. 19 A significant portion of the older generations who have low education is expected to stay in the labor force for many more years. Undoubtedly, a successful transformation from labor-intensive to technology-intensive will require a skill upgrading of the older generations of the labor force, which is a huge challenge for employers, employees, and policy makers. Figure A5: Educational Attainment of Work Force by Age Group 2001-2013 Source: author’s calculation using LFS 19 The recent rising share of workforce with tertiary and upper education is partly due to the restructuring of Rajabhat Institute and Rajamangala Institute of Technology (technical institutions) to earn university status in 2004. 32 According to the International Standard Classification of Occupation in 2008 (ISCO-08) from the International Labor Organization (ILO), the level of skill can be divided into four levels–from very simple in Level 1 to the most complex in Level 4. Each skill level can be associated with certain occupations. For example, legislators, senior officials, managers, and professionals are associated with Level 4, meaning that those occupations can be classified as the most complexly skilled occupation. Occupations in Level 4 and Level 3 can be considered as high-skilled occupations. Table A1 presents employment by skill level assigned to particular occupations from 2001-2013. In general, the results clearly reflect that most Thai employees engage in low-to-medium skill occupations. The highest proportion of Thai employees (always more than 70 percent) falls into Level 2 occupations, reading information, making written records of work complete, and performing simple arithmetical calculations. In 2013, only 8.73 percent and 3.8 of employees belonged to Level 4 occupations and Level 3 occupations, respectively. The proportion of skill Level 4 had remained above 10 percent of employees from 2001-2007. However, since 2008 (the beginning of subprime crisis) it has declined to 6-8 percent of employees. The same structural break could be seen for skill Level 3. It appears that an increase in tertiary and upper educational attainment has not resulted in a larger proportion of high-skilled occupations. This implies that many tertiary graduates have not been working in high-skilled occupations, which in turn, reflects the low quality of tertiary education in Thailand. 33 Table A1: Employment by Skill-Level Assigned to Particular Occupations 2001–2013 Unit: Percent of total employment Skill Level (Under ISCO08) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4* 10.86 10.77 10.76 10.88 11.13 11.04 10.83 7.74 6.80 7.31 7.45 7.97 8.73 3 3.69 3.61 3.72 3.87 4.09 4.19 4.28 4.14 4.05 3.95 3.35 3.53 3.80 2 72.87 73.54 72.70 72.21 71.81 72.33 72.67 75.75 76.63 76.63 78.18 77.12 76.75 1 12.53 12.03 12.77 12.96 12.84 12.29 12.07 12.28 12.47 12.06 10.85 11.31 10.56 Total Employment Note: 32,104.25 33,060.87 33,841.03 34,728.81 35,257.17 35,685.53 36,249.46 37,016.61 37,706.32 38,037.34 38,464.67 38,941.12 38,906.89 1. Level 4 consists of (1) legislator, senior officials and manager and (2) professionals 2. Level 3 consists of technicians and associate professionals. 3. Level 2 consists of (1) clerks, (2) service workers, shop and market sales workers, (3) agricultural and fishery workers, (4) craftsmen and related trades workers, and (5) plant and machine operators and assemblers. 4. Level 1 consists of elementary occupations. Source: ISCO-08, ILO (2012) and NSO 34 2. Employment of Foreign Nationals in Thailand A successful economic development has changed Thailand into a major destination for international migration (Paitoonpong et al. 2012 and Huguet et al. 2011). Thailand recently hosts more than 2.35 million foreigners. Table A2 provides official figures for the foreigners coming to Thailand in 2012. Approximately seventy percent of the foreigners had come to Thailand to work, while about thirty percent had come for other purposes such as studying and staying with friends and families. In general, foreign workers can be divided into two broad groups: documented and irregular foreign workers. The documented foreign workers refer to persons who legally enter the destination country and have work permit to work in the destination country (see more details on laws and regulation related to the employment of foreigners below). On the contrary, the irregular foreign workers are the workers who illegally enter the destination country, or who are unauthorized to work or do not have work permits.20 According to the Alien Employment Act B.E. 2551 (2008), foreign workers can be classified into three groups; 1) foreign workers with work permits (Article 9); 2) foreign workers who work in the Kingdom under the Investment Promotion Act B.E. 2520 (Article 12); and 3) irregular foreign workers (Article 13). The first two groups of foreign workers are considered as documented. Table A3 shows the numbers of documented and irregular foreign workers from 1997 to 2012. Table A3 breaks up the documented workers into Article 9 and Article 12 workers In 2012, there were 1.13 million foreign workers in Thailand; 940,531 persons are documented foreign workers, while 193,320 persons are irregular foreign workers. For decades, most of the foreign workers in Thailand are predominantly undocumented foreign workers. Particularly in 2004-2005 when the gap between irregular foreign workers and the other two groups was the widest; the irregular foreign workers accounted for more than 96 per cent of the total foreign workers. However, a significant reduction of irregular foreign workers had occurred during 2006 to 2008. The reduction is the consequence of the implementation of regularization policies, including the import of foreign workers via the Memorandum of Understanding between Thailand and neighboring countries, namely Lao PDR and Myanmar, the renew of work permit for migrant workers, and the announcement of Cabinet Resolution on “Nationality Verification (NV)" on 18 December 2007.21 20 21 The term "irregular" is preferable than “illegal" because the term of illegal seems to be as denying migrants' humanity (International Organization for Migration, 2011). The Nationality Verification is a mechanism that the Thai Government uses for regularizing the foreign workers from three neighboring countries, namely Cambodia, Lao PDR, and Myanmar. According to the Cabinet Resolution on Nationality Verification, The foreign worker who passes the nationality verification process will be granted a temporary passport from their countries of origin, and a visa and a work permit from the Thai Government. 35 Table A2: Estimated Foreign Population in Thailand Unit: Persons Category Stay and Work Stay Professional, skilled and semi-skilled worker a Foreigners with work permits (2012) Diplomats and officials 112,680 b 68,851 181,531 Subtotal b Other temporary stay Stay with Thai citizen 9,016 Stay with Thai wife 6,738 Stay with a resident family 502 Retired 7,961 Other (including medical treatment and study) Subtotal Tourist and transit via extension and visa changes Subtotal 110,227 134,444 23,042 23,042 C Student Higher education 20,309 20,309 Subtotal d Other regular (2012) Residents awaiting nationality 233,811 Born in Thailand to non-national parents 69,799 Previously undocumented persons 210,182 513,792 Subtotal Undocumented expatriates d Persons overstaying visas , 2007 65,558 65,558 Subtotal Refugees and asylum-seekers Registered in official camps 148,767 Unregistered and other categories 75,400 224,167 Subtotal Migrants from Cambodia, Lao People's Democratic Republic and Myanmar f Stock of MOU migrant Enter of completed NV process 174,042 f Unregistered and family members 847,130 g 167,881 1,189,053 Subtotal Total 177,795 Overall total Note: a Data provided by Office of Foreign Workers Administration Data provided by Immigration Bureau c Office of the Higher Education Commission, Ministry of Education d Data provided by Ministry of Labor e The Border Consortium b 2,174,101 2,351,896 36 Rounds for foreign worker registrations and verifications have caused a continued increase in the number of documented foreign, from 379,560 persons in 2009 to 940,531 persons in 2012. In other words, thousand hundreds of used to be undocumented workers have turned to be documented workers during the last 4-5 years. Table A3: Number of Foreign Workers in Thailand Classified by Type of Immigration22 Unit: Persons 1997 2002 2007 2012 Documented foreign workers 75,502 76,098 209,151 940,531 Irregular foreign workers 88,811 90,891 596,613 193,320 Source: The Office of Foreign Workers Administration B. Documented Foreign Workers: Skilled Workers Since the Thai government has introduced the regularization policy in 2007, we can divide documented foreign workers into 5 sub-groups as follows: 1) permanent foreign workers (Permanent), 2) temporary foreign worker (Temporary), 3) foreign workers entering Thailand under the Investment Promotion Act (BOI), 4) foreign workers under nationality verification (NV), and 5) foreign workers under the Memorandum of Understanding (MOU) between Thailand and some neighboring countries, namely Lao PDR, Myanmar, and Cambodia (see more details in the related laws and regulations section). The first three sub-groups are generally considered as skilled groups, while the last two groups are recognized as unskilled groups. Table B1 shows the number of documented foreign workers by the aforementioned category. The number of permanent foreign workers has declined from 15,291 in 1997 to 983 persons in 2012. For the temporary foreign workers, the number in 2012 was about two times higher than the number in 1997. The total number of unskilled foreign workers is more than one million (1,020,188), or roughly nine-fold of the total number of skilled foreign workers. 22 Documented foreign workers means foreign workers under Article 9 and 12 of the Alien Employment Act B.E. 2551 while the irregular foreign workers means foreign workers under Article 13 of the Alien Employment Act B.E. 2551 37 Table B1: Number of Documented Foreign Workers Unit: Persons 1997 2002 2007 2012 Permanent foreign workers 15,291 14,423 14,423 939 Temporary foreign workers 42,162 42,578 68,399 82,833 National Verification 0 0 77,914 733,603 MOU 0 0 27,447 93,265 BOI 18,049 19,097 22,562 29,847 Source: The Office of Foreign Workers Administration 1. Skilled Foreign Workers by Occupation Recently, most of the temporary workers come from Japan, followed by England and China, respectively. Table B2 and Table B3 present the number of temporary foreign Workers (Article 9) and the number of foreign workers under the Investment Promotion Act by occupation, respectively. Most of the temporary foreign workers in Thailand work in high skill jobs. In 2012, most of the temporary foreign workers were legislators, senior officials and manager (31,717 persons), followed by professional (19,487 person). Only 1,292 persons do elementary jobs. For the foreign workers under the Investment Promotion Act, not surprisingly, the largest group is Japanese workers because group of foreign workers of this group is the Japanese because the major inflow of Foreign Direct Investment comes from Japan. The second-most biggest group is Chinese workers followed by Korean workers. In 2012, the majority of this group works as legislators, senior officials and manager, flowed by technicians and wholesale and retail traders. Table B2: Number of Temporary Foreign Workers (Article 9) by Occupation Unit: Persons Occupation Legislators, Senior Officials and Manager Professional Technicians and Associate Professionals Clerks Service Workers Skilled Agriculture Craft and Related Trades Workers Stationary-Plant and Related Operator Elementary Trainees Workers not elsewhere classified by occupation Source: The Office of Foreign Workers Administration 2002 5,419 3,136 455 88 174 1 73 27 11 104 661 2007 16,440 13,911 5,788 818 803 56 673 667 293 776 30 2012 31,717 19,487 17,625 5,475 1,966 1,673 1,381 1,328 1,292 1,227 8,035 38 Table B3: Number of Foreign Workers under the Investment Promotion Act by Occupation Unit: Persons Occupation 2002 2007 2012 4,158 5,384 26,280 887 867 2,036 1,043 1,198 3,016 Clerks 255 127 456 Service Workers 60 22 52 Skilled Agriculture 1 2 1 Craft and Related Trades Workers 333 105 432 Stationary-Plant and Related Operator 135 210 500 Elementary 23 6 7 Trainees 2 4 2 273 13 0 Legislators, Senior Officials and Manager Professional Technicians and Associate Professionals Workers not elsewhere classified by occupation Source: The Office of Foreign Workers Administration 2. Skilled Foreign Workers by Sector Table B4 presents temporary foreign workers (Article 9) and foreign workers under the Investment Promotion Act by sector (Article 12). Most of the skilled foreign workers work in capital or skill intensive sectors. In 2012, most of them worked in manufacturing sector (36,060 persons), followed by education sector (20,216 persons) and wholesale and retail trade (18,935 persons). 39 Table B4: Number of Temporary Foreign Workers and Foreign Workers under the Investment Promotion Act Classified by Sector Unit: Persons 2006 2009 2012 624 847 956 1,345 1,771 2,033 20,564 30,481 36,060 156 261 365 Construction 1,796 3,379 4,462 Wholesale and retail trade; repair of motor vehicle, etc. 6,033 15,472 18,935 Hotel and Restaurant 3,778 5,988 8,196 Transport, storage and communication 1,848 5,334 6,692 719 1,922 2,110 5,814 12,460 14,828 180 385 562 7,544 15,628 20,216 453 1,634 2,600 2,596 4,171 5,405 67 38 28 Extra-territorial organization and bodies 288 502 540 Others 762 0 0 Agricultural, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water supply Financial intermediation Real estate, renting and business activities Public administration and defense; compulsory social security Education Health and social work Other community, social and personal service activities** Private households with employed persons** Note: In the sectors that includes of other community, social and personal service activities and private households with employed persons, the data show only the total of foreign workers according to Article 9. Source: The Office of Foreign Workers Administration C. Related Laws and Regulations on the Employment of Foreign Labor Important laws and regulations that are relevant to the employment of foreign workers include the Immigration Act, the Alien Employment Act, and the Investment Promotion Ac (Paitoonpong, et al., 2012). In this section, we briefly explain the aforementioned laws and regulations and provide an overview of the recent immigration policies in Thailand. 40 1. Immigration Act B.E. 2522 (1979) According to the Immigration Act B.E. 2522, entry into Thailand for foreign nationals requires visa, except for special agreement cases. Those entering without a visa and/or acting in breach of the immigration law are illegal and may be deported and/or penalized by other sanctions. However, Section 17 of the Act provides the Minister of Interior with discretion in applying (or not applying) the strictures of the Act (Muntarbhorn 2005). Generally, there are two main types of visas as follows: 23 1) A tourist visa is issued to applicants wishing to enter the Kingdom for tourism purposes. The holder of the visa is not allowed to work or conduct business. A tourist visa is valid for 60 days and can be extended 30 days. Although foreigners with a tourist visa are not permitted to work, they sometimes do illegally. The tourist visa holders who illegally work in Thailand would leave Thailand for neighbouring countries every three months to renew their tourist visa before coming back to work illegally for another three months. 2) A non-immigrant visa is required for a foreigner who wants to stay or work in Thailand. With reference to Section 10 of the Immigration Act 2008, there are 12 categories of non-immigrant visa: Diplomatic visa (D) is for those employed by an embassy; Business visa (B) or mass media visa (M) is for accredited business or press representatives; Expert visa (EX) is for those performing skilled or expert work; Investor visa (IM) is for foreigners who set-up their companies under the Board of Investment BOI; Study/education visa (ED) is for teachers or educational study or observation; Official (F) is for performers of official duties (involving the Thai government); Investment (with concurrence of the ministries and departments concerned), BOI (IB); Missionary work (R); Scientific research or training, or study in an educational institution in the Kingdom (RS); Participation in an officially recognized sports event (S); and Others "O" that includes dependents and retired persons.24 2. Alien Employment Act B.E. 2551 (2008) The Alien Employment Act B.E. 2551 (2008) regulated the employment of alien, a non-Thai nationality natural person. Under Section 7, the work that may be engaged by alien as well as the working area and period shall be prescribed by the Ministerial Regulation. Currently, there are 39 kinds of work that foreigners are prohibited to engage in. Of the 39 prohibited works, there are some professional works, for example; engineering work in the civil engineering branch concerning designing and calculation, organization, research, planning, testing, construction supervision or advising excluding specialized work; legal or lawsuit services and supervising; auditing or giving service in accountancy excluding internal auditing on 23 Other types of visa include Transit Visa, Immigrant Visa, Non-quota Immigrant Visa, and Courtesy Visa. (www.thaijaidee.com/forum; accessed 1 July 2011). 24 http://www.thailawforum.com/database1/immigration-law-mejesty-5.html, accessed on 1 July 2011. 41 occasions, and d. architectural work concerning designing, drawing of plan, estimating, construction directing or advising. Section 9 requires that foreigners who want to work in Thailand must acquire a work permit. Section 10 states that the foreigners who are eligible to apply for a work permit shall have a place of residence in the Kingdom or will be permitted to enter into Thailand temporarily under the law on immigration in any status other than a tourist or a transit passenger. A work permit may be issued for a two year period and may be renewed. A work permit is attached to working with a particular employer. If the employee changes the employer, the employee will have to again request in order to continue staying in Thailand, or will have to travel out of the Kingdom of Thailand and apply for a new (non-immigrant) visa from the Royal Thai Embassy abroad and then apply for a new work permit. According to the Criteria for the Consideration for Work Permit Issuance B.E. 2552 (2009), the number of work permits issued under the Section 9 of the Alien Employment Act depends on the firm’s type, income, and the amount of investment. For example, for an employer who is registered as a juristic person that has the investment capital registration of no less than two-million Thai baht, a work permit shall be issued to an alien worker for every two-million baht of paid up capital (but not more than 10 permits, see the table in Appendix B for details). Section 12 permits aliens to work in accordance with the Investment Promotion Law. Section 13 states that the alien who is not eligible for the permit under Section 9 on account of the following grounds may apply for the permit to engage in work: (1) being deported under the law on deportation, but allowed to work at any place in lieu of deportation or while awaiting deportation; (2) having immigrated into or stayed in the Kingdom without permission under the law on immigration, but allowed to stay in the Kingdom temporarily while awaiting deportation under the law on immigration; (3) being lost of nationality, under the Announcement of the National Executive Council No. 337, dated 13th December B.E. 2515 or other laws; (4) born in Thailand but not entitled to the Thai nationality, under the Announcement of the National Executive Council No. 337, dated 13th December B.E. 2515 or the law on nationality. Under Section 14, the alien who resides in and has the nationality of a country sharing the boundary with Thailand and enters into Thailand with documents under the law on immigration may be permitted to engage in specific types of work temporarily through the specified period or season within the area adjacent to the boundary. In accordance with Section 14, Cambodians and Laotians are allowed to work temporarily in the border areas of Thailand-Cambodia and Thailand-Lao PDR respectively if they obtain certain types of document. A border pass holder can work in border provinces and nearby provinces. A temporary border pass holder can cross the border to work on a daily basis, only in border provinces. There are limits on the 42 number of times the temporary card holders are allowed to cross the borders. For example, cart pushers holding a temporary border pass are allowed to cross the border four times per day (two round trips per day), while traders can cross the border two times per day (one round trip per day). 3. Investment Promotion Act B.E. 2520 (1977) In addition to obtaining visa and work permit under the Immigration law and the Alien Employment law, skilled foreign workers could be permitted to work in accordance with the Investment Promotion law. Under the Investment Promotion Act B.E. 2520 (1977), the Board of Investment (BOI) can grant permission to promoted foreign enterprises to bring skilled workers and experts to work in Thailand under the following conditions: Section 24 specifies that, subject to the law on immigration, the Board shall have the power to grant permission to foreign nationals for entry into Thailand for the purpose of studying investment opportunities or performing any other act benefiting investment for such period of time to stay in the Kingdom as the Board may deem appropriate. Section 25 mandates that, subject to the law on immigration, a promoted enterprise shall be granted permission to bring into Thailand foreign nationals who are— (1) skilled workers, (2) experts, (3) spouses and dependents of persons in (1) and (2) in such numbers and for such periods of time as the Board may deem appropriate and even an excess of such quotas or period of time will be permitted to stay in the Kingdom as prescribed by the law on immigration. It is important to note that the Investment Promotion Act bypasses prohibitions written in other laws. For example, a promoted enterprise could hire foreign civil engineers, architects, accountants, and lawyers even though the foreigners, in general, are prohibited to perform those jobs. 4. Regulations on the Employment of Professionals In addition to the Immigration Act and the Alien Employment Act, the employment of foreign professionals is subject to license requirements imposed by relevant professional associations, unless the employment is under the Investment Promotion law. One usual license requirement is that the foreigners must be a member/extraordinary member of the relevant professional association. However, some of the requirements make it very difficult if not impossible for foreign professionals to work in particular jobs in Thailand. For example, the license to practice medicine in Thailand shall be granted to foreigners if they have successfully 43 passed the examination conducted by the Medical Licensing Board. However, the exam is in Thai language. 5. Thailand Immigration Policies In the early and the mid-1980s, most foreign workers in Thailand were skilled workers who worked in professional positions (Paitoonpong, et al., 2012). This was the consequence of the Thai government’s policies, which focused on attracting Foreign Direct Investment (FDI). However, since the economic boom in the late 1980s, the demand for lower skilled labor has increased, especially in the labourintensive sectors, e.g. construction and fishery. At the same time, the labor migration policies have become somewhat lenient and ambiguous, resulting in a tremendous number of illegal migrants coming to work in needed sectors. Although the Thai law prescribes fines and jail terms for both, the employers of unauthorized foreign migrants as well as for the unauthorized migrants , the law enforcement both at the border and inside the border has been weak (Martin 2004, 16). As the number of irregular foreign workers has continuously increased, policy makers have become more concerned with two major problems, namely national security and human trafficking. The government has formulated several policies and measures at the bilateral and national levels to cope with irregular foreign workers’ problems (Huguet 2008). Recently, the government has attempted to control and better manage irregular immigration by regularizing the existing irregular migration, hoping to manage inflow of new migrants and encourage existing migrants to return home after their work permits have expired. Kritaya and Hall (2011), Supang (2007), and Vitit (2005), describe the development on managing cross-border migration and foreign workers over the years, as shown in Figure C1. 44 Figure C1: Summary of the Thai Government’s Foreign Employment Policy Stage # 6 (2009-2011) More open door for low-skilled foreign workers Stage # 5 (2006-2008) Sticking to the “regularization” policy Stage # 4 (2004-2005) Amnesty policy Stage # 3 (2001-2003) Regularization of foreign workers policy Stage # 2 (1990-2000) Acknowledgement of irregular foreign workers Stage # 1 (Before the 1990s) Open-door for foreign skilled workers  There were frameworks for the employment of foreigners in order to preserve some occupations for Thai nationals. Source: Chalamwong (2012)  Low-skilled foreign workers from neighbouring countries were first acknowledged in the Thai society.  Government implemented the quasi-regularization of migration which concerned national security, economic necessity and employer demand.  The most important policy in this stage was the “registration policy,” which was first amended in 1992.  The Ministry of Labour was assigned and designated to lead in developing policies toward regularizing irregular foreign workers. At this stage, the Royal Thai Government (RTG) signed Memorandums of Understanding (MOUs) on employment cooperation with neighbouring countries, namely Cambodia, Lao PDR and Myanmar.  This stage was called the stage of developing the “halfopen door” policy because the government extended the provision of the registration policy; however, it covered only some sectors.  The government tried to legalize irregular foreign workers who were acknowledged as an invisible group.  The government implemented two major legalizations toward irregular migrants, including Nationality Verification and importing foreign workers holding a temporary passport directly from neighbouring countries.  RTG implemented nationality verification with legal workers from Cambodia and the Lao PDR.  The constraints involved in implementing the nationality verification process included (a) an inefficient system; (b) complex nationality verification and absence of one-stop services; (c) lack of information among employers and migrants; (d) high costs from unregulated brokers; (e) fear among ethnic minorities of Myanmar; and (f) delays caused by migrants, from Myanmar in particular, having to return home for nationality verification.  RTG was developing a “more open door” policy in which the government broadened its cooperation with neighbouring countries to effectively manage cross-border migration and foreign workers in Thailand.  The policies implemented in this stage involved protection of the rights of foreign workers, safety of migration and return, broad dissemination to invite potential workers to use the proper channels, expediting the process of regularization of foreign workers, and guaranteeing humane treatment of all workers, particularly those with health problems.  A draft amendment to the Alien Employment Act 2008 was proposed.  In 2011, the Illegal Alien Workers Management Committee and its subcommittees concluded their deliberations and recommended the opening of a new foreign worker amnesty/registration to address serious low-skilled labor shortages reported by employers. RTG agreed to reopen foreign worker registration to all workers from neighbouring countries, including those not previously registered. 45 D. Problems and Challenges The skills mismatch, in terms of both quality and quantity, is the main challenge for Thailand. Interestingly, the increase in workforce with tertiary and upper education cannot serve the real need of the employers. It turns out that the skills that are really high in demand and necessary for development of major manufacturing industries are not the skills acquired from general track education but the skills from vocational education. Realizing the increasing demand for vocational education workers, the Ministry of Education (MOE) has set the target ratio of vocational students to general track students to 50:50. However, the MOE must work very harder to achieve the goal since the current ratio is only 34:66. The study from the Thailand Development Research Institute (TDRI) and the Office of the Education Council (OEC) in 2010 found that the mismatches between the demand and supply of vocational education labors, vocational diploma labors, and undergraduate labor have widely taken place throughout the country (Figure D1). The mismatches can cause various types of unemployment–(1) frictional unemployment, (2) underemployment, and (3) disguised unemployment (TDRI 2012). Figure D1: Country’s Demand and Supply of Labor Source: OEC, cited from The 2011 TDRI Year-End Conference on Revamping Thai Education System: Quality for All 46 As for the quality mismatch, both international and national sources agree that the Thai labor lack English proficiency. In 2004 and 2007, the World Bank conducted the Productivity and Investment Climate Survey (PICS) to evaluate the satisfaction level of the firm managers toward twelve selected skills of employees. Figure D2 shows the percentage of the surveyed firms that rated each skill as “poor or very poor”. For both years, the top three poorest competencies among Thai workers in the two years included the English language, information technology, and numerical, respectively. Additionally, in 2007, Thai workers performed worse in the creativity and innovation, problem solving, and social skills categories as compared to the results in 2004. Moreover, the PmanP survey from the Ministry of Labor (MOL) further documents the competencies required by the work in the different skill levels. Main results of the PmanP survey are shown in Figure D3. Comparing the past three surveys in 2007, 2011 and 2013, the gaps between employer expectations and the current skills of employees in all the categories have increased and widened. Figure D2: Percentage of Surveyed Firms that Rated Selected Skills as Poor or Very Poor in 2004 and 2007 English language IT Numerical Creativity/innovation Leadership Communication Time management Problem-solving Social PICS 2004 PICS 2007 Adaptability Team-working Technica/professional 0 20 40 Percent 60 80 100 Note: The PICS was conducted in 2 rounds – the first round was in March 2004 and April 2005, and the second round was conducted in 2007. Nine leading manufacturing sectors were selected from six regions of Thailand. The total samples are 1,043 establishments. Source: World Bank (2008). The Productivity and Investment Climate Survey in Thailand, cited from Chalamwong et.al (2011) 47 Figure D3: Current and Expected Skills in 2007, 2011, and 2013 Source: PmanP, access on http://manpower.mol.go.th/pmanp_2012/index.php/home 48 49 IV. EMPLOYMENT OF HIGH-SKILLED FOREIGN WORKERS IN SELECTED SECTORS IN LAO PDR: Evidence from an Employer Survey This chapter provides views of firms from selected industries in Lao PDR on various important aspects of foreign high-skilled employment. An employer survey (49 firms) is conducted to understand the use of foreign high-skilled labor, the degree to which domestic high-skilled workers can substitute for foreign high-skilled workers, the total cost (including allowance, bonus, and benefits) of high-skilled foreign workers relative to the comparable locals, how foreign high-skilled labor affect firms’ productivity, problems/obstacles relating to the employment of foreign high-skilled labor, and future need for foreign high-skilled labor. A questionnaire is developed in close collaboration with the Technical Assistance team to serve as the interview guideline. The use of the questionnaire ensures that interviewers can consistently collect the same information of interest for all surveyed firms (see the questionnaire in the Appendix 3). The employer survey in Lao PDR was conducted by the National Economic Research Institute (NERI) from May to August 2014. Eight sectors, food and agroprocessing, automotive, electronics, garment, hotel, construction, electricity, mining and quarrying are purposively chosen based on their importance, either now or in the future, to the Lao economy (in terms of both employment and value). It is important to note that we do not use any systematic sampling framework. Our sample is selected based on two convenient conditions: 1) the firms must employ foreign high-skilled workers, and 2) they are willing to give face-to-face interviews or, at least, willing to provide information via alternative means.25 As a result of the small sample size and our selection method, the sample certainly does not represent any subgroups either in a particular sector or any other sector. Although we show some statistics such as the mean of relative compensations, they are used solely for illustrative purposes and cannot be interpreted as meaningful figures in a statistical sense. Opinions provided by the surveyed firms also do not necessarily reflect those of their industry. A. Characteristics of the Surveyed Firms In total, there are 49 surveyed firms, 20 firms (41% of the total) are interviewed face-to-face, whereas the other 29 firms (59% of the total) preferred not to be interviewed but were willing to fill out the questionnaire instead. Out of the total of 49 firms, 9 firms are from the food and agro-processing industry; 11 firms are from the garment industry; 6 are automotive firms; 4 firms are from the electronics industry; 8 are hotels; 5 firms are from the construction industry; 4 firms are from the mining and quarrying sector; 2 firms from the electricity sector. The surveyed manufacturing firms are located in Vientiane Capital, Vientiane and Savannakhet province (in Savan-Seno 25 In Thailand, the firms usually want to look at the interview questions in advance and then decide whether or not they want to give the interview. For the firms not agreeing to giving the interview but completing the questionnaire, we called them to follow-up regarding the missing answers and made sure that we understood their answers. 50 special economic zone). The surveyed firms in construction, electricity, mining and quarrying sectors are in Vientiane Capital. The interviewees are mostly managers or high-ranking personnel in charge of recruitment and human resource development. Table A1 shows important characteristics of the surveyed firms. Despite the small size, the survey seems to cover a good mixture of firms. Overall, the surveyed firms vary in terms of size (measured by the annual revenue and the number of employees), years of operation, and ownership. In general, the firms hiring high-skilled foreign labor tend to be large affiliates of multinational firms. Our sample captures this stylized fact as ninety percent of the surveyed firms are non-local firms (either 100% foreign owned or joint venture), and 57% are considered as large firms (employ more than 200 persons). Table A1: Characteristics of Employers in the Survey Numbers % 1. Number of respondent firms by industry Food /Agro-processing Garment Automotive Electronics Hotels Construction Mining and quarrying Electricity 49 9 11 6 4 8 5 4 2 100 18% 22% 12% 8% 16% 10% 8% 4% 2. Number of years of establishment Less than 5 years 5-10 years 11-20 years More than 20 years 49 5 10 16 18 100% 10% 20% 33% 37% 3. Ownership Structure 3.1 Lao 100% 3.2 Foreign 100% China, Taiwan, Hong Kong Thai Singapore Japan Vietnam French Spain Other 3.3 Joint venture Thai China Japan Vietnam Other 49 5 25 8 4 3 2 2 2 1 3 19 6 4 1 1 7 100% 10% 51% 4. Size of firm by revenue (Millions Baht) Less than 500 Million Baht 500-1,000 Million Baht More than 1,000 Million Baht 49 38 2 9 100% 78% 4% 18% 5. Size of firm by employees Less than 50 employees (small) 51-200 employees (medium) More than 200 employees (large) 49 8 13 28 100% 16% 27% 57% 39% 12% 8% 2% 2% 14% 51 6. Number of foreign employees in firm Less than 5 persons 5-10 persons More than 10 persons 49 17 15 17 100% 35% 31% 35% Source: authors’ calculation from the employer survey in Lao PDR Table A2 shows the structure of the surveyed firms in more detail by breaking down the firms according to industry, size, and ownership. It is important to emphasize that, for most of the industries, the views collected from the surveyed firms may be biased toward particular groups of firms. For the construction sector, all of the surveyed firms are 100% foreign, meaning that the views and opinions presented in this report are those of 100% foreign owned firms. For the garment, automotive, hotel, and electricity sectors, all the surveyed firms in the hotel sector are either 100% foreign owned firms or joint ventures. Only food and agro-processing, electronics, and mining and quarrying sectors contain views of firms for all ownership types. Since firms with different types of ownership may have somewhat different views regarding the employment of foreign skilled labors, attempts to generalize the survey findings should be done with caution. Table A2: Number of Surveyed Firms by Industry, Size, and Ownership Industry Food/Agro-processing Garment Automotive Electronics Hotel Construction Mining and quarrying Electricity Total Type 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned S(<50 employee) 0 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 3 0 0 2 0 1 0 8 Source: authors’ calculation from the employer survey in Lao PDR M(51-200 employee) 1 1 0 0 0 1 0 1 1 0 0 2 0 2 2 0 0 1 1 0 0 0 0 0 13 L(>200 employee) 2 4 1 0 5 5 0 1 2 0 0 1 0 1 3 0 0 1 0 1 0 0 1 0 28 Total 3 5 1 0 5 6 0 3 3 1 0 3 0 3 5 0 0 5 1 1 2 0 2 0 49 52 B. Employment of Foreign-skilled Workers in the Surveyed Firms In this section, we present the findings from the survey of employers. We start by providing a brief overview of the employment of foreign high-skilled personnel in the surveyed firms. Table B1 shows the number of high-skilled labor employed in the surveyed firms by industry, size, and ownership. More than 93 percent of the total foreign employment occurs in either 100 percent foreign owned firms or joint ventures. In fact, the employment of foreign skilled labor is highly concentrated in those foreign associated firms in all surveyed sectors. More than 80 percent of the total foreign employment occurs in the large firms (more than 200 employees), while only less than 7 percent of the total foreign personnel are employed by the small firms (less than 50 employees). The employment of foreign skilled labor are highly concentrated in the food and ago processing and garment sectors, as more than 90 percent of total employment foreign skilled labors in each of the two sectors occur in large firms. On the contrary, the employment shares of foreign skilled labors employed in small firms are quite large in construction and electricity sectors (38 and 50 percent respectively). Table B1: Employment of Foreign High-skilled Labor of the Surveyed Firms by Industry, Size, and Ownership Industry Type S(<50 employee) M(51-200 employee) L(>200 employee) Total Food /Agroprocessing 100% Domestic owned Joint venture 100% Foreign owned 0 0 0 4 6 0 18 96 69 22 102 69 Garment 100% Domestic owned Joint venture 100% Foreign owned 0 0 0 0 0 4 0 44 62 0 44 66 Automotive 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 100% Domestic owned Joint venture 100% Foreign owned 0 4 0 4 0 0 0 0 0 0 0 11 0 1 14 0 0 5 0 8 10 0 0 3 0 1 12 0 0 3 0 14 23 0 0 15 0 6 26 4 0 8 0 22 33 0 0 29 Mining and quarrying 100% Domestic owned Joint venture 100% Foreign owned 0 0 6 7 0 0 0 37 0 7 37 6 Electricity 100% Domestic owned Joint venture 100% Foreign owned 0 9 0 0 0 0 0 9 0 0 18 0 34 62 403 499 Electronics Hotel Construction Total Source: authors’ calculation from the employer survey in Lao PDR 53 Table B2 shows the number of foreign-skilled workers employed in the survey firms by position and industry. In all sectors, except mining and quarrying sector, the majority of the foreigners are employed in professional positions (engineering and administrative professionals). In all sectors, except hotel sector, a significant proportion of the employed foreigners are engineers (engineers and engineering associates). It should also be noted that, for high-level management positions including directors and general manager, 100% foreign owned firms tend to fill the positions by foreigners, while 100% domestic firms and joint ventures depend more on local personnel. Automotive Electronics Hotel Construction Mining and quarrying Electricity Total Director 3 1 4 1 1 4 2 2 18 Administrative managers 27 13 2 3 15 5 11 2 78 Production managers 15 8 1 1 0 1 13 3 42 Engineering Professionals 1 2 0 3 0 2 10 5 23 Administration Professionals 37 9 3 0 19 4 3 2 77 Engineering Associate Professionals 110 77 20 4 2 13 10 3 239 0 0 2 0 18 0 1 1 22 193 110 32 12 55 29 50 18 499 Food/Agroprocessing Garment Table B2: Employment of Foreign-skilled Workers by Position and Industry Administration Associate Professionals Total Source: authors’ calculation from the employer survey in Lao PDR Figure B1 shows different reasons provided by the surveyed firms for employing foreign workers in various positions. In general, the reasons of hiring foreign personnel are because of their knowledge, expertise and experience that meet the needs of different types of firms. However, foreign personnel in high level positions of general manager or director/president in foreign affiliates are mainly sent from oversea share holder companies and headquarter office. In addition, local firms also find difficulties in searching for qualified Lao personnel to fill such high positions. For the field of engineering and technical advisor in manufacturing sector, firms need specific skills and experience of foreign personnel in order to deal with modern machines and production asserted as the main reason. Foreign workers are hired in the positions related to sales and marketing, particularly in the hotels and export-oriented businesses, because of their experience, marketing skills, and ability to communicate in foreign language with foreign clients. 54 Figure B1: Reasons for Hiring Foreign Personnel Transfer from the oversea share holder company Capable to communication in foreign langauge Need specifie skilled To support foreign customers Has knowledge, expertise and experience Can not find Lao for this position Not specific job position Receptionist Tour Coordinator Food and Beverage / Chef Admins/Finance Technical Advisor Sales and Marketing Quality Control Product Design Engineer General Manager Director/President 0 5 10 15 20 25 30 35 Source: The employer survey in Lao PDR Generally, the employment of foreign personnel can be classified into 2 types: 1) employment decisions are made by the headquarters, and 2) employment decisions are locally made by the firms. The two types of employments are discussed in more details below. 1. Employment Decisions made by the Headquarters It is a common strategy for multinational enterprises (MNEs) to send their staff to work in important positions for affiliated firms in other countries. By sending their own personnel to work in in the affiliates, especially in high-level management positions (e.g. managing director and manager), the headquarters are able to have a better control over important aspects. These personnel can oversee and direct to ensure that the affiliates in Lao PDR are moving accordingly with the parent companies’ policies, can better protect their market and technological secrets, and can maintain good relationships with customers in parent countries. This strategy is extensively employed in both wholly foreign-owned affiliates and joint-ventures in Lao PDR. For all of the foreign-affiliated firms in our survey, decisions related to the employment of foreign in important high-level management and technical positions are made by the headquarters. The headquarters may send staff currently working in the headquarters or in affiliates that are in other countries to come and work in the affiliated firms in Lao PDR. Sometimes, the headquarters may recruit new staff from abroad and send to their affiliates in Lao PDR. Table B3 presents the positions held by foreign personnel in the surveyed firms in different industries. For all industries, foreigners are employed in key management positions such as chief executives, managing directors, finance managers, and sales and marketing managers. This is not surprising because, in these positions, foreigners generally have an advantage over the local counterparts. The foreigners possess 55 superior managerial skills, are more experienced and more familiar with businesses, and are more proficient in foreign languages. Additionally, the headquarters as well as consumers have more trust and feel more comfortable in dealing with foreign staff. In the garment and electricity/mining sectors, some technical positions such as product designers and engineers are also foreigners. The cost of employing foreign employees is substantial and is normally shared between the headquarters and the affiliates in Lao PDR. Generally, it includes a high wage, bonuses, accommodation, and travel expenses. Foreign personnel receive not only regular salaries from the headquarters, but also an additional payment from the affiliates. For instance, a high-level foreign staff of a food-processing company would receive an additional payment of more than 1,000 euros per month, and mid-level foreign staff would get an additional payment of 650 euros per month. In an electronics company, foreign workers also receive additional monthly payments from the local affiliates: 20,000 Thai baht per month for high-level positions and 7,000 Thai baht per month for mid-level positions. Table B3: Positions filled by Foreign-skilled Workers Industry Position Agro-processing Chief Executives and Managing Directors, Finance Manager, Human Resources Manager, Sales and Marketing Manager (Marketing Director), Manufacturing Manager (Technical Director), Accountant, Office Manager, Chief Financial Officer Garment Chief Executives and Managing Directors, Factory Managers, Manufacturing Manager, Administration Manager, Accountant, Sales and Marketing professional, Designers, Production Planning Manager Automotive Chief Executives and Managing Directors, Finance Manager, Production Manager, Country Manager Electronics Managing Director Hotel Sales and Marketing Director, Managing Directors, Finance Manager Construction Managing Directors, Finance Manager, Sales and Marketing Manager Mining Managing Directors, Finance Manager, Mining Supervisor (specific technician) Electricity Managing Director, Deputy Managing Director, Project Manager, Office Manager, Health and Safety professional, Mechanical Engineer, Electrical and Mechanical Engineers Source: Employer survey in Lao PDR 56 Generally, it is very difficult for local personnel to substitute for foreign personnel. This is because the supply of high-skilled local personnel is very limited, yet most of the existing pool of the skilled local workers is not yet up to the international standard. More importantly, it is an optimal decision of the headquarters to put the right persons on the right jobs in their affiliates in order to maximize mutual benefits of both the headquarters and the affiliates. In the case of technical jobs that deal with modern machinery, the local workers do not yet possess the necessary knowledge and the technical know-how, thus they are unlikely to be able to substitute for their foreigner counterparts. They certainly still need more training, particularly overseas training either at educational institutions or foreign affiliates. Though on-the-job training exists, overseas training would better improve the skills of the local personnel and help them gain valuable experiences in real-time problem solving. For management jobs, it is widely expected by the surveyed firms that the positions of finance managers and general managers will continue to be filled by foreigners sent in by the headquarters in order to protect their market and technological secrets, and to maintain good relationships with customers. It is highly unlikely, if not impossible, that these positions will be filled by locals. However, in the future, if the local personnel can successfully upgrade their skills, they might be able to substitute for foreigners in some areas, potentially marketing, human resources, and administration. In fact, there are already a few successful cases where local personnel have been promoted to management-level positions that used to belong to foreigners (see box 1 for more details). Box 1: Marketing and HR Managers in a Beverage Company A human resources acting manager in a foreign-owned beverage company recounts the firm’s human resource development policies, which encourage the local staff to play more important roles in the firm. Currently, there are three regional sales manager positions in the firm. Traditionally, these positions have been filled by foreigners. However, the firm has promoted two Lao staff to regional sales managers, replacing foreign personnel. Also, the position of the Human Resources Manager is currently vacant but, in the next few years, is expected to be filled by the acting manager. The firm has a policy to promote skills development of the local staff by providing overseas training at foreign affiliates in Thailand, China, and Singapore for 1-2 months. The firm also sends their junior domestic-skilled staff to attend English courses at a training center. Source: An interview with a HR acting manager at a beverage company 57 2. Employment Decisions Locally Made by the Firms There is a very limited supply of skilled and semi-skilled local labor in Lao PDR. Apparently, the existing pool of the local labor supply still lacks sufficient technical, communication, and management skills to run businesses smoothly and effectively. Therefore, it is not surprising that many positions, both skilled and semi-skilled, are held by foreigners even when the firms can make their own employment decisions. Table B4 summarizes the high-level and middle-level technical/management positions held by foreign employees in different sectors. By observing the number of positions currently held by foreigners, we can see that the surveyed firms in Lao PDR rely relatively more on foreign workers as compared to the surveyed firms in Thailand (see details in following sections). Given the current quality of formal and vocational education and lack of personnel and resources in the education sector, it will take years before the education system can produce decent graduates that can substitute for foreigners. Therefore, in the near future (1-3 years), the chances that domestic labor will be able to substitute for foreigners in highly-skilled and highly-technical jobs are very slim. Nonetheless, according to the interviewee, potential positions for which Lao workers, particularly those who have received education/training from abroad, can substitute for foreigners in the near future (1-3 years) are technicians and mid-level managers. Table B4: Positions filled by Foreign-skilled Workers Industry Position High-level (managers and upper) Mid-level (assistant managers and lower) Agroprocessing Chief Executives and Managing Directors, Deputy Director General, Financial, Marketing, Manufacturing Managers, Policy, Planning Managers, Restaurant Manager, Administration Manager, Regional Sales Manager Advertising and Marketing professionals, Mechanical Engineers, Manufacturing Supervisors, Administration Professionals, Agricultural Technicians, Logistic Technicians, Irrigation Technicians, Electrical and Water Engineer, Accountant, Product Designer, Civil Garment Chief Executives and Managing Directors, Factory Managers, Manufacturing Managers, Planning Manager, Financial Manager, Human Resources Manager Manufacturing Supervisors, Mechanical Engineer, Administration professionals, Electrical and Water Engineer, Accountant, Marketing professionals, Garment Designer, Line Leader, Pattern, Trim and Sew Supervisors Automotive Chief Executives and Managing Directors, Deputy Director General, Production Manager, Financial Manager, Human Resources Manager, Workshop and Warranty Manager Manufacturing Supervisors, Mechanical Engineering Technician, Secretary of Chief Executive, Marketing professionals, Parts Interpreter, Welder and Mechanic, Car and Motorbike Technicians Electronics Managing Directors, Manufacturing Manager, Administration Manager Product Designer, Mechanical Engineer, Manufacturing Supervisors 58 Industry Position High-level (managers and upper) Mid-level (assistant managers and lower) Hotel Managing Director, Deputy Director General, Hotel Manager, Sales and Marketing Manager, Food & Beverage Manager, Information and Communications Technology Services Manager Chef, Electrical Engineering Technician, Accountant, Administration professional, Office Supervisor, Secretary of Managing Director Construction Chief Executives, Vice Executive, Managing Director Electrical Engineer, Metallurgist, Manufacturing Supervisors, Accountant, Mechanical Engineer, Designer, Mechanical Engineering Technicians, Administration professional Mining Chief Executives and Managing Director, Deputy Director, IT Manager, Warehouse Manager, Maintenance Manager Senior Technical Assistant, Finance professional, Mine Surveyor, Mechanical Engineering Technicians, Geologists and Geophysicists, Computer Network and Systems Technician, Mining Supervisor, Civil Engineers Electricity Chief Executives and Managing Director, Deputy Director, Administration Manager, Social and Environmental Manager, Dam Maintenance Manager, Head and Regional Office Manager Mechanical Engineer, Electrical Engineer, Dam Engineering Specialist, Procurement and Contract, Merchandiser, Transmission Line Engineer, Electro-mechanical Engineer, Civil Engineers Source: Employer survey in Lao PDR Since domestic vocational education is of poor quality, the need for foreign labor is not restricted to high-skilled jobs. There is substantial need for foreigners for semiskilled jobs such as technicians. In the surveyed sectors, it is not unusual to find a significant share of foreign workers working on semi-skilled jobs. For example, 20% of line leaders and 50% of sew supervisors in the textile/garment industry are foreigners. Due to the lack of domestic workers with sufficient skills and experience and the need to upgrade the skills of the domestic workers, skills-upgrading attempts at firm-level such as on-the-job training, overseas training, technology and knowledge transfers from foreign to local workers, and scholarships can be found in many sectors. Leading examples of such attempts are briefly mentioned below. In the textile/garment sector, a training center was established by the Association of Lao Garment Industry to help improve the skills of domestic workers (more details in Box 2). In the automotive sector, there are initiative partnership projects between automotive firms and vocational schools. Prominent examples include the partnership project between Toyota Company and the Lao-German technical school and the collaboration between Kubota Company and the Lao-German technical school to improve the curriculum in order to meet the standard of the companies. Under the project, regular internships for teachers and students are organized at the company’s office. Eventually, some students would be hired by the companies after their graduation. 59 Box 2: Improving Skills through a Domestic Training Center Line leaders and supervisors do not require a complex skill set. The skills can definitely be taught and transferred to Lao workers. The establishment of a garment training center by the Association of Lao Garment Industry which is funded by NGO allows low-skilled garment labor to be trained at the center. Four trainings are offered annually to different interest groups, namely: (1) local trainers who in turn will train other workers, (2) supervisors, (3) sewing workers, and (4) pattern makers. The trainers of all courses are imported from Malaysia and Thailand. Trainees are from various garment factories. The training fee is subsidized by the employers and NGOs. If the training turns out successfully, there will be more local workers capable of substituting foreign workers in the future. Source: An interview with the Association of Lao Garment Industry Language and communication skills are a prerequisite for some jobs that deal with foreign co-workers and customers. However, domestic workers with a good command of foreign language(s) and communication skills are very limited. The supply-side constraint creates a demand for foreigners for both skilled and semi-skilled jobs that need to deal with foreigners in all industries. It should be noted that Lao workers who receive training or education overseas may have the language skills, but the size of this group of workers is small and thus cannot adequately serve the industries’ needs. Since such workers know that they have the needed skill, they always demand a high pay, which small firms cannot afford. 3. Relative Compensations (Foreign vs. Lao Personnel) In general, the benefit package that the firms offer to skilled and semi-skilled foreign labor comprises of an internationally competitive salary and other expenses that may include accommodation, transportation, airfares, medical insurance, children’s education, etc. The costs related to work permit applications and visa is also covered by the employer. To gain some idea as to how large the compensation gaps between skilled foreigners and local staff are, each surveyed firm is requested to provide an average of the total annual cost of foreign personnel (including all allowances, bonuses, and benefits) relative to the total annual cost of Lao personnel working in the same or similar positions in their firms. The relative compensations are estimated separately for Lao personnel who have graduated from an overseas institution and those who have graduated from a domestic institution. Table B5 shows the average relative compensations of all relevant firms by industry and position, where the relative compensation is defined as the ratio of foreign compensations (including all allowances, bonuses, and benefits) to Lao compensations for similar jobs. Due to the small sample size in each cell (many cells contain information of only one or a few firms); the average numbers in Table B5 do not have desirable statistical properties. The averages of the relative compensations are shown for illustrative purposes only. 60 Table B5: Relative Compensations by Industry and Position 1.5 1.7 1.6 2.0 1.5 Relative compensation (Foreigner/Lao) Local grad Overseas grad No. of No. of Min Max Avg. Min Max firms firms 1.5 1.5 1 2.0 2.0 2.0 1 1.5 2.0 4 1.7 1.4 2.0 2 1.5 1.7 2 1.7 1.4 2.0 2 2.0 2.0 1 1.1 2.0 10 2.5 2.0 3.0 2 1.7 1.0 4.0 28 1.4 1.4 1.5 7 1.3 1.3 1.5 1.3 1.5 1.3 1.3 1.5 1.3 1.5 1.3 1.3 1.5 1.3 1.5 1 1 1 1 1 1.2 1.2 - 1.2 1.2 - 1.2 1.2 - 2 1 - 1.4 1.1 2.0 5 1.3 1.2 1.5 2 1.5 1.5 1.5 1 - - - - 1.6 1.5 1.4 1.6 1.2 1.2 1.6 1.8 1.8 1 2 7 1.4 1.2 1.2 1.2 1.6 1.2 2 1 1.3 1.3 1.3 1 - - - - 1.6 1.3 1.8 7 - - - - 1.4 1.5 1.6 1.4 1.2 1.5 1.3 1.3 1.5 1.5 2.0 1.5 2 1 7 2 1.5 2.1 1.5 1.6 1.4 1.5 1.5 1.4 1.5 1.2 1.5 3.0 1.6 1.6 1.5 2 3 2 2 2 1.5 1.3 2.0 5 1.5 1.5 1.5 1 - - - - - - - - Industry Position Avg. A B C D Director Administrative Managers Production Managers Engineering Professionals Administration Professionals Engineering Associate Professionals Director Administrative Managers Production Managers Engineering Professionals Administration Professionals Engineering Associate Professionals Administration Associate Professionals Director Administrative Managers Administration Professionals Engineering Associate Professionals Administration Associate Professionals Director Administrative Managers Production Managers Engineering Professionals Administration Professionals Engineering Associate Professionals Administration Associate Professionals Note: A refers to food & agro-processing and garment industries; B refers to automotive and electronics industries; C refers to the hotel industry; and D refers to mining, electricity, and construction material industries. Relative compensation is the ratio of foreign compensations (including all allowances, bonuses, and benefits) to Lao compensations for similar jobs. Source: Authors’ calculation from the employer survey in Lao PDR 61 For all positions in all industries, foreign workers receive more compensation than their local counterparts do. On average, the total compensation that the foreign workers get is around 1.45 and 1.38 times the compensation of the locally-graduated and overseas-graduated domestic workers respectively. For the food & agro-processing and garment industries, the average compensations of foreign workers to locally-graduated domestic workers range from 1.5-2. The average compensations of foreign workers to overseas-graduated domestic workers also range between 1.5-2, with the exception of administration professional, for which the relative compensation is very high (2.5). For the automotive and electronic sectors, the relative compensations of the foreign workers to overseas-graduated workers range between 1.3-1.5, while the relative compensations of foreign workers to the overseas-graduated domestic workers range from 1.2-1.3. For the hotel sector, the relative compensations of the foreign workers vary between 1.3-1.6 when compared to the locally-graduated domestic workers and between 1.2-1.4 when compared to the overseas-graduated domestic workers. For mining, electricity, and construction material industries, the average compensations of foreign workers to locallygraduated domestic workers range from 1.4-1.6. The average compensations of foreign workers to overseas-graduated domestic workers also range between 1.4-1.6, with the exception of administrative managers, for which the relative compensation stays high at 2.1. C. Impacts of Foreign-skilled Workers on Productivity When firms employ foreign labor, Lao labor in the firm are able to benefit from the knowledge and skills transfer through on-the-job training and working and collaborating with the foreigners. According to an interview with the Human Resources Assistant Manager at a hotel, working with foreign workers does not only help improve the language skills of domestic workers, but also improves the working attitude and discipline. As a result, domestic workers are more active, more disciplined, more efficient, and more service-minded. Moreover, the productivity and performance of the firms can be improved substantially by employing foreign workers. Foreign workers can help reduce the cost of production, both pecuniary and the time cost. Foreign workers can do the jobs that domestic workers are not very productive at. According to the interview with a beverage company, foreign workers can write a business report to their headquarters and affiliates in other countries. They are also helpful in assisting and providing advice to their domestic colleagues. Moreover, they bring new visions and perspectives and introduce the international standard management system to the firm. Consumers’ confidence also rises. A firm in the automotive sector also stated that foreign workers help improve products’ quality by introducing a quality-control system to the firm. Along the same lines, a firm in the textile/garment industry said that foreign workers help improve the quality of products up to the customers’ standards and help maintain a smooth operation in the firm. 62 While foreign workers could significantly enhance the productivity of the firms, they could also cause misunderstandings, conflicts, or tensions with the domestic workers, hampering the performance of the firm. Since most of the foreign workers cannot communicate in the local language, and most of the local workers cannot communicate in foreign languages, knowledge transfer is sometimes very ineffective, and cooperation between the two groups is undermined. According to the interview with the Garment Industry Association, misunderstandings between foreign and domestic workers are frequent due to the language barrier. In addition to that, language interpreters are usually not helpful because they do not have the technical knowledge, and thus cannot accurately relay important technical messages. Cultural differences also play an important role in discouraging collaboration and understanding between foreign and domestic workers. Domestic workers are sensitive and emotional—they cannot take harsh words from co-workers and supervisors. In addition, they become used to the conventional habits of low commitment, poor quality of work, laidback attitude (frequently asking for holidays and being late for work) and impatience (quitting easily when the boss complains about them). From the perspective of foreign co-workers and supervisors, these characteristics of the local workers are definitely not acceptable, causing foreign workers to have a bad impression and to think negatively about the local workers. Then bad impression and negative thinking could turn to distrust and hatred, resulting in a declining in the overall productivity. The domestic workers, on the other hand, are not able to accept some behaviour that may be deemed acceptable in some foreign cultures. For example, in Lao culture, it is very rude and inappropriate to use the feet to communicate with others. Inappropriate behaviour, either intentional or unintentional, could deteriorate the relationship between the foreign and domestic workers and negatively affect the productivity of firms. D. Problems/Obstacles related to the Employment/Recruitment of Foreign-skilled Labor Evidently, the Lao domestic labor supply has been severely lacking quantitatively and qualitatively. A quick and relatively effective solution is to import labor, especially skilled labor, from abroad. However, employing foreign skilled labor incurs high costs that not every firm can afford. Large local firms and affiliated multinational enterprises usually have a tremendous advantage over smaller firms because they can afford to pay internationally competitive wages plus other benefits in order to attract higher quality foreign workers. Another important obstacle pointed out by the surveyed firms is that the costs associated with the work permit application process, including the time cost, is high. Several surveyed firms think that the application process has many steps and is quite costly and time-consuming. Firms that want to hire foreign workers have to submit the application for the import quota for foreign workers. After the approval of the quota application, firms have to apply for work permits at the Department of Skills Development, Ministry of Labour and Social Welfare. This step takes about 21 official 63 days. After that, firms still need to seek permission from the Department of Consular, Ministry of Foreign Affairs—and this step takes another 3 days. Overall, it could easily take about a month or more to get through with the whole process, and the total cost is approximately 450-600 USD for a worker per year. The cost of visa extension is 300-350 USD per worker per year and the process takes around 10 official days. E. Conclusion This section presents main findings from the employer survey in Lao PDR conducted from May to August 2014. The surveyed firms employ foreign-skilled labor in various positions, ranging from the top-level i.e. executive chefs and managing directors to mid-level management and technical positions i.e. engineers, supervisors, and assistant managers. The main reason why the surveyed firms hire foreign workers is because skilled domestic workers are limited, and lack the sufficient knowledge and experience. For 100% foreign-owned firms and affiliates of foreign firms, it is common for the headquarters to send their current staff or staff in affiliates that are in other countries to come and work in the affiliated firms in Lao PDR to fill in for high-level management and technical positions. Generally, it is very difficult for local personnel to substitute for foreign personnel. This is because the supply of high-skilled local personnel is very limited, yet most of the existing pool of the skilled local workers is not yet up to the international standard. More importantly, it is an optimal decision of the headquarters to put the right persons on the right jobs in their affiliates in order to maximize mutual benefits of both the headquarters and the affiliates. The need for foreign labor is not restricted to high-skilled jobs. Since domestic vocational education is of poor quality, there is substantial need for foreigners for semiskilled jobs such as technicians. It is not surprising that many positions, both skilled and semi-skilled, are held by foreigners even when the firms can make their own employment decisions. Skills-upgrading attempts at firm-level such as on-the-job training, overseas training, technology and knowledge transfers from foreign to local workers, and scholarships can be found in many sectors. Leading examples of such attempts include the partnership project between Toyota Company and the Lao-German technical school and the collaboration between Kubota Company and the Lao-German technical school. Given the current quality of formal and vocational education and lack of personnel and resources in the education sector, it will take years before the education system can produce decent graduates that can substitute for foreigners. Lao workers are normally able to benefit through the skills and knowledge transfer through on-the-job training and working and collaborating with foreigners. In addition, working with foreigners helps improve language skills, the working attitude and discipline, resulting in an increased in the productivity of domestic workers. The productivity and performance of the firms can be improved substantially through employing foreign workers, since they can help reduce the cost of production and can do the jobs that domestic workers are not very productive at. Despite that, foreign workers could also cause misunderstandings, conflicts, or tensions with the domestic workers, which in turn hinders the performance of the firm. Cultural differences and language barrier are the main factors discouraging collaboration and understanding between foreign and domestic workers. 64 Since foreign skilled workers receive more compensation than their local counterparts, the obstacle of employing foreign workers is the cost of employing. Not every firm, small and medium local firms in particular, can afford to hire foreign workers. Another important obstacle is that the costs associated with the work permit application process, including the time cost, is needlessly high. 65 V. EMPLOYMENT OF HIGH-SKILLED FOREIGN WORKERS IN SELECTED SECTORS IN THAILAND: Evidence from an Employer Survey This chapter provides views of firms from selected industries in Thailand on various important aspects of foreign high-skilled employment. An employer survey (49 firms) is conducted to learn more about the use of foreign high-skilled labor, the degree to which domestic high-skilled workers can substitute for foreign high-skilled workers, the total cost (including allowance, bonus, and benefits) of high-skilled foreign workers relative to comparable locals, how foreign high-skilled labor affect firms’ productivity, problems/obstacles relating to the employment of foreign high-skilled labor, and future need for foreign high-skilled labor. The questionnaire used for the Thailand survey is the same as the one used for the survey in Lao PDR (see the questionnaire in the Appendix 1). The employer survey in Thailand was conducted by the Thailand Development Research Institute (TDRI) from May to August 2014. Four sectors, including 3 manufacturing sectors: food and agro-processing, automotive parts, and electronics and electrical appliances; and 1 service sector: hotels, are purposively chosen based on their importance to the Thai economy (in terms of both employment and value) and their relevance to the Lao economy in the future (these sectors are identified as potential sectors that can play a more important role in future economic development). Like the survey in Lao PDR, we do not apply any systematic sampling framework to the survey in Thailand. The selection of surveyed firms is based on convenient conditions. First, the firms must employ foreign high-skilled workers. Second, they are willing to give face-toface interviews or, at least, willing to provide information via alternative means. 26 Therefore, results from the survey cannot be generalized, and quantitative interpretations of the results should be done with caution. The contribution of the survey is a purely qualitative aspect. A. Characteristics of the Surveyed Firms In total, there are 49 surveyed firms, 31 firms (63% of the total) are interviewed face-to-face, whereas the other 18 firms (37% of the total) preferred not to be interviewed but were kind enough to fill out the questionnaire. Out of the total of 49 firms, 22 firms are in the auto parts industry; 15 firms are from the electronic and electrical appliances industry; 5 are food and agro-processing firms; 7 are from the hotel industry. The surveyed manufacturing firms are located in the industrial areas of Bangkok and the vicinity (Samut Prakan, Pathum Thani, Nonthaburi), in the central region (Saraburi and Phra Nakhon Si Ayutthaya), and in the eastern region (Chon Buri, Rayong, Chachoengsao, and Prachin Buri), while all the surveyed hotels are in Bangkok. The 26 In Lao PDR, the firms usually want to look at the interview questions in advance and then decide whether or not they want to give the interview. For the firms not agreeing to giving the interview but completing the questionnaire, we called them to follow-up regarding the missing answers and made sure that we understood their answers. 66 interviewees are mostly managers or high-ranking personnel in charge of recruitment and human resource development. Table A1 shows important characteristics of the surveyed firms. Although the survey is quite small in size, it covers a good variety of firms. Overall, the surveyed firms vary in terms of size (measured by the annual revenue and the number of employees), years of operation, and ownership. At the industry level, the surveyed firms in some industries are very homogeneous. For example, the surveyed hotels tend to be a part of a large international chain. In Thailand, the firms hiring high-skilled foreign labor tend to be concentrated in large affiliates of multinational firms in high-technology or high-skilled sectors. Our sample captures this stylized fact well. Table A1: Characteristics of Employers in the Survey 1. Number of respondent firms by industry Food and agro-processing Textile and garment Automotive parts Electronics and electrical appliances Hotel 2. Number of years of establishment Less than 5 years 5-10 years 11-20 years More than 20 years 3. Ownership Structure 3.1 Thais 100% 3.2 Foreign 100%  Japan  USA  Taiwan  Hong Kong  China  Singapore  Japan & Taiwan 3.3 Joint venture  Japan  Taiwan  India Numbers % 49 5 0 22 15 7 49 14 6 100.0 10.2 0 44.9 30.6 14.3 100.0 28.6 12.2 19 10 49 10 34 38.8 20.4 100.0 20.8 70.8 21 4 3 2 2 1 1 4 2 1 1 49 100.0 13 9 10 17 26.5 18.4 20.4 34.7 5. Size of firm by employees 50 or less (small) 51-200 persons (medium) More than 200 persons (large) 49 7 9 33 100 14.3 18.4 67.3 6. 49 18 20 11 100 36.7 40.8 22.4 4. Size of firm by revenue (million baht) Less than 500 million baht 500-1,000 million baht More than 1,000 million baht N.A. umber of foreign employees in firm Less than 5 persons 5-10 persons More than 10 persons Source: author’s calculation from the employer survey in Thailand 8.4 67 Table A2 shows the structure of the surveyed firms in more detail by breaking down the firms according to industry, size, and ownership. It is important to point out that the views and opinions collected from the surveyed firms may be biased toward particular groups. For the automotive and electronics sectors, most of the surveyed firms are 100% foreign, meaning that the views and opinions presented in this report are mostly those of foreign firms. Almost all the surveyed firms in the hotel sector are 100% Thai firms. Therefore, most findings related to the hotel sector are drawn from the Thai firms. Although it is possible that the views on the employment of foreign high-skilled labor may be somewhat homogeneous across all firms that employ foreign staff regardless of size and ownership, attempts to generalize the findings should be done with caution. Table A2: Number of Surveyed Firms by Industry, Size, and Ownership Industry Type Food industry/Agroprocessing 100% Domesticowned Joint venture 100% Foreign-owned 100% Domesticowned Joint venture 100% Foreign-owned 100% Domesticowned Joint venture 100% Foreign-owned 100% Domesticowned Joint venture 100% Foreign-owned Automotive Electronics Hotels Total S (<50 employees) 0 M (51-200 employees) 0 L (>200 employees) 2 1 0 0 0 1 0 1 0 1 5 0 1 0 3 0 0 2 0 2 14 1 2 19 1 1 1 1 0 6 0 0 6 5 1 13 6 0 0 0 0 0 1 0 1 7 9 33 49 Total 0 Source: author’s calculation from the employer survey in Thailand B. Employment of Foreign-skilled Workers in the Surveyed Firms In this section, we present the findings from the survey of employers. We start by providing a brief overview of the employment of foreign high-skilled personnel in the surveyed firms. Table B1 shows the number of high-skilled labor employed in the surveyed firms by industry, size, and ownership. In all the industries, more than 86 percent of the foreign employment occurs in the large firms (more than 200 employees). Only less than 2 percent of the total foreign personnel are employed by the small firms 68 (less than 50 employees). In the automotive and electronics sector, most foreign employment is concentrated in the wholly foreign-owned firms. On the contrary, more than 90% of the total foreign labor in the hotel sector is in the wholly domestic-owned hotels. Around 40% of the total foreign labor is also employed by domestic-owned companies in the food and agro-processing sector. Table B1: Employment of Foreign High-skilled Labor of the Surveyed Firms by Industry, Size, and Ownership Industry Food /Agroprocessing Automotive Electronics Hotels Total Type 100% Domestic-owned Joint venture 100% Foreign-owned 100% Domestic-owned Joint venture 100% Foreign-owned 100% Domestic-owned Joint venture 100% Foreign-owned 100% Domestic-owned Joint venture 100% Foreign-owned S (<50 employees) 0 1 0 0 0 9 0 8 1 1 0 0 20 M (51-200 employees) 0 0 4 0 0 11 0 0 31 0 0 0 46 L (>200 employees) 6 0 4 2 9 101 2 0 210 94 0 7 435 Total 6 1 8 2 9 121 2 8 242 95 0 7 501 Source: author’s calculation from the employer survey in Thailand Table B2 shows the number of foreign-skilled workers employed in the survey firms by position and industry. In all sectors, the majority of the foreigners are employed in management-level positions. In the automotive and the electronics sectors, a significant proportion of the employed foreigners are engineers—around 22 percent in the automotive sector and 29 percent in the electronics sector. Interestingly, none of the surveyed firms in the food and agro-processing sector employ foreign engineers. 69 Table B2: Employment of Foreign-skilled Workers by Position and Industry Position 1. Managing Director/President 2. General Manager/Factory Manager/Management-level 3. Engineer 4. Product Design 5. Purchasing 6. Quality Control 7. Sales and Marketing 8. Technical Advisor 9. Admins/Finance/Auditor 10. Food and Beverage / Chef 11. Tour Coordinator 12. Receptionist Total Food/Agroprocessing Automotive Electronics Hotel Total 1 16 24 3 44 5 0 1 0 0 5 0 1 2 0 0 15 50 29 0 1 4 11 18 3 0 0 0 132 140 74 2 1 2 7 0 2 0 0 0 252 68 0 0 0 0 13 0 0 16 1 1 102 263 103 3 2 6 36 18 6 18 1 1 501 Source: author’s calculation from the employer survey in Thailand Figure B1 illustrates the reasons why the surveyed firms employ high-skilled foreigners in various positions. For high-level management positions e.g. president, managing director, general manager, the most common reason given by foreign-affiliated employers, especially the Japanese affiliates, is that the foreign personnel are sent directly from their headquarters. The surveyed firms have no control over the employment decision. Foreign personnel will be recruited by the headquarters and then sent to work with the firms. For other positions, a variety of reasons are cited, the most prominent reasons include that the foreigners possess specific skills (both technical and language) that the firms need, and foreign personnel are better able to serve their consumers’ preferences. In this case, it appears that the surveyed firms can freely choose the best personnel available, either a foreigner or a local, given their budget constraint. It could be said that the employment of foreign personnel can be classified into 2 types: 1) employment decisions are made by the headquarters, and 2) employment decisions are locally made by the firms. The following section explores such employments in more details. 70 Figure B1: Reasons for Hiring Foreign Personnel Transferred from the overseas Transfer from the oversea share share holder company holder company Capable to of communication in in foreign Capable communicating foreign language(s) langauge Need specifie skilled Receptionist Tour Coordinator Food and Beverage / Chef Admins/Finance Need specific skills Technical Advisor Sales and Marketing ToTo support foreign customers support foreign customers Quality Control Have knowledge, expertise, Has knowledge, expertise and and experience experience Purchasing Product Design Engineer GM/Factory Manager/Management Level Managing Director/President 0 5 10 15 20 25 30 Number of firms Source: The employers survey in Thailand 1. Employment Decisions Made by the Headquarters Table B3 shows the positions for which high-skilled personnel are recruited by the parent companies. It seems reasonable to separate the positions for which the headquarters directly recruit personnel into three broad groups as follows: high-level management positions, positions engaging in both managerial and highly technical tasks, and other positions requiring specific (non-Thai) nationalities. The three groups are not mutually exclusive. Table B3: Positions of Foreign High-skilled Personnel Recruited by the Parent Company Industry Manufacturing    Hotel       Source: The employer survey in Thailand Position Management-level : Managing Director Production control : General Manager, Factory Manager, Production Manager, and Assistant Manager, Production Advisor, Technical Director, Technical Advisor Engineering : Engineering Manager, Engineering Tools System Manager, Maintenance Assistant Manager Quality Control Manager and Assistant Manager Sales and Marketing Manager and Assistant Manager Purchasing Manager and Assistant Manager Administration Manager and Assistant Manager General Manager (responsible for HR and Marketing) Hotel Manager (responsible for Front Office, Housekeeping, Food & Beverage) 71 a. High-level Management Positions It is a common practice for multinational enterprises to send their “own people” to work in affiliates in order to exploit their internal technological knowledge to their advantage. By sending their own personnel to work in high-level management positions (e.g. managing director and manager) in the affiliates, the headquarters are able to have a better control over important aspects. They can oversee and direct to ensure that the affiliates in Thailand are moving accordingly with the parent companies’ policies, can better protect their market and technological secrets, and can maintain good relationships with customers in parent countries. According to the surveyed firms, the headquarters may send current workers from the parent companies or from affiliates in other countries, or recruit new workers from the parent countries and then send them to work in the affiliates in Thailand. Since it is essential for the headquarters to utilize their “own people,” it is highly unlikely that Thai personnel can substitute for the foreign personnel in these positions. For non-Japanese affiliates, own people could mean whoever the headquarters trust regardless of nationality. However, for all the Japanese affiliates we interviewed, “own people” generally meant Japanese staff working in the headquarters or the affiliates in other countries. A Thai Assistant Manager in the Human Resources Department of a Japanese firm reflects his view regarding the employment policies of his Japanese parent firm as follows: “In the company, there is no top-level managerial position for a Thai. Such positions are reserved for the Japanese. The highest position for a Thai is Deputy Manager or Assistant Manager. In my department, the top position is now vacant, but it is reserved for the Japanese only. Considering mainly the capabilities, I think Thai with many years of work experience possess sufficient knowledge and are able to substitute for Japanese in every position. However, the parent company would not allow this to happen and barring Thai from getting promoted and getting stuck in their present posts. I have worked in this company for more than 10 years and I can only just reach the position of the Assistant Manager, because the position of the Manager has been left vacant for the Japanese only. With the parent company’s policy, there is no way that Thai can substitute for Japanese.” From an interview with a five star hotel that is operated by an international hotel chain group, it is found that the headquarters (the corporate office) located in Geneva, Switzerland will recruit management-level personnel such as the General Manager (GM) and the Hotel Manager to send to work in the hotel. The Human Resources Manager of the hotel asserts the importance of employing a foreign GM as follows. “In addition to ensuring that the operations of the hotel is in accordance with the global standards, other important reasons for having a foreign General Manager is for the image of the hotel and to serve the needs and expectations of the customers, who are mostly foreigners. If a guest encounters a problem and needs the hotel to resolve it, the customer will not be willing to deal with a Thai manager 72 but will demand to discuss the matter with a foreign manager. Even though the Thais have capabilities equivalent to that of foreigners, the hotel still feels the need to hire foreigners.” b. Positions Engaging in Management and Highly Technical Tasks In addition to high-level management positions, the parent companies might send personnel to perform in the positions engaging in both, management as well as highly technical tasks e.g. Technical Director, Quality Control Manager, and Engineering Manager. Foreign personnel working in these positions usually have a high level of knowledge and expertise plus long-term work experience. Unlike the high-level management positions, the parent companies need to employ foreigners mainly because Thai personnel lack the necessary technical skills required for smooth operations. Examples of such advanced skills are as follows: i. Assembling and Designing Mold/Plate and Die In the production of various automobile components and parts (in the survey these firms are Japanese affiliates), the technology used in the assembling procedure of the mold and die is normally advanced and thus requires experienced and knowledgeable personnel. In addition, Thai personnel are able to read drawings of prototypes but cannot design them. Since the technology is well protected under intellectual property rights, it is very difficult for Thai personnel to learn such technology. Therefore, foreign personnel are needed to perform the tasks. For now and in the near future (3 years), it is unlikely that Thai personnel will be able to substitute for foreigners due to the following reasons. First, without close and sincere cooperation between the affiliates in Thailand and the owners of the technology (usually the parent firms), a technology transfer is nearly impossible. Although the parent firms benefit greatly from the production sites in Thailand, they are also completely aware of the risk that their valuable technology might be imitated by competitors. The parent companies often do what is necessary to guard the confidential intellectual properties, including restricting related tasks to only the personnel sent from the headquarters. Second, models and versions of automobiles are changed or upgraded frequently, deeming the mold and die technology to change accordingly in order to keep up with the new modifications at all times. Although the parent companies are willing to transfer the technology and knowledge, sending and waiting for the Thai personnel to undergo training and return to design the mold and die may not be a good strategy due to the time constraints. Last but not the least, most Thai educational institutes do not have specialized expertise. The graduates only possess basic knowledge which is insufficient to learn and understand more sophisticated technology. 73 ii. Quality Control and Maintenance From the view point of the interviewees from Japanese affiliates, maintaining, tuning, and setting the machinery and equipment requires expertise. Although Thai workers possess some technical skills, their fundamentals are not as strong as the Japanese. They seem to know the basic theories but cannot adapt them to real practices. In addition, the Japanese workers also have certain characteristics which rarely exist in their Thai counterpart. For example, the Japanese will monitor how the machinery works at all times. Therefore when a difficulty arises, they are able to indicate the source of the problem and find an appropriate solution. More importantly, they like to take note and record the nature of the problem and the troubleshooting methods for their own and others’ future use. On the contrary, Thais like to resort to consulting the manuals or waiting to ask their boss instead of trying or experimenting on their own. This habit greatly limits their learning and future development. Besides knowledge and technical limitations, Thai personnel (particularly engineers) also lack language and communication skills required for effective communications with foreign co-workers and supervisors. A Singaporean firm in electronics sector also shares the above view that Thai personnel do not have in-depth technical knowledge. An interviewee from a Chinese manufacturing firm explains that the use of foreign technicians might be associated with the place of origin of the machine used in the firms. For example, the aforesaid firm uses machinery from China for which instructions and the users’ manual are in Chinese. Therefore, Chinese personnel have a clear advantage over Thai personnel. In addition, since the machine is developed in China and is sometimes used in the parent company, Chinese personnel, especially those who have been working in the parent company for a long period of time, have more experience and are more familiar with the machine and are therefore more capable of solving problems occurring to the machine than their Thai counterpart. 2. Positions Requiring Specific (non-Thai) Nationalities All the surveyed Japanese firms indicate that certain positions such as the Sales Manager, the Customer Service and Processing Director, and the Marketing Manager are reserved for Japanese. Most of the customers are also Japanese who not only deal with the affiliates but sometimes also place orders and make deals by directly contacting the parent company which will communicate accordingly with the affiliate in Thailand. To avoid unnecessary communication problems among the customers, the parent company, and the affiliate, the parent companies prefer to send relevant Japanese staff to work in Thailand. The issue is not really about the difficulties in finding Thai personnel that can speak Japanese fluently, but it is more about nationalism and the trust and confidence between Japanese customers and Japanese staff as well as between Japanese staff at the headquarters and the affiliates. Even if the Thai staff is able to communicate well in Japanese, the Japanese customers and Japanese staff in the headquarters still prefer to contact and coordinate with Japanese personnel in the affiliate. A Japanese firm in the 74 electronics industry describes the problems in coordinating that occurred due to having Thai personnel in charge: “Manufacturing components and parts for electronic products requires quick operating speed due to the short product cycle, making the preparation time for the manufacturing process very short. The company once assigned Thai personnel to coordinate and contact with Japanese customers—resulting in many weeks of work without any real progress. But after letting Japanese personnel coordinate, just within a day, we know what the customers need and how they want it. When the product has a problem or a Japanese customer has additional requirements or requests, Japanese personnel can effectively negotiate in order to reach an agreement that satisfies both the sides.” Quality Control and Quality Assurance (QC&QA) is another area in which trust and understanding between customers and firms play important roles. To gain customers’ confidence, Japanese firms rely heavily on Japanese staff. The Japanese firm above explains further as to why Japanese are preferable to Thais: “When Japanese staff control and evaluate the quality of the product, the customers feel more confident. Generally, Thai staff usually set a priority on efficiency (how to lower the cost) which could undermine the quality of the product, whereas the Japanese always view the quality as the top priority. If Japanese personnel are in charge of QC&QA, Japanese customers will feel more confident.” On the contrary, a surveyed firm states that its parent company is in Singapore and Chinese language is the main language used in the company. The headquarters in Singapore does not send a Singaporean to work in Thailand, but a Taiwanese who is able to communicate in Chinese and therefore would be able to work and coordinate with customers as well as the parent company. For non-Japanese firms, sometimes the position of the Marketing and Sales Manager may require for the personnel to be of a specific nationality, usually the same nationality as their main customers. For example, if a company’s main customers are Chinese, the company may seek to hire Chinese personnel who have working experience in China, because such personnel may have strong connections with Chinese customers and know where and how to find new customers. Also, they understand the Chinese culture and can communicate effectively with the customers. Although sending foreign personnel from the parent company to work in the subsidiary in Thailand has many advantages as discussed above, it has an important disadvantage that it increases the production cost. The incurred cost associated with hiring high-skilled foreign labor might be shared between the headquarters and the affiliate. 75 There are many payment packages for personnel who are sent from headquarters to work in Thailand. The transferred personnel may still receive salary from the parent company but the affiliate in Thailand provides other perks and benefits, such as accommodation and allowances. In some cases, the affiliate in Thailand bears the cost of the salary and may need to pay the Technical Service Fee to the parent company. The Assistant Manager of the Personnel and General Affairs Department in a Japanese affiliate provides some details regarding the benefits that the personnel sent from the parent company receive. “The parent company sends Japanese personnel to work for the following 3 positions: (1) Vice President, (2) Factory Manager, and (3) Technical Manager. The affiliate in Thailand is responsible for paying the salary and benefits to the Japanese personnel. When sent to work in another country, the personnel usually negotiates the benefits with the affiliate until satisfied. The benefits may include a personal car and driver, accommodation, medical care expenses for self and family, school fees for the children, round-trip air fare to Japan twice a year. We (the affiliate in Thailand) have different benefit packages for the 3 aforementioned positions. The Vice President receives housing expenses of not more than 100,000 baht per month; the Factory Manager receives no more than 60,000-70,000 baht per month; and the Technical Manager receives no more than 40,000 baht per month. As for the personal car, they receive different models where the Vice President gets the most luxurious model. Their bonuses, paid by the parent company, are expected to be higher than what is paid to the local personnel.” Currently, there are a relatively small number of foreign personnel that the parent companies have sent to the affiliates. The parent companies seem to send as much as necessary to direct the affiliate in the right direction. However, recognizing the high costs of employing high-skilled foreigners, many interviewed firms state that in the future, there may be a declining trend in hiring foreign personnel. Some firms are increasingly promoting Thai personnel to replace foreign personnel in certain executive and management positions, especially in the Human Resources Development department. For other high-level managerial and technical positions, the chance of Thai personnel substituting for foreign personnel is very slim, particularly in Japanese affiliates. “It is unlikely that Thai personnel will be able to substitute for Taiwanese personnel in management-level positions since the parent company prefers someone of the same nationality (has to be a Taiwanese)—and the main reason for this is trust,” stated a Human Resources Manager of a Taiwanese company in the electronics industry. 76 C. Employment Decisions Locally Made By the Firms While the previous section focuses on the positions that the surveyed firms have no control over and the decision-making processes regarding the employment of foreign personnel, this section focuses on the cases where the employment decisions are made by the firms and discusses the reason why the surveyed firms hire foreign-skilled workers. It also presents interview findings on the substitutability between foreign and domestic high-skilled personnel and the strategies to increase the productivity of employees, including skill and knowledge transfers through formal and informal means. Table C1 summarizes the positions held by foreign personnel in the surveyed firms. To allow for a more precise analysis of the type of skills needed, skilled workers are divided into two subgroups, high-level skilled workers and mid-level skilled workers. In this report, a high-level skilled worker refers to the manager or higher positions. Mid-level skilled worker refers to the assistant manager or lower positions. We separately discuss the surveyed firms in the manufacturing and the hotel sectors. Table C1: Positions of Foreign-skilled Workers Recruited by Surveyed Firms Industry Manufacturing Service (Hotel)                Position Mid-level (assistant managers or High-level (managers or higher) lower) Managing Director  Engineering Supervisor and Engineer Business Development Director  Product Design Specialist Service Engineering Manager  R&D Specialist QC&QA Manager  Sales and Marketing Officer Purchasing Manager  Customer Supports Officer New Product Introduction Manager  Auditor Sales and Marketing Manager Customer Service Manager CEO/President/Executive  Assistant Marketing Manager Manager  Assistant Director (Event) General Manager  Assistant Director (Food and Guest Relations Manager Beverage) Director of Sales and Marketing  Chef Executive Chef  Tour Coordinator Supervisor Food and Beverage Director of Sales Restaurant Manager Source: The employer survey in Thailand 1. Employment of Foreign Personnel in the Manufacturing Sectors Table C1 shows that the surveyed firms are hiring foreign personnel for a number of positions, ranging from mid-level skilled positions (such as the Sales and Marketing Officer, Auditor and Chef) to high-level skilled positions (such as General Manager and Managing Director). An important reason why the surveyed firms hire foreigners is that foreign personnel are equipped with specific skills and knowledge that are difficult find in 77 the Thai labor force. When firms cannot find domestic workers with the qualifications, they are inclined to hire foreigners. Below are selected case studies and messages from interviews to help give contextual details. Case Study 1: A Firm in the Food-processing Industry (100% Thai Ownership) This firm’s core business is food-processing. Their main products are processed chicken, pork and animal feeds. The firm also owns a few subsidiary companies, one of which is a Japanese restaurant chain. In terms of size, the total annual turnover is above 100,000 million baht. It currently employs about 6,500 full-time white-collar workers and about 22,000 full-time blue-collar workers. Most blue-collar workers work in the production line, e.g. in farms, slaughter houses and factories. Out of this large workforce, only two of them are foreign-skilled workers. Both are employed in the mid-level skilled positions. None of the two foreigners actually work in the firms’ core business departments. The first foreign employee is hired as a R&D specialist whose main responsibility is to develop new bakery products. This R&D specialist, an American, was hired because he is also quite famous in the Thai restaurant business. The second foreign employee is Japanese. His main responsibility is to supervise the Japanese restaurant chain. The reason for hiring these two foreign-skilled workers is because of their personal culinary expertise. Other skilled positions in the firm are all filled by domestic workers. The interviewee also mentioned that there are Thai workers employed in a comparable position to the aforementioned foreign employees. These Thai employees usually either obtain education degrees from abroad or have international experience. The positions that require foreign-language skills (such as Sales Manager) are all filled by domestic workers. The interviewee stated that it is not difficult to find domestic workers who are capable of communicating in foreign languages (i.e. English, Japanese and Chinese). These workers are usually Thai nationals who studied in the mother tongue countries. The firm prefers hiring Thai workers because then there is no cultural barrier within the firm. It is also easier to establish close manager-worker relationships and it also facilitates more efficient communication. In terms of compensation, there is no wage premium for being a foreigner. The wage rate largely depends on qualifications. The Japanese employee receives the “Local Package” because he was already a resident of Thailand when recruited by the firm. The American employee gets the “Local plus Package,” which includes a housing allowance and a car. Finally, most skill and knowledge transfers from overseas actually occur through short trainings or occasional consultancy projects. The firm has a strong relationship with Japanese trading partners. These partners usually send their Japanese employees to provide short-term training at the start of new projects or collaborations. For example, one of the firm’s businesses is a Japanese restaurant, a joint-venture with a Japanese 78 company. The Japanese company owns the brand, while the Thai partner operates the business in Thailand. At the initial stage, the Japanese company sent their employees to train Thai chefs and staff. Once the necessary knowledge was transferred, the Japanese trainers left. The Thai firm now hires only one Japanese employee to supervise the quality of the food. This method of knowledge transfer is more economical for both partners. Case Study 2: A Firm in the Food- and Agro-processing Industry (100% Thai Ownership) The firm’s core business is sugar production. It also has a few subsidiary businesses, such as particle board factory, ethanol plants and electricity plants. The average annual turnover is above 50,000 million baht. The firm currently employs about 4,200 full-time workers, only four of which are foreign-skilled workers. The four foreign personnel work in different positions (3 high-level positions and 1 mid-level position) as follows: 1) Business Development Director: The firm hires an American professional because of his or her international experience in the sugar business. The firm needs the professional’s skills to compete and to grow in the global market. 2) Specialist on the by-products of sugar production: An Indian specialist is hired because it is very difficult to find a Thai person with such a specialized skill. 3) Managing Director of the particle board factory: The particle board business is highly developed in South Asian countries. Therefore, the firm has hired an expert from Pakistan due to their experience and know-how in the particle board business. 4) Auditor: The firm hires a Chinese auditor because it is currently expanding the business to China. The firm feels that having an auditor that can communicate with the Chinese customers and co-workers and can understand the Chinese culture is necessary. All the four foreign employees are compensated under the same wage schedule as the domestic employees. In any case, foreign employees may receive additional housing and family allowances because they have to work away from their home countries. The main reason for hiring foreign high-skilled workers is because they cannot find domestic personnel with such particular qualifications. The firm is now looking to expand into the biochemical business in the future. They also plan to hire specialists from Japan or Korea for the initial stages. This is because they conjecture that it will also be difficult to find domestic personnel with sufficient skills and qualifications. 79 Case Study 3: A Firm in the Electronics Industry (51% Thai Ownership, 49% Indian Ownership) The firm produces telephone controllers. Its annual turnover is approximately 7.4 million baht. The firm currently employs 20 workers, 8 of which are foreign-skilled workers. Two of the foreigners are Indian shareholders who work as the firm’s managers. The other 6 foreigners are hired in various positions, namely the Service Engineering Manager, Engineering Supervisor, QC&QA Manager, Product Design Specialist, Electrical Specialist and Purchasing Manager. The firm used to hire a domestic worker for the product design position. However, the Thai worker quit the job. The reason why the firm hires foreign personnel for the above positions is because it is difficult to recruit domestic workers with the required qualifications. For example, since the firm regularly deals with suppliers in India, it is important for the purchasing manager to be able to speak the language. The interviewee also mentioned that in Thailand, foreign engineers are not necessarily more expensive than Thai engineers. In some cases, given the same qualifications, it is cheaper to hire foreign engineers. Case Study 4: A Firm in the Auto-parts and Electronics Industry (100% U.S. Ownership) This firm produces connectors used in the auto industry and the electronics industry. Its annual turnover is around 900 million baht. The firm currently employs about 60 workers, 3 of which are foreign-skilled workers. The foreign personnel are all employed as sales managers, holding different and specific responsibilities, e.g. selling different products or selling to different markets. Their “Regional Business Networks Solution Sales Manager” is American, while the “Tool Sales Manager” is Chinese. Since the firm is a global company, the sales managers would have to be capable of using the language at the business level. They also have to know all the technical terms used in the industry. These qualifications are difficult to find in domestic workers. The interviewee explained the need for foreign workers and problems related to Thai workers as follows: “Our company is a global company. Therefore, good communication skill is our first priority. We look for people who can work at the global level, who can deal with anyone in the global market. Not that many Thai people can do this. Another reason is because Thai workers are not very keen. When you are a sales manager, you need to have a very good understanding of the products that you sell. Foreign workers are keen to learn about the products. They also pay more attention to details. For example, a foreign sales manager can explain about the design of a machine and how it works, while a typical Thai sales manager would only be able to explain the design.” 80 The interviewee also shed light on the problems in technical institutions. Teachers tend to teach subjects in a very broad manner. Students are not taught to dig deep into the subject. Thus, unlike the foreign workers, the Thai workers generally have poor analytical skills. The interviewee goes on to further clarify that: “Thai engineers may be able to operate the machine, but they cannot fix it when it’s broken. In contrast, foreign engineers pay attention to learn how the machine works and thus are able to fix it. Moreover, their language capabilities enable them to understand the machine’s manual more easily. When they need to contact the machine company abroad, they are able to do so with ease.” There are also problems with the characteristics of the Thai employees. Thai workers are not very determined. The firm has been sending Thai engineers to be trained in Singapore, Japan, and Korea. The training results have not been satisfactory. This may also be because they lack the language skills. Moreover, Thai workers tend to change their jobs often and many also do not like to work in factories. This is the main reason why some American firms send their expat workers here. To improve the quality of our Thai workers, they plan to develop curriculums with vocational colleges. The firm currently runs a joint job-training program with the Thai-German Institute. Despite the aforementioned drawbacks, there are advantages in hiring Thai workers. First of all, they face no communication problem with other Thai workers. Second, they are less expensive to hire. On the other hand, foreign workers can connect and communicate more effectively with foreign customers. However, they are also more expensive to hire. Case Study 5: A Firm in the Hard Disk Drives (HDDs) Industry (100% U.S. ownership) The firm is a large hard disk drives and parts company. They currently employ 26,000 workers. About 1,000 are engineers, 60 of which are foreigners. These foreign engineers come from many different countries and not necessarily from the U.S. Some of them had lived in Thailand before starting their job with the company. These foreign engineers usually work in the R&D department where they analyze data on the computer. The reason why the firm hires foreign engineers is because it is difficult to find Thai engineers who can also analyze the data for R&D purposes (these foreign engineers come from many parts of the world including the U.S., Brazil, Indonesia and Malaysia). Also, most Thai engineers are not proficient in English and therefore cannot efficiently communicate with the headquarters in the U.S. The compensation for foreign engineers is higher than that of Thai engineers. On average, American engineers receive about 1.5 times more than Thai engineers, whereas engineers from other countries receive about 1.2 times more than Thai engineers. 81 Case Study 6: A Firm in the Electronics Industry (100% American Ownership) The firm’s core business is integrated circuit. The annual turnover is around 21,000–22,500. They are currently hiring 5,600 workers. About 20 employers are highskilled foreigners. Most foreign employees at the managerial level are sent from the headquarters in the U.S. Other foreign employees are recruited by the Thai office. These foreign employees usually work in more specific positions such as engineer, program management, and customer support. As the firm is expanding to the global market, especially to China and Japan, it is important to recruit workers that can communicate in foreign languages. The interviewee stated that it has been difficult for them to find Thai personnel who can use a foreign language at the business level. Also, the drawbacks of Thai workers are that they tend to change jobs very often and lack determination. As stated by the interviewee: “We have been trying to promote more skill trainings among our employees. The skill that we emphasize the most is “commercial minds.” However, as mentioned before, competition among firms to hire capable or talented Thai workers has been very intense. Also, these individuals like to change their jobs. Therefore, we sometimes have to recruit foreign workers.” In addition to what is reflected in the 6 case studies, we have found that there is a common perception among the surveyed firms regarding the characteristics of Thai personnel. Thai workers seem to lack discipline, determination, motivation, and persistence. In contrast, foreign workers are enthusiastic, disciplined, and punctual. They work on time and keep their promises and maintain alertness in their work. Having come to work in a foreign land, they need to display strong commitment and determination to working in order to compete with the local and survive. A statement made by an executive of a firm in the electronics industry clearly reflects such common perceptions: “Most Thais lack discipline, do not abide by the rules and regulations, and lack commitment and accountability. Whereas foreigners tend to be disciplined workers and abide by the rules, which is most significantly reflected by the efficiency and the quality of the work. The Japanese, Singaporeans, and Malaysians are very disciplined, earnest, and responsible when it comes to work—thus being able to earn trust more than Thais.” The important messages we have gotten from our study are mentioned in this paragraph. Firstly, an ability to communicate proficiently in foreign languages is generally a weakness of Thai workers. Firms that have foreign trading partners require personnel who are able to communicate in the partner’s language. For some industries, the level of language proficiency has to be very high (e.g. business level). This is because an extensive technical vocabulary is needed for effective and precise communication. It has been especially difficult to find Thai personnel who are capable of using business-level Chinese and Japanese. Many interviewed firms hire foreigners as sales managers in 82 order to eliminate language barriers between the firms and their trading partners, customers, or suppliers. Secondly, as for the substitutability between foreign and domestic workers, most interviewees stated that it is possible for Thai workers to substitute foreign workers for some positions. The positions that can potentially be replaced by Thai workers within 1-3 years include Manager, Head of Sales, Head Engineer, Production Manager and Administrative Manager. However, the Thai workers would have to develop more skills, especially language and technical skills. Last but not least, they need to build more discipline, motivation, and determination at work. 2. Employment of Foreign Personnel in the Hotel Sector Hotels that are interviewed for this report are mostly 5 star luxury hotels. While the budget hotels in Thailand usually do not hire any foreign-skilled employee, the use of foreign personnel prevails in 5 star hotels. In the 5 star luxury hotels that we interviewed, high-skilled foreign workers are usually hired for the following positions: a. General Manager Almost all 5 star luxury hotels in Thailand hire a foreign General Manager to ensure the hotel’s world-class positioning. Most foreign general managers usually have international experience and therefore can supervise the staff to provide world-class services to the customers. Most foreign general managers do not only do regular managerial jobs, but are also the image of the hotel. The presence of foreign general managers would signal to customers that the hotel is operated under international standards. As one of the interviewees asserted: “The General Manager is like a signature or a piece of fine furniture of a 5 star hotel. They increase the credibility of our services.” One of the interviewees stated that it is possible for Thai personnel to take the position of the General Manager. However, he or she must have had prior international experience, i.e. must have lived, studied, or worked as a hotel manager another country or countries before. This is because a General Manager needs to have good understanding of different cultures and needs to be fluent in English. In addition to the General Manager, some of the interviewed hotels also hire foreign personnel for other positions such as CEO, Vice President, Senior Vice President, and Assistant Vice President. For 5 star hotels, these are the positions that require international experience and ability to speak foreign languages fluently (especially English). 83 b. Executive Chef In Thailand, it is a common practice for 4 stars or higher hotels to hire foreign chefs for their restaurants. Most of these chefs are from European countries and work as executive chefs. This is to ensure the authenticity of European dishes served in the restaurant. Some hotels that have restaurants specializing in the cuisine of a particular country also hire chefs from the countries of origin, for example, hiring a Chinese executive chef for a Chinese restaurant, hiring a Japanese executive chef for a Japanese restaurant, etc. The foreign executive chefs also serve as the signature of the restaurant and the hotel. They also help create good customer perceptions. For example, customers perceive an Italian dish cooked by an Italian chef as more authentic than an Italian dish cooked by a Thai chef. Other than creating good customer perceptions, some interviewees also mentioned that foreign chefs have better management skills in the kitchen and can work more professionally and effectively than local chefs. c. Customer Support Other than general managers and chefs, foreign personnel are also hired in customer support positions, e.g. Director of Sales and Marketing, Guest Relations Manager, Assistant Director, and Event and Tour Coordinator Supervisor. The reason for hiring foreigners in these positions is because they have a better knowledge of foreign customers’ preferences and culture. Therefore, they can cater more effectively to the customers’ needs. Foreign employees in these positions may also have connections with various foreign travel agencies in foreign countries, which could help attract more tourists to the hotel. When asked about the substitutability between foreign and domestic personnel in the hotel sector, most interviewees stated that it is possible for Thai workers to substitute foreign workers for some positions. However, the Thai workers must be equipped with international experience, e.g. have worked or lived abroad. This experience would enable them to gain international perspectives and gain understandings of different cultures. Despite the possibility, most interviewees also noted that it is unlikely for luxury hotels to replace foreign GM and foreign chefs with Thai employees any time soon. As we already explained above, the two positions serve as the signatures of their hotels. 3. Relative Compensations (Foreign vs. Thai Personnel) In general, it could be said that there are three compensation packages for highskilled foreign personnel as described below. A. Expatriate package (Expat package): This package consists of an internationally competitive salary and benefits that may include accommodation, personal car, and benefit coverage for dependents and spouses such as airfares, medical insurance, children’s education, etc. The costs related to work permit applications and visa is covered by the employer. Recipients of the package are usually 84 high-level management and technical staff sent from headquarters. The package may also be offered to high-skilled personnel from developed countries. B. Local plus package: This package offers the same wage rate, or a little higher, than that of the comparable Thai personnel but contains additional benefits similar to that in the Expat package. The costs related to work permit application and visa is usually covered by the employers. Recipients of the package usually include high-skilled foreigners who lived abroad but want to move to work in Thailand. C. Local package: This package offers the same wage rate, or a little higher, than that of the comparable Thai personnel. The costs related to work permit application and visa may be covered by the employers. Unlike the other packages, however, the local package provides no special benefits. The package is normally granted to foreigners who have been living in Thailand for some time or foreigners from developing countries. According to surveyed firms, Singaporean and Malaysian high-skilled foreign personnel receive salary that is 20% higher than Thai personnel whereas the wage offered to Filipinos hardly differs from their Thai counterpart. Nonetheless, the firms cover all costs related to work permit application and visa. To gain some idea on how large the compensation gaps between high-skilled foreigners and local staff are, the team asked the surveyed firm to provide a rough estimate (average) of the total annual cost of foreign personnel (including all allowances, bonuses, and benefits) relative to the total annual cost of Thai personnel working in the same or similar positions in their firms. The relative compensations are estimated separately for Thai personnel who have graduated from an overseas institution and those who have graduated from a domestic institution. Table C2 shows the average relative compensations of all relevant firms by industry and position, where the relative compensation is defined as the ratio of foreign compensations (including all allowances, bonuses, and benefits) to Thai compensations for similar jobs. We can notice that only a small number of the surveyed firms hire both foreigner and Thai personnel in the same or similar positions. This is not surprising because more than 40% of the survey firms are Japanese affiliates which hire only Japanese staff from their parent companies to work in high-level positions and therefore completely eliminate the chance of finding Thai personnel who work in the same or similar positions. Evidently, all of the positions in Table C2 are the positions that Thai personnel can more or less substitute for foreign personnel. Due to the small sample size in each cell (many cells contain information of only one firm); Table C2 does not have desirable statistical properties. The averages of the relative compensations are shown for illustrative purposes only. Interpretation of the figures must be made with caution. In the hotel and the food and agro-processing sectors, the averages of the relative compensations range from 1 to 1.3 and 1 to 1.4 respectively. In these two sectors there exist positions of GM/Management-level in the hotel sector and food R&D in the agro-processing sector, and there are no differences in the total annual cost of the Thai and foreign staff. In the automotive sector, the average relative compensations for the Managing Director is equal to 2, meaning that, by paying 85 the same cost, the firm could exchange one foreigner for two Thai persons. Therefore, where possible, replacing the foreigner with the Thai would be an attractive cost-saving strategy. In the electronics sector, the relative compensations for management-level and engineer positions are relatively high, 2 and 3 respectively—and substituting the foreigner with the Thai appears to be an attractive cost-saving strategy for the firm. Table C2: Relative Compensations by Industry and Position Industry Position Food /Agroprocessing Automotive Sales and Marketing Food R&D Managing Director Management-Level Engineer Sales and Marketing Management-Level Engineer Sales and Marketing GM/ManagementLevel Sales and Marketing Tour Coordinator Receptionist Electronics Hotels Relative Compensations (Foreign/Thai) Thai overseas grad Thai local grad No. of No. of Avg Min Max Avg Min Max firms firms 1.1 3 2.5 1 1.1 3 1 1.1 3 2.5 1 1 1 1 1 1.4 1 2 1.6 1.7 1.9 1.6 1.6 1 1.3 1 2 1.5 1.7 1.9 1.4 1.6 1 1.5 1 2 2 1.7 1.9 2 1.6 1 2 1 1 3 1 1 3 1 1 - - - - 1 1.3 1.2 1 1.3 1.2 1 1.3 1.2 1 1 1 Note: Relative compensation is the ratio of foreign compensations (including all allowances, bonuses, and benefits) to Thai compensations for similar jobs Source: author’s calculation from the employer survey in Thailand Interestingly, the surveyed firms hire very few overseas-graduated Thai personnel in the same or similar positions as the foreigners, as compared to locally-graduated Thai personnel. The finding is somewhat surprising because it has been widely perceived that overseas-graduates have some appealing qualifications, especially good command in foreign language, which the locally-graduated Thai personnel may not have. According to the interview, the reason is simply that most of the positions listed in Table C2 do not require personnel who have graduated from overseas. By offering a lower salary, the firms can still find a Thai local graduate who possesses the same qualifications as that a Thai worker graduated from overseas does. To gain a better understanding of the differences between locally-graduated Thai personnel but not overseas-graduated Thai personnel, we ask the surveyed firms to share their views regarding the advantages and disadvantages of the two types of Thai personnel as compared to foreign personnel. We summarize their views below. a. Locally-graduated Thai Personnel Advantages are that costs of hiring are not high and have high patience and forbearance in working. They are hard-working, tolerant, and do not mind undertaking trivial tasks. They are able to communicate well in the Thai language, therefore making communication easy and clear. 86 Disadvantages are that the level of responsibility, commitment, and determination are typically lower than that of foreign personnel. They seem to lack confidence, leadership, and self-development, making it difficult to further develop their skills and capabilities at work. They lack foreign language skills and therefore cannot communicate effectively with foreign customers and supervisors. For engineers, technical knowledge they learned from schools seems to be too general and irrelevant for the real practice. Most Thai engineers also lack language and management skills, making learning new technologies difficult, particularly the engineers that have graduated from certain local universities with poor teaching quality. In the hotel sector, personnel with a bachelor degree from local educational institutions generally have poor language skills. More importantly, they tend to change jobs often. Working in a hotel requires tolerance and forbearance because work hours are not regular. Most Thai personnel lack patience and persistence and therefore cannot bear with irregular work hours. As a result, they tend to quit their jobs when they have had enough of it. In addition, if they are not getting promoted within a specific time period, they will become impatient and try their luck in other hotels. b. Overseas-graduated Thai Personnel Advantages are that they have good foreign language skills and can communicate effectively with foreign supervisors and customers. Having studied and trained abroad, the engineers have learned newer technologies, are familiar with the work culture in the developed countries, and have good work attitude. Disadvantages are that the costs of hiring are higher than locally-educated Thai personnel. Some companies cite the reason that they cannot recruit overseas-educated Thai personnel is due to the hiring rate being higher than the salary structure. In addition, most overseas-graduated engineers do not wish to work in a factory. Also, those engineers are not persistent in working and have a tendency to change their jobs often. “From my experience in recruiting personnel, I have found that overseas-educated Thai do not work for long and change their jobs every year. They come to work because they have the advantage of language only, but they frequently change jobs and are job-hoppers. The end result is that they do not help develop the organization,” stated the Director of the Human Resources Department of a firm in the electronics industry. 4. Impacts of Foreign-skilled Personnel on Productivity Our employer survey indicates that the high-skilled foreign personnel that are hired by Thai firms usually have two desirable qualities: 1) they have superior skills and experiences, and 2) they have better work ethics. The high-skilled foreign personnel can affect the productivity of the firms through direct contribution of their superior skills set. The skilled foreign personnel can also affect the productivity of the firms through skills and technology transfer, which can occur through formal and informal interactions with 87 Thai personnel. The more skilled the Thai personnel are, the higher the productivity of the firms. The skills and technology transfer can happen at both the management and technical levels. At the management level, foreign managers can at least introduce their assistant managers (or Thai manager in the same firm) to management practices that meet international standards. At the technical level, foreign engineers or employees can introduce Thai employees to new technologies. These skills transfers could occur through various channels, for example, on-the-job trainings, formal trainings, consultations, mentoring, or collaborations with the foreigners. The Human Resources Manager of one of the interviewed firms provided an example of skills transfer in the firm: “Our firm is an auto-parts firm that supplies to Japanese firms. We hire Japanese personnel. Japanese personnel are devoted to their jobs. They strive to gain the best knowledge about the firm’s products. When there are problems, they are able to make decisions right away. Thai personnel are not like that. When there are problems, no one would want to take responsibilities. There was one time when we [the Thai auto-part firm] were not sure whether the metal spring that we produced for a Japanese customer met their standards. No Thai personnel had a clue as to how to test the product. Our Japanese personnel knew what to do right away. He then taught the Thai personnel the testing procedure. We [the Thai auto-part firm] learn a lot from him.” An executive of a Japanese affiliate firm in the automotive sector said that: “Our productivity increases from technology transfer, although this does not mean that we will be operating as efficiently as a Japanese firm at the end of the day.” Work ethics of foreign personnel can create positive spillovers within the firm. Foreign personnel are usually more punctual, disciplined and determined than Thai personnel. The presence of foreigners may set a higher standard of work ethics informally. The Thai personnel who work with the foreigners could be motivated by such good work ethics and become more determined to improve their own work ethics. Both the skills transfer and good work ethics spillovers can improve the productivity of Thai personnel, which in turn increases the productivity of the firms. Competition between foreign and domestic personnel is also a source of spillover. On one hand, competition may force both Thai and foreign personnel to continuously develop in order to stay competitive, which leads to an efficiency gain for the firms (a positive spillover). On the other hand, competition may result in non-cooperative behaviors of both Thai and foreign personnel, generating a negative spillover to the firms. An interviewee in a firm in the electronic sector gave the following example: “Our firm hires Singaporeans. To remain competitive, Singaporeans do not transfer technological knowledge to Thais. If the Thai people were able to do it, Singaporeans will have no job security and might have to return to their country. Returning to their country may mean being unemployed because the parent 88 company at Singapore is a trading company. They [the parent company] have no factories in Singapore, and therefore do not employ engineers.” Foreign personnel can increase the productivity of the firm by introducing an improved and more efficient operational system. Foreign personnel usually have better knowledge about managerial and operational systems than Thai personnel. The fact that they are stricter and more precise can help reduce any technical inefficiency in the production process. In particular, the “Kaizen27” and the “Quality Control Cycle” systems adopted from Japan can help improve production efficiency, reduce production time and reduce cost. This Kaizen system requires the firms to plan a very detailed and precise production schedule. As a result, the firms can gain a clearer understanding of their production line. They can then improve their productivity at each level of the production process. In the hotel industry, foreign personnel can help increase productivity of the firms with their managerial and language skills and understanding of foreign cultures. Also, their international connections as well as marketing skills can help attract more guests to the hotels. If their experiences in providing international standard services can be successfully transferred to local staff, more customers will be satisfied and would revisit the hotels. In any case, language and cultural barriers are two major obstacles preventing effective skill and technology transfer. They can also cause miscommunication, which could lead to unnecessary errors. Cultural differences between the boss and the workers can also create misunderstandings, conflicts, and an inharmonious work atmosphere, which can translate into a decreased productivity. D. Problems/Obstacles in Employing Foreign High-skilled Labor 1. High Cost One important drawback of hiring foreign personnel is that they are usually more expensive to hire as compared to their domestic counterpart. In addition to monthly salary, most foreign personnel that are hired for high-skill positions would receive at least housing and travel allowances. Some even receive family allowances and children’s tuition fees. One hotel even stated that they stopped hiring foreign employees during an economic recession because they could not afford them. 2. Work Permit The application process for work permits is complicated and, often times, requires firms and foreign workers to go through unnecessary hassles. The major problems with work permits are as follows: 27 Kaizen is a Japanese term that means “good change.” In the business context, the Kaizen system aims to improve efficiency at every level in the assembly line. The overall idea of Kaizen is to eliminate waste and create a lean production system. This makes every employee become a part of the improvement process. 89 (1) According to the work permit application requirements set by the Ministry of Labor, there is a minimum education requirement for each position. However, despite the fact that they have all the qualifications to do the job, some foreign high-skilled workers may not have the required education qualification. For example, many skilled engineers from foreign countries only obtained a vocational degree. However, the Ministry of Labor requires them to obtain at least a bachelor degree. In this regard, the requirement is not really practical and could prohibit firms from hiring qualified foreign personnel of their choice. (2) The Ministry of Labor sets the minimum salary for high-skilled workers from different nationalities. However, in some cases, the worker may agree to be paid less than the minimum salary in exchange for other benefits. This minimum requirement causes the company to reduce other benefits in order to compensate for the higher salary, making the benefit package less attractive to the workers. The end result might be that the firms may fail to make a deal with their prospective workers. For example, a Japanese Assistant Manager hired by one of the interviewed firms actually agreed to receive the monthly salary of THB 35,000. However, the law states that the minimum monthly salary of a Japanese worker in Thailand is THB 50,000. Therefore, the firm has to reduce this worker’s travel allowance in order to compensate for the high salary, which might not serve the best interest s of the worker. Table D1: Minimum Monthly Salary Requirements for Work Permit Applicants (By Nationality) Nationality Minimum Monthly Salary (THB/month) 1. Europe (except Russia), Australia, Canada, Japan, U.S.A. 50,000 2. South Korea, Singapore, Taiwan, Hong Kong 45,000 3. Asia (except South Korea, Singapore, Taiwan, Hong Kong, Cambodia, Myanmar, Lao PDR, Vietnam), Latin America, Eastern Europe, Central America, Mexico, Turkey, Russia, South Africa. 35,000 4. Africa (except South Africa), Cambodia, Myanmar, Lao PDR, Vietnam 25,000 Source: Ministry of Labor, Thailand (3) The application process is quite complicated and could take a long time. Many of the required documents have to be submitted in original copies (for example, the applicant’s degree certificate). Moreover, the permit has to be renewed every year, and the foreign personnel have to report to the nearest immigration office every 90 days. Immigration offices are located in some but not all provinces. The immigration offices nearest to popular industrial provinces are usually very crowded. The 90-day reporting requirement is inconvenient and is perceived to be unnecessary. 90 E. Conclusion According to the employer survey conducted from May to August 2014, it is found that high-skilled foreign workers are usually employed in high-level management positions or technical expert positions. Some workers are sent by the headquarters to supervise the operation of the factories or offices in Thailand. These workers come to Thailand in order to ensure that the management and production qualities meet the standard set by the headquarters. Since the affiliates in Thailand have no control over the employment of the foreign employees and the parent company still feels the need to send its own people to the affiliates, it is unlikely the Thai personnel can substitute this type of foreign personnel. There are high-skilled foreign personnel hired by the firms (both Thai firms and foreign affiliates) in response to their own needs. This is mainly because some firms face difficulties in finding Thai workers with the required qualifications. For example, the integrated circuit firm that we interviewed finds it difficult to hire Thai engineers who can analyze the data for the purpose of R&D; the sugar firm that we interviewed could not find a Thai personnel is knowledgeable about its by-product businesses; the hotels have to hire foreign general managers because they cannot find Thai personnel with an equivalent international experience. In any case, since it is usually more expensive and more complicated to hire foreign personnel, firms only hire them when they really need to do so. The firms may compromise by hiring less-qualified Thai personnel. In summary, it can be said that Thai firms hire foreign personnel because they have 3 main types of skills 1) management skills 2) technical skills and 3) language skills. Improvement on these skills is needed to promote the substitutability between Thai and foreign high-skilled workers. 91 VI. LABOR FORCE PROJECTION IN LAO PDR This section presents projections of low-skilled and high-skilled workforce in Lao PDR for the period 2013 to 2025. Since there is no fixed definition of low-skilled and high-skilled, and good indicators inferring individual-level skills in Lao PDR are lacking, 3 classifications of low-skilled and high-skilled labor are proposed.28 According to the United Nations Population Division (UNPD), the number of working-age population (age 15-64) is expected to grow from 4.1 million people in 2013 to 5.3 in 2025 (28% total increase, or about 2.3% yearly average)29. To project the size of the labor force, estimates of future labor force participation rates are needed. Our analysis suggests that the labor force participation rate of working-age population is going to decline from 83.7% in 2013 to 73.8% in 2025. This is mainly because the younger generations are expected to remain in school longer than the older generations. Using the aforementioned labor force participation rates, the labor force is expected to grow from 3.5 million people in 2013 to 3.9 million people in 2025. The extent to which Lao PDR can increase the quality of its workforce will depend critically on education and training policies targeting the young generations. A. An Overview of Labor Supply Projection We employ 3 classifications to approximate the number of low-skilled and highskilled workforce. The first classification considers only education. It counts those who had tertiary and vocational education as high-skilled, and the rest as low-skilled. However, education alone may not serve as a good proxy for each worker's capability, as there is a high discrepancy in education quality at every level. For example, some university graduate may be highly proficient at utilizing modern technologies to assist their tasks, while some may not be able to use basic computer tools such as excel spreadsheet. Therefore, introducing more restrictive criteria may help screening out potential low-skilled workers. The second and third classifications rely not only on education, but also on occupation to classify high-skilled workers. For the second classification, those who had tertiary and vocational education and had a high-skilled occupation (i.e. manager and professional) are counted as highskilled, while the rest are counted as low-skilled. The third classification counts those who had tertiary education and had a high-skilled occupation (i.e. manager and professional) as high-skilled. To this effect, the first classification is the broadest, while the last classification is the most restrictive. Table A1 shows the proportion of high-skilled workers by classification. It suggests that if some tertiary education can guarantee high-skilled level, about 24 percent of the workforce will be high-skilled in 2025. However, if we use classification 2 28 29 Due to the poor quality of education, educational level is not a good proxy of skill level. The United Nations Population Division provides population projection every 5 years, i.e. estimates for the years 2000, 2005, 2010, 2015, 2020 and 2025 are given. We use numbers from the “medium fertility” scenario for our projections. A Linear interpolation technique is used to obtain estimates for the years in between. 92 and 3 which are more restrictive, only about 11.5 to 5.97 percent of the workforce will be high-skilled in 2025. Table A1: Number and percentage of high-skilled workers in the labor force (age 15-64) year Classification 1 Classification 2 Classification 3 number %in labor force number %in labor force number %in labor force 2003 206,358 7.42 99,995 3.59 48,331 1.74 2013 494,783 14.33 239,298 6.93 113,801 3.30 2023 873,076 22.66 413,914 10.74 213,809 5.55 2025 948,734 24.31 450,032 11.53 233,172 5.97 Notes: classification 1 high-skilled = tertiary education and vocational education classification 2 high-skilled = tertiary and vocational education and high-skilled occupation classification 3 high-skilled = tertiary education and high-skilled occupation Figure A1 summarizes the labor supply (workforce) projection procedure. First, we obtain Lao population projection by age group from the United Nations Population Division (UNPD) data base. Then, to obtain the population projection by age group and education, we project the probability that each age group would receive each level of education. The probabilities are estimated using the Lao Expenditure and Consumption Surveys (LECS) data collected in 2003, 2008 and 2013. The predicted probabilities will be applied to the projected population by age group in order to get the projected population by age and education group. To forecast the size of the labor force, we project the labor force participation rate for each age group into 2025. Then, we multiply the labor force participation rate with the number of population in each age group in order to obtain the number of workers in the labor force. Finally, we employ the three aforementioned classifications to obtain the number of high-skilled and low-skilled workers. Figure A1: Labor Supply Projection Procedure 93 B. Outlook of the Population and Labor Force (2013-2025) In 2013, Lao PDR had the population of around 6.8 million people. In terms of population, it is the third smallest country in Southeast Asia next to Singapore and Brunei. However, Lao PDR has a fast population growth prospect. According to the United Nations Population Division (UNPD), the population growth rate is expected to be between 1.4-2.3 percent per year until 2025. This means that, by then, the total number of population will increase by at least 16 percent. Figure B1 displays the total population paths under different scenarios projected by the UNPD. Figure B1: Lao PDR Population Projection (2000-2025) Source: Graph constructed using population projections from the United Nations Population Division (UNPD) Based on the conventional classification of working-age population being 15-64 years old, about 60 percent of the population in Lao PDR are now in the working-age. The country also has a large share of young population (37 percent are now between 014 years old), and a small share of elderly population (only about 3 percent are older than 64 years old). Unlike most developed economies and some developing economies in Asia, Lao PDR is not likely to face the emergent aging-population problem in the next few decades. Figure B2 shows the percentage change of working-age population in Southeast Asian countries from 2013 to 2025. Lao PDR has the highest growth rate of working-age population. Figure B3 depicts that the working-age population in Lao PDR is expected to grow significantly in the next few decades. 94 Figure B2: Percentage change of working-age population in Southeast Asian Countries from 2013 to 2025 Source: author’s calculation from the United Nations Population Division (UNPD) data30 The extent to which Lao PDR will benefit from the growing working-age population depends largely on its human-capital development policies. As of 2013, the country’s average education attainment is still low. According to the Lao Expenditure and Consumption Survey (LECS) conducted in 2012-2013, about 16 percent of the workforce never had formal education. The majority (about 45 percent) obtained some primary education, while only about 5.4 percent had some tertiary education. In any case, Figure B4 shows that the younger generations have an increasing tendency to pursue higher education. In 2013, about 10.2 percent of the population aged between 25-29 years old had some tertiary education. This percentage is much higher than those of higher age groups. Despite this achievement, an important challenge for Lao policy makers is to further expand access to education and, at the same time, to improve education quality. 30 The UNDP population projections are available every 5 years from 1950 to 2100. The estimates for 2013 are obtained by performing a linear interpolation between 2010 and 2015 (under the medium fertility scenario). Figure B3: Number of Population by Age Group in 2010, 2025 and 2030 (in 1,000 people) Figure B4: Number of Population by Education and Age group in 2013 (in 1,000 people) Age group Age group 95 Number of people (‘000) Source: graph constructed using population projections from the United Nations Population Division (UNPD) Number of people (‘000) Source: calculated from the Lao Expenditure and Consumption Survey (2012/13) C. Labor Force Participation Rate Labor force participation rate is an important determinant of the size of the labor force. For countries whose population exit the labor force earlier than the conventional retirement age, their workforce can be much smaller than the total population. Early exits could be explained by many factors, for instance, generous retirement package, health condition, lack of old-age work supports, etc. Labor force participation rate varies by the age of workers. In general, the rate is peaked at around the age of 30-40 years old. Younger population has a lower rate generally due to increased access to schooling, while older population has a lower rate due to health conditions and the country’s welfare policies. Based on our calculation using LECS, the labor force participation rate for Lao individuals aged 15-64 is around 0.91, 0.88 and 0.84 in 2003, 2008 and 2013 respectively. The decline in the rate is mainly due to the sharp decrease in the participation rate in the relatively large 15-24 age cohort. The increase in access to education enables this group of population to stay longer in schools. The projection of the labor force participation rate by age group is depicted in Figure C1 (see Appendix 4 96 for the method used for the projection). Through time, the rate is expected to fall for all age groups. In particular, for workers in both the 25-34 and 35-49 age groups, the labor force participation rate is expected to fall from around 0.92 in 2013 to around 0.83 in 2025. For those aged 15-24, the rate is expected to fall dramatically from 0.73 in 2013 to 0.55 in 2025. Finally, the rate of those aged 50-64 is expected to drop from 0.82 in 2013 to 0.74 in 2025. Using the projected participation rates and the population projections provided by the UNPD, we project the size of the labor force. Figure C2 shows the number of working-age population and the number of working-age population who participate in the labor force from 2003-2025. The projection suggests that from 2013 until 2025, the Lao labor force will gain about 450,030 workers, a 13 percent increase from 2013. Figure C1: Labor Force Participation Rate by Age Group from 2003-2025 Figure C2: Total Population and Labor Force from 2003-2025 (in 1,000 people) Year Source: author’s smoothed projection based on LECS 2003 and 2008 datasets Source: author’s smoothed projection based on LECS 2003 and 2008 datasets and UNPD population data D. Labor Force by Skill-type In this section, we discuss the projection of the number of low-skilled and highskilled labor. Since labor productivity and skills are not easily observed, 3 different classifications high-skilled workers will be discussed. In general, if we believe that education highly reflects workers’ skills—either because education can significantly improve workers’ skills, or education is a good signal of individual’s ability—it would suffice to infer the level of skills through education. However, if education does not fully reflect skills or ability, we may need additional 97 information to infer about workers’ skills. In this report, we use education and occupation information to classify high-skilled workers in 3 ways: 1. Education-based – this classification is the broadest of all three. Under the education-based classification, all individuals who enrolled in university/institutes or technical/vocational education would be classified as high-skilled.31 The rest would be classified as low-skilled. Certainly, this classification is likely to over-estimate the number of high-skilled workers. This is because some of the individuals did not complete their degrees. Moreover, given the quality of education in Lao PDR, it would not seem so reasonable to claim that all individuals who had one or more years of university/institutes or technical/ vocational education are highly skilled. However, this broad classification can provide the upper bound to the number of high-skilled workers in Lao PDR. 2. Broad education and occupation – in order to further extract the high-skilled workers from those who received high education, this classification imposes an additional condition that high-skilled workers would have to have high-skilled jobs. Using the international standard classification of occupations (ISCO) code given in the LECS5 (2013), we can classify occupations into many broad categories. We count only the managers and professionals with university/institutes or technical/ vocational education as high-skilled. 3. Narrow education and occupation – this classification is the most restrictive of all three. It counts only those with university/institutes education and work as managers or professionals as high-skilled. The rest would be classified as lowskilled. Figure D1 summarizes the three classifications. Figure D1: The 3 Skill Classifications Occupation Education Others Manager Professional Other Low-skilled vocational/ technical university/ institute B A C 1) Education-based classification: high-skilled = A + B + C 2) Broad education and occupation classification: high-skilled = A + B 3) Narrow education and occupation classification: high-skilled = A 31 It is worth noting that this study does not estimate the number of workers who complete TVET and CO education. This is because the Lao Expenditure and Consumption Survey (LECS) does not explicitly ask whether the person finished their TVET or CO education. It only asks the highest grade completed. Given a wide variety of program design and curriculum duration, it is difficult to identify whether the person actually complete their TVET or CO education. 98 To obtain the projected labor force by education, we take the following steps. First, the projected probability of educational attainment is obtained through a cohort analysis (see appendix 5). The projected probability is then applied to the UNDP population projection to get the projected population by age-education group. To get the projected labor force by age-education group, the projected labor force participation rates by age group are applied to the projected population, assuming that the participation rate associated with each age group is constant across education subgroup. Lastly, within each education group, we aggregate the projected labor force across different age groups, yielding the projected labor force by education. The resulting labor force projection by educational attainment is shown in Figure D2. By 2025, the majority of the labor force is expected to have either primary education (PR) or some secondary education (SS). About 14 percent are expected to have some technical/vocational education (TVET), while about 10 percent are expected to have some university education (CO). Finally, the proportion of workers with no schooling is projected to shrink from 12.6 percent in 2013 to only 7.7 percent in 2025. Labor Force (1,000 people) Figure D2: Number of Workforce (age 15-64) by Education Source: author’s calculation based on the labor force projection results (see appendix 4,5,6) Unlike education, the projection of occupation trend is not so straightforward for two reasons. First, the likelihood that each individual would have a high-skilled occupation, given their educational attainment, is not constant over time. For older generations, where education is less accessible, workers whose occupation is classified as high-skilled can be expected to have less education. As education become more accessible over time, it should be more common to see workers with high-skilled 99 occupations to have higher education. Second, we observe information on occupations of workers for only one year (from LECS5 in 2013). It is difficult to learn why and how occupation choices of workers have changes overtime. Table D1 shows the proportion of workers aged between 15-64 by occupation and education in 2013. There are a few interesting observations worth pointing out. First, in LAO PDR there are substantial numbers of lower-level teachers and nurses with technical diplomas. This is the reason why there are so many professionals with vocational/technical education. Second, about 45 percent of all workers who report their occupations as professionals would also have university or institutional education. This proportion is higher among younger workers. Based on a rough inspection of Table D1, there seems to be a positive correlation between the education level and the probability of being a professional. The higher the level of education, the likelier it is to be a professional. Third, a large proportion of workers who report their occupation as manager do not necessarily have such a high level of education. This is partly because the skills requirements for managers vary greatly across different establishments. Besides education, other important factors such as experience may also play an important role in determining who will be managers. For example, workers who have worked for the firms for many years may eventually be promoted to managers, regardless of their educational attainment. Although these managers may have the necessary knowledge and skills, their skills tend to be very specific to their firms and local market. Therefore, together with the fact that a large proportion of managers have a low-level education, the probability that the Lao managers could find the same or similar jobs abroad is fairly low. In this regard, our most restrictive classification of high-skilled workers that include only workers with university or institutional education appears to be sensible. The projection of high-skilled workforce under the education-based classification (classification 1) is straightforward. However, to obtain the projection of high-skilled workforce under the education-occupation based classifications (classification 2 and 3), we need to project the proportion of high-skilled jobs among workers who have technical/vocational education and university/institute education. This projection is achieved by simply assuming that the overall proportion of high-skilled jobs among workers who have technical/vocational education and university/institute education in 2025 will be the same as that of the 25-34 years old age group (the young generation) in 2013. The idea behind this assumption is that the future structure of the labor market is most likely to be influenced by the current young generation. The overall proportions of high-skilled jobs among workers who have technical/vocational education and university/institute education prior to 2013 are assumed to be the same as the one in 2013, while those between 2013 and 2025 are recovered by linear interpolation. Appendix 6 provides more details on the projection procedure. 100 Table D1: Number of Workers (age 15-64) in Each Education-occupation Group in 2013 Occupation/ Education All age less than elementary elementary some secondary secondary vocational/ technical university/ institute total Manager 11,049 (0.32%) 7,251 (0.21%) 561,077 (16.25%) 45,231 (1.31%) 7,941 (0.23%) 1,375,243 (39.83%) 39,362 (1.14%) 13,466 (0.39%) 767,553 (22.23%) 17,264 (0.5%) 16,228 (0.47%) 236,861 (6.86%) 11,739 (0.34%) 61,460 (1.78%) 95,987 (2.78%) 15,883 (0.46%) 87,355 (2.53%) 82,521 (2.39%) 140,528 (4.07%) 193,701 (5.61%) 3,118,553 (90.32%) 1,871 2,560 158,241 10,241 1,477 346,417 7,779 3,348 214,467 5,810 6,597 82,222 3,151 18,611 32,495 4,136 47,069 38,403 32,987 79,662 871,950 4,425 2,348 168,062 14,359 2,709 378,658 11,650 4,786 177,725 5,418 4,335 53,462 3,522 18,603 25,105 3,793 12,462 11,740 43,167 45,244 814,661 2,554 403 90,927 10,845 2,061 227,071 3,899 1,748 50,191 1,389 1,031 13,758 2,734 6,991 17,791 4,257 5,512 4,885 25,633 17,746 404,712 Professional Low-skilled 25-34 years Manager Professional Low-skilled 35-49 years Manager Professional Low-skilled 50-64 years Manager Professional Low-skilled Note: Numbers in parentheses are percentage of total labor force. Source: author’s calculation based on estimated participation rate and the LECS 2013 dataset. Having explained all components of the labor force projection, we are now ready to present our projection results. Figure D3 and Table D2 present the projection results of high-skilled labor force under 3 classifications—the education-based classification, the broad education and occupation classification and the narrow education and occupation classification. The education-based, classification projects the highest number of highskilled workforce in 2025 (948,734 workforce or approximately 24 percent of the total labor force). The broad education and occupation classification, on the other hand, projects the number of high-skilled workforce to be about 450,032 in 2025 (about 11.5 percent of the workforce). The narrow education and occupation classification, finally, projects the number of high-skilled workforce to be about 233,172 in 2025, about 5.97 percent of the total labor force. Since it is unlikely that all those who have some tertiary education will be equipped with high work skills, we believe that the better predictor for high-skilled workforce in Lao PDR should be either classification 2 or classification 3. As a result, the proportion of high-skilled workers in 2025 is likely to be between 5.97 to 11.5 percent of the entire labor force. 101 Figure D4 and Table D2 show the projected number of low-skilled workforce under the 3 different classifications. The number of low-skilled workforce in 2025 under the education-based, broad education and occupation, and narrow education and occupation are projected to be 2.95 million people, 3.45 million people and 3.67 million people respectively. Labor Force (1,000 people) Figure D3: Number of High-skilled Workers (age 15-64) from 2003-2025 Source: author’s calculation based on the labor force projection results (see appendix 4,5,6) Labor Force (1,000 people) Figure D4: Number of Low-skilled Workers (age 15-64) from 2003-2025 Source: author’s calculation based on the labor force projection results (see appendix 4,5,6) 102 Table D2: Number of High-skilled and Low-skilled Workers (age 15-64) from 2003-2025 (in thousands) year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Education-based High-skilled 206.4 226.9 243.7 266.5 290.4 316.5 349.5 384.6 409.4 448.9 494.8 532.6 570.4 608.3 646.1 683.9 721.8 759.6 797.4 835.2 873.1 910.9 948.7 Low-skilled 2575.4 2607.1 2640.7 2698.8 2753.4 2803.4 2843.9 2879.5 2920.1 2943.6 2958.0 2977.8 2994.7 2998.9 3000.8 3000.3 2997.3 2991.8 2991.2 2987.3 2979.8 2968.8 2954.1 Education&Occupation (broad) High-skilled Low-skilled 100.0 2681.8 109.6 2724.4 116.8 2767.5 128.0 2837.3 139.6 2904.2 152.0 2967.9 168.1 3025.3 185.1 3079.0 196.7 3132.8 216.3 3176.1 239.3 3213.5 251.4 3259.0 269.4 3295.7 287.5 3319.7 305.6 3341.3 323.6 3360.6 341.7 3377.4 359.7 3391.6 377.8 3410.9 395.9 3426.7 413.9 3439.0 432.0 3447.7 450.0 3452.8 Education&Occupation (narrow) High-skilled Low-skilled 48.3 2733.5 51.5 2782.4 51.5 2832.9 57.2 2908.1 62.9 2980.9 67.9 3052.0 76.1 3117.2 84.5 3179.6 88.2 3241.3 99.9 3292.6 113.8 3339.0 126.7 3383.7 136.4 3428.8 146.0 3461.1 155.7 3491.1 165.4 3518.8 175.1 3544.0 184.8 3566.6 194.4 3594.2 204.1 3618.4 213.8 3639.1 223.5 3656.2 233.2 3669.6 Source: author’s calculation based on the labor force projection results (see appendix 4,5,6) E. Conclusion In summary, our projection of the three different definitions of high-skill predicts the high-skilled labor supply in 2025 to be 24 percent, 11.5 percent and 5.97 percent of the total labor supply respectively. If the broadest definition projection is treated as the upper bound to the number of high-skilled workers, we can say that by 2025, the percentage of high-skilled workers in Lao PDR will be as many as 24 percent. However, such a proportion requires all workers with at least one year of tertiary education (TVET and CO) to be equipped with high work skills. This is very unlikely, given the current discrepancies in the quality of tertiary education in Lao PDR. To this effect, we believe that estimates from scenario 2 and 3 are more realistic. The estimates suggest that the proportion of high-skilled workforce in 2025 is more likely to be between 5.97 to 11.5 percent. 103 A rough comparison between the projected share of high-skilled workforce in 2025 and the current situation in OECD countries or other Southeast Asian countries suggests that the projected proportion of high-skilled workforce in Lao PDR (even when consider the least restrictive definition) is still very low. According to the results from the survey of adult skills, conducted by OECD between 2011 and 2012, about 79.8 percent of adults in OECD countries can perform simple mathematical calculations and interpreting relatively simple data and statistics in texts. About 46.8 percent can perform tasks involving several steps of problem-solving and can also interpret and perform basic analyses of data and statistics in text, tables, and graphs (OECD, 2013). Looking at some Southeast Asian countries, data from the World Bank suggest that the percentage of workforce with tertiary education to the total workforce in Singapore, Malaysia, and Thailand were 29.4, 24.4, and 17.1 percent in 2012 respectively. For Lao PDR, the proportion was estimated to be no more than 13 percent32. Despite the lack of high-skilled workforce, the prospect of catching up with neighboring countries can be possible. Our projection (i.e. scenario 1) shows that from 2013 onward, about 24 percent of the workforce will have some tertiary education by 2025. This 24 percent breaks down into 14 percent for vocational/technical education and 10 percent for college/institute education. However, evidence from the LECS data suggests that, in 2013, only about 4-5 percent of workers with tertiary education are assigned to high-skilled occupations. The rest actually work in occupations which do not require high skills. Given such a big room for improvement, promoting quality and increasing graduation rate at the tertiary level would be a more practical solution than expanding coverage. 32 Using LECS data, the proportion of workforce with at least 1 year of tertiary education (including technical/vocational education and university/institute) was estimated to be around 13.3 percent in 2013. However, if only those who complete the tertiary degree are counted, the proportion would be less than 13.3 percent. 104 VII. THE REGIONAL MIGRATION MODEL In this chapter, we develop a regional migration model to forecast the employment of locals and immigrants in Lao PDR by skill type, namely low and high skills. The definition of the skill types used in this chapter is the most restricted one defined in chapter V; that is the high-skilled workers are those who had one or more years of tertiary education and had a high-skilled occupation (i.e. manager and professional). Although the model consists of 4 regions (Lao PDR, Thailand, the rest of ASEAN members, and the rest of the world), we focus on the projection of the employment of local and foreign workers in Lao PDR and the employment of Lao workers in Thailand, which is the most important destination of Lao workers, and in the rest of ASEAN. In addition, because the shortage of high-skilled labor has been one of major constraints of economic development in Lao PDR, this study focuses on the employment of high-skilled workers in Lao PDR, both the locals and the immigrants. A. The model’s main structure 1. Multi-Region Recursive Dynamic CGE Model The regional migration model is basically a Multi-Region Recursive Dynamic Computable General Equilibrium (CGE), whose structure mostly follows the PEP-w-t model version 4.1, a standard multi-region model.33 The model includes the behavior of multilateral trade and labor migration, connecting economic activities of all regions. To represent the main domestic and inter-region economic adjustments, the model incorporates 4 regions (Laos, Thailand, rest of ASEAN and rest of the world), and 6 production sectors (grain, extraction, manufacturing, transportation and communication, utility and service). Each region has one aggregate household and the government. As illustrated in Figure A1, on the supply side, each production activity maximizes its profit by varying the combination of employed labor and capital, and chooses the optimal proportion of its output sold in international and domestic markets. On the demand side, the aggregate household receives earnings from its contribution of labor and capital endowment to production activities, wherein the earnings are used for financing its consumption, saving and tax payment. The government receives incomes from both indirect and direct taxes and sets up its fiscal expenditure to consume commodities and services. For both the household and government, their aggregate consumptions are combinations of imported and domestically produced commodities. The dynamic property of the model is governed by the capital accumulation process, linking the investment of the current year to the newly augmented capital stocks for the next year. This dynamic process creates a continued expansion of total production capacity, ultimately leading to the higher potential output and GDP growth. 33 The list of all equations and GAMS code of the regional migration model is available upon request. To request, please send an email to nattapong@econ.tu.ac.th. 105 All regions are inter-connected through an international trade channel. As shown in Figure A2, the total quantities of imports and exports of each commodity are equilibrated in the world market through the adjustment of the commodity’s world price. Therefore, the model ensures the global closure, controlling the sum of all regions’ current accounts to be zero. Figure A1: Main Structure of a Single-Country CGE Model 106 Figure A2: International Trade Linkage in the Regional Migration Model 107 2. Nested Structure of Employment The regional migration model extends the standard multi-region CGE model, by enriching its production structure. For both high-skill and low-skill labor, in addition to the decision to employ domestic labor, each production sector is allowed to choose the number of immigrants employed in order to maximize its profit. As illustrated in Figure A3 (for the case of Laos' labor market), the model extends the standard model by adding two more nested-layers of employment’s decision tree. The first layer is the selection of a combination of domestic and foreign workers within each skill type, and the next level is the decision to choose the proportion of workers from each region (national). In the first additional layer, employment decision-making is based on constant elasticity of substitution (CES) functions, implying that all employment decisions are determined by the relative wage of domestic to foreign workers and the corresponding values of the elasticity of substitution. In the bottom layer, the optimal employment of each type (nationality) of immigrants depends on its own wage relative to the wage of the domestic workers in the same skill level. In effect, the total number of immigrants employed in each skill level is allocated to each type of immigrant proportional to its relative wage. The group with the lower relative wage is employed relatively more. Figure A4 shows the structure of international migration linkage in the Regional Migration Model. A closure of the inter-region migration segment equalizes the sum of workers employed domestically and abroad to the total number of labor who are native to a particular region. Figure A3: Nested Structure of a Production Function 108 Figure A4: International Migration in the Regional Migration Model 3. Main Data Sources Data on production activities, consumptions, governments’ incomes and expenditures, and international trade flows are obtained from GTAP database version 8.034. To serve the main purpose of the study, all data are aggregated to 4 regions (Laos, Thailand, rest of ASEAN and rest of the world), and 5 production sectors (grain, extraction, manufacturing, utility, and other services). Details of sector classification are in Appendix 7. In addition to values and quantities of most domestic and inter-region economic activities, tax rates and values of elasticity of substitution of exports and imports are also obtained from the GTAP database. Data on employment and migration 34 The original database in GTAP version 8.0 includes data on domestic economic activities and international trade statistics of 129 regions and 57 commodities in reference years, 2004 and 2007. In this study, the data used are those of the 2007 reference year. 109 are from the matrix of bilateral migration, developed by the World Bank.35 The data are also aggregated to the 4 regions and the 6 sectors. 4. Model’s Calibration To replicate the actual features of each region’s economy, some parameters’ values are obtained from calibration. On the production side, the nested production structure is based on the CES function (Constant Elasticity of Substitution), which contains 3 parameters, namely an elasticity of substitution, a share parameter, and a shift parameter. The values of the elasticity of substitution parameters are those used in the PEP-w-t model version 4.1, while the values of the share and the shift parameters are obtained from calibration. On the demand side, the calibration is also used for assigning values to parameters, which appear in the household’s consumption function. The values of the marginal propensity to consume (slope of the consumption curve) and the values of the autonomous consumption (intercept of the curve) are obtained from calibration. These calibrated parameters ensure that the regional migration model can generate the simulation results of the reference year (2007) that are identical or similar to the actual ones. 5. Model’s Verification After the calibration process, which fits the model to the selected key official macroeconomic data of the reference year (200 ), the verification of the model’s results is conducted to examine the model’s performance, especially how well the model can replicate the dynamic adjustments of Lao PDR’s and Thailand’s economies. Table A1 provides the actual values of the cumulative average growth rate (CAGR) of GDP’s components and those generated by the model during 2007-2012. Figure A5 and A6 illustrate comparison between the actual values of GDP components and the values generated from the model for Lao PDR and Thailand respectively. To quantify goodness of fit, we measure simulation errors (deviation of the simulated results from the actual one) by using the ratio of Root Mean Square Error (RMSE) to the average value of 20072012. As reported in Table A2, the goodness of fit measure is less than 10% for most of the variables, indicating that the model can reasonably replicate the main variations of the GDP and its main components for both Lao PDR and Thailand. Here, we only show verifications for the case of Lao PDR and Thailand, which is the focus of this study. Verifications for the rest of ASEAN and the rest of the world can be found in Appendix 8. 35 The data are available at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/0,,contentMDK:22803131~pageP K:64165401~piPK:64165026~theSitePK:476883,00.html 110 Table A1: Comparison of Cumulative Average Growth Rates (CAGR) of Actual data and Simulated Results CAGR (2007-2012) Real GDP Consumption Gross Fixed Capital Formation Government’s Consumption Export Import Actual 8.02% 7.39% 6.57% 14.81% 9.09% 8.24% Lao PDR Simulated 8.02% 7.52% 6.21% 14.91% 7.16% 6.79% Thailand Actual Simulated 4.45% 4.46% 3.31% 3.94% 3.25% 3.29% 5.10% 4.79% 3.55% 4.14% 4.64% 3.48% Source: author’s calculation. Figure A5: Comparison between Actual Values of GDP Components and Generated Values for Lao PDR Source: author’s calculation. 111 Figure A6: Comparison between Actual Values of GDP Components and Generated Values for Thailand Source: author’s calculation. Table A2: Root Mean Square Errors (RMSE) of GDP Components RMSE Real GDP Consumption Gross Fixed Capital Formation Government’s Consumption Export Import Source: author’s calculation. Lao PDR 0.01% 0.04% 0.31% 0.11% 0.07% 0.13% Thailand 6.44% 4.98% 7.71% 1.94% 6.88% 9.34% 112 B. Simulation Results A dynamic simulation is governed by the recursive mechanism of annual investment and capital accumulation. Moreover, the dynamic growth path of each region is obtained through introducing exogenous changes of the following variables from the reference year of 2007 to 2025:  Growth of labor supply (low-skilled and high-skilled workers)  Growth of domestic investment and depreciation  Growth of total factor productivity  Growth of government expenditure Changes of all exogenous variables follow the data collected by the World Bank.36 In the case of Laos, the supply growth of both groups of workers is based on our own projection that uses the most restrictive definition of high-skilled workers, as exhibited in chapter 6. Although the regional migration model can generate substantial information on endogenous variables, three selected set of outputs are of interest. The first set contains the macroeconomic indicators identifying changes of real GDP and its components. The second set contains simulated changes in sectoral employment of low-skilled and highskilled workers in Lao PDR, reflecting future demand for both types of workers. In addition, we also show an estimate of the employment level of high-skilled local workers in Lao PDR, just to give readers some idea of how large the employment level would be in the future. Since the employment level is an estimate, using the number in policy planning should be handled with caution. The last set presents the change in the employment of Thai high-skilled workers in Lao PDR, reflecting future need of foreign high-skilled-workers, and the change in the employment of Lao low-skilled workers in Thailand and the rest of ASEAN, reflecting the extent to which Lao low-skilled workers flow out abroad. It is should be noted that the employment of Lao high-skilled workers abroad is very marginal. Therefore, the simulated employment is trivial and not presented here. 1. Macroeconomic indicators The simulated macroeconomic indicators are the real GDP, the total private consumption, the government consumption, the gross fixed capital formation, and the export and import. Since the economy of Lao PDR is mostly linked to Thailand via trade, and labor and investment flows, the future growth paths of both Lao PDR and Thailand are the main determinants of Lao PDR’s future employment and migration. Figure B1 and B2 display simulated long-term paths of real GDP and its components for Lao PDR and Thailand respectively. 36 See http://www.worldbank.org/en/publication/global-economic-prospects/data and http://data.worldbank.org/data-catalog/population-projection-tables 113 Figure B1: Simulation Results of Lao PDR’s Macroeconomic Indicators Source: author’s calculation 114 Figure B2: Simulation Results of Thailand’s Macroeconomic Indicators Source: author’s calculation 115 2. Sectoral Employment in Lao PDR by Skill Type It should be noted at the beginning that the unit of employment in our model is an employment index.37 Figure B3 shows the simulated employment of the total high-skilled labor (local workers plus foreign workers) in Lao PDR from 2013-2025. To aid the interpretation of the simulation results, we set the employment index in 2013 to 1. Table B1 shows the annual growth rate of the simulated employment of high-skilled labor in Lao PDR. The total employment of high-skilled labor is expected to substantially increase by more than 200% between 2013 and 2015. The simulation results emphasize the significance of the non-agriculture sector as the sector in high demand for the highskilled workers in the long run. The employment of the high-skilled labor in the extraction, service, utility, and manufacturing sectors is expected to grow by 70%, 112%, 86%, and 102% respectively from 2013 to 2025. The positive employment growth implies that the demand for the high-skilled works in these sectors will continue to rise throughout the period. On the contrary, the employment of high-skilled labor in agricultural sector (represented as Grains in Figure B3) will be stable during 2013-2025. Given the future need of the high-skilled workers in the non-agriculture sector, it is urgent to plan ahead how to prepare sufficient amount of the high-skilled worker to serve the need. Figure B3: Simulated Employment of High-skilled Labor in Lao PDR Source: author’s calculation 37 Employment index is the value of employment divided by wage index. 116 Table B1: Growth rate of Simulated Employment of High-skilled labor in Lao PDR Extraction Grains 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2024 8.17% 10.11% 5.54% 4.84% 4.37% 3.98% 3.69% 3.40% 3.16% 2.88% 2.60% 2.33% 2.21% 0.90% 0.27% -0.05% -0.11% -0.12% -0.08% -0.01% 0.28% 0.40% 0.55% 0.73% Mnfc 17.15% 7.99% 5.64% 5.46% 4.93% 4.58% 4.47% 4.42% 4.44% 4.52% 4.66% 4.89% OthServices 11.49% 10.41% 7.35% 6.85% 6.45% 6.08% 5.71% 5.38% 5.05% 4.75% 4.45% 4.16% 9.86% 6.73% 5.61% 5.32% 5.06% 4.83% 4.68% 4.55% 4.49% 4.38% 4.28% 4.20% 12.12% 9.69% 6.87% 6.44% 6.04% 5.69% 5.39% 5.12% 4.86% 4.64% 4.42% 4.22% Util Total Source: author’s calculation In the case of the low-skilled labor, Figure B4 shows that employment in the nonagriculture sectors will sustain positive growth during 2013-2025. The agricultural (grains) sectors will mostly have negative employment growth rates throughout the period. The low growth rates of the demand for the high-skilled workers together with the declining demand for the low-skilled workers in the agriculture sector and the positive growth rates projected in non-agricultural activities imply a structural transformation. Regarding the employment, the agriculture sector will become less dominant, while the non-agriculture sector will play a more important role. The annual growth rate of the simulated employment of high-skilled labor in Lao PDR is reported in Table B2. Figure B4: Simulated Employment of Low-skilled Labor in Lao PDR Source: author’s calculation 117 Table B2: Growth Rate of Simulated Employment of Low-skilled labor in Lao PDR 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2.02% 6.05% 3.22% 2.48% 2.19% 1.91% 1.67% 1.39% 1.25% 0.93% 0.58% 0.23% Grains -0.29% -0.69% -0.67% -1.01% -1.00% -0.97% -0.91% -0.84% -0.51% -0.41% -0.29% -0.15% Mnfc 4.60% 0.40% 1.19% 0.90% 0.73% 0.59% 0.55% 0.51% 0.72% 0.71% 0.71% 0.75% OthServices 0.02% 2.31% 2.47% 2.00% 1.98% 1.88% 1.69% 1.50% 1.48% 1.23% 0.96% 0.66% Util 3.62% 2.80% 3.29% 2.95% 2.86% 2.75% 2.63% 2.51% 2.56% 2.39% 2.23% 2.06% Total 1.41% 1.34% 1.33% 0.94% 0.86% 0.78% 0.71% 0.63% 0.76% 0.66% 0.56% 0.45% Extraction Source: author’s calculation To obtain an estimate of the employment level of the high-skilled domestic workers in Lao PDR, we use the following procedure. First we take the number of the high-skilled labor force in 2013 from LECS 5 (88.26 thousand persons) and distribute it across sectors, using the sectoral share of the normalized employment index of the highskilled domestic workers in 2013. Then, the resulting sectoral employment level is projected to 2025 using the growth rate of the normalized employment index of highskilled domestic workers in Lao PDR generated from the regional migration model, as shown in Table B3. We show the estimated employment level of the high-skilled local workers from 2013-2025 in Table B4. Table B6 shows an estimate of the employment level of the low-skilled domestic workers in Lao PDR, calculated using the same procedure as when we estimate of the employment level of the high-skilled domestic workers in Lao PDR. In this case, however, we use the number of the low-skilled labor force in 2013 from LECS 5 (2974.47 thousand persons) and the growth rate of the normalized employment index of lowskilled domestic workers in Lao PDR generated from the regional migration model, as shown in Table B5. Table B3: Growth Rate of Estimated Employment of High-skilled Domestic Workers in Lao PDR Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 10.67% 12.46% 6.66% 5.81% 5.26% 4.78% 4.41% 4.06% 3.77% 3.44% 3.14% 2.86% Grain 3.89% 2.50% 1.08% 0.67% 0.56% 0.49% 0.48% 0.51% 0.77% 0.86% 0.99% 1.17% Source: author’s calculation Mnfc 21.11% 10.93% 6.95% 6.54% 5.87% 5.40% 5.18% 5.05% 5.00% 5.03% 5.14% 5.34% Othservices 15.24% 13.35% 8.63% 7.90% 7.36% 6.88% 6.40% 5.98% 5.59% 5.24% 4.90% 4.59% Util 13.41% 9.65% 6.96% 6.46% 6.06% 5.73% 5.46% 5.24% 5.12% 4.95% 4.82% 4.72% Total 15.87% 12.63% 8.17% 7.51% 6.97% 6.51% 6.09% 5.74% 5.42% 5.14% 4.89% 4.67% 118 Table B4: Estimated Employment Level of High-skilled Domestic Workers in Lao PDR (in thousand persons) Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 0.59 0.65 0.74 0.78 0.83 0.87 0.91 0.96 0.99 1.03 1.07 1.10 1.13 Grain 2.63 2.73 2.80 2.83 2.85 2.87 2.88 2.89 2.91 2.93 2.96 2.98 3.02 Mnfc 13.87 16.80 18.63 19.93 21.23 22.48 23.69 24.92 26.17 27.48 28.87 30.35 31.97 Othservices 67.92 78.27 88.72 96.38 104.00 111.66 119.33 126.97 134.56 142.08 149.52 156.84 164.03 Util 3.25 3.68 4.04 4.32 4.60 4.88 5.16 5.44 5.72 6.02 6.31 6.62 6.94 Total 88.26 102.14 114.93 124.24 133.51 142.75 151.97 161.17 170.36 179.54 188.72 197.89 207.09 Source: author’s calculation Table B5: Growth Rate of Estimated Employment of Low-skilled Domestic Workers in Lao PDR Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 5.44% 5.19% 4.98% 4.68% 4.44% 4.16% 3.89% 3.61% 3.40% 3.10% 2.76% 2.39% Source: author’s calculation Grain -0.89% -0.94% -0.90% -1.37% -1.51% -1.68% -1.84% -2.03% -2.00% -2.25% -2.51% -2.79% Mnfc 1.04% 0.57% 0.47% -0.10% -0.51% -0.91% -1.24% -1.62% -1.79% -2.25% -2.75% -3.28% Othservices 2.29% 2.49% 2.46% 2.13% 2.35% 2.55% 2.69% 2.86% 3.25% 3.41% 3.57% 3.73% Util 2.48% 2.39% 2.29% 1.84% 1.71% 1.53% 1.35% 1.16% 1.15% 0.90% 0.66% 0.41% Total 1.42% 1.35% 1.33% 0.94% 0.87% 0.79% 0.72% 0.64% 0.77% 0.67% 0.56% 0.46% 119 Table B6: Estimated Employment Level of Low-skilled Domestic Workers in Lao PDR (in thousand persons) Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 369.90 390.03 410.27 430.70 450.86 470.88 490.47 509.54 527.94 545.89 562.81 578.34 592.17 Grain 873.20 865.43 857.29 849.57 837.94 825.28 811.42 796.49 780.32 764.71 747.51 728.74 708.41 Mnfc 789.81 798.03 802.57 806.35 805.54 801.43 794.14 784.29 771.59 757.77 740.72 720.35 696.73 Othservices 899.88 920.49 943.41 966.61 987.20 1010.40 1036.17 1064.04 1094.47 1130.04 1168.58 1210.29 1255.44 Util 41.68 42.71 43.73 44.73 45.55 46.33 47.04 47.68 48.23 48.78 49.22 49.55 49.75 Total 2974.47 3016.67 3057.27 3097.97 3127.09 3154.33 3179.23 3202.04 3222.55 3247.20 3268.84 3287.29 3302.50 Source: author’s calculation It is worth stressing that the estimated numbers in Table B4 are B6 used mainly for illustration purposes. That is, they are used to provide some idea on the magnitude of the future employment level. Using these estimated numbers in policy planning should be done with great caution. 3. Labor Migration With regard to labor migration, the employment of the high-skilled migrant workers in Lao PDR and the employment of the low-skilled Lao labor in Thailand and other ASEAN countries are the main attentions of this study. Figure B5 shows simulated employment of the high-skilled migrant workers in Lao PDR from 2013 to 2025. Table B7 presents the growth rate of the simulated employment of high-skilled workers in Lao PDR. For the extraction and the utility sectors, the employment of the high-skilled migrant workers is projected to increase in the long run, implying that the domestic highskilled workers will not be sufficient to serve the future need in these sectors, and therefore significant numbers of migrant workers will need to be imported to fill the gap. Comparing to the number in 2013, the employment of the high-skilled foreign workers in the extraction and utility sectors is projected to be about 32% and 9% higher than the employment in 2013 respectively. On the contrary, the 2025 employment of the highskilled foreign workers in the manufacturing activity and other service sector is expected to be roughly the same level as in 2013, while the employment in the agricultural sector is expected to continuously decline during 2013-2025. The total employment will increase slightly between 2013 and 2025. For illustration purposes, we estimate the employment of the high-skilled migrant workers in Lao PDR, using the same procedure as when we estimate the employment level of domestic workers in Lao PDR. The number of the high-skilled migrant workers in 120 Lao PDR in 2013 is assumed to be equal to 26,750.38 The resulting estimate is reported in Table B8. Figure B5: Simulated Employment of High-skilled Migrant Workers in Lao PDR Source: author’s calculation Table B7 Growth Rate of Simulated Employment of High-skilled Migrant Workers in Lao PDR 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 1.90% 4.72% 3.08% 2.79% 2.56% 2.37% 2.29% 2.16% 2.03% 1.85% 1.64% 1.42% Grains -1.46% -2.15% -1.17% -1.25% -1.17% -1.07% -0.90% -0.75% -0.39% -0.22% -0.03% 0.18% Mnfc -0.88% -6.17% -1.11% -0.22% -0.09% 0.12% 0.57% 0.94% 1.27% 1.61% 1.96% 2.28% OthServices -6.92% -4.98% 0.09% 0.76% 1.07% 1.30% 1.52% 1.62% 1.62% 1.57% 1.45% 1.23% Util -3.15% -4.00% 0.48% 1.02% 1.25% 1.45% 1.72% 1.91% 2.09% 2.18% 2.24% 2.24% Total -5.49% -4.94% -0.12% 0.54% 0.81% 1.02% 1.28% 1.44% 1.51% 1.54% 1.51% 1.41% Source: author’s calculation 38 The number is from 2012 Economic Census in Lao PDR, and it does not include self-employed workers working at home. 121 Table B8: Estimated Employment Level of High-skilled Migrant Workers in Lao PDR (in thousand persons) Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 0.2272 0.2315 0.2424 0.2499 0.2569 0.2635 0.2697 0.2759 0.2818 0.2876 0.2929 0.2977 0.3019 Grain 1.1394 1.1228 1.0987 1.0859 1.0723 1.0598 1.0484 1.0390 1.0312 1.0272 1.0249 1.0246 1.0265 Mnfc 4.5734 4.5331 4.2532 4.2059 4.1967 4.1930 4.1981 4.2220 4.2617 4.3158 4.3854 4.4712 4.5733 Othservices 19.6857 18.3238 17.4115 17.4270 17.5598 17.7480 17.9784 18.2515 18.5479 18.8477 19.1434 19.4206 19.6593 Util 1.0993 1.0646 1.0221 1.0269 1.0374 1.0503 1.0655 1.0838 1.1044 1.1275 1.1521 1.1779 1.2043 Total 26.7250 25.2759 24.0279 23.9957 24.1231 24.3145 24.5602 24.8721 25.2271 25.6057 25.9987 26.3920 26.7653 Source: author’s calculation Figure B6 and B7 present simulated employment of the Lao low-skilled workers in Thailand and the rest of ASEAN from 2013-2025, respectively. Table B9 and B11 report the growth rate of the simulated employment in Figure B6 and B7 respectively. The employment of the Lao low-skilled labor in all sectors in Thailand and the rest of ASEAN will continuously increase throughout the period, reflecting an increasingly high demand for the Lao labor. The service sector in both Thailand and the rest of ASEAN will have the highest growth rate of employment. Meanwhile, the employment growth rate in the agricultural sector in both Thailand and the rest of ASEAN will become the lowest but still positive in the long run. For illustration purposes, we estimate the employment of the low-skilled Lao workers in Thailand, using the same procedure as the one we used to estimate the employment level of domestic workers in Lao PDR. The total number of the low-skilled Lao workers (legal and irregular workers) in Thailand in 2013 is assumed to be equal to 60,956.39 The estimate is reported in Table B10. The projected high demand for Lao low-skilled workers in Thailand and the rest of ASEAN is very sensible due to the following reasons. The Lao population is very young relative to the population in other more developed ASEAN countries, particularly Thailand and Singapore which are expected to become aging societies in the next couple of decades. A Lack of working-age population in more developed ASEAN countries will force those countries to seek for more labor from younger but less developed countries like Lao PDR. Moreover, higher wage in more developed ASEAN countries will remain very attractive to Lao workers. 39 The number is from the Office of Foreign Administration, Thailand. 122 Figure B6: Simulated Employment of Lao Low-skilled workers in Thailand Source: author’s calculation Table B9: Growth Rate of Simulated Employment of Lao Low-skilled Workers in Thailand 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Extraction 3.82% 4.00% 4.15% 4.27% 4.37% 4.44% 4.50% 4.54% 4.57% 4.58% 4.58% 4.56% Grains 2.79% 2.82% 2.84% 2.85% 2.86% 2.87% 2.87% 2.88% 2.88% 2.88% 2.88% 2.88% Mnfc 4.00% 4.11% 4.22% 4.31% 4.40% 4.48% 4.55% 4.62% 4.68% 4.74% 4.80% 4.85% OthServices 4.69% 4.78% 4.87% 4.95% 5.03% 5.10% 5.17% 5.24% 5.30% 5.36% 5.43% 5.49% Util 3.93% 4.09% 4.23% 4.35% 4.45% 4.55% 4.63% 4.70% 4.77% 4.83% 4.89% 4.95% Total 4.27% 4.36% 4.46% 4.55% 4.63% 4.70% 4.77% 4.84% 4.90% 4.96% 5.02% 5.07% Source: author’s calculation 123 Table B10: Estimated Employment Level of Lao Low-skilled Workers in Thailand (in thousand persons) Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 extraction 1.584 1.644 1.710 1.781 1.857 1.938 2.024 2.116 2.212 2.313 2.418 2.529 2.645 grains 4.412 4.536 4.663 4.796 4.932 5.073 5.219 5.369 5.523 5.682 5.846 6.015 6.188 mnfc 21.561 22.425 23.346 24.330 25.379 26.495 27.681 28.941 30.277 31.695 33.197 34.790 36.477 OthServices 32.032 33.534 35.135 36.845 38.668 40.612 42.682 44.888 47.238 49.742 52.411 55.255 58.287 Util 1.366 1.420 1.478 1.540 1.607 1.679 1.755 1.836 1.923 2.014 2.112 2.215 2.325 Total 60.956 63.558 66.332 69.292 72.444 75.797 79.362 83.150 87.173 91.447 95.984 100.803 105.922 Source: author’s calculation Figure B7: Simulated Employment of Lao Low-skilled Workers in the Rest of ASEAN Countries Source: author’s calculation 124 Table B11: Annual Growth Rate of Simulated Employment of Lao Low-skilled Workers in the Rest of ASEAN Countries 2014 2015 3.36% 5.24% 4.72% 4.58% 4.49% Grains 5.40% 3.97% 3.88% 3.80% Mnfc 16.50% 3.19% 4.74% 5.02% OthServices 14.69% 5.81% 6.41% Util 13.73% 2.95% 4.56% Total 13.66% 4.86% 5.63% Extraction 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 4.40% 4.31% 4.21% 4.12% 4.02% 3.92% 3.83% 3.73% 3.66% 3.59% 3.53% 3.47% 3.41% 3.35% 3.30% 5.08% 5.12% 5.16% 5.20% 5.23% 5.26% 5.29% 5.32% 6.41% 6.30% 6.20% 6.10% 6.01% 5.93% 5.86% 5.79% 5.74% 4.85% 4.92% 4.97% 5.02% 5.06% 5.11% 5.16% 5.21% 5.25% 5.70% 5.65% 5.60% 5.55% 5.50% 5.46% 5.42% 5.39% 5.36% Source: author’s calculation C. Conclusion In this chapter, we develop the regional migration model to project future employment of the locals and foreigners in Lao PDR. The simulation results from the regional migration model suggest the significance of the non-agriculture sector as the sector in high demand for high-skilled workers in the long run. The employment of the high-skilled labor in the extraction, service, utility, and manufacturing sectors is expected to grow by 70%, 112%, 86%, and 102% respectively from 2013 to 2025. In the extraction and utility sectors, the projections indicate that that the domestic supply of high-skilled workers will not be sufficient to serve their future needs. Consequently, significant numbers of migrant workers will need to be imported to fill the gap. The employment of high-skilled workers will certainly be a key factor, enabling sustainable economic growth in the long run. Therefore, it is important for Lao PDR to develop more local skilled labor. The Lao PDR government should support the education system, particularly at the university and technical education level, to produce more highskilled graduates in order to serve the rapidly increasing domestic demand. In addition, the employment of the high-skilled foreign workers should be encouraged to help serving the increasing demand. Barriers on the employment of high-skilled immigrants should be removed to facilitate more employment. The projections also indicate that the supply of unskilled labor in Lao PDR will continue to exceed the demand for unskilled labor. Growing numbers of Lao unskilled workers are projected to migrate to Thailand and other ASEAN countries. The total number of Lao low-skilled workers working in Thailand and Other ASEAN countries is projected to increase between 2013 and 2025 by more than 74% and 100%, respectively. The increase is expected to happen in all sectors. 125 VIII. Conclusion One of the eight ongoing World Bank-supported HRD studies provides forecasts of Lao PDR’s aggregate supply and demand for labor by completed education levels. 40 Preliminary forecasts were presented at the World Bank’s Third Learning Forum in Vientiane (June 12-13, 2013).41 However, there are areas in which the current version of the model might need further development to better aid policy decision-making. Specifically, the current model forecasts the aggregate demand and supply of domestic labor while neglecting the large outflows of unskilled labor (mostly to Thailand) and the smaller, but critically important inflows of foreign skilled labor. This research project aims to fill the gap in the previous model by projecting labor supply in Lao PDR by skill group and developing the regional migration model to project the employment of local and foreign workers in Lao PDR and the employment of Lao workers in Thailand, the most important destination for Lao workers. Projecting the labor supply in Lao PDR, we employ 3 classifications to approximate the number of the low-skilled and the high-skilled workforce. The first classification considers only education. It counts those who had tertiary and vocational education as high-skilled, and the rest as low-skilled. However, education alone may not serve as a good proxy for each worker's capability, as there is a high discrepancy in education quality at every level. The second and third classifications rely not only on education, but also on occupation to classify high-skilled workers. For the second classification, those who had tertiary and vocational education and had a high-skilled occupation (i.e. manager and professional) are counted as high-skilled, while the rest are counted as low-skilled. The third classification counts those who had tertiary education and had a high-skilled occupation (i.e. manager and professional) as high-skilled. Therefore, the first classification is the broadest, while the last classification is the most restrictive. Our projection of the three different definitions of high-skill predict the high-skilled labor supply in 2025 to be 24 percent, 11.5 percent and 5.97 percent of the total labor supply for the first, the second, and the third classification respectively. If the broadest definition projection is treated as the upper bound to the number of high-skilled workers, we can say that by 2025, the percentage of high-skilled workers in Lao PDR will be as many as 24 percent. However, such a proportion requires all workers with at least one year of tertiary education to be equipped with high work skills. This is very unlikely, given 40 There are currently no reliable data on labor qualifications or skills in Lao PDR apart from educational attainment and occupation. For an example of an effort to forecast the supply and demand of labor by education, occupation and skill level in the European region, see European Centre for the Development of Vocational Training (CEDEFOP). 2010. Skills supply and demand in Europe: Medium-term forecast up to 2020. Luxembourg. 41 The WB has been holding a series of consultations with the government and development partners to present preliminary findings of the eight studies for discussion as part of an effort to lay the groundwork for revision of the HRD strategy. The eight studies are: (i) STEP Skills Measurement Household Survey; (ii) STEP Skills Employer Survey; (iii) TVET Graduates Tracer Survey; (iv) Education Institutions Survey; (v) SABER Education Policies Survey; (vi) Labor Market Transformations Study; (vii) Labor Market Regulations Study; and (viii) Skills Forecasting Study. 126 the current discrepancies in the quality of tertiary education in Lao PDR. To this effect, we believe that estimates from scenario 2 and 3 are more realistic. The estimates suggest that the proportion of the high-skilled workforce in 2025 is more likely to be between 5.97 to 11.5 percent. The simulation results from the regional migration model suggest the significance of the non-agriculture sector as the sector in high demand for high-skilled workers in the long run. The extraction sector, the service sector, the utility sector and the manufacturing sectors will maintain positive employment growth during 2013-2025. The employment of the high-skilled labor in the extraction, service, utility, and manufacturing sectors is expected to grow by 70%, 112%, 86%, and 102% respectively from 2013 to 2025. In the extraction and utility sectors, the employment of the high-skilled migrant workers is projected to increase, implying that the domestic high-skilled workers will not be sufficient to serve the future need in these sectors. Consequently, significant numbers of migrant workers will need to be imported to fill the gap. The employment of high-skilled workers will certainly be a key factor, enabling sustainable economic growth in the long run. Therefore, it is important for Lao PDR to develop more local skilled labor. The Lao PDR government should support the education system, particularly at the university and technical education levels, to produce more high-skilled graduates in order to serve the rapidly increasing domestic demand. In addition, the employment of the high-skilled foreign workers should be encouraged to help serving the increasing demand. Barriers on the employment of high-skilled immigrants should be removed to facilitate more employment. The projections also indicate that the supply of unskilled labor in Lao PDR will continue to exceed the demand for unskilled labor. Growing numbers of Lao unskilled workers are projected to migrate to Thailand and other ASEAN countries. The total number of Lao low-skilled workers working in Thailand and Other ASEAN countries is projected to increase between 2013 and 2025 by more than 74% and 100%, respectively. The increase is expected to happen in all sectors. In addition to the modeling parts, this research project also conducts enterprise surveys in both Lao PDR and Thailand to collect quantitative and/or qualitative data on the roles that foreign skilled labor and foreign-trained skilled domestic labor play in enterprises in the non-agriculture sector; the relative wage rates paid to foreign and foreign-trained skilled labor as compared to domestically-trained skilled labor; and the extent to which domestic labor can substitute for foreign labor. From the employer survey in Lao PDR, we find that the surveyed firms employ foreign-skilled labor in various positions, ranging from the top-level i.e. executive chefs and managing directors to mid-level management and technical positions i.e. engineers, supervisors, and assistant managers. The main reason why the surveyed firms hire foreign workers is because skilled domestic workers are limited, and lack the sufficient knowledge and experience. 127 For 100% foreign-owned firms and affiliates of foreign firms, it is common for the headquarters to send their current staff or staff in affiliates that are in other countries to come and work in the affiliated firms in Lao PDR to fill in for high-level management and technical positions. Generally, it is very difficult for local personnel to substitute for foreign personnel. This is because the supply of high-skilled local personnel is very limited, yet most of the existing pool of the skilled local workers is not up to the international standard. More importantly, it is an optimal decision of the headquarters to put the right persons on the right jobs in their affiliates in order to maximize mutual benefits of both the headquarters and the affiliates. The need for foreign labor is not restricted to high-skilled jobs. Since domestic vocational education is of poor quality, there is substantial need for foreigners for semiskilled jobs such as technicians. It is not surprising that many positions, both skilled and semi-skilled, are held by foreigners even when the firms can make their own employment decisions. Skills-upgrading attempts at firm-level such as on-the-job training, overseas training, technology and knowledge transfers from foreign to local workers, and scholarships can be found in many sectors. Leading examples of such attempts include the partnership project between Toyota Company and the Lao-German technical school and the collaboration between Kubota Company and the Lao-German technical school. Given the current quality of formal and vocational education and the lack of personnel and resources in the education sector, it will take years before the education system can produce decent graduates that can substitute for foreigners. Lao workers are normally able to benefit through the skills and knowledge transfer through on-the-job training and working and collaborating with foreigners. In addition, working with foreigners helps improve language skills, and the working attitude and discipline, resulting in an increased in the productivity of domestic workers. The productivity and performance of the firms can be improved substantially through employing foreign workers, since they can help reduce the cost of production and can do the jobs that domestic workers are not very productive at. Despite that, foreign workers could also cause misunderstandings, conflicts, or tensions with the domestic workers, which in turn hinders the performance of the firm. Cultural differences and language barrier are the main factors discouraging collaboration and understanding between foreign and domestic workers. Since foreign skilled workers receive more compensation than their local counterparts, the obstacle of employing foreign workers is the cost of employing. Not every firm, small and medium local firms in particular, can afford to hire foreign workers. Another important obstacle is that the costs associated with the work permit application process, including the time cost, is needlessly high. From the employer survey in Thailand, we find that high-skilled foreign workers are usually employed in high-level management positions or technical expert positions. Some workers are sent by the headquarters to supervise the operation of the factories or offices in Thailand. These workers come to Thailand in order to ensure that the management and production qualities meet the standard set by the headquarters. Since 128 the affiliates in Thailand have no control over the employment of the foreign employees and the parent company still feels the need to send its own people to the affiliates, it is unlikely the Thai personnel can substitute this type of foreign personnel. There are high-skilled foreign personnel hired by the firms (both Thai firms and foreign affiliates) in response to their own needs. This is mainly because some firms face difficulties in finding Thai workers with the required qualifications. For example, the integrated circuit firm that we interviewed finds it difficult to hire Thai engineers who can analyze the data for the purpose of R&D; the sugar firm that we interviewed could not find a Thai personnel who is knowledgeable about sugar by-product businesses; the hotels have to hire foreign general managers because they cannot find Thai personnel with an equivalent international experience. In any case, since it is usually more expensive and more complicated to hire foreign personnel, firms only hire them when they really need to do so. The firms may compromise by hiring less-qualified Thai personnel. In summary, it can be said that Thai firms hire foreign personnel because they have 3 main types of skills 1) management skills 2) technical skills and 3) language skills. Improving these skills for Thai workers is needed to promote the substitutability between Thai and foreign high-skilled workers. 129 Appendix 1 List of Occupations and Professions Prohibited to Foreigners 1. Manual work 2. Work in agriculture, animal husbandry, forestry or fishery, excluding specialized work in each particular branch or farm supervision 3. Bricklaying, carpentry or other construction work 4. Wood carving 5. Driving mechanically-propelled, carried or non-mechanically-propelled vehicle, excluding international aircraft piloting 6. Shop attendance 7. Auction 8. Supervising, auditing or giving service in accountancy, excluding internal auditing on occasions 9. Cutting or polishing jewelry 10. Haircutting, hairdressing or beauty treatment 11. Cloth-weaving by hand 12. Weaving of mate or making products from reeds, rattan, hemp, straw or bamboo pellicle 13. Making of Sa-paper by hand 14. Lacquer-ware making 15. Making of Thai musical instruments 16. Nielloware making 17. Making of products from gold, silver or gold-copper alloy 18. Bronze-ware making 19. Making of Thai dolls 20. Making of mattress or quilt blanket 21. Alms bowls casting 22. Making of silk products by hand 23. Casting of Buddha images 24. Knife-making 25. Making of paper or cloth umbrella 26. Shoe-making 27. Hat-making 28. Brokerage or agency, excluding brokerage or agency in international trade business 29. Engineering work in the civil engineering branch concerning designing and calculation, organization, research, planning, testing, construction supervision or advising, excluding specialized work 30. Architectural work concerning designing, drawing of plan, estimating, construction directing or advising 31. Garments-making 32. Pottery or ceramic-ware making 33. Cigarette-making by hand 34. Guide or conducting sightseeing tours 35. Street-vending 36. Type-setting of Thai characters by hand 37. Drawing and twisting silk-thread by hand 38. Office or secretarial work 39. Legal or lawsuit services Source: Royal Decree Stipulating Work in Occupations and Professions Prohibited to Aliens B.E. 2522 (A.D. 1979) 130 Appendix 2 Rules of the Department of Employment on the Criteria for the Consideration for Work Permit Issuance Amount of Work Permits Issued 1 2 3 4 5 Working for Financial Institute Issued to aliens who work with and have certified letters from financial institutions under the supervision of the Bank of Thailand, the Ministry of Finance, or other government offices taking responsibility in financial institutions supervision, the number of such aliens to be granted a work permit shall be as identified in the certified letters. Working by Having Confirmation Issued to aliens who have certified letters from central, regional or local government offices, state enterprises and public organizations under the Public Organization Act which identifies name, position and duration of work. Working with an Employer who is Registered as Juristic Person Issued to aliens who work with an employer that has investment capital registration of no less than THB 2 million. Issued to aliens who work with an employer that is registered as a juristic person overseas but conducts business in Thailand and must bring a minimum of THB 3 Million of initial capital into Thailand. Issued to aliens who work with an employer that is registered as a juristic person overseas but conducts business in Thailand before 30 October 2002—but cannot provide any evidence on being in the country before this date—though however has an active bank account balance of THB 3 million for at least 6 months. Remarks As identified in the certified letters As identified in the certified letters One available for every THB 2 million of paid up capital (but not more than 10 permits) One available for every THB 3 million of investment (but not more than 10 permits) For the aliens who are married to Thai nationals and have a marriage certificate and cohabit as husband and wife, the amount of investment capital required in order to receive a work permit shall be reduced to half of the amount prescribed in No. 3-5. 131 6 7 8 9 10 11 12 13 14 15 Issued to aliens who work with an employer as item No. 3-5 by using the technology that Thai people are unable to use, or not having a sufficient amount of local market workers, and/or must provide training and knowledge of its technology to at least two Thai people during the prescribed period. Issued to aliens who work with an employer as item No. 3-5 by using special knowledge to complete the project successfully within the prescribed period. Issued to aliens who work with an employer for entertainment, show, or music business that requires temporary employment for a fixed period. Issued to aliens who work with an employer who has paid income tax to the government during the previous fiscal year of at least THB 3 Million. Issued to aliens who work with an employer whose business is exporting goods overseas and had remitted capital back to Thailand in the previous year of no less than THB 30 million. Issued to aliens who work with an employer operating in a travel business and that has brought at least 5,000 foreigners to Thailand for travel during the previous year. Issued to aliens who work with an employer as juristic person that has employed at least 100 Thai workers. Representative of Foreign Juristic Person Issued to aliens who work as a representative of a foreign juristic person relating to international trade business for advising any matters relating to product of head office that distributing to distributor or consumer, introduction of any information relating product or new service of head office and report any business update in Thailand to head office. Issued to aliens who work as a representative of a foreign juristic person relating international trade business for serving source of material or service in Thailand to head office, inspection and control quality and quantity of product was sold or manufactured in Thailand. Issued to aliens for item No. 14 when representative offices which can provide a procurement or service in Thailand for their head office and that head office had ordered such goods Amount of Work Permits Issued As necessary and/or suitable Not more than 2 persons Not more than 5 persons As necessary and/or suitable Remarks 132 Amount of Work Permits Issued or service from manufacturer in Thailand in the previous year for the value of not less than 100 million baht. 16 17 18 19 20 Working for Regional Office Issued to aliens who work in regional offices which are established under the laws of the country and perform a business in another country, to perform the work as a representative of the head office in providing the services for example, business coordination and supervision to the branch or the companies in their group of companies which are located in the region, consultant or human resources development training services, financial management, marketing management and sale promotion planning, production development, and research and development without getting any income from such services other than receiving the payment from the head office, and with no authority to buy or sell or do any trading business with any person or legal person in a country where such representative offices are located, such aliens shall be permitted to work in that representative office not more than five persons. Issued to aliens for item No. 16 when the regional office brings more than 10 million baht into Thailand for their expenses in the previous year. Working for Regional Office Head Quarter Issued to aliens who works with regional office head quarter was incorporated under Thai laws for carry on business relating services for management or technical or service for supporting to its affiliate or branch whether located in Thailand or foreign country pursuant to royal decree issuing pursuant to revenue code on reduction and exception of taxes. Issued to aliens who for item No. 18 when the regional office head quarter has paid tax on previous fiscal year to the government of not less than THB 3 Million. Working for Foundation Association or Nonprofit Organization Issued to aliens who work in a foundation, association or nonprofit organization which create benefits to society as a whole. Not more than 5 persons As necessary and/or suitable Not more than 5 persons As necessary and/or suitable As necessary and/or suitable Remarks 133 Amount of Work Permits Issued 21 22 23 24 25 26 27 Working for a Private Educational Institution Issued to aliens who are employed at a private educational institution which is appointed as a teacher, a lecturer or factually of teachers according to private education law or other law. Working for an Individual Employer Issued to aliens who work with the employers whose business has generated THB 700,000 baht of income in the past or present year, but the total number of aliens to be granted work permit shall not be more than three persons. Issued to aliens who work with the employers who paid tax in the past year. The work permit will be issued to an alien worker for every 50,000 baht income but the total number of aliens to be granted work permit shall not be more than three persons. Issued to aliens who work with the employers who employ four Thai workers; a work permit will be issued to an alien for every four Thai workers but the total number of aliens to be granted work permit shall not be more than three. Working for Legal Service Issued to aliens who are in charge of arbitration or arbitral proceedings at legal office or litigation firm. Issued to aliens who are employed at a legal service or litigation firm which is involved in arbitral, defense, and only in the event that the governing Law for the dispute is not Thai Law or in a case when it is not required to enforce according to a decision of arbitrator under Thai Law. Working without an Employer Issuing a work permit to a foreigner without an employer. Remarks As necessary and/or suitable 1 person (but not over 3 permits) 1 person for every 4 Thai workers (but not over 3 permits) To be agreed by both parties To be agreed by both parties As necessary Source: Rule of Department of Employment on the Criteria for the Consideration for Work Permit Issuance B.E. 2547 (A.D. 2004) 134 Appendix 3 Interviewer..................................................Date................................... Questionnaire Foreign Personnel Employment Survey By the Thailand Development Research Institute Foundation, May 2014 Background The purpose of this survey is to obtain the views of employers about the relative advantages and disadvantages of three different categories of highly skilled workers: (1) domestically trained Thai nationals, (2) foreign-trained Thai nationals, and (3) highly skilled foreign workers. For purposes of this survey, highly skilled workers are defined as university graduates or holders of high vocational/technical diplomas. The survey includes some factual questions about the characteristics of your company and its employees. However, this information is sought mainly as background information to help us in interpreting your responses. Exact numbers are not required. The core questions concern your views about the relative advantages and disadvantages of the three categories of highly skilled labor and the possibility now and in the future to substitute highly skilled Thai nationals for their foreign counterparts. 135 1. General Information 1.1) Name of the respondent..................................................... Position.............................................. 1.2) Name of the firm ........................................…….………...............………….............. 1.3) Location of the Head Office..................................Sub-district........................ District...................... City/Province.....................................Telephone...............……...........Fax.............................……….. 1.4) Type of Business  Food Industry/Agro-Processing  Textile/ Garments  Automotive  Electronics  Building Material  Mining  Hydropower  Hotels 1.5) (Industrial sectors only) The main products of your company include................................................................................................................................................ 1.6) Your firm has been operating for approximately............................years 1.7) Ratio of shareholding  Percentage of shares held by Thai ............%  Percentage of shares held by foreigners.............% (indicate country…………………) 1.8) In 2013, the firm’s sales amounted to .........................................Baht. 1.9) (Industrial sectors only) In 2013, your firm had the value share of exported manufactured goods equivalent to …...........% of total sales. 136 2. Overview of Employment 2.1 At present, the total number of full-time employees at your firm (including offices and factories) is …………. persons, with ………… Thai employees and …….…… foreign employees. 2.2 At present, the total number of part-time/temporary employees at your firm (including offices and factories) is …………. persons, with ………… Thai employees and …….…… foreign employees. 137 3. Recruitment of Foreign Personnel (skilled labor) 3.1 1) Please specify which jobs in your company are currently filled by foreigners (skilled labor) in the 1 st column and indicate how many foreigners are hired for each job in the 2nd column; 2) For each of the jobs specified in the 1st column, are there any Thai personnel working in the same or similar jobs? If so, please indicate, in an appropriate cell in the 3rd column, how many of the Thai personnel have received their education from a domestic institution and how many have received their education overseas; 3) If Thais are hired, please provide the average total annual cost of the Thai personnel (including all allowances, bonuses, and benefits) as a percentage of the average total annual cost of the foreign personnel in the appropriate cell in the 4 th column 4) In the case of jobs filled by foreigners only, please provide, in the 5th column, reasons why Thai personnel are not hired. (1) Jobs of foreign personnel (2) Number of foreign personnel (3) Number of Thai personnel graduated In the country Overseas (4) Average total annual cost of Thai personnel (including all allowances, bonuses, and benefits) as a percentage of the average total annual cost of foreign personnel (%) In the country Overseas (5) Reasons for not hiring Thais 138 (1) Jobs of foreign personnel (2) (3) Number of foreign personnel Number of Thai personnel graduated In the country Overseas (4) Average total annual cost of Thai personnel (including all allowances, bonuses, and benefits) as a percentage of the average total annual cost of foreign personnel (%) In the country Overseas (5) Reasons for not hiring Thais 139 3.2 Following upon Q3.1, which are the jobs that the locally-educated Thai personnel and/or the overseas-educated Thai personnel may be able to substitute for foreign personnel (highly skilled labor) now or in the near future (1-3 years), and which are the jobs that you do not think Thais can substitute for foreign personnel now or in the near future? Please explain your reasons. ..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... 3.3 Through which mean(s) do you think domestically-trained Thai personnel could enhance their skills to compete with foreign personnel (skilled labor)? (select all answers that apply, by the order of importance)  Upgrade the education system of the country  Conduct in-house training  Promote joint working and collaboration between local and foreign skilled personnel for skills/knowledge transfer  Send Thai personnel for overseas training/site visit  Others (please specify) ................................................... 3.4 Through which mean(s) do you think foreign-trained Thai personnel could enhance their skills to compete with foreign personnel (skilled labor)? (select all answers that apply, by the order of importance)  Send Thai personnel for overseas training/site visit  Conduct in-house training  Promote joint working and collaboration between local and foreign skilled personnel for skills/knowledge transfer  Others (please specify) ................................................... 140 3.5 How have foreign personnel (skilled labor) affected the productivity of the Thai personnel in your firm and the overall productivity of your firm? …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… 3.6 Please explain the advantages and disadvantages of employing the three categories of skilled labor: domestically trained Thai personnel, foreign-trained Thai personnel, and foreign workers. ….................................................................................................................................................................. ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... 3.7 Please explain the problems/obstacles related to recruiting foreign personnel e.g. employment policies of the country (work permit, visa), high labor cost, quality of labor, and the work culture. ........................................................................................................................................................... ........................................................................................................................................................... ........................................................................................................................................................... .......................................................................................................................................................... 3.8 If problems/obstacles in Q3.7 could be removed, would your company be likely to hire more foreign skilled workers, and if so, for which jobs? ………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………… End of the interview and thank you for your kind cooperation in the survey. 141 Appendix 4 Labor Force Participation Projections (2014-2025) The labor force projection is performed separately for four age groups, 15-24 years old, 25-34 years old, 35-49 years old, and 50-64 years old. The labor force participation rate for each age group in 2003, 2008 and 2013 are calculated using data from the Lao Expenditure and Consumption Survey (LECS). The participation rate for each age group in 2018 is calculated as follows: where is the labor force participation rate of age group k in year 2018 is the labor force participation rate of age group k in year 2013 is the labor force participation rate of age group k in year 2008 Once the participation rates for the year 2018 are obtained, we perform a linear interpolation to fill in the probabilities for the years in between (i.e. 2004-2007, 2009-2012 and 2014-2017). This linear interpolation would result in non-smooth participation trends, which is unlikely to be the case under general circumstances. To this effect, we use Lowess smoothing to smooth out the trends (see Royston (1991), Cleveland (1979) (1985), Chamber et al. (1983)). Lastly, to forecast the participation rates for the years 2019 to 2025, we perform a logistic regression with time-trend as the only explanatory variable. Then, we use the regression results to predict the participation rates for the years 20192025. The logistic regression for the relation between participation rate and time trend (t) can be expressed as follows: where is the labor force participation rate of age group k is the time trend (t=1 for 2003, t=2 for 2004, …, t=23 for 2025) are parameters to be estimated is the error component 142 Once the estimates for logged odd ratios for each age group are obtained, we use them to predict the . Finally, we invert the logged odd ratios in order to get the estimates of participation rates . Hence, 143 Appendix 5 Population Projection by Education (2014-2025) In this study, the projections of Lao PDR population by age group and education are required in order to estimate the number of high-skilled and low-skilled labor. We first project the proportion of population (in each age group) by education attainment. Then, we apply these proportions to the UNPD population projection in order to obtain the projections of population by age group and education. To forecast the proportions (or probability) of population by education attainment, we employ the dynamic birth-cohort method. Each birth-cohort covers 5 birth years. The oldest cohort considered here was born between 1939 and 1943, or aged between 60-64 in 2003. This oldest cohort is assigned as cohort 1, and therefore those who were born between 1984 and1988, or aged between 15-19 in 2003, will be assigned as cohort 10 (see Figure A1). We categorize educational attainment into six groups as follows: No schooling (NS) –no formal education Primary (PR) – at least 1 year of primary education Some secondary (SS) – at least 1 year of secondary education Finish secondary (FS) – completed secondary education Technical or vocation education/training (TVET) – completed at least 1 year of technical or vocational education or training 6. University, Institutes (CO) – completed at least 1 year of education at a university or institute 1. 2. 3. 4. 5. We assume that the growth rate of new enrollments at TEVT and CO level will decrease through time. For new TVET enrollments, the actual growth rate was 7.2 percent between 2013 and 2014. We assume that the rate will gradually decrease to 4 percent by 2025. For new CO enrollments, the actual growth rate was 8.2 percent between 2013 and 2014. We assume that the rate will gradually decrease to 4.5 percent by 202542. As for the proportions of population with NS, PR, SS and FS education, we estimate them through a cohort analysis. The data used to perform the cohort analysis is the Lao Expenditure and Consumption Survey (LECS) collected in 2003, 2008 and 2013. These surveys give individual-level information such as age, gender, marital status, education, employment status and employment sector. The three surveys are five years apart, providing a consistent timing for our five-year birth cohort analysis. To estimate the probability that each person (in a given birth cohort) would have a certain education 42 We tried to use the cohort analysis to project the number of workers at every level of education, including TVET and CO. However, the method gives a projection which implies declining new enrollments (or negative growth of new enrollments) at the TVET and CO levels. Declining new enrollments at the tertiary level is unlikely, given that the universities and vocational education institutions have been established. 144 attainment, we employ an ordered probit regression. The regression specification can be expressed as follows: where is the schooling level of individual i in birth cohort c indexes the schooling level is the probability that individual i in birth cohort c has the schooling level j is a threshold value associated with schooling level j indexes time (in this case, t=0 for 2003, t=1 for 2008, t=2 for 2013) is a parameter to be estimated is an individual-specific error component Once the estimate of (called ) is obtained, we use this estimate to predict the probability that individual i in birth cohort c has the schooling level j ( ) in year 2003 (t=0), 2008 (t=1), 2013 (t=2) and 2018 (t=3). Although the dynamic birth-cohort method gives reasonable predicted probabilities of schooling attainment for most of the cohorts, it yields somewhat unreasonable results for the young cohorts, e.g. those who were younger than 30 years old in 2018. This is partly because there is not enough historical information to perform the analysis. To solve the problem, we rely on our own judgment to adjust the unreasonable predicted probabilities. Finally, to fill in the probabilities for the years in between (i.e. 2004-2007, 2009-2012 and 2014-2017), and to project the probabilities until the year 2025, we perform Lowess smoothing (see Royston (1991), Cleveland (1979) (1985), Chamber et al. (1983)). Figure A1: Dynamic Birth-cohort Depiction Age Group 15-19 20-24 25-29 30-34 Education NS PR SS FS NS PR SS FS NS PR SS FS NS PR SS FS 2003 2008 2013 2018 bc(10) bc(9) bc(10) bc(8) bc(9) bc(10) bc(8) bc(9) bc(10) 2023 145 Appendix 6 Low-skilled vs. High-skilled Workforce Projection As discussed in section VI part C, this report uses 3 classifications of highskilled workers. The first classification classifies all individuals with university/ institutes or technical/vocational education as high-skilled. Therefore, the number of workers that fall into this category can be calculated directly from our projection of workers by education and age group (see appendix 4). The second and third classifications, however, rely on both occupation and education information. Unfortunately, the information regarding occupation is only available for the year 2013. Therefore, some assumptions are needed in order to approximate the proportion of high-skilled workers for other years. We discuss such assumptions as follows: Let Ω1 represent the proportion of workers who work as managers and professionals, given that they had university/ institutes education. Also, let Ω2 represent the proportion of workers who work managers and professionals, given that they had vocational education. We assume the following: 1. The value of Ω1 and Ω2 remain the same from 2003 to 2013. Figure A2 shows the proportion of workers by education and occupation. The proportions in all cells sum up to 100%. Therefore, from 2003 to 2013, Ω1 = (0.46 + 2.53) ÷ 5.38 = 0.5558 and Ω2 = (0.34 + 1.78) ÷ 4.9 = 0.4327. For the year 2025, Ω1 and Ω2 for the entire workforce has the same values as those of the 25-34 years old age group in 2013. This is to reflect that the job vs. education relationship in the future is likely to become more similar to the job vs. education relationship of the younger generation today Figure A3 shows the proportion of workers aged 25-34 years old in 2013 by education and occupation. The proportions in all cells sum up to 100%. Thus, in 2015, Ω1 = (0.42+ 4.78) ÷ 9.1 = 0.5714 and Ω2 = (0.32 + 1.89) ÷ 5.51 = 0.4011. Then, linear interpolation can be employed to fill in the missing proportions in other years (2014-2025). After obtaining the values of Ω1 and Ω2 for all years, we use them to calculate the number of high-skilled workers under classification 2 and classification 3. 146 Figure A2: Proportion of Workers by Education and Occupation (age 15-64 in 2013) Occupation/ Education less than elementary elementary some secondary secondary vocational/ technical university/ institute total Manager 0.32 1.31 1.14 0.5 0.34 0.46 4.07 Professional 0.21 0.23 0.39 0.47 1.78 2.53 5.61 Technician 0.07 0.1 0.25 0.25 0.33 0.58 1.58 Clerical 0.06 0.03 0.12 0.16 0.19 0.33 0.88 Sales 0.44 1.61 1.48 0.81 0.51 0.41 5.25 Skilledagricultural 13.86 31.51 14.3 2.59 0.79 0.48 63.54 Craft & trade 0.31 1.76 1.78 0.85 0.25 0.13 5.08 Plant operation 0.32 0.98 1.13 0.58 0.21 0.09 3.31 Elementary occupation 1.19 3.84 3.17 1.62 0.5 0.37 10.68 Total 16.78 41.37 23.76 Source: Authors’ calculation using LECS (2013) 7.83 4.9 5.38 100 Figure A3: Proportion of Workers by Education and Occupation (age 25-34 in 2013) Occupation/ Education less than elementary elementary some secondary secondary vocational/ technical university / institute total manager 0.19 1.04 0.79 0.59 0.32 0.42 3.35 professional 0.26 0.15 0.34 0.67 1.89 4.78 8.09 technician 0.06 0.09 0.32 0.45 0.49 1.12 2.52 clerical 0.06 0 0.13 0.34 0.44 0.71 1.68 sales 0.43 1.31 1.57 1.09 0.82 0.79 6 skilled agricultural 13.73 28.48 13.18 2.46 0.47 0.55 58.86 0.28 1.68 2.03 1.17 0.31 0.18 5.64 0.36 0.71 1.25 0.72 0.27 0.07 3.39 1.15 2.91 3.3 2.12 0.5 0.48 10.46 9.61 5.51 9.1 100 craft & trade plant operation elementary occupation Total 16.52 36.37 22.91 Source: Authors’ calculation using LECS (2013) 147 Appendix 7 Classification of Sectors Sector Classification 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 Agriculture, Hunting, Forestry and Fishing Sector Classification used in this study ISIC Rev.3.1 code Standard GTAP’s sector 01-05 prd, wht, gro, v_f, osd, c_b, ocr, prc, ctl, oap, Grains pfb, rmk, wol, fsh, frs coa, oil, gas, omn Extraction cmt, omt, mil, sgr, ofd, vol, b_t tex, wap, lea Mining and Quarrying Food, Beverages and Tobacco Textiles and Textile Products Wood and Products of Wood and Cork 10-14 15-16 Pulp, Paper, Paper , Printing and Publishing Coke, Refined Petroleum and Nuclear Fuel Chemicals & Rubber Other Non-Metallic Mineral Basic Metals and Fabricated Machinery Metal Electrical and Optical Equipment Transport Equipment Manufacturing Electricity, Gas and Water Supply Construction Wholesale & Retail & Hotels & Restaurants Inland Transport Water Transport Air Transport & Others Post and Telecommunications Financial Intermediation Real Estate Activities & Renting Other Community, Social and Personal Services 21-22 17-19 20 23 lum ppp p_c 24-25 26 27-28 29 30-33 crp nmm i_s, nfm, fmp otn 34-35 36-37 40-41 45 50-55 mvh omf ely, gdt, wtr cns trd 60, 63 61 62 64 65-66 70-74 otp wtp atp cmn ofi, isr obs 75-95 ros Mnfc ele, ome Util OthServices 148 Appendix 8 Root Mean Square Errors (RMSE) of GDP Components (Rest of ASEAN and Rest of the World) RMSE Real GDP Consumption Gross Fixed Capital Formation Government’s Consumption Export Import Rest of ASEAN 3.03% 3.35% 25.12% 2.73 13.02% 10.83% Rest of the World 2.83% 1.67% 4.76% 1.02% 11.70% 18.15% 149 References Archavanitkul, Kritiya and Hall, Andy. 2011. Migrant Workers and Human Rights in a Thai Context, Thailand Migration Report 2011. Bangkok: International Organization for Migration. Asian Development Bank. 2010. Final labor market assessment: World Bank. Board of Investment of Thailand. 2011. Foreign Direct Investment: Annually Statistics. Board of Investment of Thailand. [Online] January 18, 2011. [Cited: August 8, 2012.] http://www.boi.go.th/upload/content/T.FDI11_47375.pdf. Chalamwong, Yongyuth. 2004 . The Migration of Highly Skilled Asian Workers in OECD. www.oecd.org. [Online] May 15, 2004 . [Cited: August 7, 2012.] www.oecd.org/dataoecd/27/56/31857618.pdf. Chalamwong, Y, et.al. (2011). The Development of a Better Linkage between the Education System and the Labor Market. The paper presented in TDRI 2011 Year-End Conference on Revamping Thai Education System: Quality for All on February 15, 2012, Bangkok Convention Center B, 22nd floor Centara Grand and Bangkok Convention Centre, Central World, Bangkok. (in Thai) Chalamwong, Yongyuth. 2012. Management of Cross-border Low-Skilled Workers in Thailand: An Update. 2012, TDRI Quarterly Review Vol. 26 No. 4, pp. 12-20. Chalamwong, Yongyuth and Prugsamatz, Paphaella. 2009. The Economic role of migration, Labour migration in Thailand: Recent trends and implications for Development. 2009, TDRI Quarterly Review Vol. 24 No. 3, pp. 3-9. Chambers, J. M., W. S. Cleveland, B. Kleiner, and P. A. Tukey. 1983. Graphical Methods for Data Analysis. Belmont, CA: Wadsworth International Group. Cleveland, W. S. 1979. Robust locally weighted regression and smoothing scatterplots. Journal of the American Statistical Association 77: 829–836. Cleveland, W. S. 1985. The Elements of Graphing Data. Monterey, CA: Wadsworth Advanced Books and Software. Huguet, Jerrold W. 2008. Do International Migration Policies in Thailand Achieve Their Objectives, International Labour Office, Regional Office for Asia and the Pacific, Bangkok. Huguet, Jerrold W. 200 . Thailand’s Policy Approach to Irregular Migration. Joint Conference on Managing Labour Migration in East Asia: Policies and Outcomes, 16-18 May 2007. Singapore Management University, International Labour Organization, Singapore. 150 Huguet, Jerrold W and Chamratrithirong, Aphichat. 2011. Thailand Migration Report 2011. Bangkok : International Organization for Migration, Thailand Office, 2011. Huguet, Jerry, Chamratrithirong, Aphichart and Natali, Claudia. 2012. Thailand at a Crossroad. 6, s.l. : Migration Policy Institute, 2012, Issue in Brief. Huguet, Jerrold W. and Punpuing, Sureeporn. 2005. International Migration in Thailand, International Organization for Migration (IOM), Bangkok. ILO (2012). The International Standard Classification of Occupation: ISCO-08. Geneva: ILO. Kulkolkarn, K. Date Unknown. The five decade of the change in Thai labor market. http://praipol.com/EC460%20Thai%202554/Labor%20in%20Thai%20Econom y%20by%20Kiriya.doc. Access 21 May 2014. (in Thai) International Organization for Migration. 2011. Glossary on Migration, International Migration Law Series No. 25. Geneva : International Organization for Migration, 2011. International Organization for Migration. 2012. Migration Information Note. Bangkok : International Organization for Migration, 2012. Lao Garment Association. 2013. Report on Firm Profile, Production, Export and Labor Needs in Garment in Laos. Vientiane. Lao Government and United Nation. 2013. Millennium Development Goals Progress Report Lao PDR 2013. Vientiane. Lao National Chamber of Commercial and Industry. 2013. Technical paper for 38th ASEAN confederation of employers CEOS and board of directors meetings: CEOS. Lao Statistic Bureau. 1985. Population Census. Vientiane. Lao Statistic Bureau. 1995. Population Census. Vientiane Lao Statistic Bureau. 2004. Lao Expenditure and Consumption Survey 2002/03. Vientiane. Lao Statistic Bureau. 2005. Population Census. Vientiane Lao Statistic Bureau. 2006. Economic Census. Vientiane. Lao Statistic Bureau. 2009. Lao Expenditure and Consumption Survey 2007/08. Vientiane. Lao Statistic Bureau. 2012. Labor Force Survey. Vientiane. 151 Lathapipat, Dilaka. 2012. East Asian Forum. http://www.eastasiaforum.org. [Online] January 31, 2012. [Cited: August 7, 2012.] http://www.eastasiaforum.org/2012/01/31/immigration-and-the-thai-labourmarket/. Ministry of Labor and Social Welfare. 2013. Statistic Report on Lao Labor and Social Welfare. Vientiane. Ministry of Labor and Social Welfare (2007), Decree on Working Permit of Foreign Labors in Laos No. 5418/MLSW, Vientiane. Molland, Sverre. 2010. The perfect business: Human Trafficking and Lao-Thai Cross-border migration. Development and Chang. 2010, International Institute of Social Studies, pp. 831-855. Muntarbhorn, Vitit. 2005. The Mekong Challenge Employment and Protection of Migrant Workers in Thailand: National Laws/Practices versus International Labour Standards, ILO, Bangkok. National Assembly (2006), Labor Law No. 06/NA, Vientiane. National Assembly (2009), Law on Investment Promotion No.20/NA, Vientiane. NESDB (2006). The Profile of Manufacturing and Service Sector in 2006. .http://www.nesdb.go.th/Default.aspx?tabid=117 Access 21 May 2014. (in Thai) NESDB (2011). Impact of Demographic Change in Thailand Situation and Policy Response. Bangkok: NESDB and the United Nations Population Fund (UNFPA). OECD (2013). OECD Skills Outlook 2013: First Results from the Survey of Adult Skills, OECD Publishing. http://dx.doi.org/10.1787/9789264204256-en. Paitoonpong, Srawooth and Chalamwong, Yongyuth. 2012. Managing International Labor Migration in ASEAN: A Case of Thailand. Bangkok : Thailand Development Research Institute , 2012. Pholphirul, Piriya. 2011. Migration and the Economy. [book auth.] Jerrold W. Huguet and Aphichart Chamratrithirong. Thailand Migration Report 2011. Bangkok : International Organization of Migration, 2011, pp. 53-62. Pholphirul, Piriya and Rukumnuaykit, Pungpond. 2010. Economic Contribution of Migrant Workers to Thailand. Bangkok : s.n., 2010, International Migration, pp. 174-202. Pholphirul, Piriya, Rukumnuaykit, Pungpond and Kamlai, Jongkon. 2011. “Do Immigrants Improve Thailand’s Competitiveness?”. Washington, D.C. : The World Bank, 2011. 152 Prime Minister’s Office (2010), Decree on Special Economic Zone and Specific Economic Zone in the Lao PDR No. 443/PM, Vientiane. Royston, P. 1991. gr6: Lowess smoothing. Stata Technical Bulletin 3: 7–9. Reprinted in Stata Technical Bulletin Reprints, vol. 1, pp. 41–44. College Station, TX: Stata Press. United Nations Development Program 2006. International Trade and Human Development Lao PDR 2006. The 3rd National Human Development Report. Vasuprasat, Pracha. 2009. Policies Towards the Social Inclusion and Protection of All Migrant Workers in Thailand. National Conference on Labour Migration. 17 June 2009, Amari Watergate Hotel, Bangkok. World Bank. 2013a. Skills for Quality Jobs and Development in Lao PDR: A Technical Assessment of the Current Context: World Bank. World Bank. 2013b. World Development Report on Jobs: World Bank.