Assessing the Impact of ASEAN Economic Integration on Labour Markets

Abstract

Enhancing regional economic integration, both across Member States and with their neighbours in the Asia-Pacific region, has become an important priority in Association of Southeast Asian Nations (ASEAN). Building on the ASEAN Free Trade Area, ASEAN has been implementing the ASEAN Economic Community (AEC) since 2007, scheduled for completion in 2015. This study estimates the implications of the regional initiatives on ASEAN Member States using a cutting-edge computable general equilibrium model. In addition to gauging the effects on welfare, trade and economic structure, it considers the ramifications for markets for seven categories of labour defined at the occupational level (three types of skilled labour, three types of semi-skilled labour and unskilled labour). It also includes estimates of the distributional effects of these initiatives for labour compared with other factors (capital and land) and on gender. In general, the paper estimates impressive welfare and export gains from deepening and expanding economic cooperation. These gains are larger than those estimated in other studies because our approach – under the assumption of persistent unemployment for some categories of labour – also models how overall employment would increase as liberalization improves the competitiveness of ASEAN economies. Thus, even though we expect these initiatives to generate large returns to ASEAN countries and to labour overall, it is important for governments to take into account the mixed effects on the distribution of these gains and act accordingly to ensure that the benefits are fairly spread.