Industrial Restructuring in the Nies: Prospects and Challenges

Abstract

Rapidly rising labor costs have begun to alter radically the comparative advantage of Asia's Newly Industrializing Economies (NIEs)-Hong Kong, South Korea, Singapore, and Taiwan. Producers in traditionally low-wage, labor-intensive manufacturing have found it more difficult to compete with lower cost producers in Southeast Asia and China. The NIEs have had to restructure by moving into higher valueadded, more skill-intensive manufacturing and into business services. This process, which gained momentum in the late 1980s, is by no means over. Projected declines in labor force growth rates and the rapid aging of the work force suggest that wage pressures will persist and that restructuring efforts will have to continue. These efforts will impose economic and social costs in the medium term, and changes in labor demand will benefit some but hurt others. Those at greatest risk of losing are women, who constitute a disproportionate share of the work force in low-wage manufacturing, and older workers, who tend to be less educated. This article begins by examining the factors responsible for increasing labor costs in the NIEs. They include recent economic and political phenomena, such as currency appreciation and a resurgence of labor movements, and longer-run phenomena, such as declining labor force growth rates. I argue that projected long-run demographic trends will reinforce the recent economic factors motivating the restructuring process. I then examine the response to the NIEs' declining competitiveness in laborintensive manufacturing and conclude by discussing the potential impact that future restructuring may have on workers in these countries.