4. Using skills effectively in work and society in Southeast Asia

The degree to which skills are used in both the economy and society has significant implications for individuals, firms and countries. For individuals, the greater use of skills in work and society is associated with higher wages, higher job satisfaction, higher level of trust, strong political efficacy and better health (OECD, 2012[1]). For firms, better skills use is associated with higher productivity, higher profits and lower staff turnover. At the country level, it is associated with more inclusive economic growth and greater social cohesion (OECD, 2019[2]).

While developing people's skills is an important first step, skills development policies will only achieve their desired benefits if they are accompanied by simultaneous actions to boost the demand for, and effective use of, skills. Therefore, it is important to adopt policies and practices to make the most of the available skills supply to spur innovation, productivity and growth, and strengthen social cohesion. Indeed, the failure to fully use skills could result in a waste of the initial investment in the development of skills and the depreciation and obsolescence of those skills that are left underutilised (OECD, 2019[2]).

Southeast Asian countries have experienced remarkable economic growth and a rise in living standards over past decades, supported, among others, by governments’ efforts to make effective use of people’s skills in work and society. Governments have improved the delivery of public employment services (PES) to respond better to the needs of labour markets, provide transitional support for job seekers and facilitate international mobility and employment. Some Southeast Asian countries promote volunteering in schools to encourage civic engagement and the use of skills in society among students. In addition, efforts were made in many countries to promote entrepreneurship and innovation through increased research and development (R&D) spending, tax incentives for R&D and education-industry partnerships, thereby increasing demand for higher-level skills.

Yet numerous challenges remain to use skills fully and effectively in work and society. These challenges include high barriers for disadvantaged groups, such as women, youth and migrants, to participate in the formal labour market. A challenge is the size of the informal labour market, which is large in many Southeast Asian countries. High-performance workplace practices (HPWPs), which can raise skills use at work and overall productivity levels, are not yet widely adopted and are lacking in small- and medium-sized enterprises (SMEs). Levels of innovation and entrepreneurial activities in Southeast Asian countries are behind that of OECD countries. In addition, across Southeast Asian countries, overall awareness, and information about civic engagement opportunities, such as volunteering, are relatively low.

Given these challenges, this chapter aims to suggest future directions for Southeast Asia’s policies for skills use based on an analysis of the current performance of the region. It starts with an overview of the current governance arrangements for policies related to skills use and an assessment of Southeast Asian countries’ performance on key indicators of skills use. Building on this assessment, the chapter then presents three opportunities for the region to use skills effectively in work and society: 1) promoting participation in the formal labour market; 2) making intensive use of skills in work and society; and 3) increasing demand for higher-level skills. Each opportunity addresses the region's current challenges and proposes concrete, evidence-based policy recommendations.

The policy recommendations presented throughout this chapter are summarised as follows.

Given the many factors that directly or indirectly affect skills use in work and society, a broad range of Southeast Asian ministries are implicated (Table 4.1). Ministries that are in charge of employment and labour affairs aim to increase participation in the formal labour market through policies and services, such as PES, sheltered and supported employment, employment incentives, direct job creation and start-up incentives, among others (OECD/ADB, 2020[3]). Four Southeast Asian countries (Cambodia in 1971, the Philippines in 1976, Thailand in 1969, and Viet Nam in 2012) ratified the Employment Policy Convention, 1964 (No. 122), which promotes employment and labour policies to achieve full, productive and inclusive employment. Furthermore, ministries in charge of employment and labour affairs offer targeted policies and programmes to help women, youth and migrants to integrate into the formal labour market. Ministries in charge of economy, industry and innovation provide a wide range of initiatives that incentivise and support the effective use of skills, including providing support services to firms to adopt HPWPs and offering subsidies to firms to innovate and carry out R&D, thereby increasing the demand for higher levels of skills. Ministries responsible for social affairs, culture and sports also implement a variety of policies to increase skills use in society, including promoting social engagement, volunteering, and cultural and sports activities.

To mitigate the negative impacts of the coronavirus (COVID-19) pandemic and help foster a rapid and inclusive recovery from the pandemic, Southeast Asian countries have adopted a variety of Association of Southeast Asian Nations (ASEAN) initiatives and strategies to boost employment, skills use and productivity, as described in Table 4.2.

Over the last decade, Southeast Asia has increased its policy focus on improving its citizens’ use of skills in their work and everyday lives. The average regional labour force participation rate has remained relatively stable over the past ten years and was even higher than the OECD average in 2021. In addition, much policy attention has been given to increasing the access of disadvantaged groups, such as women, youth and migrants, to formal labour market opportunities. There has also been increasing focus on adopting policies that aim to intensify the use of skills in activities outside the realm of work, such as in civic activities and everyday life in general. For instance, the share of people who dedicate time to volunteering is higher in Southeast Asia than among OECD countries, and policies have been initiated at the regional level to recognise the societal value of such civic engagements. Nevertheless, considerable work must be done throughout the region to address barriers to fully and effectively use skills in work and everyday life.

The labour force participation rate in Southeast Asian countries is relatively high and has remained relatively stable in most countries over the last decade. The average labour force participation rate, which refers to the number of persons in the labour force as a proportion of the working-age population, has fluctuated across the region between 68.2% and 65.6% from 2011 to 2021. However, across all countries, men perform better than women, and the average participation rate throughout the region is significantly higher among men (76.5%) than women (58.1%) (Figure 4.1, Panel A). The gender gap is largest in Myanmar, with a 29 percentage point gap between men and women. It is also significant in countries such as the Philippines, Indonesia and Malaysia, where the gap is above 20 percentage points. Lao People’s Democratic Republic (hereafter “Lao PDR”) has the lowest gender labour force participation rate gap (7.1 percentage points) in the region.

There are several reasons for the gender gap in formal labour markets in Southeast Asia, resulting in significant economic implications for the region. The higher gender gaps in formal labour market participation rates may be partially attributed to female under-representation in key sectors such as science, technology, engineering and mathematics (STEM) (see Chapter 3) or working conditions that make it difficult for women to combine work and family responsibilities (OECD, 2019[2]). Even when women are working, many work as informal workers (workers who do not pay social contributions) and as self-employed workers whose businesses are not registered. Informal workers also often have lower-quality working conditions (ILO, 2019[14]). Based on OECD calculations, in the top three Southeast Asian countries with the largest gender gaps in labour force participation rates (i.e. Myanmar, Indonesia and Malaysia), reaching parity in participation between men and women would mean adding to the labour force about 4.8 million more women in Myanmar, 28.9 million more in Indonesia, and 3.7 million more in Malaysia. This is equivalent to adding about 37.5 million women to the workforce from these three countries alone. Such an increase in the labour force supply would significantly boost labour utilisation. Addressing barriers to women’s formal labour market participation is an important policy concern, as estimates reveal that eliminating gender inequalities in Southeast Asian formal labour markets could boost the region’s gross domestic product (GDP) by USD 359 billion by 2025 (McKinsey Global Institute, 2018[15]).

In Southeast Asian countries with available data, migrants have higher labour force participation rates than the native population. Thailand and Malaysia have a relatively high percentage of immigrants participating in the labour force, around 80%, which is comparable to – if not more than – the labour force participation rates of native-born citizens (Figure 4.1, Panel B). However, despite high participation in the labour force, evidence suggests that a majority of migrants coming to Southeast Asia have low levels of skills and are compelled to search for economic opportunities, mainly in low-skilled construction, agriculture and domestic services (Gentile, 2019[16]).

The labour force participation rate among youth in Southeast Asia is similar to, but slightly lower than, that of OECD countries. In Southeast Asia, 46.2% of youth aged 15 to 24 participate in the labour force, while 47.5% of youth across OECD countries do. Rates are remarkably high in several countries, such as Cambodia (68.4%), Lao PDR (57%) and Viet Nam (53.5%) but are low in others, such as the Philippines (31.5%) (Figure 4.1, Panel C). Participation in the labour market among youth can suggest that they are participating in employment opportunities in addition to their formal education, such as part-time work and weekend or student jobs (Eurostat, 2022[17]). While this may help youth develop new skills and fully utilise them in the workplace and other situations, it can also point to the need of young people, especially those from socio-economically disadvantaged backgrounds, to earn money to finance their studies and support their daily lives.

In addition to facilitating participation in the formal labour market, it is equally important to ensure that skills are fully and effectively used at work in Southeast Asian countries. However, evidence suggests that there are challenges to fully using skills at work throughout the region. Skills are not fully used at work when there are imbalances between the supply and demand for skills, which can be found in the form of skills shortages (i.e. a situation in which adequate skills are hard to find in the current labour market) or in the form of skill surpluses (i.e. a situation in which the supply of certain skills exceeds their demand in the labour market) (OECD, 2017[21]). Shortages and surpluses can exist by skill level or by skill type. Imbalances can also take the form of qualification mismatches, which refers to a situation in which workers’ qualifications exceed or fall short of those required for their job under current market conditions (OECD, 2017[21]; Shah and Burke, 2005[22]). Skills imbalances are often associated with several negative impacts, such as a higher risk of unemployment, lower wages, lower productivity and lower job satisfaction (OECD, 2019[2]).

In Southeast Asian countries with available data, skills mismatches by level of qualification and field of study are significant. As shown in Figure 4.2, overqualification is more prevalent in Thailand (34%) and Malaysia (13%) than among OECD countries (16%), which could result in inefficient use of valuable skills, as over-qualified workers may be capable of performing higher-level jobs and more complex tasks but are instead performing below their potential. Over-qualified workers also suffer from wage losses when they work at a lower requirement level (Kracke, Reichelt and Vicari, 2018[23]; Verhaest and Omey, 2012[24]). Data on skills mismatches in other Southeast Asian countries apart from Thailand are limited. In OECD countries, however, under-qualifications are more prevalent, suggesting employers may have difficulties finding workers with the right qualifications. On the other hand, some of these workers may, in fact, have skills that are a good match for the needs of their jobs if they have continued to develop their skills non-formally or informally on the job. Nonetheless, a high share of under-qualified workers could lead to lower productivity at the firm level in the longer term, especially when these workers do not have access to upskilling offers where they can learn extra skills required for the job (see Chapter 3) (Kampelmann and Rycx, 2012[25]).

Field-of-study mismatches reflect a mismatch between the field of study completed by individuals and the field of study typically required for the job in which they are employed. Field-of-study mismatches occur when individuals choose fields of study that are not well aligned with labour market needs or when the demands of the labour market change in such a way that those fields are no longer in such high demand. Field-of-study mismatches are particularly problematic for graduates when they are forced to accept a job requiring lower qualifications because they lack the field-specific skills in demand. Available data show that around 37% of workers in Thailand are mismatched by field of study (Figure 4.2) (OECD, 2021[26]).

Besides facilitating a good match between the skills of individuals and the skills requirements of jobs, it is also important to have workplace practices that make full use of people’s skills. Evidence suggests that higher intensive use of skills stimulates investment, employee engagement and innovation (OECD, 2016[27]; 2019[28]; 2021[26]). For example, information-processing skills (e.g. literacy, numeracy, information and communication technology [ICT] and problem solving) are useful in a wide variety of social and work contexts, allowing people to carry out a wide range of tasks. These skills allow workers to analyse information and solve problems, and there is evidence that their use is associated with productivity increases. There is a significant difference in the use of these skills between the two Southeast Asian countries with available data (Figure 4.3). For instance, in Singapore, there is a relatively high use of all types of information-processing skills, while the usage of these skills in Indonesia is relatively low. In both countries, writing skills are frequently used, while the use of numeracy skills is less common. Nonetheless, data on the use of information-processing skills at work remains scarce for Southeast Asian countries, highlighting the need to improve the collection of data that could be used to develop policies to improve the use of skills at work.

It is important to ensure the full and effective use of skills in the workplace, society, and everyday life. People use their skills in a variety of ways in society and everyday life, including through civic engagement (e.g. volunteering and participating in political parties or religious groups) and participation in leisure activities (e.g. sports and recreational groups, reading books). Civic engagement activities may take many forms, such as membership in an organisation or association, participation in charitable activities, support for environmental causes, participation in protests and social movements, signing of petitions and volunteering, among others (American Psychological Association, 2022[30]; Ghiglieri et al., 2020[31]; Keeter et al., 2002[32]). These activities are typically unpaid and non-compulsory, allowing people to form meaningful relationships with others, experience an increased sense of community, and improve social well-being (Albanesi, Cicognani and Zani, 2007[33]). Through participation in such activities, people can also acquire new skills and knowledge that may enhance career or employment prospects. Participation in recreational activities involving others, such as sports and recreational clubs, can help transfer and strengthen interpersonal skills and develop peer relationships. Recreational activities pursued alone, such as reading and solving puzzles, increase general knowledge, improve memory and reduce stress, among other benefits. When parents use their literacy skills and read books to their children at home, it raises the likelihood that the child will also develop reading literacy (Hemmerechts, Agirdag and Kavadias, 2017[34]; OECD, 2021[26]; 2019[2]).

A common civic engagement activity where individuals can make use of their skills is volunteering. Volunteer work refers to time devoted to non-remunerated and non-compulsory activities whose primary concern is to uphold the common good. Volunteerism has positive effects on individuals’ well-being, including happiness, health, life mastery and life satisfaction. Also, it contributes to broader societal development, as the beneficiaries of volunteering activities are often disadvantaged groups, such as low-income individuals, migrants or the homeless (Huang, 2019[35]; OECD, 2015[36]). These many benefits underscore the need to promote a culture of volunteerism in Southeast Asia, especially among individuals who are not always actively engaged in the labour market, such as youth and older adults. This is one of the key points outlined in the ASEAN Work Plan on Youth 2016-2020, which recognises the role that voluntary work plays in helping young people gain new skills, as well as in allowing them to perform beneficial and altruistic tasks for their communities (Agbisit and ASEAN Editorial Team, 2021[37]; Gavelin, Svedberg and Pestoff, 2022[38]). Participation in volunteering varies considerably across Southeast Asian countries (Figure 4.4). The share of people who volunteered time to an organisation in the past month is relatively high in some countries, such as Indonesia (53%) and the Philippines (35%), but the shares in Thailand (16%) and Cambodia (9%) are relatively low by international comparison (OECD, 2019[39]). The average across ASEAN countries (26%) is slightly higher than the OECD average (23%).

While data on the extent to which skills are used in Southeast Asian society are limited, the data that are available suggest potential room for improvement. For example, individuals in Singapore use information-processing skills in everyday life (e.g. reading, writing, numeracy and ICT) at similar but slightly lower rates than the OECD average (OECD, 2018[29]). In contrast, the use of such skills in Indonesia is very limited compared to other countries (Figure 4.5). Across all countries in the region and the OECD (with available data), reading and ICT skills are the most frequently used in everyday life, while numeracy skills are often less used.

Using skills effectively in work and society is central to the ability of Southeast Asian countries to make the most of the available skills supply to spur innovation, productivity and growth, and strengthen social cohesion. Based on an assessment of the performance of countries in the region, the following opportunities have been identified for improving the use of skills in work and society:

  1. 1. promoting participation in the formal labour market

  2. 2. making intensive use of skills in work and society

  3. 3. increasing demand for higher-level skills.

Investments in developing skills will only have the desired impact if those skills are made available to the formal labour market. Giving people opportunities to participate in the formal labour market and making full use of their skills at work not only improves individual well-being but also strengthens economic growth (OECD, 2019[2]). Moreover, expanding the supply of skills through increasing formal labour market participation of groups currently at the margins of the labour market can help alleviate skills shortages while fostering more equitable economic and social outcomes. Promoting participation in the formal labour market is particularly important in the context of megatrends and the COVID-19 pandemic, which are combining to exacerbate skills shortages in some sectors (see Chapter 2).

Southeast Asian countries have relatively high labour market participation rates overall. However, as highlighted in the performance section, in Southeast Asian countries, the participation rates of disadvantaged groups, such as women, youth and migrants, are significantly lower than for the general population. These groups typically face higher barriers to accessing employment and, by extension, to effectively using their skills in the labour market (OECD, 2017[40]). This is concerning as women, youth, and migrants are all important economic actors. Women account for half of the population and make critical contributions to the economy. Activating the skills of young people is particularly important as they are the future. Migrants play an important role in alleviating skills shortages and supporting knowledge transfer across borders (see Chapter 2).

Facilitating participation in the formal labour market is particularly important. Informal employment, which is associated with poor working conditions, such as lower pay, fewer benefits and a lack of training and career development opportunities, is prevalent across Southeast Asian countries. Lack of skills is both a cause and a consequence of informality. It is important to provide people with access to high-quality and equitable education and training opportunities from an early age to ensure that they develop high levels of skills and, later, as adults, can find jobs and work productively, allowing their employers to absorb the greater costs associated with providing them with formal jobs (see Chapter 3). At the same time, it is also important to facilitate the transition of those working in the informal labour market to the formal labour market by simplifying the procedures of registering businesses and workers and improving the effectiveness of labour inspection. By making it easier for workers to obtain formal employment contracts, governments improve workers' living and health standards and create incentives for workers and firms to invest in developing skills.

Opportunity 1 describes two policy directions for promoting greater participation in the formal labour market: first, Southeast Asian countries can reduce barriers to employment for disadvantaged groups; second, Southeast Asian countries can facilitate the transition of workers from the informal to the formal labour market.

Strengthening opportunities for all people to activate their skills is a key to building inclusive and efficient labour markets. Efforts to support people’s skills development from an early age and in adulthood (see Chapter 3), combined with efforts to reduce employment barriers after completion of education and training, are essential to fostering an inclusive recovery from COVID-19 and strengthening resilience to future shocks. This policy direction presents areas for countries in the region to reduce barriers to employment among three disadvantaged groups in Southeast Asia: women, youth and migrants.

Even though socio-economic background should not be a determinant in accessing the formal labour market, disadvantaged groups face higher barriers to finding employment (OECD, 2021[26]). As described in the previous section, women relative to men have lower employment rates; a substantial share of youth are neither in employment, education, nor training (NEET); and many migrants can often only find employment in certain sectors, such as construction, agriculture and domestic services.

The COVID-19 pandemic has further exacerbated existing inequalities of opportunities in the formal labour market. Recent data show that women, youth and migrants, especially those with lower levels of education, were significantly more likely to lose their jobs and experience decreased incomes due to the pandemic (Bundervoet, Davalos and Garcia, 2021[41]). Table 4.3 illustrates the range of interventions that countries in the region and across the OECD have taken to protect their workforce against the impacts of the pandemic – whether related to employment or public health. The most common policy measure taken was the suspension or postponement of on-the-job training opportunities to protect individuals from the spread of the virus. However, this was also supported by various measures to facilitate employment among workers and firms that were the most socio-economically impacted. These include the use of employment incentives and job creation in the public sector in public works.

Southeast Asian countries recognise the additional challenges that disadvantaged groups face and are making efforts to tackle the issue. Several ASEAN-wide initiatives and country programmes are in place to support disadvantaged groups in finding employment (Table 4.4). In recent years, Southeast Asian countries have expressed high-level political commitment to recognising the role that disadvantaged groups, such as women, persons with disabilities, the elderly, migrant workers, and people from rural or remote areas, play in the region’s socio-economic development. Countries have put in place interventions that eliminate obstacles to decent employment and business opportunities for these groups, providing targeted skills development support and raising awareness among companies about their rights in the workplace, among others.

However, as noted by stakeholders consulted during the project, disadvantaged groups' formal labour market outcomes need to be improved. Recent data show that participation rates of disadvantaged groups remain relatively lower than for the general population (Figure 4.1), and there is evidence suggesting that women, youth and migrant workers in Southeast Asia still face relatively greater barriers compared to their counterparts (OECD, 2021[26]). The specific barriers for each group are discussed in the following sub-sections.

For women, one of the main barriers to participation in economic activities is the heavy burden of unpaid care work, such as childcare, care for elderly relatives, cooking and cleaning. This burden reduces the time they can devote to economic activities and hampers their productivity in the formal labour market. The gender gap in time spent on unpaid care and domestic work is relatively large in Southeast Asian countries (Figure 4.6). On average, women spend 4.2 times longer hours than men on unpaid care work in Southeast Asia compared to an OECD average of 2.2 times longer. The gap was especially large in Cambodia (10 times), followed by the Lao PDR (4.1 times) and Thailand (3.5 times). Evidence suggests that the COVID-19 crisis and associated lockdown measures may have further exacerbated women's unpaid work burden (OECD, 2021[50]). Mothers often ended up being the ones who assumed the extra work associated with home-schooling and childcare while classes were closed. Moreover, women are more likely to work in service occupations, including paid care work, which initially exposed them to job loss during the pandemic. This exacerbated gender differences in the distribution of paid and unpaid work.

The high gender gap in unpaid care and domestic work in Southeast Asia reflects traditional gender roles, which are reinforced through strong social norms. In many Southeast Asia countries, strong patriarchal social norms remain and continue to shape stereotypical gender roles, with men, especially from rural areas, often reporting a fear that performing “women’s chores” will result in social stigma (ActionAid, 2017[52]). Awareness-raising campaigns could help balance more responsibilities for unpaid domestic work between men and women and reshape traditionally defined gender roles. Evidence suggests that raising knowledge and awareness about the economic costs (e.g. reduced time for women to allocate to economic activities) and social costs (e.g. increased stereotypes on gender roles, women’s lack of confidence in economic activities) of unequally shared responsibilities within the household can lead to more equal distribution of responsibilities for domestic tasks (OECD, 2021[50]).

Several OECD countries have recently introduced national campaigns to tackle gender stereotyping and norms, using the support of both traditional and online media channels. A good example is the Equilibrium Man Challenge in Australia. It is a joint public-private campaign that features a series of online documentaries, which follow a group of men who have taken up flexible work arrangements to care for family members and pursue skilled hobbies outside of work. It aims to raise awareness about the beneficial effects of work-life balance for both partners, resulting in a more equal distribution of care responsibilities. Some benefits of such flexible arrangements at work include clearer roles in family life among men, better time management, better outcomes in terms of health and well-being, increased knowledge and further skills development (OECD, 2017[53]; Parents at Work, 2015[54]). In Southeast Asia, several countries, such as Lao PDR, have launched initiatives to facilitate women’s participation in income-generating activities in sectors usually dominated by men, such as construction (Box 4.1). Cambodia has also implemented a gender mainstreaming action plan (GMAP) to expand the scope of rights and benefits that women could exercise in the labour market (Box 4.1).

Flexible work arrangements, such as part-time work, flexible working hours and remote working, can encourage and facilitate women’s participation in the formal labour market. Such arrangements allow women to combine work with other care and social responsibilities more easily. Evidence suggests that the removal of disincentives to part-time work could result in a significant improvement in employment among women (OECD, 2017[40]). In OECD countries, women, especially mothers, constitute the bulk of part-time workers (OECD, 2017[40]). Efforts to contain the COVID-19 pandemic have provided an impetus for expanding flexible work arrangements, such as remote working and flexible working hours (see Chapter 2).

Some Southeast Asian countries have adopted policies to promote women’s participation in the formal labour market by facilitating the expansion of flexible work arrangements. In Malaysia, the government introduced the Work-Life Practices programme in 2015, which promotes flexible working arrangements (e.g. option to leave earlier from work, staggered hours, job sharing, telecommuting), a healthy work-life balance among employees (e.g. study/exam leaves, family care and paternal duties) and family-friendly facilities in the workplace (e.g. nursing rooms for mothers, parking spots for pregnant women, childcare centres) (TalentCorp, 2018[55]). The programme also provides tax incentives to firms when they purchase necessary technologies for remote work and adopt remote-work-friendly work practices, such as online training services. However, stakeholders consulted during this project noted that flexible working arrangements are usually easier to implement in large companies, which have access to greater resources than in SMEs, which are typically more resource constrained. Thus, SMEs could benefit from government support in promoting such flexible working arrangements. In Southeast Asian countries, SMEs represent around 97-99% of firms and, on average, account for around 66.3% of employment. The relative importance of SMEs providing employment varies across Southeast Asian countries, ranging between 51.7% in Viet Nam to 97% in Indonesia (OECD, 2021[56]).

Furthermore, access to part-time work, as a form of flexible working arrangement in formal employment, remains sporadic across Southeast Asian countries. While 25.32% of all employment across the region is part-time, most part-time working arrangements occur in casual jobs rather than in contractual employment with formal guarantees (Nguyen, Nguyen-Huu and Le, 2016[57]; ILOSTAT, 2022[58]). Some Southeast Asian countries maintain legislation that may discourage certain forms of employment, including part-time work. Part-time work in Southeast Asian countries is discouraged either using implicit fiscal disincentives (e.g. high mandated minimum social security contributions) or by placing excessive restrictions on the use of part-time contracts (OECD, 2017[40]). Such rules were originally put in place to protect workers’ rights and prevent workers from being exploited, but inadvertently, they could harm women’s economic opportunities and encourage informal employment. Across Southeast Asian countries, employers’ contributions to social security protection have increased as coverage was expanded to cover pensions, health insurance and welfare assistance, among others. In 2020, employer social security tax rates varied significantly across countries: Myanmar (3%), Cambodia (3.4%), Thailand (5%), Indonesia (5.74%), the Philippines (8%), Brunei Darussalam (8.50%), Malaysia (12%), Singapore (17%), and Viet Nam (21.5%) (KPMG, 2023[59]). The higher the social security contributions, the more disincentivised employers are to offer part-time employment since the contribution rates are almost identical to full-time employment (OECD, 2005[60]).

For youth, transitioning from school to the formal labour market is challenging. In Southeast Asia, youth, who represent about 34% of the population, face a number of challenges to their participation in the formal labour market. Evidence from low- and middle-income countries, including those in Southeast Asia, suggests that it takes a while for young people to find their first job, even when the job is not entirely to their satisfaction. According to School-to-Work transition survey data, the average time to find a first job across Southeast Asia was about 11.6 months, and the average time to find a satisfying job was 13.8 months (ILO, 2019[61]; 2020[62]). These labour market challenges grew more severe during the COVID-19 pandemic. Compared to the pre-pandemic youth unemployment rate of 8.9% in 2019, there has been a significant increase during the pandemic to 11.3% in 2021 (ILOSTAT, 2021[63]). This unemployment rate represents about 25.4 million youth in Southeast Asia who were left unemployed. Addressing youth unemployment is particularly critical, as it has long-term consequences. Individuals unemployed in youth tend to lose touch with the formal labour market, earn significantly less over their lifetime, and be more pessimistic about their future (OECD, 2020[64]).

The main employment barriers youth face include a lack of previous work experience and mismatches between the skills they have acquired in education and those required by employers (ILO, 2020[62]). As noted in Chapter 3, it is crucial to ensure that youth are equipped with skills in demand before they enter the labour market. Ensuring school curricula align with changing demands in the labour market and provide young people with sufficient and quality career guidance could facilitate smoother transitions to the labour market (see Chapter 3). PES play an important role in facilitating school-to-work transitions for young people: they not only help young people find relevant jobs more quickly, but they also help firms overcome skills shortages by providing them with a larger pool of job seekers. Many Southeast Asian countries offer targeted employment services for young people. For example, the Philippines introduced the JobStart Philippines Programme (JSP) to reduce the high percentage of NEET in the country (Box 4.1). The programme matches young Filipino jobseekers with internship and employment opportunities and provides them with technical training and one-on-one career coaching.

To improve the tailoring of employment services for disadvantaged groups, such as youth, Southeast Asian countries could promote the digitalisation of labour market databases and job-matching services (ILO, 2020[62]). Digitalisation and new technologies, such as big data, artificial intelligence (AI) or advanced algorithms, help identify the specific skills profile of job seekers among youth and improve the targeting of employment services (Mwasikakata, 2019[65]). Many OECD countries actively use digitalisation to provide efficient and tailored employment services. For example, in Flanders, Belgium, the automated matching platform “Elise” can compare registered curriculum vitae (CVs) against millions of vacancies in real-time, resulting in more accurate matches than any human could ever achieve (OECD, 2019[2]). The Netherlands has a digital profiling tool that measures the probability that a job seeker will resume work within a year. The outcome informs the intensity of employment support to be provided to the job seeker (Box 4.1). In Malaysia, the Graduates Empower Programme of MYFutureJobs uses AI to match individuals with the most suitable jobs based on skills, experience and education levels (Malaysian Ministry of Human Resources, 2022[66]). The effectiveness of these efforts hinges upon the quality of data collection around skills and the labour market (see Chapter 5).

Providing online employment services in addition to in-person employment services has become more important during the COVID-19 pandemic following the introduction of social-distancing requirements (see Chapter 2). Since, on average, youth relative to older adults are more familiar with digital devices and online services, online employment services could be particularly appropriate for this target group. Examples of online employment services provided by public or private employment services could include career guidance, mental counselling, support with preparing resumes and CVs, mock interviews, skills profiling and training, among others. Online services could be delivered through online communication tools, portals, platforms, apps and texting. The advantages of online services are that they are typically less costly, more convenient, more flexible, allow for more frequent and instant communication, and are location-independent. For example, in Canada, Youth Employment Services provides many employment services on line, including counselling, training and mentorship, among others (Youth Employment Services, 2022[67]). While during the pandemic, many PES in Southeast Asia started offering online service options, common challenges included insufficient digital skills among PES.

Like women and youth, migrants in Southeast Asia also face challenges in finding employment. These challenges include the high cost of legal counselling for employment, lack of coverage by labour law, limited access to labour market information, and language barriers (World Bank, 2017[68]). Although ASEAN member states have put in place several mutual recognition agreements (MRAs) to facilitate the flow of skilled labour within the region, these flows remain relatively constrained due to the inconsistencies of MRAs with national laws and regulations (Gentile, 2019[16]).

In recent years, ASEAN countries have adopted measures and taken steps to facilitate international labour mobility (see Chapter 2). Several Southeast Asian governments have set up specialised administrative and regulatory offices responsible for managing cross-border recruitment and relevant services. These offices can be useful in protecting both workers and employers, as well as facilitating labour mobility (Gentile, 2019[16]; ILO, 2016[69]). A regional, donor-funded, ten-year programme named Tripartite Action to Enhance the Contribution of Labour Migration to Growth and Development (also known as TRIANGLE in ASEAN) is active in Cambodia, Lao PDR, Malaysia, Myanmar, Thailand, and Viet Nam to deliver services directly to migrant workers and their communities through a network of migrant worker resource centres (MRCs), available in countries of origin and destination. Managed in partnership with government institutions, trade unions and civil society organisations, MRCs provide services such as migrant training, language lessons, vocational or financial skills training, as well as awareness raising about the labour rights of migrants, legal counselling and health checks, among others. Similar initiatives are also being implemented by individual governments, such as Singapore, which offers the Settling-In Programme (SIP). The SIP is a compulsory course that provides training to foreign domestic workers about their rights and responsibilities, culture in Singapore and improved working practices in the households where they work (Box 4.1). Stakeholders consulted throughout the project noted that despite the existence of these initiatives, most migrants are not aware of the existence of the MRCs and other specialised services for migrants; therefore, they do not use them.

Migrant workers often have limited information about safe migration and their rights at work or where they can access support or information. Southeast Asian governments should create awareness of the MRCs and other migrant-specialised services by using various channels to inform workers, especially those in hard-to-reach communities, about the relevant information and services they provide. As various institutions are active in serving migrants, it is important to establish co-ordination mechanisms to avoid overlapping responsibilities and unnecessary, duplicative actions. Specialised institutions serving migrant workers (e.g. MRCs) should play a key role in disseminating information about the recruitment process, legal assistance, and language training. To improve outreach, such institutions should work closely with migrant civil society organisations. The information should be provided as much as possible in the languages of the migrants. Providing emergency assistance, legal support and training to migrant workers are particularly important, as they were one of the groups most vulnerable to the COVID-19 pandemic (ILO, 2021[70]). Given the large intra-regional migration flow, regional co-operation in migration policies would need to be strengthened to improve cross-border recruitment and integration services.

  • Facilitate women’s participation in the labour market through the promotion of a more equitable distribution of housework and encouraging flexible work arrangements. Governments should promote a more equitable distribution of housework to ensure women have the time and energy to participate more fully in the formal labour market. Social campaigns and awareness-raising training should be provided to change perceptions about gender roles and overcome prejudices against female participation in the formal labour market. Furthermore, governments should promote flexible work arrangements, such as flexible working hours, part-time work and remote working, to encourage and facilitate the participation of women in the formal labour market. This can be done, for example, by reviewing and adjusting regulatory and legal frameworks where necessary to ensure that they do not discourage flexible forms of employment, including part-time work, through excessive restrictions. Governments could also provide incentives to SMEs (e.g. tax breaks, subsidies, grants) to adopt the infrastructure (e.g. work laptops, software, Internet connections) and flexible working practices needed to allow employees to work from home.

  • Support youth employment through tailored and online employment services. Employment service providers across Southeast Asian countries should use digital solutions to improve the tailoring of employment services for youth. Digital solutions, such as AI and advanced algorithms, leverage big data to identify the specific skills profile of job seekers among youth, compare them with all available job vacancies in real-time and find the best possible match. Based on the proposed matches tailored to each youth job seeker, the employment service providers can prioritise and decide which kinds of support (e.g. re-skilling training solutions, job application support, employment incentives) would best match clients’ needs to increase their employment chances. Furthermore, since youth are typically more used to online solutions than older adults, online employment services could be particularly well-suited to reach and engage youth. Typical employment services that could also be provided on line include career guidance, mental counselling, support with preparing resumes and CVs, mock interviews, skills profiling and training, among others. Employment service providers can use a range of online communication tools, portals, platforms, apps and texting to interact with youth.

  • Enhance migrant employment possibilities through job search support, legal counselling, and language training from specialised institutions for migrants. Southeast Asian countries should create and expand specialised institutions, such as the MRCs, to support migrant workers in finding employment. Such institutions provide migrants with relevant employment information to support job searches, legal counselling and language training. Furthermore, such institutions could support employers with any administrative procedures needed to hire migrants. In addition, awareness about the services from such migrant-specialised institutions should be raised by reaching out to migrants through migrant civil society organisations that can communicate with migrants in their own languages, and which may already also provide other complementary services, such as food and shelter. Finally, given the large intra-regional migration flow, regional co-operation in migration policies should be strengthened to improve cross-border recruitment and integration services.

The use of skills at work differs largely between informal and formal employment. Informal employment constitutes employment relationships that are – whether in law or practice – not subject to national labour legislation, social protection, income taxation or entitlement to employment benefits (Box 4.2). Higher levels of informal employment are prevalent in countries with lower GDP, lower Human Development Index, lower productivity and higher poverty levels. Both informal and formal employment can exist within the same labour market (OECD/ILO, 2019[77]). The nature of employment influences the type of work individuals carry out – and consequently, how extensively they can use their skills and competencies in the workplace – as well as the compensation they receive from their employers in exchange for their labour.

Widespread informal employment in Southeast Asia is a policy concern. On average, 71% of those employed are employed in the informal sector in ASEAN countries. Cambodia (88%) has the highest proportion of informal employment, followed by Lao PDR (82.9%), Indonesia (80.4%) and Myanmar (79.9%), while Brunei Darussalam (30.9%) has the lowest share among countries with available data (Figure 4.7).

A large informal labour market discourages the full use of workers’ skills and hampers a country’s economic growth prospects. Since informal workers often lack basic income security, opportunities for skills development, social protection and healthcare, the incentive to work in the informal labour market and to use one’s skills there is weak. This can discourage individuals from participating in the labour market altogether and then lead to a reduced overall skills supply in the labour market (OECD, 2019[2]). In addition, individuals working in the informal labour market are typically employed in small firms that lack strong management and workplace practices for making efficient use of workers’ skills. As a result, these environments are often characterised by low productivity. Whereas some individuals work informally by choice, evidence suggests that, globally, about 85% of all informal workers are in precarious employment, not through choice but due to a lack of opportunities in the formal sector (IMF, 2021[81]). Moreover, a large informal labour market has repercussions more broadly since firms and individuals operating in the informal sector pay no or limited taxes, reducing government revenues and limiting possibilities to implement redistributive policies. As a result, a large informal labour market keeps a country below its full economic potential (IMF, 2021[81]).

A large informal labour market also limits labour market inclusiveness and harms overall social cohesion. Participants in the informal labour market are disproportionally disadvantaged groups, such as women, youth and migrants, who often lack other options in the formal sector. Therefore, reducing informality can help improve the employment prospects of disadvantaged groups, reducing pay gaps and counteracting occupational segregation (ILO, 2020[62]; OECD, 2017[40]). Supporting the transitioning of workers from the informal sector to decent work opportunities in the formal sector could encourage more people to participate in the labour market generally and, thereby, contribute to the more effective use of available skills while at the same time improving social cohesion. To facilitate the transition of workers from the informal to the formal labour market, this policy direction presents two areas for Southeast Asia to facilitate the transition of workers from the informal to the formal labour market: 1) improving the process of formally registering workers and firms; and 2) improving the enforcement of labour laws and regulations.

Southeast Asian countries acknowledge the prevalence of informal employment in the region and the negative impacts it can have on individuals and society. In response to high informality in the region, in 2016, the ASEAN member states adopted the Vientiane Declaration on Transition from Informal Employment to Formal Employment Towards Decent Work Promotion in ASEAN at the 28th and 29th ASEAN Summit. The plan promotes joint work and sharing knowledge and best practices to address informality in employment. In addition, it discusses methodologies to analyse barriers to formalisation in the national context and support the design and implementation of measures that facilitate the transition to formal employment (ILO, 2019[14]). Individual countries have also put in place initiatives to help informal workers transition into the formal economy. For instance, in Indonesia, the Ministry of Manpower and Transmigration oversees technical and vocational education and training (TVET) centres, known as Balai Latihan Kerja (BLK), which offer free vocational training to informal workers and provide them with formal educational qualifications, helping them find jobs in the formal sector (Box 4.3).

Low levels of skills are both a cause and a consequence of informal employment. People with lower levels of skills are typically less productive and, as a result, do not generate sufficient profits for firms to justify paying the additional costs associated with formalising their employment. As a result, these individuals often find themselves working in the informal labour market. Indeed, evidence suggests that knowledge and skills gaps between informal and formal workers is one of the barriers to workers transitioning from the informal to the formal labour market in Southeast Asia (ILO, 2019[14]). At the same time, those working in the informal labour market often find themselves stuck in jobs that only require low levels of skills and with few opportunities to upskill and reskill, which further limits their opportunities to develop higher levels of skills, increase their productivity and transition to the formal sector (Ciccone, Roncarati and Chaykamhang, 2019[82]). Consequently, the skills of workers in the informal sector may remain low or even atrophy and/or become obsolete (ILO, 2019[83]). These workers are particularly vulnerable in a world being transformed by digitalisation, automation, and other megatrends that are reshaping and increasing the skills needed for success in work and participation in society (see Chapter 2).

The informal labour market can be reduced when an enabling environment supports firms and workers to join the formal labour market (Chacaltana, Leung and Lee, 2018[84]). An enabling environment entails simplifying the process of firms and self-employed workers to formally register and having strong enforcement mechanisms for labour laws and regulations. Both are discussed in the following sub-sections.

Barriers for workers transitioning to the formal labour market in Southeast Asia include burdensome and lengthy administrative procedures to register firms and workers. The required time and energy for registration procedures are an incentive for firms and self-employed workers to remain in the informal sector and thereby constrain the full and effective use of the skills of their workers (ILO, 2019[83]). The number of procedures to register a new business, whether as self-employed or with employees, vary greatly across Southeast Asian countries. In some countries, it takes less than one day to process and can be done completely on line by simply submitting a few documents to the website or sending a text message (ILO, 2019[83]). On the other hand, in other Southeast Asian countries, registration involves numerous procedures, such as transactions necessary to obtain permits and licences, inscriptions, verifications and notifications needed to start operations. Sometimes it requires submitting several documents to different locations physically, and the whole process can take up to three months (Figure 4.8).

Simplifying administrative procedures and processes for registering workers and businesses can help to reduce informality. Evidence suggests that new technologies could significantly make business registration procedures less time- and resource-consuming (Chacaltana, Leung and Lee, 2018[84]). Fewer procedures and user-friendly registration websites and applications make registering easier and faster than applications submitted in person. Many Southeast Asian governments have streamlined business registration procedures, brought the relevant registration desks under one roof, and created online platforms to make it easier and faster to register workers and/or businesses (Table 4.5).

Many Southeast Asian countries can do more to simplify registration procedures. The simplification should reduce the time taken for processing and confirming registration and make registration procedures more user-friendly. The user-friendliness and attractiveness of a website can be measured by the bounce rate, which represents the average percentage of visitors who view only one page before leaving the website (Silva, 2022[86]). While some Southeast Asian governments’ business registration portals, such as those of Brunei Darussalam, Malaysia, Myanmar, the Philippines and Singapore, have bounce rates that fall within – or close to – the optimal range of 26-40% (Zantal-Weiner, 2022[87]), those of other Southeast Asian countries, such as Viet Nam, have extremely high bounce rates, which casts doubts on a website’s effectiveness in being able to help its users register or maintain a business on line (Table 4.5).

Several OECD countries use online platforms to simplify registration procedures and process registration in just a few days. For example, in Korea, entrepreneurs can register their businesses on line at a state-run website, Home Tax, if they attach the necessary documents, such as the registration form and a lease agreement (National Tax Service of Korea, 2015[88]). The mobile application also allows businesses to check the status of the registration process, which usually takes up to three days. Argentina and Estonia also offer good examples of using technology to simplify and quicken the registration of workers and businesses (Box 4.3).

Another barrier to formality is the weak enforcement of laws and regulations. Ineffective and insufficient labour inspection contributes to the prevalence of informality, which prevent people from using their skills effectively (ILO, 2019[83]). Stronger and more effective labour inspections help ensure that labour codes are followed in the workplace and that workers are registered and work under decent working conditions. Evidence suggests that a rise in labour inspections can lead to an increase in formal employment and a decrease in informal employment (Almeida and Carneiro, 2012[99]).

However, several stakeholders consulted during the project noted that weak enforcement is one of the main challenges to expanding formal sectors in Southeast Asia. While some policies to reduce informality are in place, their implementation has been challenged by institutional limitations, such as a lack of capacity for conducting inspections and inefficient inspection mechanisms, among others. Some Southeast Asian countries have promising initiatives that aim to address these problems, however. For example, Cambodia’s Ministry of Labour and Vocational Training launched an online platform in 2021 to facilitate firms’ participation in labour inspection practices by digitalising the inspection process, particularly during the COVID-19 pandemic. The platform covers various enterprises working in textiles, garments, footwear and travel goods (Rendall, 2021[100]).

Southeast Asian countries should put further efforts into strengthening enforcement mechanisms. While strengthening enforcement mechanisms can lead to benefits of expanding the formal labour market, it is important to implement these in such a way that they do not constitute unnecessary higher administrative workloads (Maiti and Bhattacharyya, 2020[101]). Evidence suggests that technologies can significantly raise the efficiency of enforcement mechanisms (e.g. inspection procedures). Technologies can offer many benefits to inspection bodies and workers, such as simplifying the work of inspectors, enabling better monitoring and follow-up on inspections, generating systematic statistics and improving transparency (ILO, 2017[102]). For instance, Sri Lanka has introduced the Labour Inspection System Application (LISA) – a tablet-based application to support labour inspection – which allows inspectors to take pictures, write inspection reports and upload them directly using their tablets. The application helps to monitor cases, ensuring better efficiency and compliance with labour laws, compared to previous methods, which required inspectors to carry more than ten different forms and a bulky record book. Argentina provides another good example that uses a digital tool to improve the efficiency and effectiveness of labour inspections and contributes to increasing formality (Box 4.3).

  • Facilitate the registration of workers and businesses by making online business registration platforms more user-friendly and simplifying registration procedures. Governments should improve online registration platforms to make navigating and uploading necessary documents easier. In addition, alternative channels should be provided to register (i.e. websites, mobile applications, one-stop-shops for SMEs) so that people can use the channel most convenient for them. Governments should also eliminate unnecessary or repetitive administrative steps and streamline registration procedures to reduce the time needed to process and confirm registration.

  • Improve the effectiveness and efficiency of labour inspection by adopting new technologies to ease the verification of workers’ employment status. Governments should adopt digital tools that facilitate labour inspection to strengthen the enforcement of laws and labour regulations. This could be done, for example, by providing inspectors with tablets linked to employment and tax databases. Such technologies can help inspectors to more easily verify whether businesses and workers are registered and are working formally during field inspections. In addition, with the same labour inspection technology provide the option for inspectors to immediately report employers who are committing infractions (e.g. unregistered workers, failure to pay taxes) and pursue the appropriate penalties and interventions.

Making full and effective use of people’s skills at work benefits individuals, firms, and society. For example, for workers, higher levels of skills use at work are positively associated with higher wages, higher job satisfaction and greater well-being. For firms, making better use of workers’ skills is associated with higher productivity, higher profits and lower staff turnover. At the country level, using skills effectively is also associated with higher labour productivity and more inclusive economic growth (OECD, 2015[105]; 2016[27]; 2019[2]).

Intensive use of skills outside of work is equally important. Individuals who report using their skills more fully in everyday life are also more likely to report having higher levels of trust and political efficacy, greater participation in voluntary activities and better health. The more intensive use of skills in everyday life, such as reading books, also indirectly supports the skills development of individuals and their children (OECD, 2012[1]).

Opportunity 2 describes two policy directions to make intensive use of skills in work and society. First, it explores how Southeast Asian countries can strengthen skills use in the workplace through the increased adoption of HPWPs. Second, it considers how Southeast Asian countries can promote skills use in everyday life through policies that encourage participation in civil society, such as community organisations and associations.

Adopting practices known to positively affect the performance of employees and businesses, referred to as high-performance workplace practices (HPWPs), can lead to more intensive use of skills at work. HPWPs, such as a flexible work environment, teamwork and information sharing, and career progression and performance management polices (see Box 4.4 for more details), as well as the development of managerial skills, are strong determinants of the level of skills use of employees, more so than firm size, skill proficiency of workers, industry, occupation or country effects (OECD, 2019[2]). The recent COVID-19 crisis makes the adoption of HPWPs even more important as firms need to quickly introduce health and safety measures in workplaces and adopt technological solutions and managerial practices to allow workers to work productively from home when possible.

Internationally, higher adoption rates of HPWPs are associated with higher use of information-processing skills, such as reading (Figure 4.9). For example, in Singapore (26.5%), the share of jobs employing HPWPs is close to the average of OECD countries (27.4%), while the share in Indonesia (Jakarta, 5.3%) is very low by international comparison.1 The adoption of HPWPs has also been found to be positively associated with the use of other skills at work, such as writing, numeracy, ICT and problem solving (Figure 4.3). To encourage the adoption of HPWPs among firms and intensify the use of skills in the workplace, Southeast Asia can: 1) provide information on HPWPs; and 2) strengthen managerial skills to facilitate the implementation of HPWPs.

Southeast Asian countries face challenges in promoting HPWPs due to a lack of information and managerial skills, particularly among SMEs. Evidence shows that information on HPWPs is rather limited in the region, preventing the adoption of HPWPs and, by extension, intensive use of skills (Asmawi and Chew, 2016[109]). In many countries, HPWPs are more commonly employed in large firms, while SMEs face relatively higher barriers to implementing these practices. SMEs have difficulty accessing and retaining information about HPWPs and lack the capacity to manage human resources to adopt HPWPs (OECD, 2019[2]). This is concerning as SMEs dominate the business environment in Southeast Asia, accounting for about 97% of a country’s total firms, on average, in the region (ADB, 2020[110]).

Policies that make firms aware of the benefits of adopting HPWPs could be an important first step towards improving the performance of firms in the region. Some Southeast Asian countries provide information and resources to firms about HPWPs and have support programmes in place. For example, Viet Nam offers the Sustainable Competitive and Responsible Enterprises (SCORE) programme, which increases awareness of responsible workplace practices and provides consulting and training services on workplace co-operation, quality management and human resources management. The programme helps increase the productivity of SMEs and supports them in accessing global supply chains (Box 4.5). Another example is Enterprise Singapore, the main government agency supporting firms, especially SMEs, to improve productivity by introducing business excellence models and encouraging technology adoption. Enterprise Singapore provides grants, advice, subsidised consultancy and diagnostic toolkits to improve work processes to implement HPWPs and adopt technology to raise productivity (Enterprise Singapore, 2022[111]).

Stakeholders consulted during the project noted that, in many cases, relevant information on HPWPs is often fragmented and difficult to access in Southeast Asian countries. Except for a few countries in the region, such as Malaysia, the Philippines and Singapore, ministries of labour or related agencies often do not have centralised portals to consolidate information on HPWPs and the policies governments offer to assist firms in implementing them. In many cases, information on different types of HPWPs – where such information exists in the first place – is scattered across different webpages or ministries, making it difficult to form a comprehensive view of the whole range of HPWPs that could be tailored and adopted based on firms’ needs. Moving forward, Southeast Asian governments could make greater efforts to support all firms, including SMEs, in accessing relevant information on how to organise their workplaces to optimally use the skills of their employees and strengthen business performance.

As noted by many stakeholders consulted during the project, a single portal that centralises all relevant information in a country could be an efficient way to increase awareness and facilitate the adoption of HPWPs in businesses. The portal could share information on adopting HPWPs, guide employers to participate in business support programmes, and provide diagnostic tools with basic business advice (OECD, 2018[112]). Diagnostic tools help businesses identify their business needs, challenges and opportunities by benchmarking their performance and providing direct links to relevant HPWPs and/or business support programmes. Singapore offers several good examples of online assessment tools for businesses (Box 4.5). Many OECD countries have a single online government portal that provides comprehensive information on HPWPs for businesses (OECD, 2019[2]). For example, a business portal in Northern Ireland (United Kingdom) provides comprehensive information on HPWPs and available business support programmes in a user-friendly manner (Box 4.5).

Policies that promote the adoption and development of HPWPs need to be complemented with programmes to develop managerial skills. Higher management capacity can lead to greater adoption of HPWPs and the improved use of employees’ skills. Skilled managers are more likely to appreciate the importance of skills and innovation for the success of a business (Le Moueli and Squicciarini, 2015[115]). Various studies show that managers and leaders should have diverse skill sets, with strong leadership and entrepreneurial skills, such as the ability to build teams, motivate, communicate, mentor, think strategically and assess risk (OECD, 2010[116]; 2011[117]). Strong managerial skills are particularly important in the context of megatrends and the COVID-19 crisis, which are driving significant changes in the economy and require firms to adapt accordingly to how they conduct business and organise their workplaces (see Chapter 2). The recent expansion of remote working has created new challenges for managers to implement management approaches that motivate employees, build trust and foster open communication.

Management capacity in Southeast Asian countries can be improved (Figure 4.10). A common indicator to measure management capacity is the extent to which firms engage in merit-based employment in senior management positions. The indicator has a seven-point scale from one, where usually relatives or friends are hired without regard to merit, to seven, where professional managers are chosen according to merit and their qualifications. Across most Southeast Asian countries, the average score for firms in terms of their reliance on professional management is relatively low (4.6 on average) compared to the OECD average (5.1). The exceptions are Singapore (6) and Malaysia (5.5). A lack of managerial skills is often a bigger problem and one of the main barriers to growth for SMEs compared to larger firms since SMEs, relative to larger firms, are more resource-constrained with respect to the recruitment and development of high-quality managers (OECD, 2021[56]).

Considering the large share of SMEs (97% of all firms) in the region, policies that prioritise the development of managerial capacities for SMEs should be promoted. Sufficient formal and informal networking and mentoring opportunities between SMEs and larger firms can help SMEs observe and absorb lessons on effective managerial practices from larger firms (OECD, 2021[56]). Many OECD countries use networks to improve the skills of SMEs. For example, the European Union has a project designed to build SME Learning Networks to enhance their management competency in training and human resource development. In Korea, the government provides financial incentives to large firms to form consortiums with SMEs through the National Human Resources Development Consortium (also known as CHAMP) programme. These consortiums are often formed between larger firms and SMEs that are subcontractors in the same industry and region. The larger firms can share their management know-how and workplace practices through these consortiums. The consortiums also provide training opportunities for SMEs facilitated by the larger firms and in collaboration with universities (OECD, 2020[118]). The government partially covers training costs through the Employment Insurance Fund.

In Indonesia, Malaysia and the Philippines, the ASEAN Mentorship for Entrepreneurs Network (AMEN) supports networking and mentoring opportunities for SMEs. The network consists of a pool of mentors in the region who share best practices in management and workplace practices with SMEs so that these firms can grow. Furthermore, the network has developed ten AMEN Mentorship Modules, which train mentors on a wide variety of mentoring and pedagogical techniques, so that they can provide quality and relevant mentorship experiences that best address the specific needs of SMEs (ASEAN, 2022[120]).

  • Create a single portal in each country to efficiently disseminate comprehensive information on high-performance workplace practices to firms, especially SMEs. Governments should centralise the currently fragmented provision of information on HPWPs for firms in a single portal. The portal should inform, guide and support firms to benchmark their performance and locate relevant support programmes. This could include, for example, making diagnostic tools available to businesses to support them in identifying their business needs, challenges and opportunities. The information provided on the portal should be made available in a business-friendly manner, for example, by sharing concise information on good practice and success stories. To help firms navigate the portal, simple guides on how to implement specific HPWPs would be helpful. The portal could be part of a broader campaign to raise awareness about the benefits of adopting HPWPs for businesses.

  • Improve the managerial skills in SMEs by providing networking and mentoring opportunities. Governments should encourage and support network and mentoring opportunities to facilitate sharing of good managerial practices and lessons between SMEs and larger firms. Such networking and mentoring opportunities for SMEs could be formalised through the formation of consortiums as well as be financially supported. Furthermore, to provide quality and relevant mentorship experiences, mentors for SMEs should be provided with diverse training offers that equip them with the tools and techniques they need to guide their mentees effectively.

People’s skills have important implications for how fully and effectively they participate in everyday life. People use their skills in a variety of ways in everyday life, including through civic engagement (e.g. volunteering and participating in political parties, religious groups) and participation in leisure activities (e.g. sports and recreational groups, reading books). Civic engagement activities, which are typically unpaid and non-compulsory, benefit society and allow people to help others while strengthening their skills and knowledge in ways that may enhance career or employment prospects. Participation in leisure activities, such as sports and recreational clubs, can also help to transfer and strengthen interpersonal skills and develop peer relationships (Ivaniushina and Zapletina, 2015[121]). During sports and recreational activities, people set attainable goals, overcome challenges and learn to manage their thoughts and emotions. These activities also provide opportunities to use interpersonal skills and strengthen relationships with use.

Skills use through civic engagement and leisure activities benefit both individuals and society. The use of skills in everyday life is associated with higher levels of trust in others, institutions and governments and is associated with stronger political efficacy, higher life satisfaction and better health. Moreover, evidence suggests that positive social outcomes reinforce each other. For example, the likelihood of trusting others increases by 5 percentage points when one is active in volunteer work (OECD, 2018[29]). At the societal level, it can contribute to fostering a more inclusive and cohesive society (OECD, 2019[2]).

As mentioned in the section on Southeast Asia’s performance in using skills effectively, there are vast differences in participation rates in volunteering across Southeast Asian countries. Participation rates range from 9% (Cambodia), 16% (Thailand), 17% (Viet Nam), the Philippines (35%) to 53% (Indonesia), with the ASEAN average being 26% (Figure 4.4). The differences may be due, in part, to public sector policies. For example, in the Philippines and Singapore, volunteering is included in the school curricula and is sometimes even required of students as a prerequisite for graduation. Southeast Asian countries with relatively low rates of participation in voluntary activities could consider making voluntary activities available as part of the school curricula to build a stronger culture of civic engagement and encourage the fuller use of skills in everyday life in adulthood. Evidence shows that early exposure to volunteerism in school can lead to higher probabilities of volunteering in adulthood, enhanced political activity and more positive views of societal participation (Oesterle, Johnson and Mortimer, 2004[122]).

More can be done to raise awareness in Southeast Asia about the potential benefits of encouraging people to make fuller use of their skills in society and their personal lives (OECD, 2019[2]). While several initiatives exist to promote volunteering in some Southeast Asian countries, such as Indonesia (Box 4.6), stakeholders consulted during this project noted that people are generally not fully aware of the benefits that accrue to individuals and society when people are encouraged and supported to use their skills more actively in everyday life. Southeast Asian governments can introduce awareness campaigns and provide information about the benefits of volunteering, civic engagement and reading for pleasure.

Many OECD countries organise campaigns, contests and events to promote social participation. For instance, Australia’s Volunteers Programme is a government-funded programme that matches Australian volunteers with partner organisations in the Indo-Pacific region (Box 4.6). Furthermore, other OECD countries, including Austria, Denmark, Germany, Italy, Norway and Switzerland (among other 22 countries), are a part of EURead, which aims to promote reading by raising awareness of its benefits. The member countries of EURead jointly develop a structural framework for promoting reading on a national and European level. EURead organises campaigns and other events that offer awards and prizes for reading (EURead, 2019[123]). Adults should also be made aware of the importance of reading to their children to support their development. Schools can play an important role in creating a culture of engagement by promoting community involvement, such as volunteerism and mentorship programmes, and organising discussions and debates on political and social issues. As discussed earlier and in Chapter 3, it is important to build awareness of the benefits of skills use in life and society at a young age as early learning helps develop stronger outcomes in the future (OECD, 2015[105]).

A user-friendly and easily accessible single portal that combines relevant information on volunteering activities and mentorship opportunities could help raise awareness of opportunities to participate more fully in society (OECD, 2019[2]). For example, the Netherlands has an online database that shares information on volunteer initiatives and social enterprises (Box 4.6). The Philippines and Singapore also offer online portals to promote volunteer activities (e.g. www.pnvsca.gov.ph/ in the Philippines and www.volunteer.gov.sg/ in Singapore). The remaining Southeast Asian countries that do not offer similar informational portals may take these sites as inspiration.

While raising civic engagement can be beneficial to all, it is especially important to target groups with lower skill use levels. These include the unemployed, older adults and persons with disabilities. There is a need to encourage them to participate in civic engagement activities where they can make productive use of their skills (Gonzales, Matz-Costa and Morrow-Howell, 2015[124]; Rak and Spencer, 2016[125]). For example, financial incentives could be used to promote greater social participation by these groups. For instance, in Canada (British Columbia), a community volunteer supplement is provided to eligible persons, such as the unemployed and people with disabilities, who participate in a volunteer activity with a non-profit community agency in a designated volunteer position (Box 4.6).

  • Make volunteering activities available as part of the school curricula to encourage young people to contribute their skills to society from an early age. Schools can promote a civic engagement culture by facilitating community volunteering opportunities and organising discussions on political and social issues. Ministries could also consider awarding grants to schools to support students’ participation in national or overseas community service.

  • Raise awareness about the benefits of using skills in society and personal life. Build awareness about the benefits of active and engaged citizenship and leisure activities from a young age. Governments should introduce promotional campaigns to provide information about the benefits of using one’s skills in civic and social life and encourage civic engagement and leisure activities, for example, through volunteering, reading and recreational activities. In addition, governments should provide centralised and comprehensive information about civic engagement opportunities and relevant associations to facilitate active participation.

  • Provide financial incentives to encourage adults to use skills in civil society. Governments could provide subsidies and/or tax deductions to encourage participation in community and voluntary organisations. Subsidies can cover the cost of individual membership in such community and voluntary organisations. Governments could also introduce tax deductions or credits for participation in community and volunteer organisations. These schemes would allow individuals to claim the time spent on community and voluntary work against taxes owed. Financial incentives could be targeted at disadvantaged groups, such as the unemployed and people with disabilities, to support their increased engagement and participation in society, prevent their skills from atrophying, and in recognition that they face tighter income constraints. For example, additional benefits or a supplement, in addition to social assistance payments, could be provided to unemployed or inactive people who engage in volunteer activities.

While reducing skills mismatches in the labour market is important, so is boosting demand for higher-level skills. In a low-skill equilibrium, the workforce is made up of adults with low skills who are well matched with jobs requiring low levels of skills and which often offer low wages and inferior working conditions. In such an equilibrium, low-skilled workers have little incentive to upgrade their skills since they know it will be difficult to find jobs requiring those skills and rewarding their efforts. At the same time, employers fail to move to higher value-added activities due in part to the low skill levels of their workforce. Thus, low-skills equilibria hinder growth and economic development and make economies vulnerable to economic and technological shocks, such as those related to global value chains or digital transformation (OECD, 2019[2]).

In a high-skill equilibrium, a strong supply of higher-level skills is matched by strong demand for these skills, creating the conditions for sustainable economic growth. Innovation and technological progress depend on a highly skilled workforce with the knowledge and skills to generate new ideas and technologies, bring them to the market, and implement them effectively in firms and society. At the same time, in a high-skill equilibrium, the workforce and its employers have greater incentives to invest in skills development, given that such investments are likely to reap positive returns. Therefore, effective education, training, and lifelong learning policies (see Chapter 3), as well as policies to support firms to engage in innovation and entrepreneurial activity, are important to position economies to engage in higher value-added activities that, in turn, demand and absorb an increasing supply of high-skilled and well-remunerated workers. To this end, Opportunity 3 examines two policy directions for Southeast Asian countries to increase demand for higher-level skills. First, it explores how to promote innovation and then considers how to foster entrepreneurship.

Innovation varies significantly across Southeast Asian countries. The Global Innovation Index measures innovation on a 0-100 scale (with a higher score indicating high levels of innovation) across multiple dimensions, such as political and business environment, human capital and research, infrastructure, market and business sophistication, knowledge and technology output, and creative output. According to the Global Innovation Index, the score for ASEAN countries on average (34) was lower than for OECD countries on average (48) in 2020. However, innovation across Southeast Asian countries varies significantly. For example, Singapore (57) surpasses not only all ASEAN countries on this measure but also many OECD countries (Figure 4.11). Malaysia (42), Viet Nam (37) and Thailand (35) are performing slightly better than the ASEAN average but are still below the OECD average.

Skills and innovation policies can complement each other in ways that boost countries’ socio-economic development. To position economies to move to higher value-added and innovation-intensive activities, education, lifelong learning and labour market policies need to be accompanied by policies supporting firms’ innovative activities and entrepreneurship, as well as policies levelling the playing field for firms and removing obstacles to growth (OECD, 2019[2]). When skills policies are well aligned with innovation policies, employers can access the skills they need to move their firms to higher value-added and into innovation-intensive activities. Innovation requires strong STEM skills, as well as soft skills and entrepreneurial skills (see Chapter 3) (OECD, 2019[2]). This policy direction presents the performance of Southeast Asia in two areas related to promoting innovation to increase demand for high-level skills: 1) investing in R&D; and 2) promoting collaborations between higher education institutions and firms.

Investment in R&D helps develop knowledge and skills and enhances firms’ abilities to improve and create new products and services, which in turn raises demand for higher levels of skills. It enables innovative firms to experiment with new ideas, technologies and business models, which helps them grow, increase their market share and reach scale (Cohen and Levinthal, 1990[132]). However, expenditure on R&D as a percentage of GDP is relatively low in Southeast Asian countries. On average, Southeast Asian countries invest significantly less in R&D (0.6% of GDP) as compared to the OECD average (2.6% of GDP) (Figure 4.12). There is substantial variation in R&D spending across countries within the region. Singapore (1.9%) and Malaysia (1%) show relatively high levels of R&D spending, while countries like Myanmar (0.03%), Cambodia (0.1%), the Philippines (0.2%) and Indonesia (0.2%) invest very little.

Financial support from government can play an important role in increasing spending in R&D and innovation. Evidence suggests that government support for business R&D expenditure is instrumental in increasing R&D intensity (OECD, 2019[2]). Government support could contribute to correcting market failures, such as difficulties appropriating the returns to investment in R&D and difficulties finding external finance, particularly for small or young firms (OECD, 2016[133]). Many Southeast Asian countries provide grants to start-ups and SMEs to support their research and innovative activities (Table 4.6) or have established specialised agencies to fund and manage R&D projects (e.g. Thailand in Box 4.7). Some Southeast Asian countries, such as Indonesia, Singapore and Thailand, also provide tax incentives (e.g. reduced tax rates, tax holidays, tax credits and import duty exemptions on R&D equipment).

Going forward, Southeast Asian countries should consider increasing government support for expenditure on R&D. All OECD countries provide substantial direct and indirect financial support for R&D. For example, direct financial support for R&D, grants and subsidies are often provided on a competitive basis as seed funding for innovative start-ups and SMEs with high potential. As indirect financial support for R&D, many OECD countries provide R&D tax incentives, such as tax credits or favourable tax deductions for R&D expenditures, to encourage higher expenditures on R&D. Providing a mix of direct grant support and tax incentives would be particularly beneficial (Neubig et al., 2016[140]).

Promoting collaboration between institutions of higher education and firms is an effective way to foster innovation (Fonseca and Salomaa, 2020[141]). Higher education research-industry linkages help to introduce firms to new technologies and innovative practices and promote knowledge transfers and spillovers. Furthermore, they enable firms to find or tap into workers who have the skill sets required to move to higher value-added types of activities (Ankrah and Al-Tabbaa, 2015[142]; Scandura, 2016[143]). Some Southeast Asian countries already support collaboration between academic institutions and firms. For example, in Singapore, the Future Economy Council gathers stakeholders from various backgrounds, including government, industry, unions, and educational and training institutions, and provides a platform for them to interact and co-operate to drive innovation and growth (Ministry of Trade and Industry Singapore, 2022[144]). In addition, Viet Nam offers innovation and start-up centres at some universities to promote collaboration, build an innovation culture, and nurture entrepreneurship within the education sector. Despite these examples, many stakeholders consulted throughout the project noted that collaboration between academic institutions and firms is limited in Southeast Asia (see Chapter 5).

To improve collaboration between academia and industry, many OECD countries provide local platforms where stakeholders from public, private and academic sectors can engage directly (OECD, 2019[2]). Australia, Canada and Korea provide good examples of this (Box 4.7). Policy measures to encourage collaboration among firms and between firms and universities and research institutions need to pay special attention to engaging SMEs, as they are generally less prone to collaborate with institutions of higher education (OECD, 2017[145]). Together with further trade liberalisation, particularly in the services sector (see Chapter 2), these efforts will help SMEs to enhance their productivity and competitiveness and expand their business across international borders (OECD, 2019[146]).

  • Increase expenditure on research and development through direct grant support and tax incentives. Southeast Asian countries should consider increasing direct grant support and subsidies to support long-term research, especially in areas with particularly high potential spillover benefits. Governments could help increase R&D in areas with high social returns but low prospects for profits, such as green technology and social innovation. They could target their support especially to innovative small and young firms that often have difficulty securing financing for R&D. Governments should also consider providing and increasing indirect financial support to encourage R&D activities. For example, they could offer and increase credits against income and payroll taxes for expenditures on investments for R&D.

  • Foster collaboration between institutions of higher education and industry. Southeast Asian countries should facilitate co-operation and networking between higher education and firms. Governments should support the development of networks of intermediary organisations and platforms, such as R&D centres, innovation agencies, technology transfer offices and business incubators, to facilitate knowledge transfer between higher education and industry. They could be established as autonomous agencies or units within a specific university. Such organisations should interact with each other on a regular basis to promote knowledge “co-creation” involving multiple stakeholders from industry, research institutions and government.

Fostering entrepreneurship by removing barriers to starting a business and enabling firms to scale up is another way to spur innovation and demand for high-level skills. Start-ups introduce new innovations and technologies and encourage better allocative efficiency by challenging the survival of incumbent firms that are not as productive or innovative (OECD, 2019[2]). However, while entrepreneurship contributes greatly to socio-economic growth, many barriers remain in Southeast Asia, especially among disadvantaged groups such as women. This policy direction discusses the many barriers they face in accessing finance and obtaining valuable mentoring and business opportunities through networks and presents several policy solutions to these challenges.

Evidence shows that entrepreneurial activity is lower in Southeast Asia than in OECD countries. On average, Southeast Asian countries score lower (1.8) than OECD countries (3.7) in entrepreneurial activities, as measured by the number of new business registrations per 1 000 people aged 15-64 (Figure 4.13). Singapore (10), Malaysia (2.4) and Brunei Darussalam (2.4) are characterised by relatively high rates of entrepreneurial activity. The share is relatively low in Indonesia (0.3), the Philippines (0.3) and Lao PDR (0.04). In addition, evidence suggests that a significant share of people in Southeast Asia perceive that they do not have the necessary entrepreneurial skills (OECD, 2021[26]).

Government initiatives and programmes to support start-ups can play an important role in fostering entrepreneurship. Many Southeast Asian countries already have such supporting initiatives and programmes in place. Table 4.7 summarises some of the major government initiatives and programmes to promote entrepreneurship in the region, while Box 4.8 provides the example of Thailand’s Start-Up Nation, which actively promotes the country as a start-up nation. However, initiatives and programmes that prioritise supporting disadvantaged groups, such as women and youth, are not available in most Southeast Asian countries.

Self-employment rates are high among women across Southeast Asia, but they are often limited to precarious sectors. Self-employment rates, which include individuals working on their own account or with one or a few partners, are often used as a proxy for entrepreneurship.2 Data from the region show that, on average, across ASEAN countries, women are more likely than men to be self-employed by 4.8 percentage points, unlike in OECD countries and high-income countries in Southeast Asia, such as Singapore, where men are more likely to be self-employed (Figure 4.14). The likelihood of self-employment among women in comparison to men is especially high in Lao PDR (13.3 percentage points), Cambodia (12 percentage points) and Indonesia (11.9 percentage points). Due to the multiple barriers women face in entering the formal labour market (Opportunity 1), they often must look for alternative sources of income, such as self-employment and entrepreneurship. In cases where women are self-employed, it is often in disadvantaged sectors, such as agriculture, or in a limited number of highly gendered activities, such as selling beauty products, catering, food processing and tailoring (OECD, 2017[40]).

Evidence suggests women face particularly high barriers in pursuing entrepreneurial activities (OECD, 2021[50]). While women in the region are technically able to register businesses the same way as men, they still face additional constraints in obtaining full legal capacity when signing legally binding contracts, as shown in Table 4.8. This severely limits women’s ability to fully participate in work and conduct their own businesses in many countries in Southeast Asia. Stakeholders consulted also noted that common barriers facing women entrepreneurs in Southeast Asian countries include limited access to financing as well as knowledge and information on starting and/or running businesses.

In Southeast Asia, female entrepreneurs are less likely to take out bank loans than their male counterparts for various reasons. Women in Southeast Asia often have lower levels of financial literacy, and evidence suggests that many lack the confidence and skills needed to negotiate a loan (associated with financial literacy needs). Furthermore, they often lack credit histories and assets (i.e. land ownership) that they can use as collateral when borrowing from traditional financial institutions (OECD, 2021[50]). In addition, gender stereotypes and biases remain prevalent among financial institutions, which often behave insensitively to the needs of women and are often reluctant to lend to women-owned SMEs (OECD, 2021[50]). As access to credit and collateral is fundamental for business growth and innovation, this partly explains why there are fewer female-owned enterprises and why they tend to be smaller and less productive (OECD, 2017[40]).

Southeast Asian countries should provide financial services that meet the needs of women entrepreneurs and are easy to access. The most common approaches are to offer grants, loan guarantees and microfinance targeting women entrepreneurs. Attracting more women investors and advisors into venture capital and business angel networks could be one way to increase investment in women-owned enterprises (OECD, 2021[50]). To be successful, it is important to adapt the application process to the literacy levels of women to ensure they can easily complete and submit their applications (OECD, 2017[40]). Some Southeast Asian countries provide targeted financial services to women. For example, in Indonesia, the Mondelez International’s Cocoa Life Programme aims to close the gender gap in economic activities and provides rural farmers with access to finance through village savings and loan associations. In addition, Women in Micro and Small Business Groups, which operate at the village and district level, provide microfinancing and training opportunities to women entrepreneurs (OECD, 2021[50]). Across OECD countries, such as the United Kingdom, and in the European Union (EU), financial services are also provided to help women entrepreneurs (Box 4.8).

On the other hand, many female entrepreneurs also face higher barriers to accessing networking and mentoring guidance. The lack of access to business networks and a general lack of networking activity in the region, which provides connections to mentorship opportunities and facilitates women’s participation in them, inhibit them from obtaining useful guidance on how to start, manage and grow a business (ADB, 2018[165]). Evidence suggests that access to networking and mentoring is particularly important during the start-up phase of a new business. The transfer of expertise, new practices and emotional support from peer entrepreneurs play a critical role in their success (OECD, 2017[40]). In addition, people who receive mentoring through networks are likely to be more business savvy, acquire business skills and have better success in accessing financing (OECD, 2021[50]).

Southeast Asian countries should actively promote women's organisations (e.g. unions organising female workers) and business associations that support women. Such organisations and associations provide a variety of benefits to women, such as support to improve their conditions in the workplace, but also access to new entrepreneurial relationships and mentoring opportunities (ILO, 2022[166]). Awareness that the challenges they face are not unique but are shared by other women also helps to build confidence. Some Southeast Asian countries have women’s associations to help their entrepreneurial activities. For example, the Thai Woman SMEs Association (TWoSA) devotes special attention to enhancing the promotion of new entrepreneurial activities led by women. TWoSA absolves this role by providing opportunities for training courses, supplemented by regular networking sessions among women entrepreneurs to share experiences and knowledge. Viet Nam Women’s Union is another good example that supports women-led business start-ups (Box 4.8). Further support for women’s unions and associations would benefit inclusive entrepreneurship in Southeast Asia countries.

  • Improve access to finance for female entrepreneurs by providing targeted financial services combined with financial training. Governments and financial institutions should improve access to loan programmes targeted at women. For example, they could provide guaranteed loans or microfinancing to women entrepreneurs with high growth potential. Such financial programmes could be offered and combined with other services, such as counselling and financial training. To be effective, the application process for such financial services should be adapted to women’s literacy levels to ensure they are easy to understand and apply for.

  • Facilitate the transfer of entrepreneurial knowledge and skills to women by supporting unions for female workers and business associations for women. Governments should establish and support networks of women’s enterprise centres. These networks could provide business development support to women entrepreneurs and build a women-friendly business environment. In addition, governments could strengthen the role of women entrepreneurs in business and industry associations by encouraging chambers of commerce and SME associations to establish businesswomen committees or women entrepreneur working groups.


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← 1. Within Southeast Asia, data are only available for Singapore and Jakarta.

← 2. Self-employment and entrepreneurship are two different concepts but are often closely linked, as both involve flexible, independent individuals who run their own businesses, often at their own risk (Szaban and Skrzek Lubasińska, 2018[169]). In empirical research, self-employment is often used as a proxy for entrepreneurship, especially in cases where data on the latter are limited. There is evidence of the correlation between self-employment and entrepreneurship (i.e. density of business start-ups and innovative firms) (Faggio and Silva, 2012[170]), although interchanging the two has its empirical disadvantages (e.g. the lack of alignment between definitions and data collection methods) (Bjuggren, Johansson and Stenkula, 2010[171]).

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