Labour supply gaps could hit APAC economies hard

Chennai: The mismatches in labour supply after the reverse migration during the Covid-19 pandemic in India and other countries in Asia-Pacific (APAC) region could weaken the economic growth, said Moody's Investors Service.

While the lasting implications will take time to fully materialise, labour-market scarring and skills mismatches, exacerbated by the effects of the Russia-Ukraine military conflict, could constrain potential growth, the report said.

According to the report, the pandemic has led to labour-market mismatches -- as workers took on lower-wage or lower-skill jobs -- and unemployment as businesses scaled down or closed. The return of workers to their pre-pandemic work sites as APAC economies progressively reopen has been gradual in some cases.

"Continued mismatches in the labour supply and lower workforce participation would weaken growth potential and hurt productivity, particularly in economies with a concentration of labour-intensive industries and high internal migration," said Nishad Majmudar, assistant vice-president and analyst, Moody's. According to Moody's, India and Bangladesh - where informal workers make up 80 -90 per cent of the workforce - are particularly exposed to labour market scarring given their high dependence on domestic consumption for economic growth and the sheer scale of migration between rural villages and urban areas.

This presented hurdles for their governments in implementing social distancing measures.

While both countries increased their abilities to deliver social benefit payments, the scale of assistance was small compared with the magnitude of job dislocation for informal workers, Moody's said.