Towards Greener and More Inclusive Societies in Southeast Asia

Report

Development Centre Studies

11 March 2024

3. Environmental degradation and employment vulnerabilities in Southeast Asia

Abstract

Southeast Asian economies’ heavy reliance on natural resources creates vulnerabilities for many workers and their households, with adverse effects on future growth prospects. Analysis of seven countries, representing 95% of the region’s total population, shows that workers in sectors that rely on the environment account for 37% of total employment. Workers in these “environmentally linked” sectors tend to have lower incomes, lower education and in the informal economy. Further analysis on vulnerability for Indonesia and Viet Nam shows that a large share of the labour force is vulnerable to extreme weather conditions. In this context, specific social protection instruments to shield these workers and sectors against environmental shocks appear critical.

Since the 1990s, Southeast Asia has experienced strong and steady economic growth. The region’s gross domestic product (GDP) has doubled since 2005 and most countries in the region are on the verge of eliminating extreme poverty (World Bank, 2020[1]). However, this economic success came at the cost of considerable environmental degradation, which disproportionately affects informal and lower-earning workers. This chapter presents the characteristics of workers in Southeast Asia who are highly dependent on natural resources, and who are thus most vulnerable to environmental degradation. The findings stress the need to develop adaptation policies, particularly in terms of social protection. This chapter also makes the case for policies aimed at mitigating further environmental degradation and its impact on human well-being, which are further discussed in Chapter 4.

Environmental degradation’s threat to economic performance

The environment matters for emerging Southeast Asian economies. Natural capital in the region represents a much larger share of total national tangible capital compared with OECD countries (Figure 3.1).

Figure 3.1. Natural capital represents a large share of total national tangible capital in Southeast Asia

Distribution of total national tangible capital (%), 2018

While natural capital is of crucial economic importance, it is under threat. Southeast Asia has been undergoing rapid deforestation, unlike the rest of Asia. The region has lost 15% of its forest area since 1990 (Figure 3.2), a pattern primarily driven by land clearing for agriculture. In particular, palm plantations for oil production have expanded into previously forested land, especially in Indonesia and Malaysia, the world’s largest palm oil producers (European Parliament Research Service, 2020[3]). Indeed, these two countries accounted for 89% of the region’s total deforestation from 2005 to 2015 (Estoque et al., 2019[4]). This trend endangers one of the most important global biodiversity hotspots (ibid.). By contrast, Asia increased its forest area over the same period (5%), a figure largely driven by the People’s Republic of China (hereafter: China) (38%) and India (12%).

Deforestation incurs a range of economic and social costs. First, it endangers economic activities located in forests, such as timber harvesting and tourism. Second, forests contribute to water filtration, an essential role given that 75% of global freshwater comes from forested watersheds. Third, forests also regulate temperature and precipitation at a regional level. Fourth, deforestation increases the likelihood of floods, as areas that have lost forest area have lower evapotranspiration and lower water infiltration (Ellison et al., 2017[5]). In other words, deforestation makes rain less likely to be either evaporated back into the air or retained in the soil, thus increasing surface water runoff. Floods are highly prevalent in Southeast Asia and increase the vulnerability of workers who are highly dependent on natural resources. Finally, deforestation contributes to climate change, as each hectare of forest stores 91 tonnes of carbon, which is released into the atmosphere when forest area is lost. This capability of forests to sequester carbon represents 65‑90% of the total value of forests (BCG, 2020[6]).

Figure 3.2. Southeast Asia is deforesting faster than the world average

Southeast Asia is also among the regions that are most vulnerable to climate change. In Viet Nam, for example, the number of days where the temperature was above 34°C – the threshold at which labour productivity decreases drastically – has increased by five days per year every decade between 1970 and 2011 (ILO, 2019[8]). By 2030, Southeast Asia will be among the regions facing the largest labour productivity losses due to climate change-induced heat stress (Figure 3.3). Climate change also induces increasingly higher economic costs related to flood, drought and landslides, which have increased by 63%, 23% and 147%, respectively, between 2001 and 2020 in Asia, with record breaking torrential rainfall observed in Southeast Asia (WMO, 2022[9]).

Figure 3.3. Southeast Asia could lose 3.7% of its labour productivity due to heat stress by 2030

Working hours lost due to heat stress by subregion,1995 and projections for 2030 (%)

Another key environmental challenge in the region relates to fish stock management. Overfishing is estimated to cause an annual economic loss of USD 54.8 billion (United States dollars) in Asia, or 65% of the world’s total foregone economic benefits due to unsustainable fishing practices and mismanagement of marine fisheries (World Bank, 2017[10]). Southeast Asia is a large contributor to this phenomenon, as sustainable management instruments to control the level of fishing activity are often lacking (OECD, 2017[11]). This endangers working conditions in fisheries. Southeast Asian countries have among the highest share of employment in the sector, particularly in the Philippines, where fishers represent 4.6% of total employment, as well as in Indonesia (where they represent 2.1% of total employment) and Viet Nam (where they represent 1.7% of total employment); see Table 3.1 for an international comparison. Overall, it is estimated that about 20% of livelihoods in Southeast Asia depend on fisheries in a direct or indirect way (OECD, 2014[12]).

Country	Share of employment in fisheries (percentage of total employment)	Employment in fisheries (thousands)
Philippines	4.6	1 988
Indonesia	2.1	2 655
Chinese Taipei	2.0	235
Iceland	2.0	4
Viet Nam	1.7	934
Brazil	1.1	1 042
People’s Republic of China (hereafter: China)	1.1	8 515
Malaysia	0.9	133
Greece	0.5	21
Thailand	0.5	194

Note: Only major economies in fisheries are covered. Southeast Asian economies are shaded in grey. The share of employment in fisheries is obtained by combining a numerator and denominator from different sources and should therefore be considered with caution.

Source: Authors’ calculations using for employment in fisheries: OECD (2022[13]), Employment in fisheries, aquaculture and processing, https://stats.oecd.org/Index.aspx?DataSetCode=FISH_EMPL, and total employment: ILO (2021[14]), ILOSTAT - Modelled estimates, https://ilostat.ilo.org/.

Profiling workers in environmentally linked sectors

The continued environmental degradation in Southeast Asia highlights the need to look at vulnerability to environmental degradation from a labour market perspective. The analysis in this chapter relates to three main aspects of vulnerability: sensitivity, exposure, and adaptation capacity (adapted from ADB (2014[15])). According to the Intergovernmental Panel on Climate Change (IPCC), vulnerability is defined as the degree to which an individual is “susceptible to, or unable to cope with, adverse effects” of environmental degradation (IPCC, 2007[16]). An individual worker’s vulnerability to environmental shocks therefore depends on three key factors: sensitivity (the harm caused by a given level of environmental degradation), exposure (the presence, occurrence and magnitude of environmental degradation) and adaptation capacity (the ability of individuals or systems to better cope with the impact of environmental degradation).

First, this study investigates a primary characteristic of sensitivity: the dependence of different economic activities on environmental resources in seven Southeast Asian economies (Cambodia, Indonesia, Lao PDR, Myanmar, the Philippines, Thailand and Viet Nam), representing 95% of the total population of the region. Second, it assesses vulnerability by combining information on sensitivity, exposure and adaptation capacity for Indonesia and Viet Nam. In order to estimate the number of jobs that rely on environmental resources and that are therefore sensitive to environmental degradation, this study builds on and adapts a categorisation at the sectoral level that was developed by Rademaekers et al. (2012[17]). Two levels of sectoral links to the environment are distinguished:

Sectors with a “direct” environmental link are either using natural resources directly or supporting better environmental management.
Sectors with a “strong indirect” link are those where most of the activity is related to the environment, without directly exploiting natural resources.

The sum of “direct” and “strong indirect” sectors is referred to as “environmentally linked” sectors. Table 3.2 describes the exact mapping between sectors and these categories. The share of jobs that are environmentally linked ranges from 27% in the Philippines to 52% in Myanmar (Table 3.3). Most of these jobs are in agriculture. It is worth noting that activities with a strong indirect link also represent a non-negligeable share, ranging from 2% to 5% of total employment in the countries observed (Table 3.4). In addition, travel and tourism, which is increasingly around nature-based activities and ecotourism, provides jobs for 41.8 million people in Southeast Asia, representing 13.2% of employment and 11.7% of GDP in 2019 (OECD, 2023[18]).

ISIC category	Economic sector name	Degree of environmental link	Aggregated economic activities
1	Crop and animal production, hunting and related service activities	Direct link: Direct use of natural resources or support better environmental management	Agriculture
2	Forestry and logging
3	Fishing and aquaculture
5	Mining of coal and lignite		Industry
6	Extraction of crude petroleum and natural gas
7	Mining of metal ores
8	Other mining and quarrying
9	Mining support service activities
35	Electricity, gas, steam and air conditioning supply
36	Water collection, treatment and supply
37	Sewerage
38	Waste collection, treatment and disposal activities; materials recovery
39	Remediation activities and other waste management services
10	Manufacture of food products	Strong indirect link: Most of the activity in the sector is related to the environment.
11	Manufacture of beverages
12	Manufacture of tobacco products
16	Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials
17	Manufacture of paper and paper products
	All other sectors	Rest of the economy	Industry and services

Note: ISIC, Rev.4 refers the International Standard Industrial Classification of All Economic Activities, revision 4.

Source: Adapted from GHK (2007[19]), ECORYS-EU DG-Environment (2012[17]) and ILO (2018[20]).

Country	Total employment	Environmentally linked employment	Share of environmentally linked employment (%)
Indonesia	120 647 696	46 357 369	38.4
Philippines	42 428 368	11 496 187	27.1
Viet Nam	50 567 892	17 446 246	34.5
Thailand	38 301 024	15 025 097	39.2
Myanmar	22 079 116	11 454 796	51.9
Cambodia	7 883 106	2 792 398	35.4
Lao PDR	1 538 924	613 742	39.9
Total	283 446 126	105 185 835	37.1

Source: Cambodia Labour Force Survey 2019; Indonesia National Labour Force Survey 2016; Lao PDR Labour Force Survey 2017; Myanmar Labour force survey 2019; Philippines Labour Force Survey 2019; Thailand Informal Employment Survey 2018; Viet Nam Labour force survey 2019.

Country	Direct link			Strong indirect link
	Agriculture	Primary sector, other than agriculture	Support environmental management
Indonesia	31.7	1.4	0.2	5.1
Philippines	22.9	0.8	0.1	3.4
Viet Nam	29.4	0.9	0.2	4.0
Thailand	33.4	0.6	0.1	5.1
Myanmar	48.9	0.8	0.0	2.2
Cambodia	33.1	0.3	0.1	1.9
Lao PDR	35.8	1.3	0.3	2.5

Environmentally linked jobs represent a large share of total employment, and many workers in these jobs appear to be particularly vulnerable. Across almost all countries for which data are available, labour earnings tend to be considerably lower in environmentally linked sectors. This form of “nature penalty” is strongest in sectors with direct environmental links and tends to decline progressively as the sectoral environmental link becomes weaker. As shown in Figure 3.4, the median labour earnings in sectors with a direct link to the environment are typically two-thirds of the national median labour earnings. A notable exception is Myanmar, where agricultural workers have a higher median income than the national median. This may be partly explained by the low competitiveness of the industrial sector in Myanmar (OECD, 2013[21]). To a lesser extent, a lucrative small-scale mining sector also pushes up incomes in Myanmar’s primary sector (Osawa and Hatsukawa, 2015[22]). Overall, the results are similar when considering wages (a subset of labour earnings), for which data are available for a larger number of countries. These lower earnings and wages of workers in environmentally linked sectors indicate a lower capability to cope with shocks caused by environmental degradation. Environmentally linked employment also goes hand in hand with informality. As shown in Figure 3.5, the workers in sectors with a direct link, followed by those with a strong indirect link, tend to be considerably more informal than the rest of the economy.

Figure 3.4. The higher the dependence on the environment, the lower the earnings are

The relationship between the strength of the environmental link and informality varies across countries, however. In Indonesia, Cambodia, Lao PDR and Viet Nam, informality is high in the “direct link” category, weaker in the “strong indirect link” category, and lowest in the rest of the economy. In Myanmar and in Thailand, the relationship is less clear (Figure 3.5).

Altogether, these results point to specific vulnerabilities: most informal workers in Southeast Asia lack social protection and rights at work. When facing environmental shocks, formal employment ensures that environmentally related health and income risks are (at least partially) mitigated through employment-based social protection schemes. Instead, informal status typically implies that workers must cope with the consequences of environmental shocks on their own.

Figure 3.5. The stronger the environmental link, the higher the probability of jobs being informal

The degree of reliance workers has on environmental resources is also reflected in their employment status. Sectors with direct and strong indirect links to the environment tend to employ more own-account workers and contributing family workers, while having fewer salaried employees (Figure 3.6).

Figure 3.6. Workers who depend on the environment for employment are generally own-account and contributing family workers

Similarly, the share of workers with basic and less than basic education (those who have completed primary education or lower secondary education) tends to gradually decrease as the link to the environment weakens (Figure 3.7). This is a source of vulnerability not only because lower education implies lower current and future incomes but also because it makes it more difficult for workers to change sectors and to move geographically (Machin, Salvanes and Pelkonen, 2012[23]) – a potential coping mechanism in the face of environmental shocks.

Figure 3.7. Workers with lower education hold the vast majority of environmentally linked jobs

A higher environmental link is also related to living in rural areas (Figure 3.8). This may represent another source of vulnerability, as rural areas may lack the infrastructure to cope with environmental degradation. No clear relationships between an environmental link and either gender or age could be found.

Figure 3.8. Environmentally linked workers tend to live in rural areas

In focus: Assessing the level of vulnerability of the workforce in relation to natural disasters in Indonesia and Viet Nam

In order to better understand the income vulnerabilities of workers in relation to natural disasters, a more in-depth analysis was conducted for two countries where data were available: Indonesia and Viet Nam. These two countries represent 60% of the Southeast Asian region’s employment, are lower-middle-income countries, and represent two typical geographic features of the region as insular and coastal countries.

As discussed in the previous section, workers’ income vulnerability to environmental shocks ultimately depends on the concomitance of: 1) sensitivity due to the economic activity’s link to the environment; 2) the exposure to environmental degradation; and 3) the capacity to cope with and adapt to natural disasters through social protection, for example. To assess the level of vulnerability in the workforce, the analysis in this section maps the prevalence of natural disasters at the provincial level and compares this against local employment characteristics for Indonesia and Viet Nam. The analysis focuses on two specific types of shocks: floods and droughts. Indeed, floods are the most prevalent form of natural disaster, both worldwide and in Asia specifically (WMO, 2021[24]). Droughts, while less prevalent in Southeast Asia than floods, are increasing in prevalence under the effect of climate change: Extreme droughts could affect 64% of Southeast Asia by the second half of the 21st century (ESCAP-ASEAN, 2021[25]). The focus on Indonesia and Viet Nam is due to data limitations in other countries. While natural disasters data are available for all countries, the national labour surveys do not allow to compute labour market indicators at a geographically sufficiently disaggregated scale (except for the surveys for Indonesia and Viet Nam).

Flood and drought events from 1990 to 2018 are computed at the level of provinces (administrative level 1) for both countries. Indonesia and Viet Nam both present a much larger number of floods per province than droughts (up to 26 floods compared with 2 droughts per province for Indonesia, and up to 27 floods compared with 3 droughts per province for Viet Nam). Floods particularly affect the region of Java in Indonesia, and the North Central Coast in Viet Nam. The Java region has a relatively higher share of total national population and employment in Indonesia than the North Central Coast region in Viet Nam. For this reason, overall vulnerability to natural disasters is higher in Indonesia than in Viet Nam.

Three categories of natural disaster risk exposure at the provincial level are defined, as follows:

“Low-exposure” provinces are those having experienced fewer than the average number of natural disasters (droughts plus floods, computed across all provinces).
“Medium-exposure” provinces are those where the number of natural disasters is more than the average but fewer than two standard deviations above the national average.
“High-exposure” provinces are those where the number of natural disasters is greater than two standard deviations above the national average.

To provide a working definition of vulnerability, this study also introduces a classification depending on the link to the environment, formal/informal employment status and disaster exposure (Table 3.5).

Frequency of natural disaster events		Informal jobs		Formal jobs
Frequency of natural disaster events	… with a direct link to the environment	… with a strong indirect link to the environment	… in the rest of the economy	Formal jobs
Low	Low vulnerability	Low vulnerability	Low vulnerability	Low vulnerability
Medium	High vulnerability	Medium vulnerability	Low vulnerability	Low vulnerability
High	High vulnerability	High vulnerability	Medium vulnerability	Low vulnerability

Figure 3.9 shows that 25% of workers in Indonesia are exposed to natural disasters at a high level and 35% at a medium level. The figures are lower in Viet Nam, although not negligible, at 16% of workers having a high level of exposure and 12% having a medium level of exposure. As a consequence, the share of workers who are highly vulnerable to income loss due to natural disasters is more than one-half (51%) in Indonesia and 21% in Viet Nam. Workers are considered highly vulnerable when they have a medium or high level of exposure to natural disasters and hold informal jobs in environmentally linked sectors (with a direct or strong indirect link to environmental sectors).

Figure 3.9. Natural disaster-linked vulnerabilities are significant for over one-half of Indonesian workers

Share of workers exposed and vulnerable to floods or droughts, by level of exposure and vulnerability (%)

While there are differences between the two largest Southeast Asian economies, vulnerability to natural disasters seems widespread in both. Compared with Viet Nam, Indonesia has more than double the share of workers in a situation of high or medium vulnerability. While informality is slightly higher in Indonesia (84% compared with 71% in Viet Nam), this does not seem to explain the high difference in vulnerability. In addition, the share of workers with environmentally linked jobs is similar between Indonesia and Viet Nam (39% in Indonesia and 38% in Viet Nam).

The higher vulnerability estimates in Indonesia are due to the population being concentrated in areas where natural disasters are prevalent (particularly Java). In Viet Nam, natural disasters are concentrated in the North Central Coast region, where only a small share of the overall population lives.

Policy implications: Protecting livelihoods from climate-related impacts through social protection

Social protection is a critical enabler of ensuring a greener and more inclusive society. A comprehensive social protection system can absorb and mitigate environment-related impacts on the livelihoods and well-being of all, particularly workers with high vulnerability. Universal healthcare, unemployment insurance, family care support, and various income supports provided by the social protection system can compensate for workers’ lost earnings and reduced family well-being and can help them rebound from the physical impacts of environmental degradation and climate-related natural disasters. An old-age pension would be particularly helpful in facilitating older workers in carbon-intensive sectors to retire (ASEAN-ILO, 2021[27]).

Social protection systems across Association of Southeast Asian Nations (ASEAN) member countries have notably improved as the countries have become aware of the importance of social protection in managing climate change-induced impacts. However, their public social expenditure as a share of GDP ranges from 3 to 8% in 2018-19, well below the OECD average of 20% (OECD, 2022[28]). Many ASEAN countries still do not have unemployment benefits in place (Table 3.6). Singapore, Thailand and Viet Nam have relatively sound, all-around social protection systems, while other ASEAN countries offer only some or limited access and coverage to various social programmes.

	Medical care benefits	Sickness benefits	Unemployment benefits	Work injury benefits	Old age benefits	Invalidity and survivors’ allowances	Maternity benefits
Brunei Darussalam	Some	Some	No	Some	Some	Some	Yes
Cambodia	Yes	Yes	In progress*	Yes	Yes	Yes	Yes
Indonesia	Yes	Limited	Limited	Yes	Yes	Yes	Yes
Lao PDR	Some	Some	In progress	Some	Some	Some	Some
Malaysia	Limited	Limited	Limited	Yes	Yes	Yes	Limited
Myanmar	Yes	Yes	In progress	Yes	In progress	In progress	Yes
Philippines	Yes	Yes	In progress*	Yes	Yes	Yes	Yes
Singapore	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Thailand	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Viet Nam	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note: *Cambodia = The law on unemployment benefits was passed in 2019 for future implementation. *Philippines = An unemployment insurance system for workers affected by the green or just transition is under development, and short-term financial payments are available for workers displaced by climate-related natural disasters.

Source: Adapted from ASEAN/ILO (2021[27]), Regional Study on Green Jobs Policy Readiness in ASEAN: Final Report.

In the absence of national unemployment insurance, climate/disaster recovery support or green transition relief for the affected workers could serve as a temporary solution in the nearer term. Income support through cash transfers is a known supporting tool that helps workers and their families affected by climate change-induced disasters to sustain their livelihoods and adapt to environmental degradation (Bowen et al., 2020[29]; Premand and Stoeffler, 2020[30]). Cash transfers’ flexibility and scalability are advantageous in rapidly expanding coverage to groups affected by climate change-related impacts in developing countries, even without access to an online distribution system (ASEAN-ILO, 2021[27]). Previous experience of running an emergency cash transfer programme, particularly during the COVID‑19 crisis, could guide policy makers in Southeast Asia to design and implement a special relief fund for the most vulnerable workers and their families.

That said, improving the existing social protection systems for all should be a priority for Southeast Asia over creating ad hoc support schemes. Given the environmental degradation and natural disasters that are likely to hit disadvantaged workers the hardest, providing support based on broad income eligibility set by the social protection system could be more efficient than setting up multiple special support programmes for different environmental reasons. For instance, Malaysia provides social security protection for all workers who contribute to the Social Security Organisation (SOCSO), although it has no specific policy addressing the negative impacts of green growth (ASEAN-ILO, 2021[27]). As part of strengthening social protection, countries currently developing unemployment insurance programmes (i.e. Cambodia, Lao PDR, Myanmar and the Philippines) are encouraged to accelerate the process in order to increase worker protection as soon as possible. Countries also need to continue efforts to include informal workers in their social protection systems and facilitate their contributions. In the long term, countries will need to rely less on cash transfers, and develop further income-enhancing programmes as part of disaster resilience strategies. Establishing a broad-based social protection system is also beneficial for the sustainable financing of national services and programmes, as economies struggle with rising inflation, brought on in part by large financial stimulus packages (Arthur and Hondo, 2022[31]).

Moreover, it is important for Southeast Asian countries to increase the resilience of their social protection systems to future climate change-related impacts. Building shock-responsive social protection, “flexing social protection responses to the evolving needs of the most vulnerable” (European Civil Protection and Humanitarian Aid Operations (ECHO), 2020[32]), emerged during the COVID‑19 crisis but still remains relevant to addressing environment-related impacts. While the prevalence of climate change-induced disasters is rapidly increasing and intensifying, the timing of those climate events is not entirely predictable. The random occurrence of natural disasters calls for social protection systems to be agile, with immediate intervention right after the event. The disaster responses can leverage existing social programmes vertically (increasing the degree of support) and horizontally (expanding coverage to the affected population) or take the form of temporary measures. Again, Southeast Asian countries should ensure that informal workers and the most vulnerable workers are covered by their respective social protection systems.

Conclusion

This chapter sought to assess Southeast Asia’s vulnerability to environmental degradation from a labour market perspective. Based on seven countries representing 95% of the region’s total population, the results show that a large share of workers in the region rely on the environment: 37.1% work in environmentally linked sectors, ranging from 27.1% in the Philippines to 51.9% in Myanmar. These workers tend to have lower earnings and be more informal and less educated than the rest of the workforce. Focusing specifically on Indonesia and Viet Nam it was found that 23% of workers in Indonesia and 16% in Viet Nam are highly vulnerable to environmental shocks, based on their sensitivity to, exposure to, and capacity to cope with natural disasters. The higher level of vulnerability in Indonesia is primarily due to the concentration of populations in natural-disaster-prone areas.

In light of progressive environmental degradation and a pronounced increase in natural disasters, these findings highlight the urgency of adequate policy responses. Social protection, and cash transfers in particular, can support individuals before and after environmental shocks. In the long term, countries will need to rely less on cash transfers, and develop further income-enhancing programmes as part of disaster resilience strategies. In building resilience before shocks, novel technological solutions enable the further targeting of at-risk individuals. In post-shock settings, policy makers should prioritise the expansion of existing programmes over ad hoc schemes. Before large-scale implementation, new programmes should be assessed in a rigorous, evidence-based manner, namely through randomised controlled trials.

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