Cambodia Counry Economic Memorandum: Susaining Rapid Growh in a Challenging Environmen Cambodia s Labor Marke and Employmen Economic Insiue of Cambodia December 28 Background paper prepared for he World Bank www.worldbank.org/kh/growh This background paper was prepared in he process of preparing an analysis on growh in Cambodia. The final repor has been reviewed and discussed wih he Royal Governmen of Cambodia and sakeholders in January February 29. Background papers are made available a www.worldbank.org/kh/growh o provide furher informaion. They do no necessarily reflec he view of he World Bank or is Execuive Direcors.
Conens Lis of Tables and Figures... 3 Inroducion... 4. Overview of Economic Growh and Demographic Trends 24-27... 4.. Economic Growh 24-27...4.2. Demographic Trends 24-27...6 2. Economically Acive Populaion in 24 and 27... 7 2.. Labor Force in 24 and 27...7 2.2. Unemploymen Rae in 24 and 27...9 2.3. Employed People Aged 5 and Over in 24 and 27... 2.4. Child Labor Aged -4 Years in 24 and 27... 3. Characerisic of Labor Marke in 24 and 27...2 3. Saus of Employed People in 24 and 27...2 3.2. Employmen by Secor in 24 and 27...3 3.3. Educaional Level of Employed People...5 3.3.. Educaional Level of Employed People by Saus...6 3.3.2. Educaional Level of Employed People by Secor...7 3.3.3. Educaion Siuaion and Vocaional Training...8 4. Income and Earning of Workers 24-25...9 4.. Income and Earning of Workers...9 4.2. Labor Coss and Wage-Seing Mechanism...2 4.2.. Labor Coss...2 4.2.2 Wage Seing Mechanism...2 5. Growh and Employmen Linkage: A Decomposiion Approach...23 5.. Decomposiion of Changes in GDP per Capia... 23 5.2. Decomposiion of Changes in GDP per Capia due o change in oupu per worker... 25 5.3. Share of GDP and Oupu per Worker by Secor... 26 6. Poenial Employmen Scenarios...27 7. Conclusion...3 References:...32 Annex...33 2
Lis of Tables and Figures Table : Cambodia's Real GDP Growh by Secor (%, 2 prices)...5 Table 2: Unemploymen and Paricipaion Rae by Sex and Region (Age 5+)...9 Table 3: Employed Persons by Region 24 and 27 ( persons)... Table 4: Child Labor Aged -4 Years, 24 and 27... Table 5: Child Labor Aged -4 by Region and Secor, 24 and 27... Table 6: Share of Employmen by Saus in Each Region... 3 Table 7: Share of Employed People by Secor... 3 Table 8: Share of Employmen by Secor in Each Saus... 4 Table 9: Share of Employed People by Educaional Level in Each Saus... 6 Table : Share of Employed Persons by Educaional Level in Each Secor... 7 Table : Employmen, Oupu, and Populaion Change, 24-27... 24 Table 2: Decomposing Iner-Secoral Shif by Secor 24-27... 26 Table 3: GDP Growh and Share of Toal Value Added by Secor, 24-27... 27 Table 4: Oupu per Worker and Employmen/Working Age Populaion in 24 and 27... 27 Table 5: GDP, Employmen, and Oupu/Worker by Secor in 27... 28 Figure : Populaion Srucure by Age Group (% of oal populaion)... 6 Figure 2: Acive Paricipaion Rae by Age Group... 8 Figure 3: Labor Force by Age Group (% of oal labor force)... 8 Figure 4: Share of Employed People by Educaional Level... 5 Figure 5: Yearly Wage per Worker in Various Secors 25-26... 9 Figure 6: Decomposiion of Changes in GDP per Capia 24-27... 24 Figure 7: Decomposiion of Changes in GDP per Capia by Secor... 25 3
Inroducion Cambodia is a developing counry wih a narrow economic base. The garmen, ourism, and consrucion secors have been driving economic growh and job creaion in Cambodia for he las few years while he agriculural secor, which a majoriy of Cambodians rely on for heir livelihoods, remains poor and unsable. Despie several consecuive years of double-digi economic growh, he povery rae has remained high, especially in rural areas. The growh has only resuled in a reducion in he povery rae of percen per year and income disribuion is noably uneven, which means growh is no well shared among Cambodian people. While garmens, ourism and consrucion are credied wih driving economic growh, concerns are mouning abou he susainabiliy of hese secors. Growh is expeced o slow considerably or remain fla in he garmen and consrucion secors in he coming years. Cambodia needs o diversify is economy and promoe growh in he agriculural secor o mainain high levels of economic growh and accelerae povery reducion. Bu he srucure and naure of he counry s labor force is likely o resric effors o diversify he economy. This repor aims o provide a clearer picure of he curren labor marke and fuure rends by examining he following: key economic and demographic rends; recen labor marke rends; key characerisics of he labor marke; lessons from value chain analysis in erms of job and skills conen in various secors; and, poenial employmen scenarios based on diverse growh scenarios The sudy also will explore some of he facors, oher han educaion, ha are resricing labor force advancemen. I also reviews he employmen and produciviy implicaions of susaining rapid growh, and he links beween secoral paerns of growh, produciviy/employmen inensiy and he exen o which growh is inclusive.. Overview of Economic Growh and Demographic Trends 24-27.. Economic Growh 24-27 Cambodia posed hree consecuive years of double-digi economic growh from 24 o 27, averaging 2.7 percen a year and reaching US$8.6 billion and making he counry one of Eas Asia s op performers in erms of economic growh. Growh was bolsered by coninued garmen expor expansion, a consrucion boom and increasing numbers of ouris arrivals. In he face of such impressive growh, however, he gross domesic produc (GDP) per capia remained low compared o ha of oher counries in he region. Cambodia s GDP per capia was only US$598 in 27, up from US$394 in 24. 4
Table : Cambodia's Real GDP Growh by Secor (%, 2 prices) 24 25 26 27 Agriculure -.% 5.5% 5.5% 5.% Paddy -2.2% 43.7% 4.3% 7.5% Indusry 7.% 2.9% 8.4% 8.4% Garmens 24.9% 9.2% 2.4%.% Services 3.2% 3.%.%.2% Tourism 23.4% 22.3% 3.7%.3% Toal GDP.3% 3.3%.8%.2% Source: Daa compiled from Cambodia Economic Wach The agriculure secor represened 3 percen of GDP from 24 o 27 and i is one of he counry s mos imporan secors since mos of poores inhabians derive heir income from agriculure. However, Cambodia s agriculural secor remains highly naural-resource-based and exremely volaile. Paddy producion is ied o weaher condiions since he naional irrigaion sysem is under-developed. Drough in 24 and an abundance of rain from 25 o 27 resuled in an increase of 2.4 percen in real erms in annual paddy value-added and. percen for oher crops from 24 o 27. Oher agriculure secors grew a a very moderae rae during ha period. As a resul, annual agriculural real growh was only 9.3 percen from 24 o 27 and i is expeced o be fla in he coming years. The indusry secor accouned for only 25 percen of GDP from 24 o 27 and was dominaed by he garmen indusry and consrucion. Conrary o some fears, garmen secor growh coninued increasing a a significan annual rae of 4.5 percen from 24 o 27. This was because of higher labor sandards, as evaluaed by he Inernaional Labor Organizaion (ILO), Governmen effors o reduce unnecessary coss and safeguard measures imposed by he US and EU on Chinese expors, wih he phasing ou of he quoas sysem. Parallel o his, consrucion grew 8.9 percen annually and oher indusrial secors increased modesly. In sum, he indusrial secor increased by 5 percen annually from 24 o 27. Bu he prospecs for fuure growh remain slim since boh he garmen and consrucion secors are slowing down. Las bu no leas, he service secor and is main sub-secors of rade, ourism and ranspor and communicaion represened he bigges share of Cambodia s economy, wih 39 percen of GDP, from 24 o 27. Trade increased by 9. percen annually parly due o an increase in agriculure and garmen producs. A he same ime, he ourism secor increased by 7.8 percen annually due o impressive increases in he number of foreign ouris arrivals. Transpor and communicaion services grew 8.4 percen annually. In oal, he service secor grew 2.4 percen annually from 24 o 27. Growh in he service secor is expeced o remain srong in he coming years. 5
.2. Demographic Trends 24-27 Widespread killings and deahs due o sarvaion and overwork during he Khmer Rouge regime in 97s lef Cambodia wih a sparse populaion. Bu a baby boom afer he genocide caused he populaion o surge shorly afer he Khmer Rouge fell. A 998 census found he populaion o be.4 million, of which 52 percen were female. Populaion esimaes for 24 and 27 were revised following he 28 census o around 2.8 million and 3.2 million, respecively. Therefore, he oal populaion grew by abou 4, people beween 24 and 27, and hus he populaion growh rae is abou only.9 percen. Females ounumbered males in 24 and 27. Figure : Populaion Srucure by Age Group (% of oal populaion) Source: Daa compiled from CSES 24 and CSES 27 From 24 o 27, here was a hree-year shif in erms of age. As Figure shows, he proporion of people aged -4 years made up a large par of he oal populaion, bu i decreased from 3.5 percen in 24 o 2.5 percen in 27. The proporion of people under 25 years of age decreased in each age cluser and, in oal, dropped by 5.8 percen from 6.6 percen in 24 o 55.8 percen in 27; whereas he proporion of hose aged 25 and older increased gradually in each age cluser. This rend is cerain o resul in a demographic shif in which he proporion of older people evenually will exceed ha of young people. Cambodia s young and dynamic populaion could prove o be a blessing or a burden for he counry, spurring or consraining developmen depending on he opporuniies young people have o ge an educaion and build heir capaciy o become par of he counry s skilled labor force. 6
2. Economically Acive Populaion in 24 and 27 Cambodia Socio-Economic Surveys conduced in 24 and 27 allow us o calculae he unemploymen, employmen rae and paricipaion rae. However, measuring he unemploymen, employmen rae and labor paricipaion rae is a maer of conroversy due o variaions in definiions for unemploymen, employmen and labor paricipaion. The analysis in his repor uses a definiion for unemploymen as defined by he ILO. A person is considered unemployed if he/she mees hree crieria simulaneously during he reference period: Crierion is Wihou work. I refers o people who have no job (eiher paid employmen or self-employmen); Crierion 2 is Available for work. I refers o people who are able and ready o work if opporuniies are offered; Crierion 3 is Seeking work. I refers o people who are aking specific seps o find work or jobs. 2.. Labor Force in 24 and 27 Since Cambodia is a developing counry wih a raher young populaion, low living sandards require many people o begin working a an early age o help suppor heir families. I is no uncommon o see children as young as -4 years old in work places. However, for he purposes of his repor he economically acive populaion is defined aged 5 years and above. The number of people of employmen age of 5 years or older oaled 8.8 million in 27, represening a 3.7 percen annual increase from ha of 24. Of hese, 7. million or 8. percen were economically acive or par of he counry s labor force in 27, which represened a 4.2 percen annual increase from 24 when here were 6.3 million. The acive paricipaion raes were lower among women han among men. Among women, 74.6 percen and 75 percen were acive compared o 88.4 percen and 85.4 percen of men in 27 and 24, respecively. The economically acive populaion comprises all persons of eiher sex who furnish he supply of labor for he producion of goods and services during a specified ime-reference period. 7
Figure 2: Acive Paricipaion Rae by Age Group Source: Daa compiled from CSES 24 and CSES 27 Figure 2 shows how he aciviy rae increases wih age o a peak of 9.9 percen in 27 and 88.6 percen in 24 in he 35-39 age group, up from 7. percen and 72.5 percen respecively in he 5-9 age group. The raes decrease o 69.4 percen and 66.4 percen in he 6-64 age group and o 39.9 percen and 43 percen among hose 65 or older. Figure 3: Labor Force by Age Group (% of oal labor force) Source: Daa compiled from CSES 24 and CSES 27 On he oher hand, in erm of number, Cambodia has a very young labor force, which is dominaed by people aged 5-34 years, who represened abou 58.5 percen and 55.6 percen of he labor force in 24 and 27, respecively. In addiion, wih he excepion of he 25-29 age group, he proporion of people in he labor force aged 5-44 years was lower in 27 han 24, while ha 8
of 45 years and over was higher in 27 han 24. This suggess ha he labor force is aging, albei very gradually. 2.2. Unemploymen Rae in 24 and 27 As menioned above, he analysis in his repor uses a definiion for unemploymen as defined by he ILO. A person is considered unemployed if he/she mees hree crieria: - wihou work, 2- available for work and 3- seeking work simulaneously during he reference period. However, such definiion can only be used o measure unemploymen in labor markes ha are largely dominaed by paid employmen, such as hose are in developed counries. The ILO definiion is no very useful in measuring he labor marke siuaion in developing counries like Cambodia, where mos workers are self-employed, especially in he agriculural secor (ILO 982 guideline). The hird crierion, known as seeking work, should be ignore o calculae he unemploymen rae in a developing counry like Cambodia. Workers in developing counries, especially hose employed in he agriculural secor in rural areas do no end o ake specific seps o seek work. Raher, hey ake jobs as hey come and do no have he skills o explore heir employmen opions. Table 2: Unemploymen and Paricipaion Rae by Sex and Region (Age 5+) Cambodia Phnom Penh Oher Urban Oher Rural 24 27 24 27 24 27 24 27 ILO Definiion: Wihou Work, Available for Work, and Seeking Work Unemploymen Rae Paricipaion Rae Toal.5%.9% 3.6% 2.32%.48% 2.6%.64%.53% Male.%.9% 3.5% 2.6%.3% 2.3%.68%.55% Female.9%.88% 4.2% 2.3%.66% 3.7%.6%.5% Toal 79.93% 8.6% 67.7% 67.39% 77.8% 75.34% 82.38% 83.8% Male 85.43% 88.35% 73.93% 75.74% 8.77% 82.56% 88.% 9.% Female 75.% 74.6% 62.4% 6.5% 72.84% 68.9% 77.4% 77.53% Broad Definiion: Wihou work and Available for Work Unemploymen Rae Paricipaion Rae Toal 5.85% 3.6%.7% 5.37% 6.2% 5.73% 5.% 2.47% Male 4.%.89% 9.62% 3.85% 3.93% 4.38% 3.37%.33% Female 7.58% 4.26% 2.8% 6.96% 8.34% 7.33% 6.78% 3.6% Toal 83.94% 82.88% 73.47% 69.56% 8.96% 77.9% 86.6% 85.48% Male 88.5% 89.27% 79.3% 76.72% 83.97% 84.5% 9.4% 9.77% Female 8.7% 77.24% 68.6% 63.34% 78.2% 7.27% 82.4% 8.% Source: Daa compiled from CSES 24 and CSES 27 9
Table 2 below reveals he unemploymen rae and paricipaion rae 2 according o he ILO definiion and broad definiion. Unemployed persons as defined by he broad definiion refer o hose who simulaneously mee a he ILO s crierion wihou work and crierion 2 available for work for unemploymen while sandard ILO s definiion have o mee all hree crieria simulaneously. The resuls vary depending on he definiion of unemploymen ha is applied. Using he ILO definiion, he unemploymen rae in Cambodia was calculaed o be.9 percen in 27 down from.5 percen in 24. Unemploymen raes dropped beween 24 and 27 for mos sraa and sexes, excep hose in oher urban areas. The unemploymen rae was higher in Phnom Penh han oher urban areas and rural areas, and he unemploymen rae was generally higher for females han males. The unemploymen raes change only slighly and are relaively low when he ILO definiion is used. In conras, when a broad definiion is used, he unemploymen raes are higher and a significan decrease in he unemploymen rae is observed beween years. Using a broad definiion, he unemploymen rae in Cambodia was a 3.6 percen in 27 down from 5.85 percen in 24. Unemploymen raes when he broad definiion is applied also dropped beween 24 and 27 for mos sraa and sexes, excep males in oher urban areas. The unemploymen rae was higher in Phnom Penh han oher urban areas and rural areas, and he unemploymen rae was higher for females han males. 2.3. Employed People Aged 5 and Over in 24 and 27 Daa compiled from he CSES 24 and 27 also revealed ha, using he ILO definiion, abou 7. million people aged 5 and above were employed in 27. This was up from 6.2 million people in 24. Therefore, abou.8 million jobs were creaed in hree years. Table 3: Employed Persons by Region 24 and 27 ( persons) 24 27 Cambodia 6,268 % 7,76 % Phnom Penh 59 8.3% 664 9.4% Oher Urban 65.4% 664 9.4% Rural 5,98 8.3% 5,748 8.2% Source: Daa compiled from CSES 24 and CSES 27 Mos of he employed people were in he rural areas. The share of employed peoples in rural and oher urban area decreased slighly from 8.3 percen and.4 percen in 24 o 8.2 percen and 9.4 percen respecively; while hose in Phnom Penh increased from 8.3 percen o 9.4 percen in 2 Paricipaion rae is he proporion of a counry s working age populaion ha engages acively in labor marke, eiher by working or looking for work
he same period. This suggess ha many employed people moved o Phnom Penh, where he majoriy of jobs were creaed. 2.4. Child Labor Aged -4 Years in 24 and 27 According o Cambodia s labor laws, no one under he age of 5 should be working because school is compulsory for hose under he age of 5. I is generally believed ha children who ener he labor marke early are denied he opporuniy o go o school, which adversely affecs heir fuures. Table 4: Child Labor Aged -4 Years, 24 and 27 Iems 24 27 Of Toal Populaion 3.5% 2.5% Employmen/Toal -4 populaion 46.3% 43.6% Source: Daa compiled from CSES 24 and CSES 27 Children aged -4 accouned for 2.5 percen of he oal populaion in 27, down from 3.5 percen in 24. The drop in he share of populaion for his age group could also accoun for he drop from 46.3 percen o 43.6 percen in he age group s employmen rae as Table 4 shows. While he number of children in his age bracke who are working decreased, a large number of hem are coninuing o work. Therefore, reducing he paricipaion of school aged workers in he labor marke and increasing heir educaion rae no only would provide hese children wih brigher fuures and opporuniies, i should improve he overall qualiy of Cambodia s fuure labor force. Table 5: Child Labor Aged -4 by Region and Secor, 24 and 27 24 27 Region Phnom Penh 2.3%.7% Oher Urban 6.9% 6.9% Oher Rural 9.8% 9.5% Toal.%.% Secor Agriculure 8.6% 83.2% Indusry 4.9% 6.% Service 3.5%.6% Toal % % Source: Daa compiled from CSES 24 and CSES 27
Among all sraa, child labor is mos presen in oher rural areas, where almos 9 percen of children work. Child labor in he agriculure secor rose from 8.6 percen o 83.2 percen beween 24 and 27, during which ime he level of child labor dropped in Phnom Penh and oher urban areas. The increase in he rae of child labor in he agriculure secor in rural areas is a bad sign for he labor marke because children who work end o have less ime o sudy, which adversely impacs heir fuure and he overall labor marke. The indusry secor also saw a rise in child labor from 4.9 percen o 6. percen ha was presen in all sraa. However, child labor in he service secor decreased from 3.5 percen o.6 percen. Alhough child labor raes in he secor dropped, i is worrisome ha he rae increased in Phnom Penh and oher urban areas by 4 and 2.8 percen poins, respecively. 3. Characerisic of Labor Marke in 24 and 27 3. Saus of Employed People in 24 and 27 Like many oher developing counries, Cambodia s labor force is characerized by a large number of young and low skilled workers and very few workers in posiions of paid employmen. Insead, mos Cambodians are self-employed or work in family businesses in he informal secor, which dominaes he labor marke since a majoriy of Cambodians are highly dependen upon agriculure for heir livelihoods. The formal employmen secor is much smaller, wih paid work posiions available only in some secors--garmen, ourism, consrucion and so on--and mosly in urban areas. Breaking down employmen by saus and region helps shed more ligh on Cambodia s informal employmen secor. Paid employees and employers consiue only a small par of oal employmen. As illusraed in Table 6, own accoun and unpaid family workers represened abou 74.9 percen of oal employmen in 27, down from 76.9 percen in 24. Paid employees and employers made up only 22.5 percen of he counry s workers in 24 and 25 percen in 27. Own accoun workers and unpaid family workers, which represen a majoriy of employees working in Cambodia, are largely presen in boh oher rural and urban areas. The proporion of own accoun workers has remained relaively sable in Cambodia, dropping slighly, by.2 percen, in Phnom Penh. In oher urban and rural areas, he proporion of own accoun workers rose slighly, from 37.8 percen o 38.2 percen in oher urban areas and from 39.9 percen o 4. percen in oher rural areas. Finally, unpaid family workers in Cambodia decreased by 2 percen for he period, from 38.2 percen o 36.2 percen, and he drop occurred in all areas excep Phnom Penh. The share of unpaid family workers decreased in oher urban and rural areas by.9 and.4 percen, respecively, in 27 compared o 24. 2
Table 6: Share of Employmen by Saus in Each Region Employmen Saus Cambodia Phnom Penh Oher Urban Rural 24 27 24 27 24 27 24 27 Paid Employee 22.5% 25.% 5.2% 5.8% 29.% 39.3% 8.8% 2.4% Employer.%.%.%.%.2%.5%.%.% Own Accoun Worker 38.7% 38.7% 28.4% 27.2% 37.8% 38.2% 39.9% 4.% Unpaid Family Worker 38.2% 36.2% 2.5% 2.8% 32.8% 2.9% 4.8% 39.4% Oher.5%.%.8%.%.2%.%.5%.% Toal % % % % % % % % Source: Daa compiled from CSES 24 and CSES 27 Table 6 also shows ha he proporion of paid employees increased for all sraa by 2.5 percen in Cambodia as a whole,.6 percen poins in Phnom Penh,.3 percen poins in oher urban areas, and.6 percen poins in rural areas. During he same period, he employer caegory remained sable for Cambodia, a. percen of oal employmen, bu i increased by.3 percen in oher urban areas and decreased. percen poin in rural area. 3.2. Employmen by Secor in 24 and 27 There were noiceable changes in he srucure of Cambodia s economy from 24 o 27. The rae of growh in he agriculure secor fell while he pace of growh in he indusry and service secors picked up. Such srucural changes and growh paerns no only impaced he economy, hey also affeced he labor marke. Employmen levels in each secor varied from year o year. As shown in Table 7, agriculure is he bigges employer, followed by he service and indusry secors. Table 7: Share of Employed People by Secor Secor Cambodia Phnom Penh Oher Urban Oher Rural 24 27 24 27 24 27 24 27 Agriculure 58.7% 58.% 2.3%.% 39.3% 3.9% 67.% 67.8% Indusry 3.8% 4.7% 2.2% 3.5%.5% 5.4% 3.4% 4.8% Service 27.5% 27.2% 77.5% 85.3% 49.2% 53.7% 9.6% 7.4% Toal % % % % % % % % Source: Daa compiled from CSES 24 and CSES 27 As a share of all employed people in Cambodia, he agriculural and service secors dropped slighly from 24 o 27 while indusry s share of workers increased. Agriculure s share dropped o 58. percen in 27 from 58.7 percen in 24. Mos of he Cambodia s agriculural workers farm small pieces of land in rural areas. Agriculure does no employ many people in Phnom Penh and i accouned for only. percen of oal employmen in 27. In oher urban areas, employmen in agriculure dropped from 39.3 percen o 3.9 percen while he share in oher rural areas rose from 3
67. percen o 67.8 percen. Alhough here was a drop in agriculural employmen in boh Phnom Penh and oher urban areas, here was a corresponding increase in agriculural workers in oher rural areas. Employmen in indusry, in which he garmen secor is he larges employer, rose slighly from 3.8 percen o 4.7 percen for he period. In Phnom Penh, indusry employmen conraced sharply from 2.2 percen o 3.5 percen while an increase was observed in oher urban areas, where employmen in he indusry secor rose by 3.9 percen. Oher rural areas also winessed an increase from 3.4 percen o 4.8 percen for he same period. Overall, employmen in he service secor dropped slighly from 27.5 percen o 27.2 percen beween 24 and 27. Service secor jobs in Phnom Penh increased from 77.5 percen o 85.3 percen and grew from 49.2 percen o 53.7 percen in oher urban areas. However, as a percenage of oal employmens, service secor jobs in oher rural areas decreased from 9.6 percen o 7.4 percen. The service secor was he main source of employmen for paid employees and employers in boh 24 and 27, followed by indusry. In conras, agriculure employed he mos accoun workers and unpaid family workers, followed by he service secor. Paid employee s share in he indusry secor grew from 35. percen o 37.4 percen for he period, mainly due o increases in manufacuring and consrucion while service and agriculure secors decreased by.7 and.6 percen, respecively, due o declines in agriculure, huning and foresry. Table 8: Share of Employmen by Secor in Each Saus Secor Paid Employee Own Accoun Worker Unpaid Family Worker 24 27 24 27 24 27 Agriculure 9.% 7.5% 63.9% 66.% 77.% 77.8% Indusry 35.% 37.4% 8.% 7.8% 6.9% 6.5% Service 45.8% 45.% 28.% 26.% 5.9% 5.7% Toal % % % % % % Source: Daa compiled from CSES 24 and CSES 27 Own accoun workers gaher mosly in oher urban and rural areas. Ou of oal own accoun workers, he agriculure secor shared abou 63.9 percen in 24 and 66. percen in 27. In conras, he indusry and service secor shared abou 8 percen and 28. percen in 24, dropping o 7.8 percen and 26. percen in 27, respecively. Besides he agriculural secor, local business is anoher popular job for Cambodians who run heir own businesses a home or in he marke. I is no unusual for own accoun workers o be concenraed in service secors such as he wholesale, reail, repair service secors, ec. 4
Unpaid family workers mosly work in he agriculural secor, which accouned for 77. percen of oal unpaid family workers in 24, increasing o 77.8 percen in 27. In conras, hose who worked in indusry and service secors accouned for only 6.9 percen and 5.9 percen in 24, dropping o 6.5 percen and 5.7 percen in 27, respecively. Since unpaid family workers exis ogeher wih own accoun workers, he secoral share paern is similar for hese employmen saus. However, in absolue erms, he number of own accoun workers in agriculure vasly ounumbers hose of paid employees. As paid employees and employers consiue only a small par of oal employmen, he poenial labor force lies wih own accoun workers and unpaid family workers, who make up mos of he workers in he counry. Sill, indusrial ransformaion and susained economic growh is no possible wihou high qualiy labor. As far as gauging labor qualiy is concerned, economiss end o refer o he level of educaion and healh condiions of workers in a counry. 3.3. Educaional Level of Employed People Daa compiled from CSES 24 and 27 suggess mos Cambodian workers are engaged in unskilled labor. Nearly 9 percen of employed people had obained a lower secondary educaion or lower level in 24 and 27and more han half had a primary level of educaion. However, here educaion levels generally were higher in 27 compared o ha of 24 because he percenage of employed people who had obained a primary level and lower were lower in 27 han 24, whereas hose who had obained a lower secondary level or higher level of educaion were higher in 27 han 24. Figure 4: Share of Employed People by Educaional Level Source: Daa compiled from CSES 24 and CSES 27 More precisely, he number of workers who had some educaion increased, while he number who had no educaion decreased. The number of people who had only aended primary school fell o 59 percen in 27 from 6.2 percen in 24 while hose who had aended lower secondary 5
school rose from 26.9 percen in 24 o 27.6 percen 27 and hose who had aended upper secondary educaion increased o percen in 27 from 9. percen in 24. The number of workers who had some pos-secondary educaion jumped. percen. Therefore, alhough he educaion level of Cambodia s labor force generally is sill low, he workforce is more educaed han in he pas. 3.3.. Educaional Level of Employed People by Saus Paid employees wih primary educaion or lower declined slighly from 46.7 percen in 24 o 47.3 percen in 27. Those wih lower secondary educaion dropped 2.4 percen, while hose wih upper-secondary school increased by.8 percen during he same period. Furhermore, workers of his group who ook echnical or vocaional raining increased from 3 percen o 3.2 percen while here was an increase of 2.9 percen in pos secondary educaion. Paid employees are expeced o have obained higher levels of educaion han he oher groups as mos of hem are employed in he service secor. Own accoun workers, who mosly work in he agriculural secor, generally end o have limied educaions bu educaion levels of his group improved somewha from 24 o 27. Around 66.2 percen of own accoun workers in 24 had primary or lower educaion while 65.6 percen did in 27. More ineresingly, he rae of hose wih secondary school increased slighly from 26 percen in 24 o 26.6 percen in 27 and workers wih pos secondary educaion increased by. percen. Therefore, even hough over half of own accoun workers had obained only primary educaion or lower, more had managed o advance pas primary school. This suggess educaion levels are improving among own accoun workers. Since own accoun workers are expeced o be he main source of labor for fuure job creaion in a range of secors, i is essenial ha educaion levels improve among his group as well as unpaid family workers. Table 9: Share of Employed People by Educaional Level in Each Saus Level of Educaion Paid Employee 6 Employer Own Accoun Worker Unpaid Family Worker 24 27 24 27 24 27 24 27 Never/Some Educaion.4%.%.%.%.7%.8%.6%.3% Primary 46.3% 47.2% 52.8% 3.8% 65.5% 64.8% 65.6% 6.% Lower Secondary 3.% 27.7% 6.5%.2% 26.% 26.6% 25.5% 28.7% Upper Secondary 6.% 5.3% 3.7% 53.7% 6.2% 6.9% 7.3% 8.9% Technical/Vocaional Trainings 3.% 3.2%.% 6.8%.3%.2%.4%.% Pos-Secondary Educaion 3.5% 6.4%.% 6.5%.2%.3%.2%.9% Ohers.6%.%.%.%.2%.4%.5%.% Toal % % % % % % % % Source: Daa compiled from CSES 24 and CSES 27
Mos unpaid family workers also have low levels of educaion. However, heir educaion levels also improved from 24 o 27 as he proporion of hose wih primary educaion or lower level decreased from 66.2 percen in 24 o 6.4 percen in 27. Moreover, he proporion of workers in his group who had aended secondary school grew from 32.8 percen in 24 o 37.6 percen in 27 and hose wih even higher levels of educaion also increased. Again, his signals a posiive change in Cambodia s labor marke since unpaid family workers represen such a large proporion of he counry s labor force. Improving educaion levels in his group will boos fuure labor marke qualiy and produciviy. 3.3.2. Educaional Level of Employed People by Secor Breaking down educaional levels by secor is useful for furher analysis. While educaion levels improved for workers in agriculure and indusry, he gains were even more impressive in he service secor. Mos people employed in agriculure had obained a lower secondary school level or lower. The proporion of hose having only primary school or lower dropped.5 percenage poins from 24 o 27, while hose who had secondary increased by 2 percen. This is no doub ha labor force qualiy has improved slighly. However, he educaional levels for a majoriy of workers in he secor are sill oo low. In addiion, he proporion of hose wih higher levels of educaion, such echnical and vocaional raining or pos secondary, decreased from 24 o 27. In indusry, he porion of he employed ha had only a primary school educaion or lower dropped from 6.4 percen in 24 o 58.4 percen in 27. Bu, indusry workers who repored having secondary educaion increased from 38.2 percen o 4.8 percen for he period. Those wih pos secondary educaion increased.2 percen and can be aribued mosly o an increase in Phnom Penh, where secondary educaion is more accessible han oher areas of he counry. Table : Share of Employed Persons by Educaional Level in Each Secor Level of Educaion Agriculure Indusry Service 24 27 24 27 24 27 Never/Some Educaion.7%.7%.3%.%.5%.2% Primary 7.% 69.5% 6.% 58.4% 43.% 39.2% Lower Secondary 22.8% 24.3% 3.7% 32.% 32.2% 3.2% Upper Secondary 4.5% 5.% 7.5% 8.7% 7.9% 9.5% Technical/Vocaional Training.2%.%.3%.% 2.8% 3.% Pos-Secondary.%.%.5%.6% 3.% 6.6% Oher.8%.3%.6%.%.7%.2% Toal % % % % % % Source: Daa compiled from CSES 24 and CSES 27 7
In he service secor, which employs he mos educaed Cambodians, he proporion of workers who repored having only a primary school educaion or lower decreased 4. percen and hose who said hey had aended secondary school increased slighly from 5 from o 5.7 percen for he period. Workers who repored having pos-secondary educaion rose 3.3 percen and hey are mosly found in Phnom Penh and oher urban areas. In sum, i can be said ha educaional levels are highes among workers in he service secor workers, followed by he indusry secor wih agriculure workers being he leas educaed. Alhough educaion levels are improving among Cambodia s workers, hey are sill oo low and mus be advanced for Cambodia o arac new indusry o he counry. 3.3.3. Educaion Siuaion and Vocaional Training According o Minisry of Educaion, Youh, and Spor saisics, he gross enrolmen rae for primary school increased slighly from 9.9 percen in 24 o 22.7 percen in 27. The rise in he rae of lower secondary educaion was even more remarkably, jumping from 39.3 percen o 6 percen, while he enrolmen rae for upper secondary school rose from 3.9 percen o 2.2 percen. The enrolmen rae for higher educaion, meanwhile, remains low wih pos secondary opporuniies only available in Phnom Penh and a few oher urban areas. If he enrollmen raes of upper secondary and higher educaion remain a curren levels and skilled workers are needed in he fuure, he qualiy of he labor force would pose major consrains o economic growh. In addiion o he low enrolmen raes for secondary school or higher and he curren labor force s low level of educaion, Cambodia s educaional sysem is perceived o be of low qualiy: I ranked 95h among 3 counries reviewed in he Global Compeiiveness Repor 27-28. Secondary enrollmen in Cambodia ranked 8h and eriary enrollmen 9h ou of 3 counries. Qualiy of school managemen and ha of mah and science educaion also lag behind oher counries, ranking 6h and 8h, respecively. Meanwhile, only abou percen of employed Cambodians have received formal echnical or vocaional raining. According o Minisry of Labor and Vocaional Training (MoLVT) saisics, abou 27,487 sudens graduaed from 4 public echnical and vocaional raining insiuions and 7 privae and NGO raining ceners in 25-26. Abou 48 percen graduaed from sae schools. Mos privae raining ceners focus on English, business and managemen skills, and compuer applicaions. NGOs offer various skills relaed o small handicrafs, agriculure, mechanics, and small businesses. Public schools and raining ceners mainly provide courses relaed o civil engineering, elecrical engineering, mechanics, and oher opics relaed o agriculure. Abou 5 percen of oal rainees and sudens receive some sor of echnical raining, and he oher half managemen and compuer skills. In addiion o he low enrollmen rae, he echnical/vocaional raining offered in Cambodia is of limied qualiy 3. This is due, primarily, o a lack of skilled rainers, faciliies (including buildings, 3 Inerview wih depuy direcor of TVET deparmen. 8
and equipmen), and up-o-dae echnology. Privae schools and raining ceners wih financial suppor from foreign governmens and inernaional organizaions are believed o have beer faciliies and provide he bes raining while public echnical and vocaional schools have only limied funds available and are hough o be providing low qualiy raining o only a small number of sudens. 4. Income and Earning of Workers 24-25 4.. Income and Earning of Workers Workers mus have he opporuniy o boos heir incomes o improve heir living sandards. In Cambodia, agriculural earnings have proved criical since he secor employs so much of he counry s workforce. However, moving workers from low paying posiions in informal secors o higher paying jobs in formal secors will require much ime and effor as well as proper and effecive policies. As discussed above, increasing worker incomes will be challenging since Cambodia s labor force generally is low skilled and he counry lacks mechanisms o groom skilled workers. According o a recen invesmen climae survey, he average monhly wage is around US$ across secors wih workers in wholesale and ranspor secors, on average, earning higher wages. Figure 5 illusraes wages per worker across various secors in 25-26. Workers in various service secors, such as wholesaler, ranspor, ravel, hoel and resauran, ec., earn more han oher secors. Workers employed in manufacuring, including garmen facories, food manufacuring and oher manufacuring earn less han service secor employees bu more han agriculural workers. Agriculure employs more workers han he service and indusry secors. Figure 5: Yearly Wage per Worker in Various Secors 25-26 Value Added per worker (US$, 5-6) 3,5 3, 2,5 2,,5, 5 Food manuf Wholesale rade Travel services Transpor Toal across Oher services secors Garmens Reail Trade Oher manuf. Hoels and resaurans 5,,5 2, 2,5 3, 3,5 Wage per worker (US$, 5-6) Source: WB, Invesmen Climae Survey Over he long erm, increasing worker incomes in Cambodia will require policies aimed a pushing workers from agriculure o indusry and service secors since many demand and supply side consrains and challenges currenly impede he movemen of workers from one secor o anoher. In he medium erm, inensive invesmen in agriculure and improving he qualiy of labor in he agriculure secor is essenial o ensuring decen sandards of living. Thus far economic growh has 9
mosly benefied he service and indusry secors, bu such invesmen would ensure ha i is shared more equally. 4.2. Labor Coss and Wage-Seing Mechanism 4.2.. Labor Coss The labor law in Cambodia governs employers, all ypes of employees, working condiions, collecive labor righs and dispue resoluion. In erm of labor coss, employers have o bear coss relaed o salary, oher benefis and dismissal. According o aricle 2 of he labor law, salary means he paymen for labor or paymen of services ha can be in cash or se by agreemen or by naional law. An employer shall pay he salary o an employee under a wrien or verbal conrac of labor or services, eiher for labor already done or o be done or for services already rendered or o be rendered. In Cambodia, mos employmen conracs express salary on a monhly basis, while ohers are paid according o an hourly or daily rae. Generally, regular cash paymen in he conrac is referred o base salary or pure salary and oher compensaions are also considered as salary. However, aricle 3 of he labor law saes more clearly wha should be included in salary: base salary or pure salary, overime pay, commissions, bonuses and rewards, profi sharing, grauiies (awards), non-cash remuneraion, family suppor allocaion in excess of any amoun required by law, holiday or compensaory holiday pay, compensaion paid by employer and paymen made for disabiliy and maerniy leave. In addiion o he above iems of salary, oher benefis are also provided by employers o employees. Under aricle 3, salary excludes he following benefis: healh care, family suppor paymen required by law, ravel expense, and oher benefis as incenive o encourage beer performance from employees. Alhough iems of salary are defined, someimes he word salary includes all iems in aricle 3, oher imes only some of hem while someimes i includes only a base salary. Employers have o bear some coss as saed in he labor law when hey lay off employees. Employmen conracs fall under wo ypes: fixed duraion and undeermined duraion. While paymen and damages vary depending on he ype of conrac, employers are responsible for providing compensaion when conracs are cancelled and employees are laid off. For fixed duraion conracs, employers and employees are eniled o cancel he conrac wih and wihou legal reasons. If legal reasons exis in he cancellaion of he conrac, no damages or compensaion is made. In conras, cancellaion wihou legal reasons means employers are required o bear some coss. In he case ha employers cancel he conrac before is expiraion dae wihou legal reasons, employees secure righs o compensaion of damages due o he breach of conrac. Therefore, he minimum amoun of compensaion employers are required o pay is he salary ha employees would have received. In addiion, when a fixed duraion conrac is erminaed, employers mus pay employees severance pay in addiion o he employee s salary when employmen is erminaed. Severance pay is required wheher or no i is saed in he conrac. The amoun of severance pay is calculaed by CBA or formula: 2
Minimum Severance Pay: W x 5% Where W wages paid during he lengh of conrac 4. Regarding undeermined duraion conracs, employees have he righ o cancel he conrac for any reason as long as hey give noice o he employer, bu employers mus have valid reasons for canceling a work conrac ha relae o he employee s skills or qualificaion for he job, employee s behaviors or characer, and he requiremen of he operaion of enerprises, facories or services. Bu employers mus give noice o employees wihin a imeframe before canceling he conrac, excep in cases of serious misconduc by he employee or force majeure. Oherwise, compensaion mus be paid o he employee under aricle 77: salary and benefis he employee would earn during he noice period. In addiion, lay-off compensaion for undeermined duraion conracs mus be made o employees in he same way as severance pay. Lay-off compensaion comes for he following condiions: any reason oher han serious misconduc, and employee s resignaion by employers acion. The amoun of lay-off compensaion depends on he lengh of coninuous employmen and is provided in addiion o any paymens ha employers mus pay for he failure o give noice. For hose who work for a period beween six monhs and one year, lay-off compensaion mus equal seven days of wages and benefis. Those employed over one year are eniled o receive pay equal o 5 days for each year of employmen, up o a maximum of six monhs of wage and benefis (afer he firs year of employmen, fracion of a half year or more coun as an enire year). 4.2.2 Wage Seing Mechanism The labor law governs Cambodia s workers, bu informal workers are no shielded by he law, which is generally only applied in he formal secor. Cambodia does no have clear wage-seing mechanisms for workers in every secor and wages in he formal secor are negoiaed beween employers and employees or deermined according o he inernal rules of each privae firm. So salaries or wages for similar posiions or skills may vary from company o company. However, a Labor Advisory Commiee (LAC) 5 has been se up o sudy labor-relaed issues, provide recommendaions on a guaraneed minimum wage, and render prior advice o exending he applicaion of collecive agreemen and on any regulaion regarding condiion of employmen in a given profession or secor. Alhough no mechanism exiss for seing i, minimum wage is guaraneed by he labor law. Any mechanism for seing a minimum wage would have o fulfill procedural and subsanive requiremens. The procedural requiremens are very simple since he Minisry of Labor and 4 However, he word wage here seems vague as wage refer o he wages paid during he fixed duraion of conrac ha is being cancelled or he sum of oal wage paymens made o he employees for service period wih he employer. 5 Is composiions include miniser of Labor or represenaive, represenaives of relevan minisries, represenaives of employers organizaions, and represenaives of workers unions. 2
Vocaional Training simply can esablish he minimum wage by a Prakas in consulaion wih LAC. Bu subsanive requiremens o se a minimum wage are more complicaed and include deermining he amoun of he wage ha would be necessary o susain he living sandard of workers. To se he minimum wage, he minisry mus ake ino accoun wo issues. Firs, he needs of workers and heir families mus be considered for he minimum wage in relaion o oher facors such as social facors, and general living sandards across various forms of employmens. Secondly, he minisry and LAC have o consider economic developmen and he advanages for he counry of mainaining a high level of employmen. Esablishing a minimum wage has an impac on he cos of invesing in Cambodia, and also affecs produciviy and compeiiveness of labor in he region. The minisry and LAC have o balance hese wo ineress wih ensuring Cambodians remain employed and he jobs hey do provide hem wih decen living sandards. According o aricle 7, he minimum wage may vary according o region, economic condiions, and variaions in living sandards in rural and urban regions. Bu he minimum wage mus apply o all employees, regardless of heir jobs or professions. Moreover, while variaions in he wage would be appropriae for differen regions, i would no be accepable o impose differen minimum wages for differen workers. Even if a minimum wage is esablished, wages and salaries could sill exceed he minimum wage based on negoiaions beween employees and employers and he supply and demand of skills. Aricle 4: Box : Minimum Wage The salary mus be a leas equal o he guaraneed minimum wage, ha is, i mus ensure every worker a decen sandard of living compaible wih human digniy... Aricle 7:. The guaraneed minimum wage is esablished wihou disincion among professions or jobs. I may vary according o region based on economic facors ha deermine he sandard of living. 2. The minimum wage is se by a Prakas of he minisry in charge of labor in consulaion wih he Labor Advisory Commiee. I is adjused from ime o ime as economic condiions and he cos of living change. 3. Iems o ake ino consideraion when esablishing he minimum wage shall include, o he exen possible: he needs of worker and heir families in relaion o he general salary level in he counry, he cos of living of oher social groups; economic facors, including he demands of economic developmen, produciviy, and he advanages of reaching and mainaining a high level of employmen. Source: ILO and CLEC, Cambodian Employmen and Labor Law 22
Though commissioned by he law, he minisry has no ye se a general minimum wage beyond esablishing one for he garmen secor, as required in aricle 7. In consulaion wih LAC, he minisry issued several noices concerning minimum wage for garmen workers. The mos recen noice was on July 8, 2 for garmen and shoe sewing workers. The noice 7/ ses a minimum wage for probaionary workers of US$4 per monh and US$45 for non-probaionary and piece workers. Addiional bonuses are payable: US$5 for workers coming o work regularly, riel per day in meal allowances for workers who work overime. A senioriy bonus of US$2-5 for workers who say longer han one year is also included. However, a revision under he Prakas No 745 daed Ocober 23, 26 increased he minimum wage o US$ 5 per monh, effecive from January, 27. Bu on April 4, 28, wih he demand by workers unions for beer pay, LAC agreed o provide an addiional US$6 per monh o all workers in he garmen indusry as a cos of living adjusmen. 5. Growh and Employmen Linkage: A Decomposiion Approach This secion is inended o explore he linkage beween growh and employmen. The approach relaes changes in GDP per capia o changes in oupu per worker, in employmen o working age populaion raio, and in working age populaion o oal populaion. This secion also shows he changes in oupu per worker ha are decomposed o measure he conribuion of each secor o he change in GDP per capia. Finally, share of GDP by secor and value added per worker by secor will also be examined. 5.. Decomposiion of Changes in GDP per Capia Growh, employmen and produciviy are inerrelaed. Someimes, i is hard o deermine he impac of produciviy or employmen generaion on growh and oupu per worker. To beer undersand he linkage beween growh and employmen in Cambodia, changes in GDP per capia are decomposed ino changes in oupu per worker, changes in employmen o working age populaion raio, and changes in working age populaion o oal populaion. To his end, he Shapley approach (Annex) is used o decompose changes in GDP per capia ino he above hree componens. This composiion of growh is linked o changes in employmen produciviy (oupu per worker) and populaion srucure a an aggregae level and by secors. As able shows, GDP per capia grew 32. percen and employmen 3. percen beween 24 and 27. Moreover, he share of employmen o he working-age populaion also rose.7 percen, while oupu per worker (produciviy) jumped 2.7 percen. This means ha employmen has increased a a lower rae han oupu per worker, suggesing higher labor force produciviy. Jobs ha are being creaed are being absorbed by growh of employmen. Table suggess ha GDP per capia for he period increased 9.7 percen annually in conjuncion wih annual growh in employmen of 4.2 percen. However, produciviy seemed o grow even quicker, by an average annual rae of 6.5 percen. 23
Table : Employmen, Oupu, and Populaion Change, 24-27 Change Average Annual Growh Toal Value Added 36.4%.9% GDP Per Capia 32.% 9.7% Toal Number of Employed 3.% 4.2% Toal Populaion 3.3%.% Toal Working Age Populaion.% 3.6% Share of employmen/working age populaion.7%.6% Oupu per Worker 2.7% 6.5% Source: Daa compiled from NIS and CSES 27 Figure 6 below shows he resul of decomposiion a he aggregae level and he linkage beween GDP per capia, demographic change, employmen share of working age populaion, and oupu per worker. As he graph illusraes, 26.4 percen of he changes in GDP per capia can be linked o changes in he share of working age populaion. This means ha change in share of working age populaion help GDP per capia increase 26.4 percen, or US$3.9, for he period, all oher hings remaining equal. The growh was hanks o populaion growh among mos age groups, especially older people. The share of employmen o working age populaion grew 6.2 percen during he period and changes in he share of employmen posiively conribued o GDP growh per capia. Abou 6.2 percen of he change in GDP per capia was aribued o he change in share of employmen and, in erms of dollar, US$7.4 was generaed, represening abou 2 percen of GDP per capia in 24. Figure 6: Decomposiion of Changes in GDP per Capia 24-27 26.4% Changes in he Share of Populaion of Working Age 6.2% Changes in Share of Employmen / Working Age Populaion 67.5% Changes in Oupu per Worker % 2% 4% 6% 8% Percenage Change o Toal Value Added per Capia Growh Source: Daa compiled from NIS and CSES 27 24