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Economic realities of growth

Jobs may be scarce, but the Kingdom’s growing labour force is an advantage, not the liability it is sometimes made out to be

Michael Smiddy

IT is often pointed out that 300,000 young Cambodians enter the labour force each year, implying that this is a bad thing because there aren’t enough jobs for these people. From an economic point of view, however, this growing labour force is an asset for Cambodia, not a liability.

All else equal, adding more inputs (labour, capital, etc) to an economy cannot make it worse off. The economy as a whole will be better off and at least some of this benefit will accrue to workers. This might be cold comfort for the individual trying to find a job, but it is something policy makers and advisers need to keep in mind.

The idea that adding more workers to the labour force increases unemployment is known as the “lump of labour fallacy”.

The fallacy assumes that there is only a fixed amount of work to be done, and that if there are more workers, either they each will have less work, or many will have no work.

As Nobel Prize-winning economist Paul Krugman has written, the fallacy is similar to “those dire warnings in the 1950s that automation would lead to mass unemployment”.

Over the last 20 years, the population of the United States has grown by 65 million people, yet the unemployment rate has not increased.

Jobs are being created and destroyed all the time. This is all part of Cambodia’s dynamic economy.

Similarly, a growing Cambodian population should not itself lead to higher unemployment. There is not a fixed amount of work to be done in Cambodia. Rather, a growing labour force increases the size of the economy.
There may be impediments, such as Cambodia’s competitiveness, that limit the extent to which the Cambodian economy can grow, but that is another story.

I’ve been asked a few times, “So, where will the jobs come from?”

It’s always hard to answer. It is not possible to identify a single industry – nor should we expect a single industry to provide all the jobs.

The Cambodian garment industry success story is widely known, but other parts of the economy employ many more people (for example, in wholesale and retail trade), and Cambodia needs a more diverse economy.

The answer is that the jobs will come from many sources, and some of them will be unexpected. There is plenty of anecdotal evidence of job creation in a variety of industries in Cambodia, for example:

  • A second metred taxi company has begun operations in Phnom Penh, announcing it will operate 60 cars. That’s jobs for at least 60 drivers, plus cleaners, mechanics, administrative staff and so on. Yes, it might mean less work for some tuk-tuk drivers, but the company wouldn’t have entered if it didn’t think there were enough people with money to spend on taxis.
  • Hyundai is building a car assembly plant in Koh Kong. Beginning in early 2010, Hyundai aims to initially assemble 100 cars each month and could ramp up to more than 450 cars per month over the next few years. The company says up to 1,000 jobs could be created.
  • ACLEDA seems to open a new branch every other month. Other banks have also been rolling out new branches. More banks and finance companies are entering Cambodia, and more will come to participate in the new stock market and associated industry.
  • New food-processing factories are being constructed, such as a seafood-processing plant in Sihanoukville, a vegetable-processing facility in Battambang and a sugar plant in Koh Kong.
    Not only will they need workers, but they will also need farmers and fishermen to supply them.
  • Toyota has opened a new showroom in Siem Reap.
  • Coca-Cola announced new product lines will be produced at its Cambodian operations.
  • New breweries have sprung up.
  • Biofuels plants have begun, processing locally grown crops such as jatropha.
  • Continued infrastructure development is evident. There are likely to be jobs building roads, electricity lines, irrigation systems and bridges for some time.

Jobs are being created, and destroyed, all the time. This is all part of Cambodia’s dynamic economy. New jobs spring up in surprising places. For example, did you know that Cambodia exports human hair to the US, or that a number of Cambodian companies provide IT services to businesses in the US and Europe?

On their own, these examples don’t add up to 300,000 jobs each year and many of them are not low-skilled jobs suitable for most Cambodians.

But if people are buying more Toyotas in Siem Reap, or are using taxis in Phnom Penh, or need more financial services, or are finding work as accountants and stock brokers, then they have income and buying power and they also need food, clothing, transport, education for their children and so on.

That is, there is a multiplier effect from job creation. For example, Coca-Cola directly employs 298 people in Cambodia, but estimates that “for each direct job, our business supports up to 12 additional jobs in industries such as ingredients, packaging, distribution and retailing”.

Although it will face challenges and setbacks along the way, the Cambodian economy will continue to create many new, and at times unexpected, jobs for its people.

Whether enough jobs will be created to significantly reduce poverty will depend on the competitiveness of Cambodian industries, which in turn is determined by a number of factors. More on these another time.
Michael Smiddy is a senior consultant with Emerging Markets Consulting in Phnom Penh.



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