Labor Shortages Loom Large for Laos

By Amy Killian

unset over Luang Prabang, Laos. Source: Pondspider's flickr photostream, used under a creative commons license.

Sunset over Luang Prabang, Laos. Source: Pondspider’s flickr photostream, used under a creative commons license.

Laos has reaped tremendous benefits since its economic opening 15 years ago. The economy grew an average of 7.1 percent a year from 2001 to 2010, making Laos one of the fastest-growing economies in Southeast Asia. The government has forged bilateral trade agreements with the United States and other partners, and joined the World Trade Organization in February 2013.

Yet prosperity for Laos is not a certainty. As it opens up, the country is increasingly facing the headwinds of economic competition. The Lao government and its international partners should take critical actions to ensure its labor force is well-placed to respond to challenges posed by the global and regional economy.

Laos is facing a looming labor shortage on two fronts. Large employers, especially garment factories, face problems in attracting and retaining workers. Despite a minimum wage increase in January 2012, higher wages and better working conditions in Thailand continue to lure Lao workers away from domestic factories. According to the World Bank, medium and large factories in Laos lose 40 to 60 percent of their workforce each year. If Laos hopes to achieve its stated goal of doubling clothing exports by 2015, it should heed lessons from neighboring Cambodia, where the failure to address labor rights is fueling local discontent and driving away investment.

Meanwhile, employers face a lack of skilled workers due to chronic underfunding of schools, vocational programs, and technical training opportunities in Laos. While large foreign multinationals, including Toyota and Nikon, were lured in by the country’s opening, they had difficulties staffing their factories with qualified workers. The Ministry of Labor and Social Welfare reported in March that only about 55,000 Lao nationals each year are qualified for employment in manufacturing, while the Vientiane-based National Economic Research Institute estimates the country will need up to 500,000 workers in the manufacturing sector by 2015 if it wants to maintain current levels of economic growth.

To address these challenges, Laos, the United States, and other major donor countries should step up investments in education, and vocational and skills training. China has initiated a number of projects, including financing of a $50 million training center in the capital, Vientiane. In particular, with nearly 80 percent of Lao women participating in the workforce, Laos could greatly benefit from investments in its female workforce. Investing in the education and training of women will help promote inclusive growth and accord Laos socio-economic advantages over its neighbors, many of which have a much lower rate of women’s participation in the workforce.

Finally, lifting restrictions on foreign labor will be important for Laos’ economic future. Lao law stipulates that at least 70 percent of the total labor force must be locals, an onerous requirement in a country where labor is in short supply. Easing such laws will attract more foreign firms, and allow Laos to stay competitive while it seeks to build up its own skilled labor.

Ms. Amy Killian is a Researcher with the Sumitro Chair for Southeast Asia Studies at CSIS.

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