COVID-19 disrupted human capital formation in Asia when many countries were racing against time to escape the middle-income trap before their populations began to age. The pandemic has robbed them of the demographic dividend which they had been waiting to harness as they moved to a higher-income country status.

Excess deaths in Southeast Asia alone were an estimated 1.21 million, almost quadruple the officially reported deaths. This compares with excess deaths globally of 18.2 million, which was triple the number of officially reported COVID-19 deaths at 5.94 million.

The pandemic resulted in significant learning loss, which increased ‘learning poverty’ — the share of 10-year-olds who cannot read and understand an age-appropriate text. This has been especially severe in middle-income countries in Asia.

The pandemic also increased out-of-pocket healthcare costs, especially the costs of care for the elderly, crowding out other essential household expenses. Primary healthcare services were disrupted by supply-side issues but also by the diversion of financial and human resources to address the outbreak.

The pandemic indirectly affected human capital investment through job losses and by reducing incomes, pushing households to adopt coping mechanisms that are likely to be detrimental in the longer term. This has included switching to less nutritious food, cutting food consumption and selling productive assets such as animals and land.

Even before COVID-19, more than one in five children under five years old in many economies in the region were stunted or suffering from chronic malnutrition. A child born in Indonesia will only achieve 54 per cent of their full productivity potential, compared to 88 per cent for a child born in Singapore.

In May 2021, 25.7 per cent of households in Malaysia, 45 per cent of households in Thailand and 50 per cent of households in Laos had eaten less than they thought they should in the last 30 days due to a lack of money. As many as 12.4 per cent of households in the Philippines and 6.4 per cent in Thailand had gone without food for a whole day at least once in the last 30 days due to a lack of money.

Chronic learning deficits and gaps have been exacerbated. The pandemic has not only induced significant learning loss because of school closures and lowered investment in children’s learning, but also widened the human capital gaps between poorer and richer students. Students lost an estimated two-thirds of a year of learning-adjusted years of schooling.

Policymakers have often grossly underestimated the magnitude of the problem of learning deficits. While learning poverty affected 91 per cent of children in the Philippines, government officials estimated a rate of only 37 per cent. When learning poverty was at 98 per cent in Laos, government officials estimated that it was just 29 per cent.

Youth aged 15–24 were hit harder by the immediate crisis, partly because they were deprived of job opportunities when making the transition from education to work, or because they worked in the sectors that were hardest hit. New graduates were not able to find jobs, exacerbating youth unemployment and idleness.

In 2019, around 18 per cent of youth in the region were not engaged in employment, education or training. In Indonesia, youth idleness increased and was higher among males than it was among females, signalling that the pandemic forced more females to enter the labour market to supplement their household incomes.

Even in March 2023, as the pandemic was coming to an end, a third of respondents in Indonesia were still earning less than before. Workers in informal and traditional service sectors were hardest hit. Employment in many middle-income countries in the region is still dominated by low-end service jobs.

Government programs targeted at formal firms and workers were ineffective because of the high rates of informal work and underdeveloped social registry systems to target ‘uncovered’ workers. Before the pandemic, the share of informal employment in East Asia and the Pacific was 47 per cent.

The pandemic also exposed the vulnerability of many drivers of economic growth in a world of hyper-connectivity and mobility, including the peace dividend, a functional multilateral trading system and convoluted global supply chains. ‘Vaccine nationalism’ and unequal early distribution of vaccines exposed geopolitical rifts and power dominance. Combined with deterioration in human capital and labour productivity growth, this has led to a downward revision of the potential long-term growth rates of many countries in the region.

But this has been somewhat mitigated by digitisation and efficiency-seeking investments. Firms, workers and consumers have moved online and adopted digital technologies including online payments, e-commerce and data analytics.

The echoing message of the COVID-19 pandemic on human capital is the unequivocal evidence of disproportionate adverse impacts on less developed countries, poorer households and more vulnerable workers.

Women suffered more than men from increased domestic violence during the pandemic. As many as 83 per cent of respondents in Indonesia said that intimate partner violence worsened.

The pandemic also highlighted critical gaps in social protection. Targeted, efficient and effective social assistance as well as access to critical public services are almost impossible without a reliable social registry system. Building a credible social information system and improving social protection delivery are key to achieving universal social protection.

Digital ID adoption varies across the region. Japan has struggled with the implementation of its MyNumber digital ID system. Singapore has achieved 97 per cent adoption of digital ID and the Philippines, Singapore, Thailand and Vietnam have all managed to achieve digital identity adoption as a means for authentication. Cambodia, Indonesia and Laos are at various stages of developing a digital identity system. On average, ASEAN countries have so far only achieved 30 per cent adoption of digital ID.

Political buy-in at the highest levels of national leadership will be key to building back after the devastation caused by COVID-19. This could begin with recognition of the magnitude of the human capital losses and their associated long-term scars.

Maria Monica Wihardja is Visiting Fellow at the ISEAS–Yusof Ishak Institute and Adjunct Assistant Professor at the National University of Singapore.

This article appears in the most recent edition of East Asia Forum Quarterly, ‘Industrial policy 2.0’, Vol 15, No 4.