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Tuesday, April 15, 2014

Labor Econ 13: The Term 'Jobless Growth' is Wrong

* This is my article in thelobbyist.biz last Friday.
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The term "jobless growth" is wrong. Growth means more or additional output from (a) more workers and entrepreneurs employed, or (b) the same number of workers and entrepreneurs producing more from the same input (ie, higher productivity).

If (b) happens, then higher productivity people will create new jobs elsewhere -- additional nanny for the kids, eating outside more often, jobs for those in restos/bars/hotels.

Assuming that the same number of employed people, say 37 million, was recorded this year as last year, it does not mean exactly the same individuals. Some of the 37 M employed people last year are no longer working this year due to (a) retirement, (b) illness or injury, (c) pursue further studies or skills training, (d) on extended vacation or leave, (e) migrated abroad, (f) death, (g) other reasons.

If one would refer to the lack or absence of incremental increase in employment this year compared to last year, the more appropriate terms would be “job-replacing growth” or "productivity-enhanced growth".  Besides, such absence of increase in employment is temporary and may happen for only one year, two years at the most. The succeeding years, increase in employment should show up.

Where there is growth, there is job creation somewhere. But most of those jobs may be in the informal sector as people find it very costly, time consuming and very bureaucratic to go through all sorts of business registration, from barangay to sanitation permit to mayor's permit to DTI and BIR permit. Besides, there are less taxes to pay in the informal sector, like being an ambulant vendor, small sari-sari store, tricycle driver, etc.

Consider this: A furniture shop with 5 workers produced 1,000 units of tables and chairs last year. This year, the same 5 workers produced 1,100 units of tables and chairs. Output increased by 10 percent but there was no growth in employment for that company. Is that a "jobless growth"?

On the surface, yes, but look what happens to employment by workers and the entrepreneur of that shop: the workers must have gotten some salary increase (otherwise one or all of them might quit and go elsewhere where they can be given higher pay). Worker 1 may get a nanny for the kids, now he can afford to get one. Worker 2 may get a motorcycle, and that creates additional job in the motorcycle shop or repair shop, and so on.

“Jobless non-growth” is possible but “jobless growth” is not, it is an oxymoron and hence, is technically and theoretically wrong.

The persistent high unemployment + underemployment rates of about 24-25 percent is also cited as another example of “jobless growth. See previous discussion here, Why a rise in unemployment is not exactly bad.

There are two main reasons why a person is unemployed. One is that he is rejected due to under-qualification or over-qualification (may demand higher pay later on), and two, he chose not to be hired at a particular job description and pay. The first is involuntary unemployment, outside the control of the job applicant while the latter is considered as voluntary unemployment, within the control of the job applicant.

One news report last year, Lots of jobs for college grads, but do they want the work? cited, “more than 40 percent of the unemployed college graduates cited ‘no job opening in field of specialization, no interest in getting a job, starting pay is low, and no job opening within the vicinity of residence.’ as reasons for unemployment.”

These are examples of the “voluntary unemployment” phenomenon. There are jobs available for many college graduates but they chose not to take those jobs, at least temporarily, hoping that a job related to their course, or a higher paying job, or a job near their house or city, would be available soon.

Here are more numbers, notice the high incidence of unemployment among college graduates.

Philippine unemployed by educational attainment, October Labor Force Surveys,  2006 to 2013


Source: National Statistics Office, www.census.gov.ph

Other instances of voluntary unemployment are as follows:

a. Work is available at say P40,000 per month gross pay starting immediately, but a person chose to reject it, awaiting possible employment in another company that will give him P50,000 per month or higher.

b. Rejecting a good paying local job because the person is awaiting job placement or hiring abroad, he/she  wants to be ready to leave any day without the hassle of resignation, getting office clearance and related burdens.

c. Rejecting a good paying job in a far away city because the person wants to work nearby even at lower pay, and help ake care of young kids or sickly parents at the same time.

Most economic literatures analyzing the unemployment phenomenon focus on what the government should do to improve the employability of the population, the college graduates especially. The common  policy interventions and proposals are higher government spending in education from elementary to tertiary. The new law, K+12 education, mandatory kindergarten + 12 years in elementary and high school, or 13 years of schooling before a student can go to college is along this line of thinking.

Both voluntary and involuntary unemployment among college undergrads and graduates can be lowered  if these young people were trained for self-employment and entrepreneurship early on, and if government policies are more business friendly than they are now.

This means that government business permits and bureaucracies, business taxes and fees, both at the local and national government levels, should be reduced and/or made simpler.

The key to reduce unemployment and underemployment, whether voluntary or involuntary, is more entrepreneurship and more business competition. If people cannot be hired by others, let them employ themselves.  Government can help job creation by simply reducing its unnecessary intervention, bureaucratism and taxation.
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