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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See also:

Labor Econ 9: On 4-months Maternity Leave, June 14, 2012

Labor Econ 10: Voluntary and Involuntary Unemployment, February 18, 2013 

Labor Econ 11: Employees Forever vs. Entrepreneurship, April 27, 2013 

Labor Econ 12: Wallace, Lenin, Stalin, Mao, May 02, 2013

Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth, February 12, 2013 

Fat Free Econ 48: Jobs, Taxes and the World Bank, September 15, 2013 

Migration 20: Overseas Employment, Positives Outweigh the Negatives?, October 09, 2013

Labor Econ 10: Voluntary and Involuntary Unemployment

* This is my article today in thelobbyist.biz.
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One of the major sources of skepticism of high economic growth of the Philippines is the persistent high unemployment and underemployment rates. As of the latest labor force survey, October 2012 result, some 25.8 percent of the total labor force of the country were either unemployed or underemployed. See previous discussion here, Rise in unemployment 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 can be considered as voluntary unemployment, within the control of the job applicant.

One news report, 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.”

This explains 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.

Table 1. Philippine unemployed by educational attainment, October rounds, 2006 to 2012

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

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. Thus, the favorite policy interventions and proposals are higher spending in government education from elementary to tertiary. The K+12 education has recently been implemented. This is the mandatory kindergarten + 12 years in elementary and high school, or 13 years of schooling before a student can go to college.

There are several problems with this approach. One is that there is high focus of training students to become employees, to be “more employable” someday and less as entrepreneurs and job creators themselves.

Two, there is lack of trust in self-learning by students with the help of modern technology. Self-learning as augmentation to school education is a good training ground for self-employment and entrepreneurship someday. Instead, students are mandated to spend more years in the schools, in government elementary and secondary schools especially.

And three, there is high additional cost to parents as well as to public spending with the extension of mandatory elementary and secondary education to 12 years. As if there is no huge budget deficit every year and the public debt stock is not rising every year.

Both voluntary and involuntary unemployment among college undergrads and graduates would have been lower 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 high incidence of informal economy or underground sector micro and small entrepreneurs is a clear proof that government business bureaucracies and taxes are simply high and complicated.

Another important policy that the government should undertake to improve domestic labor productivity and employability is to open up the economy more to foreign competition in trade and investments. In a PIDS discussion paper on Philippine Productivity Dynamics in April 2012, Dr. Gilberto Llanto wrote,

“Openness of the economy measured as exports to GDP ratio and the foreign direct investments are significant positive influences on labor productivity. In this regard, the government should… strengthen the export markets and bring in more foreign direct investments. The competition provided by discriminating (foreign) export markets creates incentives on domestic firms to become more productive and competitive, otherwise the export market or destination will be lost to competitors. On the other hand, foreign direct investments bring into the domestic markets new products, new processes, innovations, and a host of complementary institutions, e.g, efficient supply chains, that motivate labor productivity.”

The key to reduce unemployment, both voluntary and involuntary, is more entrepreneurship, more business competition, freer markets in all factors of production – labor, capital, technology, land – and not more government debts and bureaucracies, more stifling taxes and fees.

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See also:
Labor Econ 6: Labor Rights and Employee Forever, May 05, 2012

Labor Econ 7: Unemployment in Advance Economies, May 06, 2012

Labor Econ 8: SWS on Unemployment Survey, June 08, 2012

Labor Econ 9: On 4-months Maternity Leave, June 14, 2012

Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth, February 12, 2013

Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad

* This is my article yesterday in TV5's news portal,

http://www.interaksyon.com/business/50817/fat-free-economics--why-a-rise-in-unemployment-rate-is-not-exactly-bad
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The National Statistics Office (NSO) released the October 2012 quarterly labor force survey (LFS) results, the last for this year.  What was highlighted was the increase in unemployment rate from 6.4 percent in October 2011 to 6.8 percent this year.

This did not conform with the high economic growth in the third quarter, when the Philippines' gross domestic product (GDP) grew a surprising 7.1 percent, the second highest in Asia. If growth was high, it means that there were lots of economic activities that occurred over the last quarter and hence, more jobs must have been created, whether temporary or permanent. So what went wrong?

In the table below are the numbers over the past three years. We show both the actual numbers and percentages. Take note that in the fifth column, the increase or decrease in absolute numbers from October 2011 to October 2012.

Source: NSO, www.census.gov.ph

Here are the notable points:

a) There were 1.08 million new Filipinos who entered the labor force, whether looking for work, already working, or still studying.

b) Labor force participation though has declined by 0.76 million, meaning less people are actually working or are seeking work, or more people have retooled themselves by going back to school and postponed entering the labor force. The significant decline in labor force participation rate from 66.3 percent to 63.9 percent also shows this.

c) Employed people - whether employers, employees, self-employed or unpaid - declined by 0.88 million.  And whether fully employed or underemployed, which is a bit worrying.

d) Underemployed people also declined by 0.22 million, which implies that the fully employed people declined by 0.66 million.

e) Unemployed people increased by 0.12 million. We will have a longer discussion of the term “unemployed” below.

f) Unemployed and underemployed combined declined by 0.1 million people.

From a layman’s perspective, points (b), (c) and (e) are bad news, while points (a), (d) and (f) are good news. 

We now compare this year’s numbers with those two years ago: (a) employment rate is higher, (b) underemployment rate is lower, and (c) unemployment rate is lower. This means the labor force data are better this year compared to two years ago, but mixed compared to last year.

The NSO has defined the unemployed people as: “persons who are 15 years and over as of their last birthday and are reported as: (1) without work and currently available for work and seeking work; or (2) without work and currently available for work but not seeking work for the following reasons: ( a) Tired/believed no work available, (b)  Awaiting results of previous job application, (c) Temporary illness/disability, (d) Bad weather, (e) Waiting for rehire/job recall.”

This does not easily conform with the layman definition of an unemployed as someone who is “seeking work but is not hired”, as the above definition includes people who are “not seeking work” because of the five reasons given. Which means that many of the unemployed are people who generally have chosen to be unemployed temporarily. Someone who is offered to work at say, P30,000 per month gross pay has chosen to be unemployed temporarily because he is awaiting possible employment in another company that will give him P40,000 or higher per month in gross pay.

In this case, to be “unemployed” is not exactly a bad situation. It is “unemployment by choice” and not due to structural problems in the economy.

It is highly probable that many Filipinos have opted to be unemployed temporarily, say at the time the survey was conducted because they were awaiting job placement or hiring abroad. They want to be ready to leave any day without the hassle of seeking management permission to resign, get office clearance and related burdens.

The figures for OFW remittances seem to conform with this hypothesis: $19.24 billion in 2009, $20.74 billion in 2010, $22.35 billion in 2011, and projected to reach $24-plus billion this year. There is  generally higher pay abroad than here, despite the continued appreciation of the peso relative to the US dollar and other major currencies.

In short, a higher “reservation wage” abroad or here - as a result of anticipated faster economic growth and more business activities - is among the reasons why many Filipinos have opted to be temporarily unemployed. An increase in unemployment rate from 6.4 to 6.8 percent does not appear to be bad after all.

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See also:
Fat-Free Econ 30: BPOs and Obama, November 14, 2012

Fat-Free Econ 31: On the Kasambahay, Solo Parents Welfare Bills, November 26, 2012

Fat-Free Econ 32: GDP Growth, Stockmarket and Rule of Law, December 01, 2012

Fat-Free Econ 33: Institutions and Why Governments Fail, December 09, 2012

Labor Econ 6: Labor Rights and Employee Forever, May 05, 2012

Labor Econ 7: Unemployment in Advance Economies, May 06, 2012

Labor Econ 8: SWS on Unemployment Survey, June 08, 2012

Labor Econ 9: On 4-months Maternity Leave, June 14, 2012

Labor Econ 8: SWS on Unemployment Survey

* This is my article yesterday in the online magazine TL. The two charts are not part of the original article, I just added them here.
http://www.thelobbyist.biz/perspectives/less-gorvernment/1317-unemployment-and-sws-sensationalism
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High un-employment is a clear indicator of social failure as a big portion of a very important resource in this planet, human minds and labor, are not optimized and lying idle. Political oppositions and rebels highlight this to lambast an incumbent administration, while some survey outfits can sensationalize this.

This is what happened when the Social Weather Station (SWS) reported in its First Quarter 2012 Social Weather Survey, reported in BusinessWorld last May 21 that “adult unemployment hitting a record-high 34.4%, equivalent to about 13.8 million individuals.”

This was reposted in interaksyon that day, echoing that “Over 13 million Filipinos were reported jobless as adult unemployment hit a fresh record-high in the first quarter of 2012,”

This is sensationalism by the SWS. Just imagine, more than one-third, 34.4 percent, of Filipinos above 18 years old are unemployed, have no jobs, “not working and looking for work.” Can one believe that? Even the three European economies with heavy debt problems and have the worst unemployment situations, Portugal, Greece and Spain, have unemployment rates of only 15 to 24 percent. And the Philippines has 34.4 percent even though we are far out from such debt and financial turmoil as currently experienced by these countries.

A profile of the SWS unemployed is even more alarming for some sectors.

· * 55.9 percent of those aged 18 to 24 years old, and 45.4 percent of those 25 to 34 years old, are jobless. Can you believe that?

· * 43.0 percent of the females and 27.6 percent of the males are jobless. Can you believe that too?

The figures cited by the SWS and were echoed by the local media is theoretically improbable on two grounds.

One, if so many people have no jobs, many of them and their family will go hungry if not starving already, so they will take even the low-paying jobs, and that will quickly reduce the unemployment rate. Graphically, the labor supply curve will move to the right and it will result in declining average wage rate.

Two, if average wage rates have declined as more workers have become desperate and snap even low-paying jobs, more entrepreneurs will hire more people as the cost of labor is declining, especially for the labor-intensive sectors, and unemployment rate will decline. Graphically, the labor demand curve will also shift to the right,

Empirically, these things did not happen. Local wages are not falling, they are in fact rising, both at the micro and firm levels, and at macro or national levels with the recent rise in wages as approved by the regional productivity boards.

The SWS though also issued a pacifying statement, "if the official definition is applied, then the unemployment rate is 26.1percent." This official definition as adopted by the National Statistics Office (NSO) in its quarterly Labor Force Survey (LFS) means that a person is (a) not working, (b) looking for work, and (c) available for work. By adding the third factor, SWS unemployment rate declines from 34.4 to 26.1 percent. Still, this is a very high figure, even worse than the worst in Europe and the rest of the industrialized world, Spain’s unemployment rate of nearly 25 percent.

How did the SWS exaggerate the unemployment rate in this country? Simple, by removing the distinction between the unemployed and the underemployed among those who have work.

Official NSO data, as of January 2012 LFS showed that (a) unemployment rate is 7.2 percent, and (b) underemployment rate is 18.8 percent. The underemployed are those people who have jobs already, full time or part time employed, but are still looking for additional work, mainly to augment their income.

So adding NSO’s unemployed + underemployed = 26.0 percent of total labor force, constituting nearly 10 million Filipinos. This is similar to the SWS’ unemployment rate of 26.1 percent.

From the SWS media release posted in their website, they did not introduce the term “underemployment” or the “underemployed.” There are only employed and unemployed people. Their definition of employed are those who are currently working (“may trabaho sa kasalukuyan”).

In many surveys, there is a tendency among respondents to exaggerate their bad plight while understating their positive condition, perhaps hoping that the government will give out more dole outs that may benefit them later. This is similar to people reporting less or no income, hoping that government will not go after them via personal income tax.

So someone who is working five to ten hours a week on average, say a tricycle driver who only brings a few students to and from the school five days a week, would chose to be considered as unemployed rather than employed. Or a person who is taking care of his/her younger siblings at home, a case of “unpaid family worker” would consider him/herself as jobless if asked to answer only whether unemployed or employed.

Since there is this tendency among survey respondents, it would be wise to keep the distinction between the unemployed and underemployed. But the SWS opted not to make such delineation. The result of its very high unemployment rate figure naturally put the SWS on major headlines once more. Similar to Bayan Muna and other sensationalist groups begging for more media mileage, to issue the most scary, the most far out scenarios, which many media outlets tend to buy more.

That 34.4 percent or 26.1 percent unemployment rate by the SWS is simply theoretically and empirically not possible. Because of this, the SWS has unintentionally contributed to economic miseducation of many Filipinos.
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See also:
Labor Econ 1: What Determines Wage? May 26, 2006

Labor Econ 2: Labor Laws and Employee Forever, May 04, 2010

Labor Econ 3: Wages and Marginal Product of Labor, April 18, 2011

Labor Econ 4: Minimum Wage Law is Wrong, July 05, 2011

Labor Econ 5: On Extending Minimum Wage Law Abroad, July 09, 2011

Labor Econ 6: Labor Rights and Employee Forever, May 05, 2012

Labor Econ 7: Unemployment in Advance Economies, May 06, 2012