Government and Taxes: jobless growth

Showing posts with label jobless growth. Show all posts

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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Tuesday, February 12, 2013

Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth

* This is my article today in TV5's news portal.

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One of the never-ending criticisms of the country's recent economic performance is that it was a “jobless growth” or “elitist growth." The people who say this refer to the lack of sufficient jobs created in the economy and hence point to further social inequality.

Last week's column has attracted similar skeptical comments in social network sites, such as “growth for the rich”, “what growth, growth of the urban slums,” “gobbledygook growth,” and so on. Perhaps it is a case of people being too mired with slow growth in the past, that faster-than-expected economic expansion has become unfamiliar and even uncomfortable for them.

There are valid and invalid reasons and premises for such statements. But before we enumerate these premises, let us review some of the latest GDP growth figures for key economies. This is from The Economist magazine, which conducts a quarterly pool of some of the world’s biggest investment banks and rating companies about their GDP and other macroeconomic forecasts, tabulate those forecasts and get the average.

Source: The Economist, February 2, 2013

The Philippines’ full year 2012 growth of 6.6 percent is nearly a percentage point higher than the 5.9 percent projection. A week before that and prior to the announcement of the fourth-quarter 2012 GDP growth, the average forecast for full-year 2012 by The Economist was only 5.5 percent. This is a bit unusual because in most cases and in many countries, actual numbers are about +/- 0.5 percent maximum divergence from projections, the Philippines’ is 0.7-1.1 percent higher than the average forecast.

If the Philippine economy grew slow, like Hong Kong and Singapore’s 1-1.3 percent third-quarter growth, or even contracted to -1.5 to -6.9 percent like what happened to the Netherlands, Italy, Greece and Spain, the complaints of “jobless growth” may have turned into a remark like “jobless non-growth” -- a not-so gratifying situation. See this graph for instance, showing the big disconnect between expectations of stock market growth and GDP growth this year.

Source: Zero Hedge, Europe’s WTF Chart, February 5, 2013.

The European Central Bank simply threw money at almost everything while the fundamentals remained gloomy. Expectations like these in such a big continent like Europe can drive some if not many businesses there to head out for other more promising economies. The Philippines should be one of those emerging markets where their financial radars are currently directed.

So, can “jobless growth” really happen and is it theoretically possible?

Yes, it is a theoretical possibility and can happen if the number of the employed people has remained the same while the output of enterprises has increased due to higher productivity (more automation, improvement in production processes, more personal motivation) and the number of people in the active labor force has increased. There were no net job losses that occurred, it is just that the new entrants to the labor force were not absorbed and hired mainly by the formal sector.

The next question will be thus: Is this happening in the Philippines now?

There are mixed signals based on the latest labor force survey (LFS) data as of October 2012. Compared to October 2011, the unemployment rate was higher at 6.8 percent last year compared with 6.4 percent in 2011, and the number of unemployed people was 2.76 million in 2012 compared with 2.64 million the previous year.

If compared two years ago in October 2010, unemployment in 2012 was tame and lower: 6.8 percent unemployment rate compared with 7.1 percent in 2010, and 2.76 million unemployed compared with 2.80 million in 2010. A rise in unemployment also does not always mean that many job applicants are rejected.

An improving overall economic condition also produces job seekers with rising “reservation wage” For instance, they are offered a monthly pay of P20,000 but they did not grab it because they are waiting for a possible job call that will give them a P25,000 monthly pay. So when the LFS was conducted during that period, they were still unemployed, as argued in an earlier column.

There are valid and invalid criticisms of a “jobless growth” phenomenon, actual or imaginary. Perhaps the quickest way to dispel this is for the government to encourage more self-employment or entrepreneurship among the people. If some people harbor a high reservation wage for long, the rational thing to do is for them to employ themselves.

This will require that government must reduce certain procedures, permits, taxes and fees for people to start and maintain a business. Credit is relatively easy these days with interest rates at very low levels. The 91-day Treasury bill rate -- the benchmark for loans -- is down from about 4 percent just three years ago to the current 0.05 percent.

There is a need to sustain the overall economic optimism in the country. People abroad are beginning to see it, but Filipinos have yet to feel it.

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See also:
Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad, December 20, 2012

Fat-Free Econ 35: World's 25 Largest Economies in 2012, January 02, 2013

Fat-Free Econ 36: Peso Appreciation, Growth and Less Government, January 06, 2013

Fat-Free Econ 37: PH GDP Growth 2012, February 02, 2013