BWorld 194, How ‘pro-labor’ policies work against labor

* This is my column in BusinessWorld on March 08, 2018.

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

— American economist, political philosopher, and author Thomas Sowell

There are many legislative and executive proposals now that are meant to protect workers but have the long-term effect of discouraging the hiring of more workers. These five measures seem to stand out.

1. MORE HOLIDAYS WITH PAY

Currently there are 15 national non-working holidays with pay. Then there are city/municipal non-working holidays proclaimed by local governments. Plus paid leaves provided for by special laws like solo parent leave and maternity leave. Plus work suspension with pay during strong typhoons, floods, and other calamities. Plus work suspensions due to politics like nationwide jeepney strikes.

Now there are legislative proposals to create new holidays with pay. Among these are: the last Monday of January as National Bible Day; and, July 27 as Iglesia ni Cristo anniversary day.

2. PAID MATERNITY LEAVE FROM 60 TO 120 DAYS

A bill called the “Expanded Maternity Leave Law” proposes to raise the maternity leave period to 120 days or four months. This will cover all female workers regardless of civil status or legitimacy of the child. Solo parents would be granted a total of 150 days maternity leave with pay. Fathers will also enjoy a 30-day leave with pay versus the current seven days of paid leave as provided for under RA 7322. Penalties for violations are high — fines up to P20,000, imprisonment for six to 12 years, or both.

3. SECURITY OF TENURE, ENDING ENDO

This is removing the employers’ and contractors’ flexibility to hire workers when demand for work is high. Like catering and malls, demand for business and labor is high during November and December due to the Christmas holidays and reunions, then tapers off by January.

4. EVER-RISING MANDATORY MINIMUM WAGE

Even the unskilled should be paid the mandated minimum wage. The danger of this policy is that the less-skilled or skilled but less industrious workers will not be hired, raising the unemployment situation in the country.

5. EXPANDED MATERNAL AND CHILD HEALTH CARE PROGRAMS

Also known as the “Healthy and Bulilit Act” bill, it seeks to expand the health programs during the child’s first 1,000 days of life. It would also strengthen the implementation of RA 10028 or the “Expanded Breastfeeding Promotion Act of 2009.”

These populist and welfarist proposals are based on the premise that: our employment rate is high and workers can easily find other jobs, and the health of Filipino mothers and workers are deteriorating. Both are wrong. Our unemployment rate is the highest in the ASEAN, and Filipinos’ maternal mortality is decreasing although not as low as that of Singapore and Brunei (see table).

The danger of these proposals is that they make the hiring of workers, especially female workers and managers, become more expensive. If this trend continues, less workers will be hired — only the very talented, very efficient ones will be hired and the rest will be working in the informal, less well-paid sector or will be begging for more subsidies and cash transfers from the government.

And more workers doing repetitive jobs will be replaced by machines, robots, and artificial intelligence (AI). Machines do not ask for holidays with pay or maternity/paternity leaves with pay, and consumers want cheaper goods and services from shops and manufacturing plants.

Employment is not a right or entitlement. It is a privilege for those who have clear ambitions, personal responsibility, and equip themselves with certain skills. Entrepreneurship and being in business is also not a right or entitlement. It is a privilege for those who have deep patience and efficiency to understand both the consumers and suppliers of various production inputs, plus some luck. And the patience to deal with bureaucracies and politicians with very fickle and populist mind-sets.

Employment is a private contract between employers and would-be employees. If the terms are bad for job seekers, they should have more options for other employers. Better yet, employ themselves via micro-entrepreneurship or small start-up businesses.

Government should step back from setting and dictating the terms of employment and focus on enforcement of contracts. Government should also de-bureaucratize business and entrepreneurship so that more workers can migrate to become employers someday more easily.

----------------

See also:

BWorld 191, Solar insecurity, energy stability and affordability, March 15, 2018 

BWorld 192, Cobalt mining and TRAIN, March 16, 2018 
BWorld 193, TRAIN, inflation and emerging DOE price control, March 16, 2018

BWorld 89, President Duterte's outbursts and PH economic momentum

* This is my article in BusinessWorld last October 27, 2016.

Several issues preoccupy President Rodrigo Duterte’s mind and mouth: the violent anti-drug campaign and murders, his anti-US, anti-EU, and anti-UN expletives and polemics (but later reversing his earlier attacks against these countries and/or multilateral bodies).

After his anti-Obama, anti-US tantrums before and during the ASEAN and related summit meetings, he repeated the same vitriol in his China visit last week, citing his “separation from the US” and that the Philippines is united with China and Russia against the world. As expected, he took back these assertions almost immediately, clarifying that the country cannot afford to be separated from the US the minute he arrived in Manila.

Spouting off these incendiary remarks then taking them back -- characterized as “sugod-atras” in Filipino -- should not be taken literally as advised by the President’s cabinet officials.

However, these unnecessary assertions have real, negative impact on business confidence in the country, especially for massive investment plans and pledges that remain on the “wait and see” mode since the campaign period (February 2016) until today.

Will these outbursts by the President ultimately derail the economic momentum of the Philippines as started by the previous Aquino administration?

The Economist magazine regularly pools some of the world’s biggest investment banks and ratings companies about their global economic forecast and GDP growth projections. The numbers are shown on the table.

This piece made these country groupings in re-constructing the table. Group A are traditional, developed economy allies of the Philippines; B are President Duterte’s “pivot new friends”; C are the major Asian friends and trade partners; and D are miscellaneous. Venezuela is included in D to show how socialism and heavy statism can lead to economic and business decline (see table).

These numbers show us the following:

One, group A remains to have sclerotic growth, they seem to be very lucky to grow 2% or higher. Unemployment rate is high, 5% and up, except Japan. Not shown on this table are the four EU countries which have incurred double-digit unemployment rates in July or August 2016: France 10.5%, Italy 11.4%, Spain 19.5%, and Greece 23.2%.

These figures show that the developed countries cannot be expected to provide more impetus to lead and drive faster global growth. Their capacity to provide more foreign aid, more loans and grants, is also compromised.

Group B has mixed results. China can be expected to lead regional growth and help pull upwards global demand, but not Russia. The latter remains limping due to low global oil prices, petroleum being one of its major export products, among the important factors.

Groups C and D continue to show fast growth potentials except the developed Asians like South Korea, Taiwan, Hong Kong, Singapore, and socialist Venezuela. The Philippines is expected to retain fast growth, third highest after India and China this year, also third highest next year after India and Vietnam, among emerging and developed Asians.

An important ingredient for faster growth is high and young population. Notice above that countries with 90+ million people -- Vietnam, Philippines, Indonesia, Pakistan, India and China -- are growing fast. The US, Japan, and Russia should belong to this category but they are growing slow, partly because they have an old and aging population.

Going back to our earlier question, will President Duterte’s emotional outbursts ultimately derail the Philippines’ economic momentum?

The answer seems to be no for two important reasons.

One, growth momentum is retained as various macroeconomic and infrastructure reforms laid by the previous administration are bearing fruit.

Two, our high and young population of 103 million people as of 2016 has become a potent force to provide the necessary market demand and labor force supply for more investments and entrepreneurial advancement.

So, despite the President’s incendiary remarks plus thousands of murders in the anti-drugs campaign that can potentially disappoint if not threaten big foreign investments planning to come to the Philippines, growth momentum is well in place.

Moreover, if this economic momentum is coupled with presidential sobriety and an anti-drugs campaign that is guided by due process, the country’s growth rate of 7%, or perhaps even higher, is very much possible.

--------------- 

See also:

BWorld 74, Pres. Duterte's anti-corruption programs and Transparency Intl., July 30, 2016

BWorld 85, Drugs war morphed into war on critics of President Duterte? October 11, 2016

BWorld 87, Economic, fiscal and energy policies of the Duterte administration, October 17, 2016 
BWorld 88, Economic freedom and human rights, October 31, 2016

Labor Econ 18, Robots and job creation

More robots, more machines, mean more job displacement, more unemployment? Uhmm, No.

New industries always create new jobs, despite their initial job-displacing effect. For instance, when telegrams were replaced by paging devices, then by SMS and mobile phones, those who were displaced in the telegram industry did not go hungry, they simply changed jobs to higher skills category.

Long article here but my answer to this question, "Will robots kill the Asian Century?" is NO. http://hudson.org/.../11245-will-robots-kill-the-asian.../

More robots, more machines mean more demand for people to manufacture, assemble, repair and upgrade bots and machines. Cars, trucks, robots, other machines, they can also get "sick", and humans come in.

Here's another pessimistic paper, "Rise of the Machines: The Future has Lots of Robots, Few Jobs for Humans", WIRED.COM|BY MARGUERITE MCNEAL, https://www.wired.com/.../rise-machines-future-lots.../

Look around, there are few manual laundrymen and women, instead there are more washing and drying machines. There are more dishwashing machines in restos, car washing machines. In agriculture, there are more rice harvesting and threshing machines, rice drying machines, etc. And unemployment rate in many countries is falling.

Why? Because increase in productivity by people give them more income, more savings, and they purchase more things that they could only dream before. And this creates new demands, new production, new industries.

  

Before, very few people could afford to buy mobile phones, much less the "high tech" smart phones. As people used more machines, from agri to manufacturing to services, their productivity and income increased, they can afford to buy more mobile phones. From 1 M to 10 M to 100 M or more mobile phones in just one country, the demand for labor to (a) manufacture and assemble, (b) transport, market and sell, (c) repair and upgrade mobile phones, has significantly increased.

If people have low productivity because they do manual work all the time, their income is low. With more machines, people's productivity greatly increases. If they are poor, they can only afford the $0.10-30 coffee sachets in stores. If they are wealthier, they can afford the $2 coffee in fancy coffee and bake shops. And this creates/expands employment in new industries, like those fancy coffee shops, restos and bars.

Lesson: more machines, more jobs creation.

My car is old, so it goes to a repair shop often. My mechanic before works alone, no assistant, why -- because he has all the machines he needs. He does not slip on the floor to check what's wrong with the arms and bolts under the engine or beside the tires, he has 2 car lifters. He can check the engine and other moving parts from top to bottom while standing. He earns big of course, both from the shop owner and from tips of customers.

What does he do with his higher income? He spends more, he buys things that he could not buy before. More industries are created to supply his new needs and those of other people with higher productivity, higher income.

I went to Malaysia 2x last year, I was surprised that KLIA now is highly mechanized, people just go to the counters to drop their check in baggage, otherwise they just enter the airport and head straight to the immigration area, then departure lounge.

Does this displace airport workers? Temporarily yes, but faster and efficient check in also attracts more foreign visitors, and so more jobs in the tourism sector (hotels, tours, restos, bars, etc.) will be created.

In this article, a question to ask will be, "What to do with the 1.7 million truckers to be replaced by "self-driving" trucks?" http://www.latimes.com/.../la-fi-automated-trucks-labor.../

I think for every 1.7 M jobs/truckers to be replaced by self-driving trucks, there will be 1.7 to 2 M new jobs in the robots/machines manufacturing, transport, marketing/selling, repair, upgrades industries. Plus more restos, coffee shops, bake shops, hotels, etc. as people spend more from their higher income.

What can kill jobs are not machines and robots (they expand jobs actually), but govt heavy regulations of wages and benefits. Like mandatory high minimum wage.

This alarmism and negativism about the role of more robots, more machines in our lives, are supportive of the "inequality is wrong/evil" mantra. Only competitive capitalism and the free market system are capable of endless innovation, mechanization and robotics/tech modernization because the goal is to mass produce many things: mobile phones, shoes, clothes, cars, flat tv, etc. Let the robots and machines produce those things 24/7, no weekends and holidays if necessary -- like the airlines, hotels, bus lines, etc. The people who operate those robots and machines are paid 5x, 10x, 30x the minimum wage, these "workers" can be richer than any small-time capitalists around.

-----------

See also:

Labor Econ 15: Europe's High Long-Term Unemployment, August 06, 2015 

Labor Econ 16: Wages in Asia, Robots and OFWs, April 30, 2015 

Labor Econ 17, On ending contractualization, May 01, 2016 BWorld 62, Unemployment and underemployment data may be overstated, June 08, 2016

BWorld 62, Unemployment and underemployment data may be overstated

* This is my article in BusinessWorld last June 02, 2016.

Based on the latest January 2016 labor force survey data by the Philippine Statistics Authority (PSA), there were 2.47 million unemployed and 7.88 million underemployed Filipinos, representing 5.8% and 19.7% of the total 42.5 million total labor force in the country. So 10.35 million (25.5% of labor force) were either unemployed or underemployed, a big figure.

Also from among East Asian economies, Philippine unemployment rate is the highest. From 2010-2015 especially, where the Philippines has the highest average GDP growth rates in East Asia except China, Cambodia, Laos, and Myanmar, unemployment rate remained the highest in the region. Not included in the table below are Cambodia and Laos because no data was available in the IMF database (see table).

What explains for this discrepancy or disconnect between the Philippines’ fast growth and persistent high unemployment?

I myself have doubts about the country’s unemployment data since several years ago.

But it’s not about the data itself as collated and reported by the PSA but the attitude and response of survey respondents when PSA survey staff talk to them.

The reasons for my skepticism are the following:

One, survey respondents tend to highlight the adverse side of their economic status. When people approach the public for social surveys, the tendency of respondents is to report the pessimistic side of their lives mainly to avoid taxation if they declare that they have a regular job, and/or they expect more welfare and subsidy programs, especially if more of them will declare that they are unemployed or underemployed.

Two, voluntary and short-term unemployment.

A person offered a P60,000 a month job but declined it because he is waiting for a possible job offer with a higher salary is technically jobless and unemployed, especially if that person happened to be surveyed by the PSA at that time. That person has a high “reservation wage” but neither is he poor or miserable.

Countries with unemployment rate of 1%-3% are considered having a “full employment” economies because those 1%-3% of the labor force who have no jobs are voluntary or temporarily unemployed, like resting for a few weeks while raising their reservation wage for the next job offer.

Three, fully-employed yet underemployed persons.

The PSA defines underemployment as “employed persons who express the desire to have additional hours of work in their present job, or to have additional job, or to have a new job with longer working hours”

So a person already working 40-50 hours a week and earning P150k a month but still want additional work because he needs at least P170k a month or more is technically underemployed, even if he is already well off compared to the average income of the population.

Four, my experience looking for a house helper last week in my hometown, Cadiz City, Negros Occidental opened my eyes to what’s happening on the ground.

I went to four rural barangays, most of which are sugar-dependent and roads to which are still unpaved until now. These things surprised me.

(a) Unemployment is almost zero. People have jobs, mostly low-paying or contractual and seasonal jobs in the informal sector, but people have jobs. Many of the younger ones are working in Bacolod City, the provincial and commercial capital, or in Metro Manila. The older ones work in the sugarcane fields, or tricycle drivers, carpenters, construction workers, in shops in Cadiz City proper, etc.

(b) Voluntary unemployment is evident. The few who have no stable jobs and want one chose not to work in Manila for various personal reasons like they do not want to be far from their kids, parents, etc. They would rather be unemployed or underemployed than be fully employed but far from their loved ones. In the provinces, families have relatives and other network that can help them tide over. Some have parents or siblings who work abroad and regularly receive their monthly allowance and opt to stay in the province where the cost of living is low.

(c) High “reservation wage” also exists in the lower strata of society.

I offered a prospective househelper a starting pay of P4,000/month + free travel to Manila + days-off or overtime pay on their days-off (if prefer to work instead) + pay hike after 4 months ++.

One that I interviewed used to receive P6k a month ++ and will work for me only if I will at least match her last pay. The P6k a month ++ is her reservation wage.

Months before, my sister and other folks told me that it is hard now to get a helper even in rural areas.

After going to different barangays in three days, I was able to find one. She’s never been to Metro Manila and she wants to work there. More importantly, she is my distant relative and I will be comfortable leaving my two young girls to her when I and my wife go to work. She used to work for a department store in Cadiz City and enduring a pay of P120/day, 7 a.m. to 7 p.m., sometimes until 8 p.m., no meal or transportation allowance, and only 3 months contractual work.

With those four reasons above, I think that the Philippines’ unemployment and underemployment data is overstated. Consequently, even the SWS’ survey data of “self-rated poverty” is also overstated. The actual state of unemployment in the country should be lower than what is reported.

How to verify, prove or disprove the above hypothesis?

One possible way is to conduct a survey asking people, with work or no work at the time of the survey, if they are willing to work as house helpers, as gardeners, as messengers and janitors, etc. in Manila or Cebu at X monthly pay ++. If people are so poor and desperate for work, they will grab even “low pay” work and/or being far from their families, just to get a stable source of income.

Acceptance of those deemed “low pay” work should be counted as the proxy unemployment rate. If this method can be used, my bet is that Philippine unemployment rate will be between 1%-3%.

And those endless, ever-expanding government welfare and subsidy programs should be streamlined to only a few, with a timetable of cutting them in the future. New welfare programs should be initiated only if some old welfare programs that obviously do not work are discontinued and defunded.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and Stratbase-ADRi. minimalgovernment@gmail.com

-----------

See also: 

BWorld 59, Free trade and Norwegian salmon, May 28, 2016 

BWorld 60, Classical liberal, neoliberal and anti-liberal, May 29, 2016 

BWorld 61, 100 indicators better than GDP, June 03, 2016
Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad, December 20, 2012

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

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

Labor Econ 15: Europe's High Long-Term Unemployment

Long-term unemployment means people who are unemployed for 12 months or more. The number is big in Europe, around 12.5 million people in the European Union, of which around 9.5 million are in the Eurozone area, according to this paper by the Economic Policy Viewpoint, March 2014. Including the short-term unemployed, some 26 million Europeans are unemployed.

EU countries generally have rigid and strict labor policies, the  "exensive to hire, difficult to fire" policy. I like somehow the "flexicurity" policy in Denmark, sort of "easy to hire, easy to fire" labor policy, which actually works both for workers and employers. 

Many European countries have those rigid "pro-labor" laws that make it difficult for employers to just fire workers. What do the employers do? They hire as few people as possible. Instead of hiring 3 or 5 workers, they hire only one. Give that one worker high salary, lots of trainings, travels, gadgets and car, nice housing and healthcare package, to keep his/her productivity high, and this worker will do the job of 3 or 5 people. He/she is lucky with all the high pay and many benefits. The others aspiring to be hired, sorry na lang sila. They can aspire to become start up entrepreneurs, hire themselves. But the business bureaucracy and multiple taxes, fees and mandatory contributions in Europe is not exactly something that many people would wish to experience.

And that largely explains why unemployment rate in France and many EU countries is always high.

The labor unions, they can demand as much as they can, like shorter than France's 35 hours work week, minimum wage of $50/hour, 4-5 months vacation leave with pay, and so on, and all their demands can become laws. There are several possibilities that can happen. 

One, I mentioned above, employers will get as few workers as possible and get more robots and computers to assist those few hired workers. Two, some employers will simply shut down operation in Europe and move to Asia or Africa or S. America.

The best workers' antidote to capitalism is for them to become start up entrepreneurs and capitalists themselves. If their former employers will not give them $50/hour pay, 34 hours/week or less work, etc., they should give that to themselves, as entrepreneurs. Let us see if they can walk their talk.

And one thing I notice, the more productive, more ambitious, more hard working employees and staff are not interested in joining "strong" labor unions. Why? Because they have zero intention to become workers or employees forever. Rather, they intend to become start up entrepreneurs soon. They endure "slave work" like 12-14 hours a day (60-70 hours a week) because they learn more things, more details and more tricks, how big and successful companies operate. Or if they remain as employees, they move to multinational firms as mid-level managers and directors and they travel the region, if not the world.

It is those who intend to become workers forever that tend to gravitate to militant labor unionism.

-----------

See also:

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

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

Labor Econ 13: The Term 'Jobless Growth' is Wrong, April 15, 2014

Labor Econ 14: Labor Day and Government-Mandated Minimum Wages, May 01, 2014

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

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

* This is my article in thelobbyist.biz last Friday.
-----------

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.

------------

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

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

* This is my article yesterday in interaksyon.com. The charts I added here, not part of the original article in interaksyon.
---------

MANILA - The World Bank gave a press conference yesterday about the Philippine Development Report 2013 with the theme, “Creating More and Better Jobs.” The Bank expressed alarm that many Filipinos were either unemployed or underemployed, or had jobs but were in low productivity, low-paying work. Both conditions result in more poverty.

According to the Bank, some 10 million Filipinos were jobless (3 million) or had jobs but were looking for additional work (7 million) mainly to augment their income.

On top of that, about 1.15 million Filipinos would enter the labor force each year through 2016, or 4.6 million over the next four years. Of the 1.15 million new job entrants, 650,000 will find work in the informal and generally low-productivity, low-paying sector, which incidentally also comprise the bulk of the underemployed.

Another 240,000 will be employed in the formal sector, which is high productivity, high-paying, whereas 200,000 will find work abroad. For another 60,000, jobs would be scarce.

There is some alarmism employed in this kind of presentation.

First, not all of the unemployed are in a bad place. Many of them are unemployed by choice.  For example, there is a job offer for P20,000 a month but the person rejects it because he is awaiting a job prospect that will pay him P30,000 or more -- in short, the person has a high “reservation wage.”

Or the wage offer is good but the office is far from his house and he wants to work nearby even at a lower pay as he is helping take care of the kids or a sickly family member. There are many reasons why a person may choose to be jobless temporarily.

Second, not every underemployed person is in a bad place. A person already earning P70,000 a month and still looking for extra work that will pay an additional P30,000 is considered underemployed. The demand for extra income may arise if the person has to pay a huge housing or car loan, or some other personal or family debt, or prepare for a huge investment in the coming years.

Waving the flag of alarmism

Hence, to lump all 10 million as “job seekers” is to wave the flag of alarmism. If the “voluntary unemployment” or “unemployment by choice” plus “highly paid underemployed” were removed and segregated, the number would be less than 10 million and hence, not that high.

Furthermore, the Bank cited four reasons for the jobs problem, namely, lack of competition (presence of monopolies and oligopolies in certain sectors), complex and costly business regulations, insecure property rights, and lack of investments in both hard and soft infrastructure. The “we can work it out” solution the Bank proposed had identified a broad partnership of government, labor, business and civil society.

Labor Econ 10: Voluntary and Involuntary Unemployment

* This is my article today in thelobbyist.biz.
---------

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.

-----------

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
-----------
 
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.

-------------

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
-----------

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.
----------

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