Government and Taxes: voluntary unemployment

Showing posts with label voluntary unemployment. Show all posts

Wednesday, 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.

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

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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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Sunday, September 15, 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.
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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.
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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