Jobs and the Cost of Doing Business

Cayetano W. Paderanga, Jr.
Professor, UP School of Economics 1 February 2010

Flow of the Presentation

What is RP’s employment picture?
How does RP’s growth path look like?

What can our policymakers do?

What is RP’s employment picture?

RP’s recent employment experience

Growth in employment levels since 2001 has been inconsistent. From 1997 onwards, Services has been the largest employing industry (both by sectoral share & absolute number). This is followed by agriculture then lastly, industry.
Since 1988, Labor Force Growth > Employment Growth except for 1998- 2000 & 2001- 2009(??) periods

From 7.4% in ’08, unemployment rate inched up to 7.5% in ’09 113,000 recorded unemployed workers at height of global economic crisis

Levels & Growth Rate of Employment, 1988- 2009

Source: National Statistics Office (NSO)

• Employment levels plunged by 3.04% in’97--due to big drop in agri sector

• Job creation peaked by 6.2% in ’01 before decelerating up to ’03
• Even with GDP growth at 3-decade high, job creation still hasn’t repeated its sharp rise in ‘97. Number of employed persons rose by only 2.8% in ‘07.

Sectoral Share of Employment, 1988- 2009

Source: National Statistics Office (NSO)

• It was only a matter of time before Services overtake Agriculture as the top employing industry in the economy. This eventually occurred in 1998.

Number of Jobs Generated Per Sector, 1988- 2009

Source: National Statistics Office (NSO)

• Since ‘97, jobs in services sector > jobs in both industry & agriculture • In ‘09, services generated 17.9-M (51.3%) jobs while industry & agriculture created 5.07-M (14.5%) and 12.0-M (34.3%) jobs , respectively

Growth of Total Employed, By Sector 1988- 2009

Source: National Statistics Office (NSO)

• Services has been the steady job generator for the economy for two decades now
• Weather disturbances, i.e. El Nino drought, led to steep drop by 10.5% in jobs found within the Agriculture sector. Cyclical demand for semiconductors exports— the main driver of industry sector led to contraction in job generation.

What is RP’s employment picture?
Compound Annual Growth Rate of Sectoral Employment & Labor Force, 1988- 2009

Source: National Statistics Office (NSO); Own computations

• Services sector has always outpaced the overall employment growth & labor force growth since 1988

• Industry sector hasn’t recovered to its pre- 1997 crisis growth numbers
• Agriculture sector’s growth numbers always been below 2%

• Labor force grew 2.66% annually in ’01- ’05 period, before revisions

How about the unemployment picture?
Unemployment Rate, 1988- 2009

Source: National Statistics Office (NSO)

• Jobless rate has been above 10% since 2000 then it dropped to 8% in 2006. Is it due to extra jobs generated in agri & industry? No. Then, what explains for the huge drop?

One caveat in using post-2006 jobless numbers…
Starting in the April 2005 Labor Force Survey (LFS) round, the government will use a new unemployment rate definition which adds the ―availability criterion‖ to the then- used ―without work‖ & ―seeking work‖ criteria in the old definition. (NSCB Resolution No.15- 2004)
What does this mean? It imposes a “cut-off period” in the job search for discouraged workers… Statistical result: removal of around 1.6-M Filipinos in the jobless pool. In 2005 4.12-M Filipinos were jobless, this dropped to 2.81-M in 2006 even though job growth only reached 1.0% for same year.

Still, how about the unemployment picture?
Reasons for high unemployment rate:

Absence of long-term population management programs more people entering the labor force (FLOW OF

Boom-bust growth pattern of overall economy failure to generate new jobs for already existing pool of the unemployed (STOCK OF UNEMPLOYED)

Since it is already too late for now to curb the entry of more workers in the labor force, policymakers will have to raise the absorbing capacity of the domestic economy…


But, first how does RP’s growth picture look like?

What is RP’s growth picture?
Growth Rate of GDP , 1981- 2009

Source: National Statistical Coordination Board (NSCB)

• Boom bust growth pattern from 1980s up to the 1990s. But since
2001, the country has avoided this scenario so far—even at the height of the global economic crisis.

What is RP’s growth picture?
Growth Rate of GDP and Sub Sectors, 1981- 2009

Source: National Statistical Coordination Board (NSCB)

• After its deceleration in the early 90s, the Services has fully recovered and
remained robust, recording positive growth even at the height of the global economic crisis

How did the crisis reached the Phils?
Mainly thru 2 main channels:
  

Drop in export receipts Outflow of foreign investment OFW lay-offs in select countries

The year 2009 has been very challenging; just when we were seeing convincing signs of recovery, a chain of typhoons struck Luzon, damaging properties and agricultural produce.

Impact on exports
Decoupling theory:  European and Asian countries no longer depend on the US for growth, hence, insulated from a severe slowdown in the US

• US still a major export market for Philippine products (both direct & indirect) •ADB: About 68% of the trade in Asia revolves around making final products for export to the US and Europe


Manufacturing sector greatly suffered, effectively constricting economic growth The resilience of remittances and private business services helped mitigate the worst effects of the global financial crisis
 

Remittances has fueled private consumption BPO sector has continued to provide jobs

Policy responses: Maintenance of adequate liquidity and fiscal spending on targeted cash transfers

Expect less from exports for growth stimulus

 

Developed countries – e.g. US, Japan – remains shaky from the crisis. Hard to expect consumers abroad to begin buying again as strong as before the crisis.

How dependable is domestic spending?


Remittance: IDEA sees a 4%-6% annual increase in remittances in 2010
Gainers: real estate, private services, trade

How dependable is domestic spending?

Election spending: 0.5%-of-GDP contribution (gov’t estimate)
Gainers: rural households, publishing and media, private services, tourism

Consumption to boost economic growth, but only in the short term
Sustainable contingent on continuing inflow of remittances

Look for other sources of growth stimuli
Investment, exports

How do we raise RP’s growth path?

To raise RP’s growth trajectory:
RP would need to rely on 3 growth engines:  Remittances  Exports  Level of investments
Of the three, the country only appears to have a competitive advantage in remittances, especially since the much-feared mass lay-offs of workers didn’t happen

In the case of exports
There is a clear need to develop new products and search for untapped export markets. The key here is DIVERSIFICATION.
Another factor would be growing the country’s investment levels

What about its investment level?
Gross Domestic Investment as % of GDP, 1981- 2009

Source: NSCB

Level of investment remains low. In ’09, it reached only 16.12% of GDP. It remained far below its pre-1981 crisis level of 26.26% of GDP. But why?

There’s just so much that the private sector can do to expand employment opportunities. Government support is needed,

Lowering cost of starting business

Provision of development imperatives

improvement, maintenance of infrastructure
Streamlining processes Improving transparency

Information dissemination

Emphasizing good news about Phils Labor information to address supply-demand mismatch Maintenance of credible and up-to-date statistics

Business incubator

Access to credit Tax exemption for a period of time

Trade promotion Skills enhancement

More importantly, gov’t need to address the ff:

Inadequate government support services to private sector, particularly to MSMEs
 

Inadequate government support in trade promotion Lack of skills enhancement programs No business incubator No technological support

Very limited access to credit
 

Lack of competition in banking industry High interest rates ODA is not accessible Bias against MSMEs

Negative attitude towards business/entrepreneurship
 

Conservatism Counterproductive view towards ―small enterprises‖

Other sources of inefficiency

 

Presence of middlemen and fixers Squatters Information dissemination issues

Investments would increase employment but impediments exist

Governance issues

  

No rule of law Red-tape, graft and corruption  high cost of doing business No enforcement of laws: Judicial system that does not work Ineffective government Uneven playing field Peace and order situation

Faulty government priorities and policies

Strong peso policy All government agencies are regulatory; none for promoting Changing investment priorities every year

Lack of and bad quality of infrastructure
  

Lack of access to market High cost of doing business Energy problem in some parts of the country

Jobs and the Cost of Doing Business
Cayetano W. Paderanga, Jr.
Professor, UP School of Economics 1 February 2010