Putting Filipinos to Work

:
The Continuing Challenge of Job Creation

Ateneo Center for Economic Research & Development Ateneo de Manila University

Cielito F. Habito

Overview
Introduction: How to create jobs, how to kill them The economy and jobs situation: What’s wrong with the picture? Employment diagnostics Why can’t we generate the needed jobs? What needs to be done: In quest of a job-friendly economy

How to Create or Kill Jobs
Some True Stories
 Carabaos, Not Fertilizers:

A Lopero, Jose Dalman Farmer’s Plea  Killing the Goose: The Story of E.O. 500 and 500-A  Beating Benguet from Afar: Mindanao farmers show the way  Harvard Medical School Leaves Town How not to promote medical tourism

Top-Heavy Growth, Bottom-Heavy Needs
 Narrow: Growth propelled primarily

by a few leading sectors and geographic areas  Shallow: Weak linkages to rest of economy – e.g., low domestic valueadded exports  Hollow: Jobless growth; povertyincreasing growth

Top-Heavy Growth, Bottom-Heavy Needs
Poverty incidence rose from 30% in 2003 to 33% in 2006 Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (PHDR 2008/2009) Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004 Wide disparities in life expectancy across provinces: from low of 53.4 (Tawi-tawi) to high of 74.6 (La Union)

Philippines: Key Economic Trends, 2009
 Prices: Inflation had eased considerably since 2008, but rising anew  Jobs: Labor force growth outstrips job generation; unemployment rate up  Incomes: Largely stagnant  FDI flows appear to be recovering.  Balance of payments favorable  Net income inflows have “defied gravity”
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Philippines: Key Economic Trends, 2009
 Agriculture, manufacturing down  Exports continue steep slide  Overall investment drops  Foreign investments recover  Government construction dwindles  Government deficit balloons
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Price Rises on Renewed Uptick

Poor, countryside at a disadvantage
Year 6.2 2.8 9.3 0.7 4.4 4.5 5.3 3.2

Inflation Rate (%)

2006 2007 2008 Sept 2009 Dec 2009 Non-NCR Food Full Year

Government spends its way out of recession
•Government consumption & construction up 8.5% & 15.7% respectively •Consumption growth moderates as consumers pull back •Total investment spending dropped 10% even with brisk government construction •Exports fell 15%
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Domestic Production (GDP):

but…

RP Narrowly Avoids Recession
Indicator GNP Growth (%) Net Factor Inc fr Abr GDP Growth (%) Agri, Fish & Forestry Industry Services 2008 Q4 FY 6.4 27.9 4.5 2.9 5.3 1.3 Q1 Q2 2009 Q3P Q3 Q4 FY

Overall Output Growth

6.1 3.1 3.2 3.5 3.1 2.4 3.0 20.9 25.8 23.9 26.0 26.1 7.5 20.1 4.6 0.6 0.8 0.8 0.4 1.8 0.9 3.2 2.1 0.2 1.6 1.5 -2.8 0.1 5.0 -2.5 -1.7 -4.4 -5.0 1.1 -2.0 4.9 2.0 2.7 4.0 3.8 4.2 3.2

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Overall sector stagnant
Sector AGRI, FISH & FOR Agriculture Fishery Forestry 2008 Q4 FY 2.9 0.7 11.2 7.4 Q1 2009 Q2 Q3P Q3 0.2 -1.7 5.5 -6.1 1.6 2.0 -0.5 17.4 1.5 2.1 -0.6 10.3 Q4 -2.8 -3.8 0.7 0.7 FY 0.1 -0.7 2.4 -1.1

Agriculture Slides

3.2 2.1 2.5 1.6 5.5 3.8 1.7 -11.8

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Overall Industry Declines
Mining upbeat, manufacturing & utilities recover but construction slides
Sector INDUSTRY SECTOR Mining/Quarrying Manufacturing Construction Utilities 2008 Q4 FY 5.3 18.2 3.4 14.5 3.8 5.0 0.6 4.3 8.2 7.7 Q1 -2.5 19.5 -7.6 14.0 0.6 Q2 -1.7 22.1 -7.4 14.0 -4.9 2009 Q3P Q3 -4.4 26.9 -7.6 1.3 -2.2 -5.0 26.9 -7.8 0.9 -6.3 Q4 1.1 17.0 1.3 -5.8 0.5 FY -2.0 21.1 -5.1 5.8 -2.8

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Services Sector Keeps Pace
Real Estate, Transport Dip; Finance Gains
Sector SERVICE SECTOR Trans, Comm & Stor Transport & Storage Communication Trade Finance Own Dwell & Real Est Real Estate Private Services Government Servcs 2008 Q4 FY 1.3 4.5 -1.1 7.8 0.0 -4.6 1.7 -0.4 2.4 6.2 4.9 3.7 2.6 4.5 4.7 4.9 7.0 19.4 5.7 4.7 Q1 2.0 5.6 0.8 9.2 0.4 1.2 0.7 -4.6 2.5 1.1 Q2 2009 Q3P Q3 Q4 FY

2.7 4.0 3.8 4.2 3.2 1.0 -0.8 -1.5 1.9 1.8 -2.1 -3.3 -3.7 -0.9 -1.4 3.5 1.3 0.3 3.7 4.3 2.7 4.5 4.4 3.5 2.9 5.8 11.7 11.5 11.0 7.1 -2.5 -0.4 -2.3 0.3 -1.0 -15.8 -7.8 -13.8 -6.6 -10.5 2.1 4.0 4.4 6.1 3.8 8.7 6.3 6.6 3.4 5.0

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Govt Spending Dominates Growth
Amid Capital Attrition
2008 Q4 FY 5.0 2.6 -13.1 8.2 3.2 17.8 -7.9 1.2 -11.5 5.0 Q1 1.3 4.5 Q2 5.4 9.7 4.5 4.3 4.2 6.3 -0.7 11.4 1.7 -1.6 0.0 -1.1 4.0 7.9 Indicator Personal Consn Exp Govt Consumption Capital Formation Of which: Construction Public Private Durable Eqpt Br Stck & Orch Dev Exports Imports 2009 Q3 Q3 3.2 8.1 Q4 5.1 12.1 FY 3.8 8.5 -9.9 5.8 15.7 -4.2 -11.4 -1.4

-15.1 -10.3 -11.3 -12.1 -0.8 6.7 8.9 11.5 27.7 4.3 -10.1 -18.5 -19.7 1.0 -5.6 1.7 22.2 -9.7 -5.7 1.4 1.7 21.8 -9.4 -4.2 1.5 -2.9 -7.2 -0.1 -0.1 -2.0

-14.7 -18.1 -13.6 -13.0 -10.0 -14.2 -20.6 -2.2 0.2 0.1 -2.5 -5.8
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Net Inflows Up, Approvals Down
Indicator Annual Growth Rate (%)* 2008 2009*

Foreign Direct Investments

Net FDI Inflows (BSP) Approvals
BOI PEZA SBMA Clark
*January to October
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-63.8 -14.7
-8.5 -19.5 -58.5 532.1

17.9 -78.7
-97.0 -51.9 -66.2 -53.2

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What’s wrong with the picture?
Employment (NSO-LFS) Unemployment Rate (%)
New Definition

Job Growth:
Latest Period
(Oct '09) 7.1 944 -250 72 1123 19.4

Prev Period
(Jul '09) 7.6 916 -159 137 939 19.8

Year Ago
(Oct '08) 6.8 861 160 2 699 17.5

Year Average
(Jan-Oct '09) 7.5 972 12 44 916 19.1

Jobs Generated ('000)
Agriculture Industry Services

Underemployment Rate (%)

vs. Labor Force Addition of 1.2M

Where Are The New Jobs Coming From?
New Jobs by Sector (Thousands) Agriculture Agri, Hunting & For Fishery Industry Manufacturing Mining Utilities Construction Services Total New Jobs Jan 2009 61 38 23 -122 -122 2 2 -39 626 565 April 2009 408 385 28 86 -16 7 6 80 964 1,457 July 2009 -177 -214 38 136 -28 39 4 120 921 880 Oct 2009 -196 -271 75 68 44 5 39 15 1,142 1,014 Ave 2009 24 -16 41 42 -30 13 13 44 913 979

Where Are The Services Sector Jobs Coming From?
Services Sector Jobs W&R Trade Priv HH Emp Real Est&Bus Act Public Admin Hotels & Rest Other Services Transp-Stor-Comm Health & SW Education Finance Intl Orgs 626 312 29 118 27 16 14 10 41 87 -28 0 964 346 139 76 108 41 71 42 51 45 16 0 921 104 263 132 46 97 57 173 46 99 10 0 1,142 356 189 98 82 96 57 142 11 66 10 0 913 279 155 106 66 63 50 92 37 74 2 0

What Kinds of Jobs Are Coming About?
Jan Apr Jul Oct Ave Worker Category % 2009 2009 2009 2009 2009 Wage/Salary Workers 498 421 1,337 1,093 837 86.3 Own Account -36 609 -243 -20 78 8.0 Unpaid Family Labor 103 392 -178 -95 56 5.7 Total 565 1,423 916 979 971 100.0

Who need the jobs?

Profile of the Unemployed
63.8% are male, 36.2% female 50% are under 24 years old; 80% are under 34 years old 60 percent managed to make it only to high school or less ―12.6% only made it to elementary grades ―47.2% went to high school; only 34.7% finished ―39.7% made it to college, but only 18% graduated

Why can’t we generate the needed jobs?
 2.8 million unemployed
 Mostly male, young and undereducated

 7 million underemployed
 Mostly in agriculture

Supply Side: Lack of Entrepreneurship
Educational system is oriented to train Filipinos to find a job and work for others (incl. overseas), rather than to create jobs Students aspire to earn an income upon graduation, rather than to create wealth TESDA graduates prefer employment to livelihood (Interview with Iloilo official, 2008) Workers place greater value on regularity of cash flow over higher but sporadic income (popularity of pedicabs/tricycles)
(Guillen 2007)

Supply Side: Lack of Qualified Workers
Business process outsourcing growth potentials are outstripping our ability to provide qualified personnel “Graying OFW market”: rehires outstripping new hires, indicating dwindling qualified recruits Declining education indicators pose severe threat to future employability

Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004

Demand Side: Lack of Enterprises
Low levels of investment; stagnant in recent years
Country Philippines Lao PDR Singapore Malaysia Indonesia Thailand Viet Nam Cambodia Myanmar 2002 -4.3 -5.3 -4.9 7.9 -4.5 6.0 12.7 14.9 10.1 2003 3.0 18.2 -32.4 -1.5 -4.6 13.5 11.9 22.3 24.8 2004 7.2 -14.7 34.9 6.9 23.5 12.9 10.5 -6.8 24.3 2005 -8.8 3.0 4.6 -1.0 4.2 12.2 11.2 36.2 2006 2.7 13.1 8.6 -7.1 9.3 24.1 Average 0.0 0.2 3.1 4.2 4.7 7.5 11.1 18.1 19.7

Investment Growth. ASEAN
(Annual Growth Rates, %)
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0

19.7 18.1

11.1

7.5

4.2 3.1

4.7

0.0

0.2

RP

LAO

SIN

MAL

INDO

THA

VIET

CAM

MYA

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Demand Side: Lack of Enterprises
Credit inaccessibility undermines entrepreneurship (Madarang & Habito 2008) ― Only one in 20 enterprises makes use of bank financing ― Only one in 3 enterprises deals with banks at all • Business-unfriendly environment ― Infrastructure inadequacies ― High transactions costs in starting a business ― Unstable peace and order

Demand Side: Lack of Enterprises
• Weak performance of agricultural sector ― Ineffective agriculture bureaucracy ― Politicized priorities in policy and budget allocation ― Overcentralized decision-making • Policy constraints to tourism growth ― Closed skies policy; narrow view of reciprocity (E.O. 500) ― Unnecessarily restrictive visa policies ― Inadequate facilities (chicken & egg?)

Demand Side: Misplaced Expenditure Priorities
•Need expenditures with strong multiplier effect on domestic economy (One Peso of spending begets several pesos of incomes in subsequent spending rounds) Infrastructure ― Housing

Digression: The Multiplier Process
Round 1 2 3 4 5 6 7 etc TOTAL Spending 1,000,000 800,000 640,000 512,000 409,600 327,680 262,144 5,000,000
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Savings Incomes (20%) 1,000,000 200,000 800,000 160,000 640,000 128,000 Multiplier = 512,000 102,400 1/saving rate 409,600 81,920 = 65,536 327,680 1/.2 = 5 262,144 52,429

5,000,000 1,000,000
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The Multiplier Effect is stronger when:
 Saving rate is lower  Import content of the stimulated economic activities is lower (= domestic content higher)
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Housing: The Best Stimulus
• Labor intensive
 generates more jobs (broader benefits)  money circulates more among lowerincome, lower-saving individuals

• Lower import content than most other government projects
 money stays in domestic economy  generates more tax revenues

• Uplifts people’s lives; raises level of aspirations of the poor (Meloto) • Begets more consumer expenditures
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RP Fiscal Stimulus Package

Economic Resiliency Plan (P330B)
• P160B for hiring more teachers, policemen, soldiers & doctors; repair/ rehab govt buildings; supplies and equipment e.g. patrol cars, ambulances; agri support • P100B for infra investments by SSS, GSIS • P30B additional SSS, GSIS & PH benefits • P40B in income tax cuts  Nothing for housing?
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Average Annual Public Expenditures on Housing, Asian Countries, 2000-2007 (% of GDP)
Country Singapore Nepal Mongolia Indonesia Sri Lanka Thailand Malaysia Bangladesh Public Housing Expenditures (Percent of GDP) 2.089 1.482 1.206 1.012 0.758 0.742 0.383 0.354

Philippines
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0.089
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Source: Asian Development Bank

Habito 2009 (ADBI Study)*:
• For every one percent of GDP spent on housing, responsiveness of poverty reduction to GDP growth improves by 0.473 percent
• No wonder the Philippines had perverse experience of rising poverty (30%  33% from 2003-2006) at a time GDP reportedly grew the fastest in decades.
“Patterns of Inclusive Growth in Developing Asia: Insights from an Enhanced Growth-Poverty Elasticity Analysis,” ADBI Working Paper.
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What Needs To Be Done?

Boost multisectoral initiative for massive education reform
― Open up Local School Boards

Education for entrepreneurship
― Entrepreneurship values from primary school ― Entrepreneurship skills from high school onward

Strategic education planning
― Anticipate and respond to emerging requirements

What Needs To Be Done?

Enterprise development as central concern (centerpiece program) of government
― Foster LE-SME partnership/symbiosis a la Japan model ― Address age-old impediments to SME finance, technology support, raw material and market access ― Promote SME agri-processing to expand offfarm/non-farm employment ― Facilitate enterprise/farm clustering to meet volume demands (a la Normin Veggies)

What Needs To Be Done?

Reform agriculture governance
― Let LGUs do “rowing”; confine DA to “steering”, i.e.: • standards setting & regulation • technical support and capability building for LGUs • trans-provincial initiatives

Adopt open skies for secondary airports
― Unleash potentials for regional tourism ― Every foreign investor starts as a tourist ― Each tourist creates one Filipino job

What Needs To Be Done?

Triple government housing targets; quadruple budgetary allocation to public housing (Karaos et al 2009)
― Strong multiplier effect to create massive jobs boost

Address governance impediments to investment growth
― ― ― ― Corruption, corruption, corruption Streamline business registration & start-up Business-friendly, not extortionary LGUs Boost tax compliance & collection efficiency

The war on poverty is all about job creation, for which economic growth is essential. But the key to creating jobs for Filipinos where they are needed most – right here at home, and in the Philippine countryside – is to pursue not just rapid economic growth, but broad-based economic development that draws on the active participation of and directly benefits all regions, all industries, and all sectors of the Philippine economy and society.

Postscript

Poverty Is Not Inevitable
Official statistics tell us that one in every four Filipino families is poor… but this also means 3 out of 4 are not We just need one out of those three non-poor families to “adopt” a poor family and help lift them sustainably out of poverty (“teach them how to fish” – equip them with or for a job!) No one is so poor as to be unable to share; no one is so rich as to need no one else’s sharing With enough caring & sharing – poverty need not be inevitable.

 

Mabuhay!

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