In Partial Fulfillment of the Requirements in

ECN520M Business Economics

Critique of Business Articles: A Macroeconomics Project

Submitted by:

Verdan, Joseph Paul

Submitted to:
Dr. Arlene Inocencio

December 8, 2017
Table of Contents
Article 1: 3

Article 2: 6

Article 3: 10

Article 4: 13

Article 5: 16

Article 6: 19

Article 7: 22

Article 8: 25

Article 9: 28

References 31

Annex 34
 Banking on BPO sector not enough to cut poverty — experts
By: Cai Ordinario (Business Mirror / 23 October 2017)

Summary

The Philippines’ Business Process Outsourcing (BPO) sector has been a major contributor to the
economic growth of the country. It has indeed provided good jobs to millions of Filipinos. But
banking on the sector would not reduce the number of poverty in the country, experts say. The
BPO sector is only concentrated in the “low end” of the outsourcing industry. This kind of
operations are prone to automation advancement which in turn can be replaced by artificial
intelligence.

Hal Hill, professor emeritus of Southeast Asian Economies in the Arndt Corden Department of
Economics, Crawford School of the Australian National University, said in the same forum that
the Philippines’ service sector has really made a mark with its neighboring countries. Its above
minimum wage salary is a great invite for people who are seeking for jobs or who are looking for
alternative employment, especially for those who are in the manufacturing sector who are mostly
are minimum wage earners. This trend helps the country increase its GDP through BPO exports
but also decreases the productivity of manufacturing.

Added from its “Information Economy Report 2017”, the United Nations Conference on Trade
and Development (UNCTAD), BPO workers are at risk because of digitalization and automation.
The report stated that four changes will arise from digitalization – job creation, job destruction,
job changes, and job shifts. Given those, 89 percent of BPO workers will be affected by this. And
in order the workers involve retaining their jobs in the BPO industry, new skills and educational
development must be attained since it will be a requirement in their respective fields.

Macroeconomics Analysis

According to the definition of Britannica, Gross Domestic Product (GDP) is the total market value
of the goods and services produced by a country’s economy during a specified period. It includes
all final goods and services—that is, those that are produced by the economic agents located in
that country regardless of their ownership and that are not resold in any form. It is used throughout
the world as the main measure of output and economic activity. It is divided into three main groups
- households, businesses, and the government (Gross Domestic Product, Britannica). Every
country has its own GDP value depending on its economic values. Each country publishes its own
GDP data regularly. When a country experiences several quarters of growth in GDP, it is called
expansion. On the other hand, if a country experiences several quarters of negative growth in GDP,
the country is generally considered in economic recession. Expansion and Recession in a country’s
economy is not permanent and may change from any quarter depending on its performance.

In the Philippines, Gross Domestic Product (GDP) grew by 6.9 percent in the third quarter of
2017. Manufacturing, Trade, and Real Estate, Renting and Business Activities were the main
drivers of growth for the quarter. Among the major economic sectors, Industry recorded the fastest
growth of 7.5 percent followed by Services with 7.1 percent growth. Meanwhile, Agriculture
slowed down by 2.5 percent from 3.0 percent growth in the previous year (Philippine Statistics
Authority, 2017). This rate is an increase from last quarter's 6.7 GDP.

Looking at the major contributors for the Philippines' GDP, the service sector boosted the economy
by 7.1 percent, just behind the industrial sector. Under the service sector are the Business Process
Outsourcing (BPO). BPOs have been in the country for a long time but it rose up in the mid-2000s
since salary wages are cheaper than its neighboring countries.

Even though salary wages for BPO in the Philippines are cheaper than other Asian countries
offering BPO services, it is still high by Philippine standards. An average BPO employee earns
higher than minimum wage earner. Yet, this cannot solve the growing poverty rate of the country.
Which is a great deal of a problem for BPO industries. Another problem that BPO industries faces
in the country is the risk of automation. The BPO sector is concentrated on the low end of the
outsourcing industry that is prone to automation (Business Mirror, 2017). Automation brought by
digitalization will ease the workflow of a business by allowing unmanned tasks in the business.
This will also decrease the number of manpower with the company that will serve as a "redundant"
job.

If automation is applied to the BPO

industry, the manpower supply will be
directly affected. If in the coming years the
supply of manpower for BPO industries
continue to lessen, a shift of Aggregate
Supply (AS) can be seen. Looking at Figure
1, decrease in manpower gives a shift left of
Aggregate Supply (AS) from AS0 to AS1. In
general, this will have an effect in the real
output and price of the Philippines since the
country highly specializes in labor export.
As the price level goes high, the real output
will decrease. One scenario of this shift is
task distribution. For example, in a typical
BPO environment, if there are 10 employees
attending to 10 clients, the ratio of
employees to client is one is to one, or
equally distributed. Now if half of those employees are laid off due to automation, the ratio of
employees would be one is to two since five employees will be catering to 10 clients. In the long
run, these five employees would demand higher wages from BPO companies, increasing the price
(P).

Furthermore, with the decrease in manpower for the BPO industry, a change in the Aggregate
Expenditure can also been observed. As stated by the Keynesian theory, a decrease in production
will cause a decrease in the consumer's income. In the case of the BPO industry, less manpower
will create less production in a company. As seen in Figure 2, This will force the BPO corporations
to decrease benefits for employees or even layoff a certain number of employees. This will
decrease the income of the employees forcing them to decrease their spending power.

For the Demand and Supply for money, the

determinants of the values would be coming
from the spending power of the BPO employees.
When the BPO sector gradually introduces
automation in the industry, individual companies
would be forced to lessen the wages and benefits
of its employees to give way for the
advancement of technology. This will affect
the liquidity of the personnel affected. As
seen in Figure 3, the demand for money
would be lower since spending power of
money is lower. Sample scenario of this
happening is instead of using cash to pay for
merchandise, an individual would rather
use his/her credit card to do purchase.
Article 3 – BSP delivers biggest rate hike in a decade

Summary

Bangko Sentral ng Pilipinas in a press conference after the first Monetary Board meeting on the
monetary policy kept key policy rates steady but slightly raised inflation forecasts for the next
three years mainly on expectations of higher oil prices. The overnight lending and deposit
facilities as well as the reserve requirement ratios were also unchanged. The forecast was
increased to 3.2 percent from 3.1 percent for 2017; 3.2 percent from 3 percent previously for
2018; and 3.1 percent from 3 percent for 2019. BSP Deputy Governor Diwa C. Guinigundo said
that besides expectations of higher petroleum prices, the increase in domestic liquidity as well
as the peso’s depreciation would push the rate of increase in prices of basic goods. However,
inflation expectations remain firmly anchored close to the midpoint of the government’s 2 to 4
percent target over the policy horizon. The Monetary Board continues to pay close attention to
the evolving economic growth and liquidity conditions and their implications for price and
financial stability. Prevailing monetary policy settings would continue to be appropriate. The
BSP shall remain vigilant against any risks to the inflation outlook and will adjust its policy
settings as needed to ensure that future inflation stays aligned with the medium-term target
while being supportive of sustainable economic growth.

Macroeconomic Analysis

As one of the three topics of primary concern to macroeconomists, Inflation is defined as an

increase in the overall price level of a country. Keeping low inflation has long been a goal of
government policy in order to pursue the macroeconomic goal of stability. 1
References:

1. https://www.nytimes.com/2018/07/23/world/americas/venezuela-inflation-crisis.html
2. https://businessmirror.com.ph/bsp-delivers-biggest-rate-hike-in-a-decade/
3. http://www.bworldonline.com/opening-up-new-opportunities-for-growth/
4.