IMPACT OF UNEMPLOYMENT TO THE

ECONOMIC GROWTH OF THE PHILIPPINES

 INTRODUCTION
Unemployment is one of the major problems in our country. It is one of the major problems here in the Philippines
that causes a big impact on our economic growth. A stronger system of assessing unemployment should be put in place
to determine its causes and how to address it better. Unemployment causes workers to suffer financial hardship that
impacts families, relationships, and communities. When it happens, consumer spending, which is one of an economy’s
key drivers of growth, goes down, leading to a recession or even a depression when left unaddressed.

Unemployment is the condition of having no job or being out of work or the proportion of people who can work and
actively searching for jobs but are unable to find it. The unemployed population is made up of persons above a specified
age who are available to but did not, furnish the supply of labor for the production of goods and services. Being
unemployed means having no income and having no income can lead into can cause poverty to the people of a country.
Unemployment can cause people sufferings, hunger, poverty, etc. that can affect the economic standards of our
country. There are negative effects on long-term economic growth when unemployment rates are strong and steady. The
effects of unemployment can be broken down into three types: First, is in Individual unemployed people cannot earn
money to meet their financial obligations. Unemployment can lead to homelessness, illness, and mental stress. It can also
cause underemployment where workers take on jobs that are below their skill level. Second, is in a Social economy that
has high unemployment is not using all of its resources efficiently, specifically labor.
 When individuals accept employment below their skill level the economic efficiency is reduced further. Workers
lose skills which causes a loss of human capital. Lastly, is Socio-political high unemployment rates can cause civil
unrest in a country. Economic growth is a prerequisite for rising sustainable employment; it is the cumulative outcome
of work rises and labor productivity gains.
According to Ceyda Oner, back in the depths of the global financial crisis in 2009, the International Labor Office
announced that global unemployment had reached the highest level on record. More than 200 million people, 7 percent
of the global workforce, we're looking for jobs in 2009. It was not a coincidence that the global economy experienced
the most severe case of unemployment during the worst economic crisis since the Great Depression. Unemployment is
highly dependent on economic activity; in fact, growth and unemployment can be thought of as two sides of the same
coin: when economic activity is high, more production happens overall, and more people are needed to produce the
higher amount of goods and services.
And when economic activity is low, firms cut jobs, and unemployment rises. In that sense, unemployment is
countercyclical, meaning that it rises when economic growth is low and vice versa. But unemployment does not fall in
lockstep with an increase in growth. Unemployment can result in debt and poverty, and the government has to take care
of these people, hence welfare spending would also increase at the same time. In cases where unemployment is very
high, there would be a budget deficit, due to a combination of the two, loss of tax revenue and increased welfare
spending. This would result in the government having a limited budget to spend on the many areas as well as decreased
spending on public and merit goods. It might also burden the employed since the government might increase tax rates to
boost tax revenue.
 Unemployment results in reduced demand, consumption, and buying power, which in turn causes lower profits for
businesses and leads to budget cuts and workforce reductions. It creates a cycle that goes on and on that is difficult to
reverse without some type of intervention. Before the Asian crisis in 1996, the unemployment in the Philippines fell to a
low rate of 8.8%. However, it grew to more than 11% in the early 2000s, more than twice the level of the surrounding
nations. More recently, in the first quarter of 2013, the Philippine economy is doing great. The country achieved a
booming 7.8% growth, making it the fastest-growing economy in Asia. But despite this, what remained high is
unemployment. As of April 2013, there are 7.25 million Filipinos underemployed, and another 3 million with no job.
This study is aimed to understand the impact of unemployment on the economic growth of our country. We, the
researchers, tried to gain information about the unemployment and economic growth of the country. By doing this
research, we can find the answers on what are the reasons for unemployment here in our country. Who is involved in this
problem of our country? Is it possible that our country’s economy can still grow upon this kind of problem?
 STATEMENT OF THE PROBLEM

1. Why unemployment is a problem in the Philippines?

2. What are the causes of unemployment in the Philippines?
3. Why is unemployment high in the Philippines?
4. What is the cost of unemployment to the economic growth of the
Philippines?
5. How does unemployment affect the growth of the Philippines?
 Why unemployment is a problem in the Philippines?

Unemployment and underemployment are the Philippines’ most important problems and the key indicators of
the weaknesses of the economy. Today, around 4 million workers (about 12% of the labor force) are unemployed
and another 5 million (around 17% of those employed) are underemployed. This Reserve Army of workers is a
reflection of what happens in the economy, particularly because of its incapacity to provide jobs (especially in the
formal sector) to its growing labor force. The social costs of this mass unemployment range from income losses to
severe social and psychological problems resulting from not having a job and feeling insecure about the future.
Overall, it causes a massive social inefficiency.

This chapter is a comprehensive stocktaking of the data and literature on Philippine labor markets. The
exercise covers labor market trends and outcomes, as well as labor market policies and key issues affecting the
labor market. The main question behind the exercise is whether the supposed rigidity of the Philippine labor market
is the cause of unemployment and whether such rigidity is preventing the creation of employment. Hence, the
question of labor market reforms has been put on the table by different sectors: could reforms of the labor market
help spur growth?
 The reality is that, except in a few cases, governments do intervene in the labor market to achieve some balance
between the objectives of fairness, efficiency, and risk allocation. In practice, however, labor market reforms tend to be
an effort to reduce government intervention. Labor markets are often not competitive because of the uneven market
power between the two main participants, workers and employers, resulting from the imperfect mobility of workers,
insufficient information, or discrimination. These imperfections lead to unfair and inefficient outcomes in the form of
immobile, underpaid workers, hazardous working conditions, or discrimination against certain groups of workers (e.g.,
women) with a weak bargaining position.
Likewise, private markets left to themselves, do a poor job of protecting unemployed workers. Governments
typically intervene to correct these failures. However, a problem may arise. Poorly designed government intervention,
which ends up giving excessive protection to a minority of formal sector insiders, for example, can potentially make
things worse. Indeed, excessive protection of workers (e.g., through extremely costly and cumbersome dismissal
clauses) can make employers reluctant to hire new workers, effectively pushing these workers into the informal sector or
into open unemployment.
 What are the causes of unemployment in the Philippines?

The Causes of Unemployment in the Philippines are attributed to reasons including overpopulation, an
oversupply of the labor force in certain industries, and the inability to take on available jobs. Overpopulation
Philippines has a high population growth rate at an average of 1.7% for the past few years, consistently higher than
the world's population growth rate at an average of 1.2%. The high population growth rate which translates to a
steady supply of graduates outstrips the rate at which jobs are created, leaving these graduates finding themselves
unemployed. Population growth (annual %) Data from World Bank Oversupply of the labor force and inability to
take on available jobs (structural unemployment) Undergraduates are still taking up college courses that are popular
but were previously high in demand. After graduation, these graduates possess skills that are not high in demand in
the job market. As such, there is a skill mismatch.
The common causes of unemployment are Structural Unemployment, which occurs when there are shifts in the
demand among the industries. The workforce possesses skills for jobs that were previously high in demand. With the
shift in demand for jobs, supply for the jobs that were previously high in demand outstrips the demand for these jobs.
As a result, many people become unemployed until market equilibrium is reached, where supply equals demand.
 Moreover, the jobs that are now high in demand may require skills that the unemployed do not possess. Unless they
invest in re-training, which is time-consuming, they will find it difficult to find a place for themselves in these jobs
because firms prefer employees with the necessary skills and experience. Oversupply of graduates, the number of
graduates has been increasing over the years. Getting a degree is all too common nowadays.
However, the labor force does not require so many graduates. National Development Minister Khaw Boon Wan
once said that Singapore, which has a significant number of graduates, could not be a nation entirely made up of them.
And the Economic Recession, the economic recession is one of the main causes of unemployment. During a recession,
firms experience a decrease in revenue. As profit equals revenue minus cost, firms would want to cut as much cost as
possible. One of the ways to do so is through the retrenchment of employees, where employees are deemed to be not
productive enough to lose their jobs. As this happens, unemployment rates go up.
 Why is Unemployment high in the Philippines?

Unemployment has remained high in the Philippines, at almost twice the level of neighboring countries,
despite relatively fast employment growth in the past decade. Employment growth was not sufficient to reduce
unemployment because of rapid population growth and increased labor force participation. This paper shows that
Philippine employment growth and unemployment declines were positively correlated with real GDP growth and,
to a lesser extent, negatively with the real minimum wage.
The key policy implications are that higher economic growth and moderation of increases in the real minimum
wage are required to reduce unemployment. Despite rapid economic growth in the Philippines in recent years,
unemployment remains a persistent problem for the sprawling Southeast Asian nation of more than 100 million
people.
Under President Benigno Aquino, in office since 2010, unemployment has fallen. The latest figures show the
rate at 6.4 percent in the second quarter of this year, down from 7 percent a year earlier. But progress has been
uneven and the Philippines still has one of the highest rates of unemployment in the Asian region.
 One reason is that job creation has struggled to keep pace with an ever-expanding population. In three of the
past five years, the number of people entering the job market has been greater than the number of jobs created.
The conundrum highlights the difficulty of spreading the benefits of economic growth and suggests they have yet
to trickle down to more deprived areas. Participation in the labor force remains relatively low. Only about 65
percent of the population aged 15 and above is looking for work, one of the lowest levels in the region.
 What is the cost of unemployment to the economic growth of the Philippines?

Unemployment is universally recognized as undesirable. That is more evident than ever thanks to the Covid-
19 pandemic, which left 10 million Americans jobless in its first two weeks. The situation is so serious that the
Coronavirus Aid, Relief, and Economic Security (CARES) Act has expanded unemployment benefits to self-
employed and part-time workers through Pandemic Emergency Unemployment Assistance, which provides up to
39 weeks of benefits beginning on or after Jan. 27, 2020, and ending on or before Dec. 31, 2020. While economists
and academics make convincing arguments that there is a certain natural level of unemployment that cannot be
erased, elevated unemployment imposes significant costs on the individual, the society, and the country.
Worse yet, most of the costs are of the dead loss variety, where there are no offsetting gains to the costs that
everyone must bear. Depending on how it’s measured, the unemployment rate is open to interpretation.
Unemployment has costs to a society that are more than just financial. Unemployed individuals not only lose
income but also face challenges to their physical and mental health.
Societal costs of high unemployment include higher crime and a reduced rate of volunteerism. Governmental
costs go beyond the payment of benefits to the loss of the production of workers, which reduces the gross domestic
product (GDP).
 The economic costs of unemployment are probably more obvious when viewed through the lens of the national
checkbook. Unemployment leads to higher payments from state and federal governments for unemployment benefits,
food assistance, and Medicaid. In July 2020 payments from state and federal governments for unemployment benefits
totaled $18.26 billion. At the same time, state and federal governments are no longer collecting the same levels of
income tax as before forcing these governments to borrow money, which defers the costs and impacts of
unemployment into the future or cut back on another spending.
Unemployment is also a dangerous state for the U.S. economy. Almost 70% of what the U.S. economy produces
goes to personal consumption and unemployed workers. Even those receiving government support cannot spend at
prior levels. The production of those workers leaves the economy, which reduces the gross domestic product (GDP)
and moves the country away from the efficient allocation of its resources. It is also worth noting that companies pay a
price for high unemployment as well. Unemployment benefits are financed largely by taxes assessed on businesses.
When unemployment is high, states will often look to replenish their coffers by increasing their taxation on businesses
counter-intuitively discouraging companies from hiring more workers. Not only do companies face less demand for
their products, but it is also more expensive for them to retain or hire workers.
 How does unemployment affect the economic growth of the Philippines?

When unemployment rates are high and steady, there are negative impacts on the long-run economic growth.
Unemployment wastes resources, generates redistributive pressures and distortions, increases poverty, limits labor
mobility, and promotes social unrest and conflict. Unemployment usually leads to a loss of income. This is pretty
obvious since if one does not work, he would naturally not be able to get any income.
On the individual level, this is not so serious, but on a larger scale, this can be very problematic. People would
be less willing and able to purchase goods and services and they would tend to purchase what they originally
consider inferior goods and hence may experience the negative effects of loss in income such as debt, and
collectively bigger problems such as increased poverty rates and lower standards of living due to lower purchasing
power.
Unemployment occurs when certain factories or companies close down, and this is especially serious when
there is a financial crisis where recession and unemployment are rampant. When a company closes down, many
jobs are lost. Since what one spends is what another earns and one is unemployed, he has lower purchasing power
and would also prefer to save more as one is likely to be uncertain of the future.
 When a large number of people are unemployed, collectively, their expenditure would be much lower. This
would inevitably also lead to a decrease in demand. On the supplier side, if there are lower demand and lower-income,
they too will lower production, and a decrease in demand and decrease in expenditure on materials by the suppliers
would affect the next level of suppliers in the same way. This may result from negative effects such as a drop in GDP.
Unemployment causes the scarce resource labor to be underemployed since part of the workforce is not being used.
Hence production is not at its maximum and thus underemployment of resources would lead to a loss in potential
national output. If the situation does not improve in the long run, aggregate supply would drop and hence results in a
continuous loss of potential national output and hinders the potential of the country’s growth.
 CONCLUSION
Unemployment is one of the biggest problems of the Philippines that causes a huge impact on the economic
growth of the Philippines. The effects of unemployment can be broken down into three types: First, is in Individual
unemployed people cannot earn money to meet their financial obligations. Unemployment can lead to
homelessness, illness, and mental stress. It can also cause underemployment where workers take on jobs that are
below their skill level. Second, is in a Social economy that has high unemployment is not using all of its resources
efficiently, specifically labor. When individuals accept employment below their skill level the economic efficiency
is reduced further. Workers lose skills which causes a loss of human capital. Lastly, is Socio-political high
unemployment rates can cause civil unrest in a country. Economic growth is a prerequisite for rising sustainable
employment; it is the cumulative outcome of work rises and labor productivity gains. Unemployment results in
reduced demand, consumption, and buying power, which in turn causes lower profits for businesses and leads to
budget cuts and workforce reductions.
 The Causes of Unemployment in the Philippines are attributed to reasons including overpopulation, an
oversupply of the labor force in certain industries, and the inability to take on available jobs. The common causes of
unemployment are Structural Unemployment, which occurs when there are shifts in the demand among the industries.
The status of the Philippines labor force today, around 4 million workers (about 12% of the labor force) are
unemployed and another 5 million (around 17% of those employed) are underemployed. This paper shows that
Philippine employment growth and unemployment declines were positively correlated with real GDP growth and, to a
lesser extent, negatively with the real minimum wage. The key policy implications are that higher economic growth
and moderation of increases in the real minimum wage are required to reduce unemployment.
Despite rapid economic growth in the Philippines in recent years, unemployment remains a persistent problem
for the sprawling Southeast Asian nation of more than 100 million people. One million college graduates annually,
only five to ten percent are employed in jobs consistent with their course, only 30 to 40 percent will find any
employment. The vast majority of graduates will remain unemployed. Unemployment can lead the Philippines to a
huge decrease in economic growth and can lead to poverty.
There are possible solutions to unemployment in the Philippines these are reducing occupational immobility,
employment subsidies, sustained economic growth change in the education system, full and more productive
employment, control population growth, ensuring access to basic education, policy regarding seasonal unemployment,
and being creative positive and competitive.
 SUGGESTION / RECOMMENDATION

How can we survive and solve this issue of unemployment to make our economy better?
Many individuals still depend on their family members' financial support. This is the main action that we need to
modify. Unemployment is having a huge effect on our economy. We have to take this as a serious challenge that we're
going to tackle as a whole. Not only will unemployed families be affected, but they have all been affected. Unemployment
creates negative effects on the unemployed as they are jobless and suffer from worse prospects to find a new job and those
who are employed feel less secure to keep their jobs in the future.
The solution to this problem should be sufficiently important to allow everyone to get a job and dramatically reduce
other economic problems. In making the unemployed take a job, governments might take another hands-on position. The
most critical aspect of collective integration is participating in economic actions, such as paid effort. One of the most
important tasks for countries with high unemployment rates is to create and open up new opportunities for the available
labor force. The standard of education has to be improved and new approaches have to be placed in place to produce
professional staff. And, we should also encourage investors to set up a company or a venture that will build jobs for many.
It is good that the number of unemployed people in the Philippines is declining each year. Perhaps everybody only
wants to continue to work with the government's or other public and private companies' job offerings. It should be possible
to create a steady flow of new jobs when progress can be continuous.
 Unemployment can be solved if planned properly by the nation from the start. There are several ways by
which the natural rate of unemployment can be solved. Some possible ways by which the government and the people
can work together to solve long term unemployment are:

1. Ensuring political stability

2. Enhancing the educational standards
3. Control of population growth in the nation
4. Launch of new empowerment programs
5. Encouraging self – employment/ entrepreneurship
6. Ensuring access to basic education
7. Reducing the age of retirement
8. Avoid laziness
9. Being creative, positive and competitive
10.Being positive to stop unemployment
With all this, there should be few policies implemented that improve economic growth.

1. Lower taxes
2. Avoiding investing in unsuitable programs
3. Avoiding favorite programs
4. Avoiding over-regulation of industries

Raising the total level of employment is an important aim of labor market policies. At the moment, the unemployment
situation in the Philippines is high and miserable, it can be enriched if the government is willing to immediately offer
firm and action.