LABOR AND EMPLOYMENT

OBJECTIVES:

The students should be able to:

 Define unemployment and underemployment
 Determine the areas of our labor problem and their impact on our
people;
 Analyze the importance of labor and human resources;
 Give a comparative analysis between the Classical and the
Keynesian theory on wages
 Propose solution to our unemployment problem
LABOR

 A force of production that refers to the work people to

produce goods and services.
 It includes all the physical and mental efforts that go into
the production of goods and services.
 Labor is a very important resource.
LABOR PROBLEMS
 Labor problems represent conflicts on social reality with
social ideals that normally rise out employment.
 A classic example of this is unemployment.
 Labor problem is referred to a working relationship which
is considered below the ideal.
 Those who take part in employment relationships must
work out mutually satisfactory arrangements. A mutually
satisfactory arrangement spelled out from the very
beginning would lessen labor problems.
 AREAS OF LABOR PROBLEMS
UNEMPLOYMENT
 A person is considered unemployed if he is at least 15 years old willing and able
to work but cannot find work.
 Unemployment rate in excess of 6% of the labor force represent and emergency
situation and should be remedied right away.
 Unemployment is not only considered an economic problem but it also a social
problem.
- crimes
- poverty
- slow growth of economy
- affects mental health
UNDEREMPLOYMENT

 An underemployment person is an employed person who

works less than 40 hours per week despite the fact that he want
to work for more hours.
 When a person does not work full time or takes a job that does
not reflect their actual training and financial needs.
 TYPES OF UNDEREMPLOYMENT

Visible Underemployment
 The number of people working less than 40 hours per week and
wanting additional work.
 They possess the skills to work in a full-time position but are unable
to find regular employment.
 TYPES OF UNDEREMPLOYMENT
Invisible Underemployment
 The number of people working 40 hours or more per week and still
wanting more additional work.
 People who work in jobs that don’t utilize their skills.
 UNDEREMPLOYMENT is a social problem that
affects job growth, business growth, poverty levels
and the emotional and psychological health of the
underemployed. For instance, underemployed
workers generally have less disposable income.
Therefore, workers have a tendency to spend less,
which impacts business growth, poverty levels, and
the underemployed worker’s emotional outlook.
 INADEQUATE WAGES
 Wages and earnings that fail to provide a minimum of comfortable
living can be regarded as inadequate. Inadequate wages can result
from the inability of wages catch up with the increases in prices.
 The concept of subsistence income as that level affording
minimum consumption of basic necessities is called poverty
threshold.
INDUSTRIAL AND LABOR
MANAGEMENT CONFLICT
 When workers are on a strike, or when employers resort to
lockouts, inconvenience between the two groups can
follow. Pro-longed strikes or lockouts could be harmful to
both parties. Work stoppages could result in less
production, less sales, and thus, less income for both sides,
violence and even death can occur because of strikes.
 ECONOMIC INSECURITIES
 Threats of interruption in earnings or in one’s work can be
regarded as a serious problem. A head of the family would be
terribly insecure if he is not certain that his job would last long
enough, illness, accidents, retirements, threats of lockouts, or
strikes can also be a problems.
 People have to provide funds for emergencies like illness,
accidents, threats of lockouts, and strikes. If workers are not
secure in their jobs, or if their wages are just enough to meet
bare subsistence, provide for emergencies just mentioned could
simply not be met.
FACTORS AFFECTING THE THEORY

 During these period, the handicraft system was declining in

importance as source of employment giving way to factories.
Farmers were living their farms and seeking employment in the
cities. Power sources were being developed and used in production.
 The process of urbanization was taking place. The process of
producing and marketing of goods took place in the cities creating a
social problem: how to find dwelling places for the influx of
workers.
1. THE LAISSEZ-FAIRE THEORY

 Laissez-faire is a French phrase which means “Don’t Interfere”.

 This theory states that individuals ought to be free to act in their
own self interest. They must be allowed to move about without
interference, choose their own business and occupation, gain wealth,
do whatever they like with their profits and property
 Adam Smith states that when a man goes in
business, “he intends only his own gain, and he is in
this, as in many other cases, led by an invisible hand
to promote an end which is not part of his intention.
By pursuing his own interest, he frequently
promotes that of society more effectively that when
he really intends to promote it.”
2. THOMAS MALTHUS

 Thomas Robert Malthus’ population theory was an

important and integral part of the classical liberal
economic and social doctrines. His analysis contributed an
explanation of long-term changes in the aggregate supply
of labor and the wages accompanying it.
 Given this situation, something would have to hold the
population growth is check. Malthus believed that there were
two general kinds of checks that limited population growth:

PREVENTIVE AND POSITIVE CHECKS

1. Preventive Checks- reduce the birth rate.
2. Positive Checks – increase the death rate.
 3. DAVID RICARDO

 He took over and systematized Malthus’ iron law of wages. Wages, he

concluded, tended to equal the cost of reproducing it. Wages could
never be far from the level necessary to maintain a minimum
subsistence because of the demand and supply in the labor market.
Higher pay would increase the labor supply and lower pay would
decrease it.
 He also maintained that the cost of subsistence would depend mainly on
the price of food and other farm products. High crop prices necessitated
higher wages. Higher prices of crops, in turn, were due to rent which
rose as the nation became more populated and the best land was
exhausted.
 Wages of workers in the National Capital Region (NCR) continue to fall even as
their growing labor productivity drives economic growth under the Duterte
government. The mandated minimum wage is not even keeping up with the rising
cost of living for ordinary Filipinos.
 Research group IBON said that keeping wages low distributes wealth unevenly
and worsens inequality. The Philippine economy is slowing but real gross
domestic product (GDP) still grew 6.7% in 2017 and 6.2% in 2018. The regional
GDP of NCR grew 6.2% and 4.8% in that same period, registering a total
increase of 11.3% between 2016 and 2018.
 In NCR, this economic growth was most of all driven by rising
labor productivity. Labor productivity in NCR, measured by
regional GDP divided by total employed, increased from
Php568,092 per worker in 2016 to Php640,125 in 2018 or a total
increase of 12.7% between 2016 and 2018. These are IBON
estimates using the latest available data from the Philippine
Statistics Authority (PSA).
 Yet despite rising labor productivity, the NCR real minimum wage
is actually falling under the Duterte administration. Measured at
constant 2012 prices, this fell from Php467 in July 2016 to just
Php457 in March 2019. The Php46 worth of wage hikes since 2016
have been more than off-set by inflation and the continually rising
costs of goods and services especially last year.
 IBON also pointed out that the wage gap, or the difference between
the minimum wage and the family living wage (FLW), is growing
wider under the Duterte administration. The NCR nominal minimum
wage of Php491 in July 2016 was only 54.6% of the Php900 FLW for
a family of five at the time. Today, the NCR minimum wage of
Php537 is just 53.5% of the Php1,004 FLW for a family of five. The
wage gap is even wider for a family of six where the NCR minimum
wage is just 44.6% of the required Php1,205 FLW.
 The research group said that real wages falling even further behind
economic growth is worsening the elitist and exclusionary character of the
economy. Moreover, improving labor productivity is not translating to
benefits for the working people but is instead going to bloating corporate
profits and oligarch wealth. The people are left to struggle with the rising
costs of their food and non-food needs.
 IBON stressed that the Duterte government is very much in a position to
change this situation. Among the most important measures is ensuring
sufficient incomes for workers by legislating a national minimum wage of
Php750. IBON’s estimates using the latest available data, for 2016, show
that a Php750 minimum wage in NCR will only cost 9.8% of the profits of
establishments and still leave them with Php1.17 trillion in profits. The
increase in welfare for millions of workers and their families will however
be palpable
The laissez-faire doctrine state An increase in the supply of
that the “market” will determine labor would shift will shift
the equilibrium price of labor. the supply curve.
The downward trend of the price of Workers would be willing to
labor will only stop at the level of access wages below
subsistence. subsistence level.
GRAPHICAL ILLUSTRATION

Equilibrium price and the supply labor will only

settle at subsistence level.
THE CLASSICAL THEORY

 The theory states that a firm in a competitive

industry will hire workers up to the point where
the value of the marginal product just equals the
cost of the factor.
WAGES
 It refers to the compensation paid to an individual after successful
completion of task assigned. An individual who does the labor or
services for a company can be compensated in terms of money or any
other benefit agreed upon.
 Some jobs however don’t have a salary package attached to it. These
jobs fall in the category of temporary jobs and are compensated in the
two types of wages either of the following.
1. Money wage/Nominal Wages
2. Real Wages
 MONEY WAGE/ NOMINAL WAGE

 Nominal or Money Wages – are the payments done to workers in money

form and do not take account of inflation rates and any other market
conditions. It refers to the amount of money that the person can earn per day.

 Example 1: If a worker receives P500 per hour from the organization in

exchanged of the services or labor provided then that is nominal wage.
 Example 2: If your employer pays you P250 an hour for your work, your
nominal wage is P250. Similarly, if your employer pays you a salary of
P900,000 a year, then your nominal wages would be P900,000.
 TO COMPUTE THE MONEY WAGES
RATE/NOMINAL WAGES RATE

 FORMULA

Profit maximization: w = pMn

where: w = money
p = level of prices
Mn = the marginal physical
product of labor
 EXAMPLE

 Nicole was hire as the assistant manager of a clothing store, she was paid a
salary of 10,000 per month. So her money wage rate is the following:

Money Wage Rate = Price level x Marginal physical product of labor

w= pMn
= 10,000 (1)
= P 10,000

The money wage rate of Nicole is P 10,000.

REAL WAGE
 Real wages – are the type wages that take inflation rates into
consideration. These wages determine the purchasing power the
individual has and the amount of goods or services the individual can
purchase given the current market conditions. In other words, it can also
be defined as the actual amount of goods and services the employee can
purchase with the payments given after inflation has been considered.

Example 1. If a person’s nominal wage is 150,000 their real wage is above

or below that amount depending on the current inflation rate.
Example 2: If in a given year, nominal wages increase by 4% and
consumer prices rise by 2%, then real wages will have grown by 2%.
TO COMPUTE THE REAL WAGE

 For the real wage rate, the equation can be written as:
W/P (CPI) = Mn

Where:
W = Nominal wage rate
P = Price level or the consumer price index (CPI)
Mn = Marginal physical product of labor
EXAMPLE (REAL WAGE)
 Example 1:
Bob’s own a well known lawns company, bob’s income is affected by
inflation. We measure the rate of inflation using the consumer price index (CPI). Last
year the CPI was 130 and bob’s household earned P 70,000.
However, this year the CPI is 138, which means the inflation is 8% higher
than last year.

Real wage = x CPI in year 2

= ( x CPI in year 2
= x 138
= P 74, 308
 EXAMPLE (REAL WAGE RATE)
 Example 1:
Last year Shan, an assembly line worker earned P10 per hour when the CPI was P100.
This year the same worker earned P12 per hour while the CPI increases to P105.

Real wage = x 100 Real wage = x 100

= ( x 100 =(x
100
= x 100 = x
100
= 10% =
11.43%
THE DEMAND FOR LABOR

 The demand for labor shows how many workers

the firms are willing and able to hire at a given
time and wage rate.
TO CALCULATE THE DEMAND FOR
LABOR
 The demand for labor can be express in the following functions:

= D (w/p)

Where: = Demand for Labor

() = Real wage rate
D = Demand
EXAMPLE

 For example, at a wage rate of P 1,200 firm will employ 5 workers,

because at 5 workers, marginal revenue product = marginal cost of
labor (MRP = MCL).
= D () = 5 (1,200) = 6,000

At a middle wage P 800, the firm will employ 7 workers.

= D () = 7(800) = 5,600
EXAMPLE
 And lower wage of P600, the firm will employ 8 workers.

= D () = 8 (600) = 4,800
INCREASE IN LABOR DEMAND

An increase in Labor demand will

lead to an increase of wages per
unit of labor and employment per
period and vice versa.
DEMAND FOR LABOR AND THE TOTAL
PRODUCT
In the classical theory, demand for labor is closely
associated with the output workers produce. To be more
specific, the wage rates affect the level of production .
The demand for labor is an economics principle
derived from the demand for a firm’s output. That is, if
demand for a firm’s output increases, the firm will demand
more labor, thus hiring more staff.
GRAPHICAL ILLUSTRATION
THE SUPPLY OF LABOR

 The supply of labor refers to the number of hours a worker

is willing and able to work in a given period.
 Note that labor supply does not mean the number of
workers employed in the industry.
TO CALCULATE THE SUPPLY OF LABOR

 The supply for labor can be express in the following supply

function:

= S ()

Where: = Supply for Labor

() = Real wage rate
S = Supply
EXAMPLE
 If the wage rate per hour were to increase from P500 to P800 due to
upper management decisions, then this would increase the number of
hours an individual is willing able to supply from 24 hours per week to
36 hours per week; a 12-hour increase.

 So if the wage rate is 500 per hour, the individual is willing to supply
for 24 hours. Compute the supply of labor.

= S () = 24 hrs x P500 = 12,000

EXAMPLE

 And if the wage rate is increase at 800 per hour,

the hours that individual is willing to work and
able to supply also increase from 24 hrs to 36 hrs.

= S () = 36 hrs x P800 = 28,800

INCREASE IN THE LABOR SUPPLY

An increase in labor supply

lead to decrease of wage per
unit of labor and increase in
employment per period and
vice versa.
THE EQUILIBRIUM POINT

 Equilibrium point – where both employers and workers

agree on wage rates, is reached at the interaction of the
demand and supply of labor as shown in the next slide.
GRAPHICAL ILLUSTRATION

The equilibrium point is not

a static situation. Changes in
supply or demand for labor
or both supply and demand
for labor would affect the
equilibrium point.
CHANGES IN THE SUPPLY CURVE

 In the early stages of economic growth or even up to the present,

much of the changes take place in the supply side. The Malthusian
pressure of population is mainly responsible for the depressed or
low wage rates during these periods. Theoretically. This can be
shown in the following:
 An increase in the number
of workers looking for
work would shift the
supply curve from Ls1 to
Ls2 This change in turn
would depress wages from
() to ()
 For the classical economists, lower
wages would be beneficial for the
economy as a whole for this would
bring about greater production. The
following graph would illustrate this
point.
THE KEYNESIAN THEORY
 In the depression of the 1930’s democratic nations were
concerned about the problem of inflation.
 Numerous theories were advanced to answer the problem
of depression with its concomitant unemployment
problem.
 Explanation of wages and wage changes in this kind of
setting inevitably directed attention to general wage levels
rather than to wage rates in the labor markets.
 The explanations developed in this period are a part of the national
income theory of employment. John Maynard Keynes advanced his
full employment theory. His “General Theory of Employment,
Interest, and Money” published in 1936 provides the basic
analysis on which the theory is based.
 No scholarly document since Adam Smith’s “Wealth of Nations”
had seemed to fit more closely to the needs of the times. To many
theorists in the classical tradition, it provided a rationalization for
policies they thought necessary but could not embrace with clear
conscience.
KEYNES’ THEORY ON
EMPLOYMENT
 J. M. Keynes admitted that the classical and the neo-
classical doctrines were logical enough. But he mentioned
that these theories were limited by the many expressed or
implied assumptions. He proposed to develop a general
theory in which unrealistic assumptions were unnecessary.
 Classical theory had little to say about the fluctuations of
employment. It assumed that production in any free
enterprise economy would fluctuate closely between
demand and supply. Wages, like any other price, would
fall if the supply of labor – exceeded the demand for it.
 In addition, widespread unemployment was frequent and
many workers during depressions could not get a job at
any wage at all. Keynes argued that high wages could
not be the main cause of unemployment. He believed
that a wage cut was theoretically equivalent in its effect to
a fall in the rate of interest. Anything which might be
accomplished by wage reduction could be better achieved
by lower interest rates though neither of these could be a
sufficient remedy.
LABOR MARKETS ARE NOT
SELF-CORRECTING
The Keynesian theorists, however, argue that the aggregate of
labor markets is not self-correction. They advance two reasons:

1) The forces causing and 2) the self-correcting

maintaining full mechanism has not proved
employment is largely effective.
outside of labor markets.
CLASSICAL ECONOMISTS KEYNESIAN THEORY

 place emphasis in obtaining a  place emphasis on attaining

maximum output of goods and and maintaining full
services desired by consumers employment.
through proper balancing of  emphasize jobs for all
resources.
 Emphasize productivity
LABOR SUPPLY IS A FUNCTION
OF MONEY WAGES
 J. M. Keynes assumed that workers prefer to make their
decisions in terms of money wage. He assumed that money
wages were apt to be “sticky” or rigid downwards. Workers
would strongly resist cuts in money wage rates and would
later prefer underemployment than cuts in money wage
rates.
 We mentioned that if supply of
labor increases (i.e., S L2 ) then
classical theory would say that
wages would automatically fall
down to W2.
 However, since the new
equilibrium shows that the
supply of labor cuts the demand
curve at point B. A gap is
created. The distances Q L2 and
Q L1 measure involuntary
unemployment.
The Cure to Unemployment
 Keynesian theorists maintain that wages need not fall to maintain full
employment. With the present socio-economic conditions, a fall in
wage rates is not tenable. Three reasons can be advance for the
undesirability of wage cuts as solution to solve unemployment
problems:
 1. inflation
 2. government
 3. trade unions
With the way prices are going up now, reducing wage rates further would
adversely affect the welfare of the workers. Secondly, the government has
set up the minimum wage legislation disallowing wage rates to go down.
In addition, trade unions especially in the more organized industrial sector
always work for the welfare of workers, thus, increase in wage rates.
BURDENED BY CRISIS

 As the economy falls deeper into its structural crisis of

underdevelopment and bankruptcy of the Arroyo
administration worsens, many people are pushed further
into neglect and poverty. With government resources
getting scarce and misallocated, less and less money
becomes available to address the people's growing needs.
LESS RESOURCES

 Interest payments remain the fastest major expenditure item

in the budget. From a 28.4% share in the budget of 2003,
interest payments would comprise 31.4% of the propose
₱864.7-billion budget for 2004.
 In contrast, social services like education, housing, health
qnd social security continue to be marginalized. From a
22.3% share in the 2003 budget, it even declined to 22% for
2004. Meanwhile, real per capita national government
expenditure on social services continue to decline
progressively.
 DETERIORATION OF LIVING STANDARDS
 For most Filipinos, scant available public funds combined with government
policy of privatizing and commercializing social services translate to rapid
deterioration in their living standards. According to Annual Poverty Indicator
Survey (APIS) of the National Statistics Office (NSO) released in July 2003,
many Filipinos, particular from the low-income bracket, do not have access even
to the most basic services like secondary education, housing, sanitation, water
and electricity.
 Given a rapidly growing population, (the Population Commission estimates it
could reach 84 million by yearend 2004) and the bankrupt government, the
number of poor Filipinos (32 million, as of 200 according to NSO) and those
without or limited access to basic services would drastically increase.
 Consumer again faced soaring prices of vital services and commodities as the
Arroyo administration remained faithful to deregulation and privatization. Rise
in power rates, water charges, and oil prices drew protest from various sectors.
 While social services become highly commercialized and
prices of basic commodities soar, wages and income did not
show substantial improvement under Arroyo
administration. In fact, since she took office, the regional
wage boards only issued a total of 16 wage orders covering
14 regions (government issued the last wage hike order in
June 2002). These wage orders hiked the minimum pay in
different regions by a meager ₱1 to ₱34 and workers' cost
of living allowance (COLA) by ₱1 to ₱30.
 These adjustments are not enough to offset the rising cost of living. The
National Wages and Productivity Commission (NWPC) estimates that
as of October 2003, an average Filipino needs ₱368 to ₱727 per day
(depending on where the family is living) to meet their daily needs. But
actual minimum wages remained very lo ranging from ₱140 (in the
Autonomous Region for Muslim Mindanao or ARMM) to ₱280 (in the
Nation Capital Region or NCR). Meanwhile, based on IBON estimates,
the daily cost of living (national average) in the country is more than
₱454 as of October 2003. In NCR, IBON pegs the daily cost of living at
more than ₱555.
INCREASING UNEMPLOYMENT
• FDI (Foreign Direct Investment showed signs of recovery in
third quarter year 2003, it did not create more jobs for Filipino
workers.
• As already noticed the fastest growing sector in% term of FDI
inflow is the ICT sectors such as the call centers. This job is
required to every Filipino if they are college graduate and
English – speaking workers. On the other hand, the few who
are lucky to land as agent in call centers and get relatively pay
would only be employed for five months as call centers resort
to contractualization.
 Increasing Unemployment
 Most jobless Filipino workers who did not finish school such as
farmers, laborers, production workers, and etc.
 Not surprisingly, unemployment remains widespread with 3.6
million jobless Filipino or 10.2% of the total labor force as of
October 2003.
 A year ago, the latest joblessness rate showed little improvement
from its level 10.2% in all major sectors.
Employment Agriculture – 400,000
Industry – 200,000
Services – 600,000
 What is the cause of increasing unemployment
rate?
 Unemployment in the Philippines is attributed to reasons including
overpopulation, oversupply of labor force on certain industries and the
inability to take on available jobs.
1. OVERPOPULATION
Philippines has a high population growth rate at an
averag88e 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 is which translate to a steady supply of graduates
outstrips the rate at which jobs are created, leaving these graduates
finding themselves unemployed.
 2. OVERSUPPLY OF LABOUR FORCE AND INABILITY TO
TAKE ON AVAILABLE JOBS (STRUCTURAL EMPLOYMENT)

 Undergraduates are still taking up college course that are popular but
were previously high in demand. After graduation, these graduates’
posses’ skills that are not high in demand in the job market. As such
there is a skill mismatch. For example, in the healthcare industry, nurses
were previously in demand abroad. Many undergraduates took up
nursing and soon supply match’s demand. However, the country
education system continues to produce college graduates who have
taken up nursing as supply increases above demand there is an
oversupply of labor. As a result, these graduates are unemployed.
 Post Garments Quota Philippines
  In a position paper submitted to the house of competitive on labor and
employment, the labor group Buluran Manggagawang Pilipino claimed
that more than 5000 workers in the textile and garments industry lost their
jobs in the second semester of 2003.
 About the same number of daily wage earners have been severely affected
by the shortened work week, work rotation and temporary closure of some
garment and textile factories.
 Losing the Edge
 About 10 years ago, the garment export industry was a recognized sunrise industry
in the Philippines, being a major player in exports to the USA.
 Their skills levels and infrastructure especially China had already caught up to
match the best garment and textile company in the Philippines.
 Garment production is a highly labor-intensive industry where each garment is
completed through the effort of a production mineworkers. Hence competitiveness
in this industry for a global market requires continuous training, learning and an
industrious attitude of the workers, the investment in studies and planning by the
businessman and their restructure and processing efficiency of the government
bureaucracy./6
Solution to our Unemployment Problem3
 Our local entrepreneurs have to be more anticipatory and persistent in
keeping clients happy and in cultivating their markets. They need to be
more knowledgeable in the technical details of their business to be able
to choose the right technologies for our current situation.
 We should not let the garment and textile manufacturing industry
disappear entirely form the Philippines at least not that quickly while
there are other business sectors to enter, industrial produce is important
because an economy need balance in capabilities to give it resolve, a
level of security and the know how to be a base for other activities
 And also, the country needs and employment source especially for
women workers to ill the intermediate level of skill between agriculture
and information or service field.
THANK YOU!!!