Employment rate as a lagging indicator
To avoid unnecessary trouble in a situation like we had last Monday, it is always good to calm down and think before joining what many panicky people do. They ran for the hills when they heard hours after the tremor that the tsunami already reached Colon or barangay Duljo. Using common sense, I know it is impossible for the earthquake that had its epicenter in the strait between Cebu and Negros to create a tsunami in the waters between Cebu and Bohol. Using some knowledge in physical science, I also know that for a tsunami to develop from the point of the sea where the epicenter was, it needs to travel a little farther to gather strength and rise which is also impossible in the narrow channel between Cebu and Negros. A tsunami is possible only if the epicenter of an earthquake, which should be stronger than the magnitude 6.9 that we had last Monday, is far from the shore at any point in an ocean or big body of water. That was the case of the tsunami that drowned many people to death not so long ago in Malaysia and Indonesia and more recently in Japan.
So much for being panicky!
The latest report on employment from the National Statistical Office says that in 2011, of the 61.9 million people 15 years old and over, about 40 million were in the labor force or economically active. This translates to an annual labor force participation rate (LFPR) of 64.6 percent. In 2010, the LFPR was 64.1 percent.
The government monitors our employment situation every three months. What I mentioned was from the consolidated report for 2011. What has been the overall employment picture last year? Aside from the increase in the LFPR, the employment picture was surprisingly good. Despite the economy growing slower at 3.7 percent last year compared to the 7.6 percent growth recorded in 2010, the overall unemployment rate went down to 7 percent in 2011 from 7.3 percent in 2010. If true, it is good news because if there is anything that we need to bring down our high poverty rates, it is to create more jobs for our fast growing labor force.
As mentioned in the NSO report, the country’s LFPR went up in 2011. This means that the total labor force increased more proportionately than the increase in our population. Despite this, the unemployment rate went down just the same. Again, this means that more jobs were created in 2011 than the new entrants to the labor force. Is this good news finally? Let us see.
Aside from the gross domestic product, which measures the value of all our final output, we monitor the performance of the economy by looking at other indicators. Economists classify indicators into three categories based on their relation to the business cycle. These are the leading, coincident and lagging indicators. The first are useful to predict the performance of the economy such as building permits issued or the stock index movement while the second measures what already happened such as the GDP. The third, like the increase or decrease in employment rate, are what one would expect to follow after observing the movement of the coincident indicators.
As a lagging indicator, employment is slow to respond to the increase in the GDP. It means specifically, for example, that when times are good such as what we supposedly had in 2010 when the GDP shoot up by 7.6 percent, jobs may not be created immediately. We have to wait for some time before new hiring starts. This finally came in 2011. Unfortunately, however, we also know now that the economy slowed down in 2011 as evidenced by the year’s reported slower 3.7 percent GDP growth. If indeed true that employment is a lagging indicator, then last year’s slower economic growth will also mean a higher unemployment rate this year.
So much for job creation then as a means to reduce our poverty incidence as indicated in the new Philippine Development Plan and P-Noy’s social contract with the Filipino people.
Unless we achieve higher GDP growth in a sustained number of years, not just for a year or two, it will take us a long time, if at all, to reduce our high incidence of poverty. Up to a fourth of our people, based on government statistics, or up to half, based on the Social Weather Station survey, are in poverty.
Speaking of job creation, in the United States, where the unemployment rate once breached the 10 percent mark at the height of the last global recession, the employment situation is monitored every month. Their latest monthly report shows that more jobs were created than many expected. With this, the belief that the US is finally on track to faster recovery has gained some credence. This is good news for the international economic community that had been expecting the global economy to be worse than last year. Up to the end of last year, many were at a loss as to where the global economy is going. By last month, the forecasts made by the World Bank, International Monetary Fund, United Nations and other multilateral bodies, including private think tanks, finally converged: the economy could not be any better than it was last year and another global recession is possible if the European Union fails to find an answer to the troubles of their highly indebted members.
It turns out that the last move of the EU for its Central Bank to stand ready to give cash to any ailing private bank with large exposure to its highly indebted members is working. With this and the good news from the US, the global economy may just do better this year. This too is good for us as this will assure our exports and enhance our chances of getting more investments.
