The whys and way out of jobless growth

The Philippine government report last Tuesday says that the country’s unemployment rate moved up to 7.5 percent in April this year from 6.9 percent in the same month last year. This prompted critics of the new Aquino government to say that while Philippine gross domestic product growth went up under its watch, it remains exclusive which keeps many of our people in poverty. Indeed, poverty incidence was over a quarter of the population in the first half of last year based on another government report released early this year.

But were the critics right in disparaging the performance of the Philippine economy? Let us look closely at the result of the April 2013 labor force survey released last Tuesday.

The labor force is composed of the population 15 years old and over who are not studying, not sick, not jailed, not living in convents and monasteries and other similar situations away from productive work. In April this year, our labor force reached 40.905 million people out of the 64.028 million who are 15 years and over. This represents a labor force participation rate (LFPR) of 63.9 percent. In the same month last year, total labor force was placed at 40.643 million people out of the 62.842 million who are 15 years and over with LFPR of 64.7 percent. We can see from this information that because the LFPR in April this year was lower than last year, the total labor force increased only by 262,000 despite the 1.186 million increase in the working age population 15 years old and over.

How many were employed? In April this year, this reached 37.819 million or 92.5 percent of the labor force. In April last year, employment reached 37.840 million or 93.1 percent of the labor force. Overall, therefore, total employment went down by 21,000. Given that the total labor force has increased by 262,000, the total number of unemployed also went up by 283,000, thus the critics were right. The latest upsurge in economic growth under President Benigno Aquino III was one of jobless growth, which confirms its exclusive character and explains why poverty incidence is high in the country.

There is more to the April 2013 employment data, however, which can also prove that something is going on in the economy that may eventually usher in more benefits for the poor sooner or later.

If we look at where the workers engaged their time, we find that in April this year employment in industry has increased to 15.5 percent (6.083 million) from 15.5 percent (5.859 million) of the total labor force as in April last year. This proves that industry which once was responsible for a much higher fraction of the total employed in the 1950s and 1960s is now on the way to recovering its losses. Compare this with the agriculture sector where the share of the total employed decreased from 32.9 percent in April last year to 31.3 percent in the same month this year. If we consider that industries pay more for their workers than agriculture does, then this is going to be good for the country sooner or later.

A closer look at the data also shows that services, which also pay higher than agriculture, although at lower rates than in industry is also increasing its share from 51.6 percent in April last year to 52.6 percent in April this year. Again this bodes well for the Filipino people.

Furthermore, when more workers shift from agriculture to industry, the remaining workers in the rural areas will now find more work to do, thereby reducing their idle time. It can be shown from the same government data in April this year that regions which are still very much rural or dependent on agriculture for work had higher underemployment rates than the more developed regions.

It remains to be seen, though, how far the income of farm workers will rise with the departure of some of their kind to work in urban areas. The fact that underemployment rates in the rural areas are much higher than in the urban areas means only one thing – many Filipinos are still trapped in low paying jobs in agriculture. However, they can not just leave their farms if they are not sure also of finding work in the cities where the high paying business establishments are found.

This particular concern is not misplaced. The highly urbanized regions are also the same places that exhibit high unemployment rates compared with the rest of the country. In April this year it was 10.4 percent at the NCR, 10.6 percent in Calabarzon and 8.9 percent in Central Luzon. Region VII had 6.4 percent unemployment rate which is lower than the national 7.5 percent average unemployment rate but this is because the high unemployment rates in the highly urbanized cities in Metro Cebu is contrasted by lower unemployment rates in the rest of the region.

There is more to be said also about employment. As an economic variable, it is considered one of the lagging indicators of economic growth. As a lagging indicator, when the GDP rises, employment will not necessarily rise immediately, especially if it starts from a long period of low growth where much of the capacity of the economy to produce are underutilized. Employment will grow noticeably only when growth is sustained which now assures investors of high capacity utilization rates and high returns so that they decide to hire more.

There is also another problem that makes lowering the unemployment rate not easy to do even with rapid economic growth. To profit more, new management science and practices call for flatter and leaner business organization. The result is that they hire a lower number of workers per unit of investment than before.

The way out is not just rapid economic growth but more education and training to make the workers more flexible to fit many jobs and become more productive which also makes them more profitable to hire. The other way out is to make real our Agriculture Modernization Act which remains in the shelf and is being eaten by worms.