Arangkada Forum Q&A: Labor

Participants at the Arangkada Philippines Forum submitted questions for panelists and speakers as well as questions regarding the First Anniversary Assessment.

This question was from DOLE Assistant Secretary Rebecca Calzado:

Question: Re Arangkada assessment of LABOR, please explain:

1. Why do you put “creation of jobs” under labor when job creation is a function of investment/ businesses? If at all, HRD/ Human capital should be factor that is rated under labor?

2. Why only 2 stars? Regression?

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Answers from Arangkada experts from the Employers’ Confederation of the Philippines (ECOP):

1. “Why do you put “creation of jobs” under labor when job creation is a function of investment/businesses? If at all HRD/Human capital should be a factor that is rated under labor?” 

A.   Creation of Jobs Issue

To address the issue of placement of “creation of jobs” in the proper perspective, it may be noted that it is also a headline recommendation in Part 1, “Growing Too Slow” of Arangkada Philippines 2010 which is worded in this way: “Job creation in the private sector should receive extremely high priority, to reduce unemployment and underemployment by 50% and to give more Filipinos more alternatives working abroad.”[1]

This recommendation correlates with the topic in Part 1, “Twice as Much Investment Need for Higher Growth.”[2] As epitomized, this topic deals with the imperative of much higher investment to propel the economy to higher rates of growth.  “Even sustained double-digit growth of 10% or more is possible, if the investment climate can be greatly improved to make the economy more attractive to both domestic and foreign investors.”

Connecting the dots, higher levels of investments result in higher rates of growth and higher rates of growth create more employment. In other words, there is a positive correlation between growth and employment although growth is not the sole major factor affecting employment.

Employers will increase investment, expand business or invest in new products and technology if there are existing or potential markets for such investments. But such motivation and initiative depend on the degree of moral hazards and political risks arising from public and corporate governance. If there exists a plus in perceptions of confidence, then the investment flows will come in and jobs will be created.

It should be noted that in Part 4 Arangkada on Labor, there are three headline recommendations but it is number 2 that is relevant and which reads as follows: “2. Focus on improving labor productivity. Create several million new direct jobs and many more indirect jobs. Attract manufacturers relocating from China. Reduce the unemployment and underemployment rates.”[3]

As specification of the three headline recommendations there are nine recommendations and one of these is: “Create millions of new jobs, many of higher quality through increased investment.  Reduce the annual shortage of jobs and give Filipinos better choices of domestic and overseas employment. (Immediate action all concerned public and private sector entities.)”[4] 

Inasmuch as the correlation between investment and employment has been taken up in Part 1, “Growing too Slow” of Arangkada, “job creation” in Part 4, “General Business Environment” on labor may be properly considered as measurement of the performance of the labor market. 

Incidentally, the question has also raised an issue of technicality on the proper placement of “job creation.”  While we don’t want to engage needlessly in technical issues, it may be proper to settle some technical aspects on nomenclatures.

The first involves the use of the term “job” in the context of employment. “Job” is not synonymous to employment.[5] The quarterly labor force survey (LFS) conducted by the National Statistics Office is counting people at work and not number of “jobs”.

A “job is an activity that a person does for a living:

• It is a set of tasks and duties which are carried out by, or can be assigned to, one or more persons.
• A person can be counted several times depending on the number of jobs held.
  

On the other hand, employment refers to persons or individuals at work:

• The LFS counts persons at work not jobs;
• In the LFS, a person can be counted only once regardless of the number of jobs he/she held.
  

Secondly, it is submitted that employment and for that matter, jobs, are the outcome of investments, both FDIs and domestic. But such investment flows essentially take place and can be monitored with a degree of precision at the level of registered establishments or enterprises operating in the formal sector. The informal sector[6]  is not a direct beneficiary of such flows.

B.   HRD/Human Capital Issue 

Unless specifically defined for a particular application, “Human resource development (HRD)” is subject to a wide and varied range of significations involving different types of modalities which may be done either through formal education on one hand and non-formal education on the other,  as well as the institutions, whether public or private, that conduct them. Related to HRD is “human capital.” “Human capital” standing alone is a big word. It may be correlated with the Philippine labor force in so far as local employment is concerned which is measured by the quarterly survey conducted by the NSO as well as the OFWs which are excluded from the survey. It may also be considered as a dynamic of the labor market, and as a factor of production. If it is considered in terms of the labor market, it implies a correlation of labor supply and demand and this in turn raises the issue of the gaping mismatch between labor supply and demand.

It may be noted that the issue of HRD/Human Capital is properly taken up in Part 1, “Growing too Slow” which in effect is an extensive and thorough diagnosis of why the country has become a laggard in terms of growth and development compared to the other regional economies. It starts with the topic “Inadequate Skills + Insufficient Jobs = High Unemployment/Underemployment” ending with the topic “Remittances Are Important but Distorts the Economy.”[7]

The issue of labor supply is also taken up under the topic “Labor Supply” [8] in Part 3, “Seven Big Winner Sectors” in relation to Business Process Outsourcing.[9]

In light of the foregoing, what additional issue/s the Assistant Secretary would like to raise on HRD/human capital that have not yet been addressed by Arangkada?

2. “Why only 2 stars? Regression?”  

For the past decades after the Asian Financial Crisis in 1997 and 1998, the Philippines continued to remain an employment distressed economy as indicated in bar charts below. 

                                                                   Chart 1

^{1Data on labor force before definition of unemployment was changed in 2005}                                                                                                                                                

Chart 1 above shows that the last year before the Asian Financial Crisis in 1997 to 1998, that the economy generated more employment than the increase in the labor force was in 1996.  From 1997 to 2004 before the adoption of the new definition of unemployment in 2005,[10] the labor force increased by 7,059M while employment increased only by 5,937M.

Chart 2

Because of the break in the series,[11] computation of the comparative data on increase in labor force and increase in employment can be done only starting 2007. 

Chart 2 above indicates that the employment situation hardly improved from 2007 to 2011, especially if correlated with the quality of employment. During the period the labor force increased by 4,512M while employment increased by 4,526. At the same time, as of 2011, underemployment increased by almost half a million (+401,000) translating to an underemployment rate of 19.3%, an increase from 18.8% in 2010.[12] Most of the underemployed are vulnerable workers[13] who constituted 41.7% of total employment as of 2010.                                                               

At the same time, the structure of the Philippine labor market is distorted in the sense that it is characterized by a small formal sector and a large informal sector. Such type of dualism is common in developing economies like the Philippines. The magnitude of such distortion is depicted in the diagram below. 

Overview of the Labor Market:

¹Includes 3,025,000,000 employees in government and government-owned or controlled corporations.

²Total employed in 777,687 registered establishments.

₃Self-employed without any paid employee: 10,858,000; worked for informal establishments including home-workers, jeepney, tricycle and pedicab drivers: 8,865,703; employer in own family-operated farm or business: 1,394,000; unpaid family workers: 4,157,000; household workers: 1,926,000.

Source: 2010 Annual Survey of Philippine Business and Industry; 2010 Labor Force Surveys, NSO; Current Labor Statistics, Oct. 2010, BLES.

But what is cause for concern is the unusual phenomenon of a shrinking formal sector as shown in corresponding tables below while employment not covered by the formal sector continues to expand. 

If the above statistics and findings do not indicate regression, I am hard put finding a more euphemistic word.