Jobs and the Cost of

Doing Business
Cayetano W. Paderanga, Jr.
Professor, UP School of Economics

1 February 2010
Flow of the Presentation

 What is RP’s employment picture?

 How does RP’s growth path look like?

 What can our policymakers do?

What is RP’s employment picture?
RP’s recent employment experience

 Growth in employment levels since 2001 has

been inconsistent.

 From 1997 onwards, Services has been the

largest employing industry (both by sectoral
share & absolute number). This is followed by
agriculture then lastly, industry.

 Since 1988, Labor Force Growth > Employment

Growth except for 1998- 2000 & 2001- 2009(??)
periods

 From 7.4% in ’08, unemployment rate inched up

to 7.5% in ’09 113,000 recorded unemployed
workers at height of global economic crisis
 Levels & Growth Rate of Employment, 1988- 2009

Source: National Statistics Office (NSO)

• Employment levels plunged by 3.04% in’97--due to big drop in agri sector

• Job creation peaked by 6.2% in ’01 before decelerating up to ’03
• Even with GDP growth at 3-decade high, job creation still hasn’t repeated
its sharp rise in ‘97. Number of employed persons rose by only 2.8% in ‘07.
 Sectoral Share of Employment, 1988- 2009

Source: National Statistics Office (NSO)

• It was only a matter of time before Services overtake Agriculture as the

top employing industry in the economy. This eventually occurred in 1998.
 Number of Jobs Generated Per Sector, 1988- 2009

Source: National Statistics Office (NSO)

• Since ‘97, jobs in services sector > jobs in both industry & agriculture
• In ‘09, services generated 17.9-M (51.3%) jobs while industry & agriculture
created 5.07-M (14.5%) and 12.0-M (34.3%) jobs , respectively
 Growth of Total Employed, By Sector 1988- 2009

Source: National Statistics Office (NSO)

• Services has been the steady job generator for the economy for two decades now
• Weather disturbances, i.e. El Nino drought, led to steep drop by 10.5% in jobs
found within the Agriculture sector. Cyclical demand for semiconductors exports—
the main driver of industry sector led to contraction in job generation.
 What is RP’s employment picture?
Compound Annual Growth Rate of Sectoral Employment &
Labor Force, 1988- 2009

Source: National Statistics Office (NSO); Own computations

• Services sector has always outpaced the overall employment growth & labor
force growth since 1988
• Industry sector hasn’t recovered to its pre- 1997 crisis growth numbers
• Agriculture sector’s growth numbers always been below 2%
• Labor force grew 2.66% annually in ’01- ’05 period, before revisions
How about the unemployment picture?
Unemployment Rate, 1988- 2009

Source: National Statistics Office (NSO)

• Jobless rate has been above 10% since 2000 then it dropped
to 8% in 2006. Is it due to extra jobs generated in agri &
industry? No. Then, what explains for the huge drop?
One caveat in using post-2006 jobless
numbers…
Starting in the April 2005 Labor Force Survey (LFS)
round, the government will use a new unemployment rate
definition which adds the ―availability criterion‖ to the then- used
―without work‖ & ―seeking work‖ criteria in the old definition.
(NSCB Resolution No.15- 2004)

What does this mean? It imposes a “cut-off period” in the

job search for discouraged workers…

Statistical result: removal of around 1.6-M Filipinos in the

jobless pool. In 2005 4.12-M Filipinos were jobless, this dropped
to 2.81-M in 2006 even though job growth only reached 1.0% for
same year.
Still, how about the unemployment
picture?
Reasons for high unemployment rate:
 Absence of long-term population management programs
more people entering the labor force (FLOW OF
UNEMPLOYED)

 Boom-bust growth pattern of overall economy failure to

generate new jobs for already existing pool of the
unemployed (STOCK OF UNEMPLOYED)

Since it is already too late for now to curb the entry of more
workers in the labor force, policymakers will have to raise
the absorbing capacity of the domestic economy…

BUT HOW???
But, first how does RP’s growth picture
look like?
What is RP’s growth picture?
Growth Rate of GDP , 1981- 2009

Source: National Statistical Coordination Board (NSCB)

• Boom bust growth pattern from 1980s up to the 1990s. But since
2001, the country has avoided this scenario so far—even at the height
of the global economic crisis.
What is RP’s growth picture?
Growth Rate of GDP and Sub Sectors, 1981- 2009

Source: National Statistical Coordination Board (NSCB)

• After its deceleration in the early 90s, the Services has fully recovered and
remained robust, recording positive growth even at the height of the global
economic crisis
How did the crisis reached the Phils?

Mainly thru 2 main channels:

 Drop in export receipts
 Outflow of foreign investment
 OFW lay-offs in select countries

The year 2009 has been very challenging; just

when we were seeing convincing signs of
recovery, a chain of typhoons struck Luzon,
damaging properties and agricultural produce.
 Impact on exports
Decoupling theory:
 European and Asian countries no longer depend on the US for
growth, hence, insulated from a severe slowdown in the US

• US still a major export market for Philippine products (both direct &
indirect)
•ADB: About 68% of the trade in Asia revolves around making final
products for export to the US and Europe
Outlook
 Manufacturing sector greatly suffered,
effectively constricting economic growth
 The resilience of remittances and private
business services helped mitigate the worst
effects of the global financial crisis
 Remittances has fueled private consumption
 BPO sector has continued to provide jobs
 Policy responses: Maintenance of adequate
liquidity and fiscal spending on targeted
cash transfers
Expect less from exports for growth
stimulus

 Developed countries – e.g. US, Japan – remains shaky from the crisis.
 Hard to expect consumers abroad to begin buying again as strong as before
the crisis.
How dependable is domestic spending?

1) Remittance: IDEA sees a 4%-6% annual increase in remittances in

2010
 Gainers: real estate, private services, trade
How dependable is domestic spending?

2) Election spending: 0.5%-of-GDP

contribution (gov’t estimate)
 Gainers: rural households, publishing and
media, private services, tourism

 Consumption to boost economic growth,

but only in the short term
 Sustainable contingent on continuing
inflow of remittances
 Look for other sources of growth stimuli
 Investment, exports
How do we raise RP’s growth path?
To raise RP’s growth trajectory:

RP would need to rely on 3 growth engines:

 Remittances

 Exports

 Level of investments

Of the three, the country only appears to have a

competitive advantage in remittances, especially
since the much-feared mass lay-offs of workers
didn’t happen
In the case of exports

There is a clear need to develop new products

and search for untapped export markets. The
key here is DIVERSIFICATION.

Another factor would be growing the country’s

investment levels
What about its investment level?
Gross Domestic Investment as % of GDP, 1981- 2009

Source: NSCB

 Level of investment remains low. In ’09, it reached only 16.12% of GDP. It

remained far below its pre-1981 crisis level of 26.26% of GDP. But why?
There’s just so much that the private sector can do to
expand employment opportunities. Government support is
needed,

 Lowering cost of starting business

 Provision of development imperatives
 improvement, maintenance of infrastructure
 Streamlining processes
 Improving transparency

 Information dissemination
 Emphasizing good news about Phils
 Labor information to address supply-demand mismatch
 Maintenance of credible and up-to-date statistics

 Business incubator
 Access to credit
 Tax exemption for a period of time

 Trade promotion

 Skills enhancement
More importantly, gov’t need to address
the ff:
 Inadequate government support services to private
sector, particularly to MSMEs
 Inadequate government support in trade promotion
 Lack of skills enhancement programs
 No business incubator
 No technological support

 Very limited access to credit

 Lack of competition in banking industry
 High interest rates
 ODA is not accessible
 Bias against MSMEs

 Negative attitude towards business/entrepreneurship

 Conservatism
 Counterproductive view towards ―small enterprises‖

 Other sources of inefficiency

 Presence of middlemen and fixers
 Squatters
 Information dissemination issues
Investments would increase employment but
impediments exist
 Governance issues
 No rule of law
 Red-tape, graft and corruption  high cost of doing business
 No enforcement of laws: Judicial system that does not work
 Ineffective government
 Uneven playing field
 Peace and order situation

 Faulty government priorities and policies

 Strong peso policy
 All government agencies are regulatory; none for promoting
 Changing investment priorities every year

 Lack of and bad quality of infrastructure

 Lack of access to market
 High cost of doing business
 Energy problem in some parts of the country
Jobs and the Cost of
Doing Business
Cayetano W. Paderanga, Jr.
Professor, UP School of Economics

1 February 2010