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Business World, 19 March 2013
The conventional wisdom is that as the economy expands, more jobs are created; the faster the economic expansion, the higher the rate of job creation. But last year, the President and his economic men were shocked with an inconvenient reality: the economy grew by 6.6%, yet fewer jobs were created. In fact, close to a million jobs disappeared in October. What went wrong?
Economists ask: Is there something structurally wrong with the Philippine economy? Sure, the economy grew. But a sizable part of the nation’s wealth is being managed, controlled and enjoyed by very few families, while the small part is being shared by the great majority of Filipinos.
The soon-to-be-released results of the 2012 Family Income and Expenditures Survey would show by how much income inequality has changed and in what direction. In the meantime, the general perception is that the rich are getting filthy richer, while the poor gets poorer. There are many more Filipino billionaires now than ever before.
The January 2013 unemployment and underemployment numbers show that the deterioration of the employment outlook continues. The number of unemployed and underemployed reached an all-time high: 2,894,000 and 7,934,000, respectively. The number of unemployed workers rose by 2,000 while the number of underemployed soared by 812,000.
The Philippines remains to have the highest unemployment rate among ASEAN-5 countries.
In the light of these worsening unemployment numbers, many economists now seriously doubt the ability of the Aquino administration to meet its goal of reducing unemployment rate to between 4% and 5% by 2016.
Last month,in an economic forum in Davao City, the World Bank Manila office head Konichi painted a grim picture of the Philippine labor market. He argued that with 10 million unemployed and underemployed workers, and with 1.1 million new entrants to the labor force every year, the economy has to create some 14.6 million new jobs between now and the end of President Aquino’s term in order to solve the country’s joblessness problem.
I estimate that under an “unchanged” labor scenario, that is unemployment rate will remain 7.1%, the number of unemployed workers will be 2,956,000 by January 2014, 3,015,000 by January 2015, and 3,076,000 by January 2016. The administration’s plan is to reduce unemployment to 1,733,000 by January 2016 — a difference of 1,343,000 jobs in 2016 alone. I estimate that the number of underemployed workers will be approximately 9,054,000.
Where will all the new jobs come from? Count out overseas employment. The global labor market would continue to be tight owing to the lingering world economic slowdown and the rising political tensions in the Middle East. Realistically, heavy clouds hovering over the jobs market in Europe and the Middle East won’t clear within the next five years. This means that more jobs have to be created domestically.
More jobs could be created in agriculture, manufacturing, tourism, and construction. But each of these sectors and industries are faced various constraints — some sector-specific, some cross-cutting.
Let me focus on the cross-cutting constraints: poor infrastructure, especially the inadequate, costly and unreliable power supply; unwelcoming business climate, partly due to the high costs of doing business in the country and partly due to the restrictive economic provisions in the Philippine Constitution; policy bias against the employment of labor; and a tax regime that is biased against manufacturing.
The unspectacular inflow of direct foreign investments (FDIs) into the country is a major constraint to economic expansion. The limited inflow of FDIs has retarded growth in agriculture, the industrial sector, public utilities, and public infrastructure.
The inflow of foreign direct investments is constrained by some restrictive provisions in the Philippine Constitution. Opening up the Philippine economy could make a big difference in the country’s economic future. It is not the same as the slogan: “The Philippines is open for business.” The latter means foreign investors are welcome to ‘dance’ with the local industrialists, but not to manage and own their own businesses in the Philippines.
Sufficient, affordable and reliable power supply is needed in order to make the revival of manufacturing feasible. But the sputtering power supply also affects agriculture, wholesale and retail trade, banking and financing and almost all types of business activities.
OMINOUS SIGN OF MORE DARK DAYS TO COME
The power outage that is commonplace in Mindanao now is an ominous sign of more dark days to come in the entire country.
Crumbling roads and bridges, seaports and airports are big turnoffs for foreign and domestic investors. The country’s premier international airport has become a major source of collective disgrace. Yet, policy makers can’t seem to decide on whether its Clark or Manila or both.
Another constraint to the revival of manufacturing is high labor cost and some other restrictive labor policies. Proposals to remove the bias against the use of labor in manufacturing and plantation agriculture should be supported. A new labor policy regime that directly encourage the use of labor should be adopted.
A concrete proposal coming from former National Economic and Development Authority Director General and U. P. economics professor Gerardo Sicat is worth looking into. Sicat proposes to create jobs by providing strong stimulus for the private sector, including foreign direct investments, to employ more workers in organized industry and agriculture.
He proposes the creation of “labor employment zones” in developed parts of the country. “Companies that locate in these zones will hire labor under rules that are free from the minimum wage setting standards and from the rigid rules of hiring and firing. The zones are to be located — like export processing zones — in the poorer regions of the country. Many of the unemployed will rise from poverty in these regions and they will no longer flock into Manila and other richer cities as much.”
“The country became an exporter of manufactures only after we set up export processing zones and worked around the highly protected domestic industrial regime,” Sicat noted. “The same will happen if we apply the labor employment zones scheme. We will attract labor-intensive domestic industries and FDIs and accelerate job creation, reduce poverty in the countryside, beat the ill effects of rigid labor laws and transform the country into a faster rising tiger economy,” he added.
Provinces and cities who are willing to adopt measures that would provide incentives for the use of labor in priority economic activity should be encouraged through a specific grant from the central government. Some preferred areas are manufacturing, tourism, housing construction, reforestation, cleaning up of rivers, and so on.
BIAS AGAINST MANUFACTURING
The present tax system is biased against investing money in manufacturing. If one has tons of money in this country, he would most likely invest in real estate construction. The tax on property ownership is extremely low while the return on investment is high.
As a country, the Philippines has over-invested in real property. Imagine if only half of the country’s wealth that went into real estate development in the Bonifacio property were used to build factories or modernize agriculture, then more decent, sustainable jobs would have been created.
The Philippines has one of the highest corporate income tax rate in this part of Asia. On the other hand, its effective tax on property ownership is one of the lowest in the world.
The 2012 rapid economic growth has not brought about the promise of more jobs. A plausible reason is the existence of a set of policy incentives that is biased against labor-using, combined with the continuing disincentives brought about by some restrictive provisions in the Philippine Constitution.
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