More and better jobs - the greatest gift for the poor

AT THE START OF THE Aquino administration, a survey revealed that 75% of the Filipino people expected more jobs. Achieving inclusive growth seems to be the principal goal of the rest of President Aquino's term. Recently, natural calamities further underscored the need for jobs so that the affected persons can fully recover and live decent lives. The time for relief is over. Rehabilitation has begun. Jobs and livelihood will restore dignity and mend shattered lives.

World bank study

Karl Kendrick Chua of the World Bank, in his draft Philippine Development Report, has several observations on the Philippine employment picture:

• Services account for 52 per cent of employment, while agriculture and industry's share in employment continues to decline

• Majority (60 per cent) of employment is low-wage and low-skill, mostly in the informal sector

• Manufacturing accounts for only three million jobs for the past 15 years and is concentrated in NCR, Central Luzon and Calabarzon

Jobless growth

During the past decade, Gross Domestic Product grew well, but it was mostly a jobless growth. From 1999 to 2012, jobless growth resulted from two possibilities, as Chua opines: (1) a shift in inputs from labor to capital, given the lower relative price of capital, or (2) reluctance of businesses to expand even when the economy has recovered from a slowdown, perhaps due to the high cost of doing business or concerns about investment climate.

Population growth, at 1.9 percent between 2000 and 2010, is the highest in East Asia, although is half the growth rate in the 1960s. In the same period, Thailand reduced its population growth rate from 3 to 1 percent, while Indonesia from 2.5 to 1.2. Even if the Philippine population growth rate stabilizes at 1.7 percent between 2010 and 2020, the Philippines will likely breach the 100 million mark anytime now, if it hasn't done it yet. Unless there is inclusive growth, our relatively high population growth will continue to pull down the Filipinos' real income. Surplus labor will outpace job creation in the formal sector.

Every year, 1.8 million Filipinos are born. As many preschoolers enter kindergarten. This will put great pressure on the public health and education systems that are now inadequately prepared to serve 19 million public school students today. To provide higher quality services, government must increase spending in health and education by at least 10 percent of GDP annually for the next several years.

At 1.7 percent population growth rate, dependency ratio (or ratio of people below 15 and over 65 to total population) will continue to be the highest in the region. This puts pressure on household incomes to fund human capital accumulation. As we write, only 30 percent of Filipinos are gainfully employed. Each employee has to support 2.8 family members who are not of working age. The Philippines has one of the highest dependency ratios at 63 percent. With dwindling family incomes, achieving higher quality education and health care becomes a daunting challenge for the workers.

Unemployment

The ILO (international Labour Organization) has recently defined unemployed as "people between 15 and 65 years old who are 1) without work, 2) currently available for work, and 3) seeking work. Under the old definition, particularly between 1983 and 2011, unemployment rate was above 10 percent and underemployment rate was roughly 20 percent. This means that one out of three Filipinos cannot find a job.

The youth aged 15 to 24 accounts for half of the total unemployment. While more than 50 percent of this group are high school graduates and 30 percent are college graduates, the unemployment rate of this group is about 16 percent, more than twice the total overall unemployment rate in the Philippines today.

Unemployment among college students or college graduates is 11 percent. This could suggest a mismatch between job demand and skills. While among this group are graduates wanting jobs abroad, 12 percent of young persons simply wait for remittances from parents abroad. By the way, deployment of OFWs (Overseas Filipino Workers) tends to mask the true extent of unemployment and underemployment in the Philippines. Among the youth, the extremely poor youth has three percent unemployment while youth in the richer quartiles have doubledigit unemployment rates. Translation: the poor cannot afford to be without jobs, while the rich can be choosy.

Manufacturing jobs

After WW II, the Philippines was basically an agricultural economy. Then, half the employed persons were in manufacturing. Suddenly, we realized that majority of our workers are in the services sector.

In 2010, the Joint Foreign Chambers (JFC) compiled over 400 recommendations for policy change to spur the economy and attract $7.5 billion new investments every year for the next decade. This would result in one million new jobs every year. Sadly, a great majority of the recommendations have not been adopted.

A few months ago, John Forbes and Bobby Batungbacal of Amcham, Henry Schumacher of the European Chamber, and I sat down to discuss the possibility of creating millions of jobs in the manufacturing sector. We all agreed that the Philippines has great potential to create jobs in both high-value and lowcost, labor intensive manufacturing.

Later, the JFC held round table discussions among industry participants to identify products that can be made in the Philippines, with the highest growth potential for both export and domestic markets. Consultations with key government agencies were also done initially with a few Cabinet members and their Undersecretaries. The results of these discussions and consultations are overwhelmingly encouraging. The Philippines can create four million new jobs in the next several years "by achieving a significant increase in the contribution of manufacturing the GDP, from 21% now to 24% in 2016 and almost 30% by 2022." This will help the country catch up with manufacturing leaders in the ASEAN - Indonesia, Malaysia, Thailand and Vietnam.

Labor productivity

As we write, the 2013 labor productivity in the Philippines is highest in manufacturing ($18,000) - higher than services ($7,000) and agriculture ($3,000).

According to DOLE's 2012 Labor Force Survey, 52% of workers are in services, 32% in agriculture, and 15% in industry. Only 3 million Filipinos (8%) are in manufacturing. To increase total labor productivity, labor should move from low productivity to higher productivity sectors, such as manufacturing.

The JFC, therefore, suggests "(1) a significant shift of rural workers, particularly the unemployed, to the labor-intensive manufacturing subsector, and (2) unemployed and underemployed skilled workers to gain full-time employment in high valued-added manufacturing sectors, particularly underemployed skilled Filipinos currently working in low-value subsectors of services."

Binding constraints

The JFC paper noted some binding constraints to this otherwise noble intention of creating more and better jobs for poor Filipinos. "Poor infrastructure and poor governance are two top constraints. It is important to consider how easing these positively impacts on two targeted types of manufacturing … Among constraints relevant to manufacturing in the Philippines are labor cost, low labor productivity, improperly matched labor skills, land issues, market access, advanced FTAs, power cost and reliability, lack of effective promotion activities, regulation and red tape, lack of industry planning roadmaps, high cost of domestic shipping, smuggling, and tax issues…"

Today, there's a window of opportunity. Recent estimates say that "China will lose half its 85 to 100 million manufacturing jobs, as labor intensive industries contract as a result of rapid-wage inflation. But this giant job creation effect for the region's low-income producers is not yet spilling into the Philippines, as foreign investors and foreign buyers go elsewhere where costs are lower. This strongly argues for greater efforts in the Philippines to reduce business costs."

In his July 22, 2013 SONA, President Aquino said, "The strategy: Maximize opportunities for all, especially for those most in need. We are not content to wait for the trickle-down effect; we cannot leave their fate - their receiving the benefits of progress - to chance. What we call inclusive growth - this allencompassing progress - is the principle that drives every initiative, every action, and every decision of your government."

Obviously, creating four million new manufacturing jobs will not happen under a status quo. Certain policies will have to be tweaked to create those jobs for the poor.

Can the Philippines adjust its policies to revive low-cost manufacturing and create millions of jobs, thereby making economic growth more inclusive? Do we have the political will to do away with self-defeating, protectionist, if not overprotective, policies that stand in the way of progress?

It sounds like the title of a 1969 British musical film written, produced, directed and starred in by Anthony Newley, "Can Heironymus Merkin Ever Forget Mercy Humppe and Find True Happiness?"

(Ernie is the current Executive Director, and 1999 President, of the People Management Association of the Philippines; Chair of the AMCHAM Human Capital Committee; and Co-Chair of ECOP's TWG on Labor Policy and Issues. He was recognized by PMAP as Diplomate in People Management (DPM) in 2011. He was also voted "Best Newspaper Columnist" by PMAP in 2011 and 2012. He is the President and CEO of EC Business Solutions and Career Center, a HR consulting firm. His books, "Life's Big Lessons" and "Life's Big Lies" are available at PMAP, tel. +632 726 1532 or at ernie_cecilia@yahoo.com)