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Why Philippine unemployment rate is high

First Posted 11:15:00 10/09/2009

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As a result of the global economic crisis, which drastically cut our exports and slowed down our OFW (overseas Filipino workers) remittances, Philippine economic growth in GDP (gross domestic product) terms which was registered at 7.1 percent in 2007 was brought lower to 3.8 percent last year and to just about 1 percent in the first half of the year.

Despite the slowing down of the domestic economy, however, Philippine unemployment rate remained at almost the same level as it was before the current crisis. In the January, April and July Labor Force Survey this year, the country?s unemployment rate was placed at 7.7 percent, 7.5 percent, and 7.6 percent, respectively. These do not differ very much from what they were at 7.4 percent, 8.0 percent, and 7.4 percent, respectively, for the same months of January, April and July of 2008 or the 7.8 percent, 7.4 percent, and 7.8 percent, respectively, for the same aforementioned months in 2007. What helped the Philippines from not increasing its unemployment rate even with the slowing down of the Philippine economy that came with the global recession?

While our unemployment rate did not worsen, it could still not be denied, however, that our unemployment rate, which averaged at 10.4percent annually from 2001 to 2008 (higher still had the government not changed the official definition of the unemployed in 2005) is one of the highest in the ASEAN, if not in the whole Asia Pacific Region. In the same eight years, and based on Bangko Sentral ng Pilipinas compiled data, the unemployment rate was 3.4 percent only in Malaysia, 8.9 percent in Indonesia, 2.3 percent in Thailand, and 3.4 percent in Singapore. In South Korea, it was 3.5 percent, Taiwan, 4.3 percent, China, 3.9 percent and Vietnam, 5.6 percent. What makes the Philippine unemployment rates much higher compared with our neighbors?

To the first question above, I think that our having a very high unemployment, even before the coming of the global recession, is the answer. Meaning, that because our unemployment was already very high, there is nothing much that the global recession could do to make it much higher. Consider that many of our people are still dependent on agriculture or on self-employment for their living, including being an unpaid worker in a family enterprise. Going back to agriculture, becoming self-employed or working unpaid in family business is our usual response whenever we find that jobs in the formal or non-farm work sector are not easy to get.

One thing good about work in agriculture, self-employment, or working in family owned enterprise is that they are elastic. They expand and contract easily depending on the need of the workers for work even if their being employed there now does not contribute much to the increase in the total output. This is why, in the rural areas, employment data would show a higher employment rate compared to the urban areas. But when one looks into the underemployment data, the reverse is true ? higher in the rural areas than in the urban areas.

To the second question, of why our unemployment rate is higher than our neighbors, I find one answer in our failure to attract more investments and resulting inability to grow as fast as our neighbors economically. Based on a 2007 ADB report, Philippines: Critical Development Constraint, we only allocated less than 20 percent of our total expenditures in investments annually over a period of seven years from 2001 to 2007 while our neighbors had higher figures, ranging from 23 percent in Indonesia to 35 percent in Vietnam. In terms of foreign direct investments (FDI), data from the BSP also show that we only got an annual average of $1,112 in 7 years from 2001 to 2007. Malaysia got $4,191, Indonesia, $2,664, Thailand, $6,580 and Singapore, $16,780. Lower investments, naturally means lower economic growth, the reason why we are left behind by our neighbors economically.

Going back to our high unemployment rate, I just wondered how high it would actually be once we factored in the number of jobless Filipinos who opted to leave the country to find work abroad. Even with the recession, and contrary to the expectation of many observers of the economy, both local and international, the number of reported jobless Filipinos going out is still increasing although not at the same rate as before. Why? My explanation is that firms in the receiving country favor our OFWs because of their willingness to do any kind of work even for the smallest pay. Why do we do that? Because the alternative is to do nothing and receive nothing here.

But are there really no jobs available in the country? Of course, there are, and the demand for workers here also grows every year as long as our economic growth remains positive. The only trouble is that the number of our new entrants to the labor is quite large also every year because of our rapid population growth. When the number of new entrants to our labor force is bigger than the number of new jobs created, the result is the increase in the number of our unemployed or higher unemployment rate.


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