January 2004 LFS Results Open Unemployment Rises as Jobs Crisis Persists

The jobs crisis continues to widen as unemployment rose in the first quarter of this year, according to the latest January labor force survey. The unemployment rate hit 11%, up from 10.2% in the same month last year and 10.6% in the previous quarter. Close to 4 million Filipinos were out of work.

The persistently high unemployment rate is proof of the lack of substantive economic growth. Government boasts of outperforming neighboring countries in terms of GDP growth. But performance in terms of creating adequate employment for the growing working age population lags behind other countries.

Labor markets in the three other countries – Thailand, Indonesia, and South Korea – hard hit by the 1998 Asian crisis have since recovered. The Philippines alone continues to wallow in a worsening jobs crisis. The unemployment rate today is higher than it was in 1998. It is at par with levels reached during the 1984-1985 recession, the worst crisis in the countries postwar history.

Hidden unemployment

A bigger problem than open unemployment is underemployment, a desire for additional work hours to compensate for short working hours or low pay. While it has slightly eased in recent years, underemployment remains a massive problem. The number of underemployed workers – some 5.5 million or 18% of the employed, according to the survey – exceeded the 4 million unemployed Filipinos. Equally alarming, some 4 million employed workers actually worked less than 20 hours a week or half the 40-hour workweek standard.

Then there are workers who are jobless but are considered out of the labor force because they are engaged in so-called home production. Mostly women in rural areas who are ready to join the work force in the presence of jobs, they comprise as much as 20% of the nonlabor force or close to 3 million Filipinos of working age.

In all, the jobs crisis directly affects some 13 million Filipinos – 25% of the working age population – who are looking for work. At the same time, it presents problems for those who are employed. With that number of people in the job market, the bargaining power of labor to demand higher wages and improved working conditions.

Weak growth

The persistently weak labor market despite strong economic growth is indicative of a deeper economic malaise. The country’s economic managers say that while the economy has been doing well, growth has not been strong enough to generate sufficient jobs for the fast growing population. The economy simply has to grow faster to reduce the rising employment backlog.

But the problem goes beyond the pace of economic growth. The current recovery cycle that began in 1999 and now six years running is one of the longest growth periods in the last two decades, 1986-1990 and 1992-1997. The 4.5% annual GDP growth in the last six years compares favorably with those of the previous growth periods.

Yet job growth has been measly, making the current growth cycle the worst in terms of job creation. For example, 1% growth in GDP in 1992-1997 generated 1% growth in employment. In the period 1999-2003, 1% growth in GDP resulted in 0.5% growth in employment. Thus, while growth has been higher in the early 2000s than in the mid 1990s, job creation has been slower.

Wrong strategy

The deepening employment crisis can be traced to economic policies pursued in the 1980s and the 1990s, which encouraged import dependence and neglected the development of the country’s manufacturing base. Aggressive import liberalization and tariff reduction opened up the country to a massive flood of imports. Except for brief periods of sudden peso devaluation (following periods of crisis), the share of imports to total domestic supply has been shooting up in the last two decades. And despite the continued devaluation of the peso, the ratio has been rising since 2000.

Rising import dependence has been harsh on domestic industries selling to the local market. At the same time, government abandoned efforts to build a dynamic manufacturing sector. A decent manufacturing sector is necessary to build capacity to compete with imports as well as to create comparative advantage in the export market. It is also the best generator of productive, long-term, quality employment.

Instead government has relied on foreign investment to develop the export sector, specifically electronics production. Yet despite the huge success of electronics export, the industrial sector as a whole has been hallowing out. Its share of both GDP and total employment has consistently declined in the last 25 years. The recovery of industry that became evident in 2001 has proved weak and short-lived.

In sum, rising dependence on imports and the gradual dismantling of the country’s manufacturing base have created the current situation of deepening employment crisis amidst strong economic growth.

by: Clarence Pascual
Researcher Consultant, LEARN