‘Improving economy, not tinkering with labor policies, key to more jobs’

INSTEAD of “tinkering” with labor policies to create more jobs, an expert from the University of the Philippines School of Economics (Upse) urged the Aquino administration to focus its efforts on improving the country’s anemic economic growth in order to create more employment opportunities.

The country’s poor economic growth remains the single biggest hindrance to generating more jobs for Filipinos, Dr. Emmanuel Esguerra, Upse professor, said in a piece he delivered at the 10th Ayala Corp.-Upse economic forum on job creation: “What’s labor policy got to do with it?”

Higher growth, he said,  would only be achieved by increasing investments and by addressing other issues surrounding growth, such as  taxation, public spending and infrastructure development.

“The main bottleneck to employment creation is the country’s capacity to grow so that reforms are best directed at issues of taxation, government spending, infrastructure development and building investor confidence,” Esguerra said in his presentation.

“Given the conflicting results of studies regarding the impact of labor-market policies, growth and employment, policymakers are well-advised to focus on [addressing] the bottlenecks to growth,  rather than trying to tinker some more with these types of labor-market intervention,” he said.

Esguerra said the most common labor-market policy is minimum wage, which remains a fiercely debated issue. In terms of the level of minimum wage in 2007 using purchasing-power parity dollar values, the country had the 28th highest minimum wage out of 130 economies.

In terms of levels of minimum wages relative to gross domestic product (GDP) per capita among developing and transition economies, the International Labor Organization  in March 2009, showed that the minimum-wage-to-GDP ratio of the Philippines was 150 percent.

Despite the relatively high minimum wage in the country, many of the poor do not benefit from it, Esguerra said, noting that  38 percent of nonagricultural workers and 78 percent of agriculture workers receive wages lower than the minimum wage.

He also said that close to 50 percent of workers belonging to the 15-24 age group earn below the minimum wage.

Esguerra said the minimum wage should be a safety net but because the minimum-wage policies have too many objectives, there is a need to agree on what it is for—a safety net or a wage floor which is used as a benchmark for wage bargaining.

“Minimum wage should be a ‘safety net,’ but fact is it has been set beyond that level; viewed as second to the most problematic among labor policies after restrictions on worker termination. Firms without fiscal incentives, those with export orientation, domestically owned, of larger size and younger, tended to have stronger views against the current minimum-wage policy,” he said.

“Aside from employment and income distribution effects, there are also effects on unions, [collective bargaining agreements] and inflation,” he added.

Esguerra urged the Aquino administration to focus its attention on creating growth to allow an increase in employment opportunities, as well as investments in human capital, such as improving education and providing training for workers to avoid permanent displacement.

Esguerra noted that the 2009 preliminary findings in the Yearbook of Labor Statistics showed that close to 30,000 workers were displaced in the National Capital Region alone.

“Displaced workers have a low re-absorption rate and options limited to short-term jobs. A high percentage either becomes unemployed or prematurely exits the labor force, making re-absorption more difficult. [Their] exit from labor force becomes permanent with skills deterioration,” Esguerra said.

Data showed that between 2007 and 2008, the Philippines’s unemployment rate was pegged at 7.4 percent, while the labor force participation rate was at 64.9 percent, he said.

Compared to neighboring countries, labor-force participation rate is the lowest in the Philippines and the unemployment rate is, the second highest, Esguerra said.

Thailand has the highest labor-force participation rate of 72.5 percent and the lowest unemployment rate of 1.4 percent.

Further, 2009 data showed that the highest number of unemployed in the Philippines belonged to the 15 to 24-years-old age group, which had an unemployment rate of 17.6 percent.

“Human-capital investment is key to employment security. The best insurance against permanent job loss is lifelong education and training. But this needs to be complemented by a labor-market-information system and some form of income support to mitigate losses arising from job separations,” Esguerra said. –Cai U. Ordinario / Reporter, Businessmirror