Joblessness, poverty and hunger

When it rains it pours. After record-high poverty and hunger rates, here comes record-breaking adult unemployment rate. The Promised Land is fading fast, or at least, looming more distant than ever before. And unless the government of the day gets its act together and move much faster and bolder, this sad state of affairs is going to get worse before it gets better.

The population growth inertia is getting out of hand. The domestic economy faces slow, normal growth owing partly to the slow-moving government programs and projects and the continuing threat of global recession. This combination of soaring population and underperforming economy makes the task of improving the lot of the poor more difficult.

Adult unemployment hit a new record-high in the first quarter, according to the Social Weather Stations (SWS) survey results. The survey, conducted from March 10-13 among 1,200 adults nationwide, showed adult unemployment hit a record-high 34.4%, equivalent to about 13.8 million individuals.

This was 10 points more than the 24%, or about 9.7 million, recorded in the December 2011 survey. It surpassed the previous record of 34.2% in February 2009, during the bottom of the recent world economic crisis.

According to the SWS, the unemployment rate was highest among the young adults: 55.9% of respondents ages 18-24 years from 49.1% in December, and 45.4% among those ages 24-34 years from 29.9%.

Job creation should be the government’s top concern, up there with poverty alleviation and hunger moderation. The three problems are intertwined, of course. The lack of decent jobs is a major cause of poverty, which in turn is a major reason for rising involuntary hunger.

According to official statistics, there are some 2.9 million unemployed and 7 million underemployed. But we all know how official unemployment statistics understate the true picture. For example, among the employed, there are some 4 million unpaid family workers.

The recent SWS survey results were published just after the government has decided to increase the minimum wage by P30 for workers in the National Capital Region. The salary adjustment could not have come at the worst time since it could deter the creation, and arguably lead to the destruction of some existing, jobs.

Yet, according to official statistics, unemployment in the National Capital Region was already 12.2% in January 2012, the highest in the country. The national average was 7.2%.

The high unemployment in the National Capital Region (NCR) did not happen by accident. It’s the outcome of supply-demand interactions.

First, the supply factors. Having the highest minimum wage in the country, NCR would logically attract more workers. This is in addition to the natural pull of the metropolis because of its superior public services — better public schools and health facilities, mass transit, social welfare provided by local governments, superior entertainment facilities, and so on.

But even abstracting from rising labor migrants, being the most populous region in the country (12 million, May 2010), NCR naturally supplies the biggest cadre of new entrants to the jobs market.

The P30 increase in daily minimum wage, on top of the highest minimum wage in the country, will only attract more workers to join the labor force in the NCR.

Next, the demand factors. With the higher minimum wages, some marginal firms will be faced with rising costs of doing business, and would likely shut down. Instead of creating jobs, firms will give up jobs.

With labor supply increasing and labor demand decreasing, wages should be falling not rising. That’s the immutable law of supply and demand. The recent mandated increase in the minimum wage for the NCR (and elsewhere) is an attempt to abolish such economic law. That’s idiotic.

The wage board ruling raising minimum wages in the National Capital Region to arrange of P419-P456 will exacerbate rather than ease the country’s unemployment and underemployment problem. The same argument also applies to decisions of wage boards in other regions.

But what’s the solution? The answer lies in a combination of short-run and long-run measures. The economy has to grow faster and on a sustainable basis. But how?

It has to adopt a development strategy that makes use of the economy’s abundant resource (its people); this suggests the revival of manufacturing and less real estate activity. But this requires a paradigm shift.

It has to put in place a tax system that promotes neutrality in factor use and less capital-using bias. This needs a fundamental reform tax reform. The watered-down version of the tax on cigarettes is simply a revenue-raising measure, not real reform.

It has to provide an economic environment that promotes more foreign direct investment to complement local investors in order to create more jobs locally. Here the existing wage-setting policy needs to be revisited. The Philippines has the third highest minimum wages in the region, after Singapore and Malaysia.

And here’s a major challenge: the population explosion. The inertia of high population growth (some 1.7 million babies are born every year), and its related effect on labor supply (some 1.0 million join the labor force every year) has to be addressed now rather than later. This problem won’t go away by sheer neglect, it will just get worse.

Yet, the Aquino III administration appears to view the Reproduction Health bill as unimportant in the overall scheme of things. One can’t fight poverty through the conditional cash transfer program alone. It simply isn’t fiscally sustainable.

Poverty is a function of family size. There are simply too many unplanned births because the poor have limited access to modern methods of family planning. With a smaller family size, the ability to provide nutrition, education and health care to the young is much higher. For poor families, large family size dooms children to a deepening cycle of poverty and deprivation.

Benjamin Diokno is professor of Economics at the School of Economics, University of the Philippines(Diliman). He was formerly secretary of budget and management in the Estrada Cabinet and undersecretary for budget operations in the Aquino 1 administration. –Benjamin E. Diokno, Businessworld