Is the labor market tightening?

It is fair to ask the question, Is the market for labor tightening? With Labor Day just around the corner – May 1 – the question is pertinent. This is the time when the labor sector is most vocal, demanding, and almost always making a pitch for the government to do more for labor’s welfare.

This year, the common cry of organized labor is to end “endo,” the phenomenon of employment through labor contractualization which they want abolished.

The unemployment rate in 2018. According to the Philippine Statistical Authority, the unemployment rate – in the first quarter of 2018, is down to 5.3 percent of the labor force compared to 6.6 percent in the same period in 2017.

In fact, the unemployment rate was falling from year to year to the present year. The government’s statistical authority informs us that the unemployment rate averaged 8.47 percent per year between 1994 to 2018. The all-time high rate of 13.9 percent was reached in 2000.

Over time, the emerging picture of a falling unemployment rate appears optimistic. But it is still not uplifting. In some sense, it continues to be depressing. With population growth, the labor force also grows and, hence, the unemployed also could expand.

The employment numbers yield the true picture. With unemployment rate in 2018 at 5.3 percent, the country’s employment rate is 94.7 percent. This means a quite a high level of employment. We are informed by the same statistics that 60 percent of those employed work in the services sector, 26 percent are involved in agriculture and 18 percent in industry.

Services and agriculture are sectors that involve a high degree of “informal” or unorganized, very low income economic activity. Informal activities are outside the area of government regulation and promotion. Employment in the informal sectors is essentially self-employment or family-employment, where productivity is very marginal and incomes earned are very low.

Another feature of the employment situation is that many workers are engaged only part of the time. (“Full-time” work in the statistical definition is work that involves 40 hour work-week and above; anything less than 40 hours of work per week is “part-time”).

In fact in 2018, 63.6 percent of employed workers were full-time workers and 35.2 percent were part-time workers.

Thus, among those who are considered employed, a high degree of underemployment still exists. Thus, in 2018, 41 percent among the fully employed were “underemployed” by definition. Among the partially-employed, 57 percent were also “underemployed.”

Tightening labor market? Based on the employment information from labor statistics, the Philippine labor market is still in a very fragile state of development. There is still a lot of “surplus” labor that needs employment opportunities.

The falling unemployment rate is a mirage. The total picture about employment is that the whole economy is full of underemployed workers.

This could mean simply that there is a long bee-line for employment in openings for high quality jobs. Those jobs might not be filled easily if there are skills missing in the job market.

The underemployment phenomenon in the country could be interpreted in two distinct ways.

One interpretation is that the prevalence of underemployment unmasks the lack of required skills for the available jobs. From a policy viewpoint, such a situation requires that further investments be made to train labor both by the government and by the private sector.

An alternative interpretation is that there are not enough high quality jobs available in the country. This situation describes an economy that lacks the requisite investments in industry and in technology. The solution is to have more investments, both domestic and foreign, so that the jobs are created.

This interpretation calls for policies to promote more jobs at home to put more people are at work. We live in a country where labor is in surplus.

This has major implications for investment policy, including foreign investment policy. Filipinos work abroad to be employed because there are not enough jobs at home. Workers seek work where capital is abundantly located. East and Southeast Asian countries welcome foreign capital to the extent that we have not, and that partly explains their edge in development over us.

Though Philippine development policy embraces the policy of attracting capital, existing legal impediments could be removed to make the declared intentions match the policies in place. The efforts to revise Constitutional provisions, for one, needs to take place, the sooner the better.

All these measures, when put in place properly, will help to tighten the market for labor so that labor becomes scarce. Such measures will have major benefits for improving the welfare of labor, for it will set the stage for creating jobs at home.

As proven by the successes in development, especially in East Asia and Southeast Asia, the rapid creation of employment is the sure path toward making the labor scarce and, therefore, capable of rising income. Rising incomes and opportunities come out of a labor market that is tight.

Labor’s confrontational approach to government is self-defeating. Philippine organized labor has failed to see the limited accomplishments in employment as the result of advocacies guided mainly by ideology and myopic self-interest.

For instance, by pressing for the adoption of modern regulations that introduce great rigidities in labor policies, they have put up barriers that prevent more of the country’s workers to find good jobs in their own country.

Organized labor and their leaders should change tactics. They should help support the government’s efforts to create more jobs through sound development policies. They should push for policies that remove barriers to domestic and foreign investments so that they could open the job markets for more workers. They should support the inclusion of on the job training and apprenticeships in business establishments to enhance opportunities for productivity improvement of workers.

Labor should become a partner in the improvement of working conditions and worker productivity in the work place. It should help support the enhancement of programs and goad the government to expand social security and the upkeep of programs to improve education and the health status of common people through programs of self-help.

In general, labor should help uphold sensible labor reforms that expand job opportunities for many.

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