Job creation: what’s labor policy got to do with it?

Job creation: what’s labor policy got to do with it? 21 July 2010

“Layunin nating paramihin ang trabaho dito sa ating bansa…” Pres. Benigno C. Aquino III, Inaugural Address, 31 June 2010 • “Mahigit anim na milyong trabaho, kung maaari sampung milyong trabaho.”Pres. Gloria M. Arroyo, Inaugural Address, 30 June 2004

“Sa abotngakingmakakaya… bibigyannatinangmasang … hanapbuhayat dangalsaaraw-araw.”Pres. Joseph E. Estrada, Inaugural Address, 30 June 1998 • “We must get the entire economy to generate productive employment — keeping in mind that for each citizen, a job means not merely material income, but social usefulness and self-respect.”Pres. Fidel V. Ramos, Inaugural Address, 30 June 1992

Wages and salaries account for 54 percent of household income. (FIES 2006) • 41 percent of households depend on wages and salaries for at least 50 percent of their income. (FIES 2006) • Income from self-employment is classified as “entrepreneurial income” which understates the importance of labor income for majority of households.

Unemployment in selected Southeast Asian countries, 2007-2008

Unemployment by age group, 2009

Regional unemployment rate Source: Yearbook of Labor Statistics, 2009.

Poverty, labor force participation, and unemployment

Unemployment by educational attainment, 2008

Regional underemployment rate Source: Yearbook of Labor Statistics, 2009.

Employment by sector and class of worker 2003-2009 Source: Philippine Industry Yearbook of Labor Statistics (2008), Current Labor Statistics (April 2010)

Labor market mismatches • 2in every 5 establishments have job openings • Approximately 1/3 (or 35.3%) of which are “hard-to-fill vacancies” • Hard-to-Fill Vacancies • Defined as vacancies for which establishments found difficulties in recruitment

BLES-DOLE’s Survey of “Hot Jobs”April 2010 • 1 out of 4 hard to fill vacancies is for a professional worker

BLES-DOLE’s Survey of “Hot Jobs”April 2010 12.7% of hard-to-fill vacancies are for technicians and associate professionals

BLES-DOLE’s Survey of “Hot Jobs”April 2010 Nearly half of the hard-to-fill vacancies are for clerks

BLES-DOLE’s Survey of “Hot Jobs”April 2010 • Recruitment Criteria & Practices: • College degree is a minimum requirement. • Years of work experience is a big advantage in job search. • Network of friends/relatives/neighbors and classified ads are the most dominant modes of recruitment. • School preference is not important in recruitment. • Employers have high regard for the applicant’s job readiness.

Employment insecurityPercentage disagreeing or strongly disagreeingthat “My job is secure.” (Source: Green, 2009)

Difficulty of job replacement and worry about job loss Source: Green, 2009)

Source: Yearbook of Labor Statistics, 2008.

Establishments resorting to permanent closure/retrenchment (by reason) Source: Yearbook of Labor Statistics, 2008.

Permanently displaced workers (by reason) Source: Yearbook of Labor Statistics, 2008.

Accession & separation rates NCR, 2003-2008 Source: BLES, Current Labor Statistics, various years.

Labor turnover rate, NCR 2003-2008 Source: BLES, Current Labor Statistics, various years.

Insecurity in employment is popularly associated with the use of short-term, contingent, low-paying contracts. • 86 percent of 1200 firms (PLFS, 2000) • 30 percent of 2.5 million workers in establishments with more than 20 workers (BLES, 2004) • 28 percent of rank-and-file employees are non-regular (BLES 2008)

Insecurity also depends upon the ease of finding a job that is comparable to the present one. • Displaced workers have a low re-absorption rate and options limited to short-term jobs. • A high percentage either become unemployed or prematurely exit the labor force making re-absorption more difficult. • Exit from labor force becomes permanent with skills deterioration.

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.

Labor market flexibility is equated with job insecurity in the Philippines because of the dominance of numerical flexibility as a strategy to adjust to competition. • “Functional flexibility is generally found in states which underwrite a supportive social structure in training, education, and R&D…”

Do labor regulations inhibit job creation? • Most common are : minimum wages and employment protection • Minimum wage still an intensely debated issue in the Philippines • Employment protection: some labor contracts are considered illegal (labor-only contracting); employees have to be “regularized “ upon reaching 6 months with employer

Level of minimum wages in 2007 (PPP US$)Philippines’ MW is the 28th highest out of 130 (among top 50%) Source: ILO, March 2009

Levels of minimum wages relative to GDP per capita: developing & transition economies Source: ILO, March 2009

Wages and minimum wages (monthly levels in local currency, 2002/2004) Source: Saget (2008)

“Maxi” minimum wages • MWs that seem far too high to be considered reasonable • Maxi MWs – the MW is too high to be considered as a genuine MW • Causes: MW negotiation tends to become a platform for actual wage negotiations, reinforced by system of exemptions

Around 75% worked for private establishments (roughly a third of the total employed); the rest worked for government Around 12% are employers Scope of Philippine minimum wages • Limited only to wage and salary workers in private establishments (which is about half of the employed) and family-operated activities Employed Persons by Class of Workers (Share to total), 1991-2007 Source: NSO Labor Force Surveys

Poverty and employment by class of worker (1998, in percent)

Scope of Philippine minimum wages • Exemptions and non-compliance • Workers in micro, cottage, and small • Small and medium enterprises (SMEs) comprise 99.6% of all registered business in the Philippines and employ 70%of the workforce (NSCB, 2001) • The analysis of geographic distribution of enterprises throughout the country indicates a high concentration in the National Capital Region (NCR), which accounts for 24.4%of all establishments and 40.1%of all employees. • Part-time workers

Summarizing… • 38% of non-agricultural workers receive wages lower than MW; 78% in agriculture • Close to 50% in 15-24 age group earn below the MW • By sector, proportions below MW are • Wholesale and retail trade – 50% • Manufacturing – at least 30% • Transport, communication and storage – above 30% • Community, social and personal services – 27-32% • NCR – increased after 2005

Views on the minimum wage • Employers: MW should be a “safety net”, but in fact it has been set beyond that level; viewed as second to the most problematic among labor policies after restrictions on worker termination (Sicat, 2009). 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.

Views on the minimum wage • Organized labor: mixed views from abolition of RTWPBs to across-the-board wage legislation; MW policy has too many objectives, need to agree on what it is for: a “safety net” or a wage floor (benchmark for wage bargaining) • But if safety net, there should be no exemptions; however, level should be subject of negotiation.

Minimum wage effects • Few studies in developing Asia (e.g. Indonesia); negligible in Philippines • Aside from employment and income distribution effects, there are also effects on unions, CBAs, and inflation.

Effect of an increase in minimum wages: transition matrix Effect of an increase in minimum wages: transition matrix

Thank You! 21 July 2010

Job creation: what’s labor policy got to do with it?