ADB: ‘Jobless growth’ in Phl a waste of huge labor power

The Philippines continues to waste its huge labor power that is the envy of other developing countries by not producing enough jobs, despite the stellar growth of its economy over the past few years, the Asian Development Bank (ADB) has noted in a periodic review.

Government attention has been called to this phenomenon several times by University of the Philippines School of Economics (UPSE) Professor Benjamin Diokno, who coined the term “jobless growth” to indicate the acute absence of jobs despite the supposedly higher-than-normal growth that the country has achieved under President Aquino.

Jobless growth is seen as the main reason nearly 25 million Filipinos remain impoverished, despite the country’s strong economy.

In its Asian Development Outlook update, the ADB said that, while the unemployment rate at 5.8 percent in January 2016 was considered a historical low, the jobless rate for young people aged 15 to 24 years was at 14.4 percent and underemployment at 19.7 percent.

“In large part, reflecting the lack of good jobs, poverty remained elevated at 26.3 percent of the population in the first half of 2015, although declining from 28.8 percent in 2006,” the ADB said.

The ADB noted that the country has a relatively young population, as half of all Filipinos last year were younger than 25 years, and the median age was estimated at 23. This offers an opportunity to raise potential economic growth, but the demographic dividend can be realized only if young people are employed in productive jobs.

The economic officials of President Aquino had been citing the “demographic sweet spot”—the result of majority of the population reaching working age—as a potential engine of higher growth in the country.

But the ADB said the economy has failed to catch up in creating jobs for the youth that are now seeking employment.

“A survey found that college graduates took about a year to find work, and high-school graduates took up to three years. Many drift into informal work, often part time and poorly paid, or remain unemployed. One in four young people is neither working nor pursuing education or training,” the ADB said.

It also said the number of jobs generated each year falls short of what is needed to both absorb new entrants in the labor force and the 2.5 million unemployed, half of them young people.

“Almost 80 percent of new jobs in the past six years have been generated by the service sector, particularly business-process outsourcing (BPO), tourism and retail trade,” the ADB said.

It said the industry contributed about 20 percent of new jobs, while employment in agriculture fell in most years.

“Stronger employment generation will require more broad-based growth driven by productivity gains in all sectors,” it added.

The ADB also said mismatches between the education and skills young people acquire and the needs of the labor market were “a constraint.”

It said improving the relevance and quality of technical and vocational training programs and strengthening certification frameworks could help overcome skills and jobs mismatch.

In its report, the ADB also cut the estimated gross domestic product (GDP) growth for the country at 6 percent for 2016 and at 6.1 percent in 2017, as it said private consumption would remain the main growth driver for the country this year.

However, the pace of increase is seen to moderate.

“Rising employment, higher government salaries, modest inflation, and remittance inflows all point to robust consumer spending,” the ADB said.

“Moving forward, the pickup in government spending that began in 2015 should accelerate this year, lifted in part by spending ahead of May 2016 elections.”

The GDP growth forecast for the Philippines is higher than the projected growth for the region at 5.7 percent, both this year and next year.

Growth can withstand external headwinds, with its healthy macroeconomic fundamentals, the flagship annual economic publication of the ADB noted.

Sona Shrestha, ADB Philippines country office principal economist, said the country’s economic growth is resilient with the improving fiscal condition and external accounts.

The country’s GDP growth projections exceeded the outlook for Asia at 5.7 percent, both in 2016 and 2017, as well as Southeast Asia’s growth of 4.5 and 4.8 percent in 2016 and 2017, respectively.

But the growth projection for this year was trimmed from the ADB’s forecast of 6.3 percent in 2015.

“It’s mainly because of the external environment, and the major trading partners’ growth turned out to be lower than what was anticipated at the time,” Shrestha said, in explaining the reduction of the growth forecast for the country.

ADB Principal Economist Donghyun Park, for his part, said: “Our downgrade for the Philippines’s growth is part of the broader downgrade for developing Asia’s outlook, and it has to do with very uncertain, difficult challenges for the global environment that we are facing.”

Park said the risks to Asia’s economic growth included the expected gradual rise in US interest rate, which will heavily affect countries with large foreign debt, and China’s slowdown.

But he said the easing economic growth of China is part of its natural transition to ensure sustainable growth.

The ADB noted that the Philippines’s budget deficit of 0.9 percent in 2015 remained well below the 2-percent deficit ceiling in the budget while the ratio of national government debt to GDP was less than 45 percent in the same year, the lowest in over a decade.

Likewise, the gross international reserves (GIR) that amounted to $81.9 billion as of February 2016 could cover 10.2 months of imports of goods and services and income payments.

The ADB also mentioned that solid broad-based domestic demand as well as the sectors of services and manufacturing would be the key growth drivers for the Philippines.

Robust government spending, which began last year, should also accelerate this year, lifted in part by spending ahead of May 2016 elections.

Shrestha said the election may bring uncertainty in some degree, but the direction of reforms embedded by the administration, such as improving investment climate, infrastructure, human capital development, and government reforms would not pose major changes in the country’s economic growth.