The Philippine unemployment problem – the influence of law and culture

It’s been some five years since Prof. Sicat wrote about reforming the labor market.  Yet, what he said then still makes the best sense.

A main idea propounded by Sicat is that the labor laws protect the already employed but do little for the unemployed.  The result is rent-seeking and motivational “distortions” that make firms reluctant to hire new labor or to invest in the human capital of their employees.  This state of affairs helps explain why the country has remained poor.

Here is a significant quote from Sicat’s paper:

As the discussion of the ‘successes’ of the Philippine labor market in this paper makes clear, Filipino workers do very well when they are challenged to test their skill and ability against others. It is the espousal of welfare oriented thinking that has set much of the progress of employment in the country.”

Unfortunately, I suspect that many  “pro-labor” politicians and “labor leaders” (also known as the “labor sector”) probably never heard of Sicat or his work, or that they don’t want to listen.  As a result, the labor law and the local culture have remained perhaps the larger part of the long-standing unemployment problem.

Elsewhere, I gave my own view on how to solve the unemployment problem.  I said:

Jobs are created by a strong economy, one where labor productivity is promoted instead of hindered by government, and where schools emphasize basic as well as applied sciences.  Thus, fixing the unemployment problem means having a domestic economy that absorbs a well-educated labor force. One key fix in this regard is to allow “at-will” employment contracts in exchange for a commitment on the part of the employer to increase labor productivity through training. A second-best solution is to continue to export OFWs as a temporary measure.  Finally, a short-term solution to recession-induced unemployment is expansionary monetary and fiscal policies, or Keynesian “pump-priming.”

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About Orlando Roncesvalles

".. I wear the bottoms of my trousers rolled.."
This entry was posted in development economics, institutional economics, institutions, macroeconomics, microeconomics, philippine economy, Philippine law, public choice, regulation and tagged , . Bookmark the permalink.

2 Responses to The Philippine unemployment problem – the influence of law and culture

  1. tomas robles says:

    how about we learn from our successful neigbors since we have similarity in culture and geography like Malaysia, Thailand, Taiwan, Singapore. Let us copy what they did that will work for us.

    • good question. not sure if there’s a good answer. will keep it in mind.

      but for now, i suspect it’s because these countries are friendly to employers who bring in high tech industries. here in PH, we’re not so friendly. why? my best guess is that they need filipino partners, and the latter want too big a cut in the profits.

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