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.”