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Ask the Economist: Slow increase in employment rate despite high GDP growth.

September 3, 2008

Starting today, I’ll be entertaining queries pertaining to economics. You can email me your questions at musingsofayoungeconomist@gmail.com. You may also post a question at this PinoyExchange link

Here’s a question posted by drhenry4 on PinoyExchange :
(The) Philippine economy grew by 7.3% last year, the fastest in the country’s history, but employment rate grew by (a) mere 0.2%. How is this so?

For this analysis, I will be using the unemployment rate for convenience. By definition, the unemployment rate is the percentage of unemployed workers in the labor force. The labor force, here in the Philippines, is defined by the NSCB as “all persons 15 years old and over as of their last birthday who are either employed or unemployed.” In notation form, Labor Force = Employed + Unemployed.

In theory, what causes unemployment? Two things:

  1. Frictional Unemployment. This is the time it takes people in the labor force to look for a job. This occurs because it takes time to match people and jobs (due to preferences, educational background, previous training, mobility in terms of location, and specific industry demand for labor).
  2. Wage Rigidity. When real wage is above equilibrium level, the supply of workers exceeds the demand for them. Firms would then limit their demand for labor resulting in unemployment.

Continue reading this article at Musings of a Young Economist.

http://musingsofayoungeconomist.co.cc

Written by Juvenile · Filed Under Business, Current Events, Education, News, Politics & Gov't 

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