NEWS about the slowest rate of inflation in 20 months has a worrisome angle, because of what it suggests about unemployment. There is an economic concept that shows a historical inverse relationship between inflation and unemployment – the Phillips Curve. Basically, it says that the higher the inflation rate, the lower the unemployment rate. Conversely, the lower the inflation, the higher the joblessness.
Earlier, the central bank reported that the inflation rate in April was 2.2 percent. Generally, that is good. Anything below 4 percent is considered zero inflation. Inflation has been consistently low throughout President Aquino’s term thus far – regrettably, though, so has the employment rate.
The jobless rate was 7.5 percent in January, the latest figure reported by the Philippine Statistics Authority. That is higher than January 2014, when it was 6.6 percent. Worse, unemployment in the Philippines, according to the International Labor Organization (ILO), is the highest in Southeast Asia.
For its part, the Aquino government has a lopsided appreciation of our economic condition, focusing mainly on the GDP growth rate and citing that it is the highest in the region. However, a fast-growing economy with consistently high unemployment suggests that the benefits of economic progress are not evenly distributed. And if the Aquino government is to realize its promise of inclusive growth, then it should refine its economic development programs.
Even though President Aquino is approaching the last year of his term, it is not too late to do something. First, his economic team could ramp up public spending. The Department of Budget and Management (DBM) has not resolved the problem of slow public spending, despite claims it has already done something about it. Government spending is a large component of the aggregate economy. But in recent years, our economy has been led by consumption, which also suggests how remarkable the central bank has been in controlling inflation.
Second, the Aquino government should re-evaluate the Conditional Cash Transfer or CCT. The success of similar programs in other countries suggests that the government should not abandon it. But the CCT’s budget of P62 billion may be poorly targeted, lost to leakages, or both. The mere fact that is has not made a noticeable dent in the poverty rate implies that there is a problem. Policymakers should review it. Also, we have questioned whether dole outs are effective against poverty. It might be better policy to increase spending on programs that immediately create more jobs.
Last, the President should use his remaining political capital to attract more foreign direct investments. To his credit, President Aquino is trying to do that now in his visit to the United States and Canada. He should do more of this.
He should also be mindful about inviting the right kind of investments. If his government is to manage unemployment, the Philippines needs investments in labor-intensive fields. Despite our disadvantages as an investment destination, the country has notable competitive advantages. For instance, Filipinos speak English. Also, the Philippines is a gateway to Asean, a market of about 600 million.
We can track whether President Aquino is on the right path on job creation by monitoring inflation, and of course the unemployment rate itself. He should devote his last year to job creation. It may be unrealistic for him to address all our concerns, but if he can lower joblessness, that would resolve so many problems.