NEW YORK CITY: The notion that the Philippine economy is “booming” seems to have become conventional wisdom among the country’s economic cheerleaders.
Consistently high economic growth numbers, plus highly publicized credit rating upgrades have some people believing that the good times have arrived and are here to stay.
But go to that little restaurant at the street corner. It may surprise you that most of their waiters have college degrees. Waiters don’t need a bachelor’s degree. Why does someone spend four years in college only to end up making a pittance?
This particular case of “over-education” is evidence of a larger economic trend that threatens to weigh down the country’s economy in the coming years.
Let’s start with the facts. Recent research by the Asian Development Bank and
University of California–Santa Barbara shows that the earnings gap (i.e. the pay rate) between high school graduates and elementary school graduates has fallen from 17.4 percent in the early 1990s to 10.1 percent during the last decade. This means that a high school diploma isn’t as valuable or advantageous as it used to be.
Second, the country’s economy saw a sharp decline in low–skill manufacturing employment (a sewing machine operator, for instance) and a sharp increase in low–skill services jobs (think of fast food service crew).
Third, the country is producing more college graduates and more high school graduates, which means that the supply of workers for both high and low-skilled jobs has increased.
Finally, the supply of college-educated workers far exceeds the country’s demand for such workers. There are more college graduates than there are jobs needing a college-level education.
As more Filipinos finished college, graduates moved out of the agriculture sector. The problem, however, is that high-skilled jobs in the manufacturing and services sectors did not keep pace with the increased supply of college graduates. There simply aren’t enough jobs for college graduates!
Because of this demand-and-supply gap, companies can afford to be selective on who they hire, and if necessary, to raise salaries in order to attract qualified (i.e. highly-skilled) college graduates.
This means that most college graduates end up going into low-skilled jobs and worse, those in the bottom rung of college graduates end up in even worse paying (i.e. menial) jobs.
Since the problem is the stagnant demand for skilled labor, what is the solution?
First, the country’s economic policy should focus not only on increasing the number of college graduates but also on increasing the demand for college graduates. The current government policy to churn out more college graduates is counterproductive. Adjustments to both supply and demand are needed.
How do we do this? First, push firms to improve management practices and knowledge of building and growing businesses.
According to Stanford economist Nicholas Bloom, poor management by developing country businesses leads to lower productivity and lower employment and slow business expansion. The difference in management skills alone, Bloom says, account for 15 to 20 percent of the difference in economic growth between rich and poor countries.
To do this, the Aquino government should reduce protectionism in favored industries, allowing companies to compete with more efficient foreign enterprises. The passage of an honest-to-goodness antitrust law will also raise the productivity and quality of companies while weeding out inefficient ones.
Second, career guidance for aspiring college students must be expanded, institutionalized and improved. No one really advises high school kids on the best courses to take based on their current skills, how much they can potentially earn, or even if college is the best path for them.
Finally, the Aquino government should give incentives to qualified high school graduates to take courses that focus on analytical and technical skills such as science, technology, engineering or math (STEM), rather than taking courses that are easy or popular but with limited employment opportunities.
Taking STEM courses has two advantages: First, the analytical and logical tools acquired in these courses leads to increased productivity and higher wages and are valuable in any economic environment – these skills will be useful even if the labor market evolves in unpredictable ways.
Second, growth, innovation and job expansion are often due to both advances in technology or more efficient use of existing technologies. As persons trained in the use of technology and most aware of the potential of innovation, STEM graduates are also in the best place to be the entrepreneurs – the primary job creators.
It is tempting to turn on the TV, listen to the economic statistic being touted by the government, and think that everything will turn out roses. Truth is, things are not as they seem.
The Aquino government needs to respond to underlying trends in the economy. Otherwise, its touted economic gains will be nothing more than an overhyped fable, and its overly optimistic economic messiahs no more than false prophets.