Midterm Period (September 21 to October 31, 2020

Burauen Community College Modular Home Instruction

LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

ECONOMIC DEVELOPMENT
Prepared by:
JAY P. CABRERA, CPA, PH.D.
ANJOFEL ABRILLO

Module 5: Economic Development and Unemployment

Learning Outcome Based on the Course Syllabus:

LO1. Identify and discuss the factors affecting economic development through case studies/ situational analysis.

Learning Objectives:
At the end of module, the following learning objectives will be attained by the students with at least 75% accuracy:
1. The student will be able to discuss the effects of unemployment on economic development.
2. The student will be able to narrate the unemployment situation in Southeast Asia, and the Philippines amidst
the COVID 19 pandemic.
3. The student will be able to identify strategies to offset the effects of unemployment.

Defining Unemployment
The failure to use all available economic resources to produce any desired goods and services, or the failure of
the economy to fully employ its labor force, is called unemployment. On the other hand, unemployment rate is the
percentage of the labor force unemployed at any time. It is calculated by dividing the number of persons in the labor
force who are unemployed by the total number of persons in the labor force.

Costs of Unemployment
▪ The GDP (Gross Domestic Product, refer to Module 1) gap is one measure of the economic cost of unemployment.
It is the difference between the actual and potential GDP. When the difference is negative, it means that the
economy is underperforming relative to its potential.
▪ Okun’s Law, the quantitative relationship between the unemployment rate and the cost of unemployment,
predicts that for every 1% of the actual unemployment rate exceeds the natural rate of unemployment, there is
a negative GDP, therefore highlighting the nation’s economic stability.
▪ The cost of unemployment, however, is unequally distributed among different groups of workers in the labor
force. Workers in lower-skilled occupations have higher unemployment rates than workers in higher-skilled
occupations.
▪ Unemployment also has non-economic costs in the form of social, psychological, and health problems for
individuals and families. High unemployment rates in nations also can contribute to political unrest and
violence.

Types of Unemployment
1. Frictional unemployment is due to workers with marketable skills searching for new jobs or waiting to take
new jobs. This type of unemployment is short term, inevitable, and also generally desirable because it allows
people to find more optimal employment.
2. Structural unemployment is due to the changes in technology and in the type of goods and services consumers
wish to buy. These changes affect the total demand for labor in particular industries or regions. Such
unemployed workers have few desired marketable skills so they often need retraining, more education, or have
to move if they are to be employed.
3. Cyclical unemployment arises from a decline in total spending in the economy that pushes an economy into an
economic downturn or recession. With the onset of recession, business cut production, real GDP falls, and
unemployment eventually rises.
4. ‘Full unemployment’ is less than 100% because some frictional and structural unemployment are unavoidable.
The full unemployment rate or the natural rate of unemployment (NRU) is the sum of the frictional and
structural unemployment and is achieved when cyclical unemployment is zero (the real output of the economy
is equal to its potential output). NRU is the unemployment rate that is consistent with full employment. It is
not, however, automatically achieved and changes over time.

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 Midterm Period (September 21 to October 31, 2020
Burauen Community College Modular Home Instruction
LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

Reasons for Unemployment

Usually, we think of an unemployed person as someone who has been fired or laid off from his or her job. Certainly,
some unemployed persons fit this description, but not all of them do. An unemployed person may fall into one of four
categories:
1. Job Loser. This person as employed in the labor force and was either fired or laid off. Most unemployed persons
fall into this category.
2. Job Leaver. This person was employed in the labor force and quit the job. For example, if Jim quit his job with
Company X and is looking for a better job, he is a job leaver.
3. Re-entrant. The person was previously employed, hasn’t worked for some time, and is currently re-entering the
labor force.
4. New Entrant. This person has never held a full time job for two weeks or longer and is now in the labor force
looking for a job.

Unemployment and Covid-19 in Southeast Asia

At the start of the pandemic outbreak, the International Labor Organization (ILO) suggested a possible increase in global
unemployment of somewhere between 5 million to 25 million, with most of the rise occurring in high-income countries.
ILO said, mid this year, that job cutbacks over the last few months were more likely be equivalent to almost 200 million
full time workers. The Asian Development Bank also warned that 68 million jobs could be lost in Asia due to COVID-
19—with the PRC absorbing 52.8 million.

The table below shows the impact on employment and wage income, a deviation from the non-COVID baseline,
presented by the Asian Development Bank on its report, dated May 2020:

Globally, this analysis suggests

that the equivalent of 158
million to 242 million jobs will
be lost in the two scenarios
(6.0% to 9.2% of total
employment). The job losses
under the short containment
scenario is more than 7 times
the drop in employment
during the 2008–2009 global
financial crisis—which
reduced employment by about
22 million people measured as
fulltime job equivalent. For
Asia, the drop in employment will reach 109 million to 167 million jobs—or almost 70% of total employment losses
globally. These large employment cuts suggest that COVID-19 will have significant impact on poverty. Wage incomes
will also fall globally, especially in the US, the EU, and the UK. Globally, labor income will drop between $1.2 trillion
to $1.8 trillion. For Asia, the decline in wage income will range from $359 billion to $550 billion—or about 30% of the
global drop in wage income under the two scenarios.

Employment Situation in the Philippines

The table below shows the current employment situation of the country as reported by the Philippines Statistics
Authority, dated July 2020;

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 Midterm Period (September 21 to October 31, 2020
Burauen Community College Modular Home Instruction
LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

▪ Unemployment
rate in July 2020
was estimated at
10.0 percent. This
is higher than the
unemployment
rate of the same
month a year ago
placed at 5.4
percent, but lower
than the record
high 17.7 percent
during April 2020.
Unemployed Filipinos who are 15 years old and over was estimated at 4.6 million in July 2020, higher by 2.1
million compared to the same period a year ago but lower by 2.7 million from three months ago.

▪ Labor force participation rate (LFPR), the percentage of the population that is in the work force, in July 2020
was registered at 61.9 percent, lower than the reported 62.1 percent in July 2019. In April 2020, the lowest LFPR
in the history of the Philippine labor market was recorded at 55.6 percent. In terms of count, there were 45.9
million out of the 74.1 million Filipinos 15 years old and over reported either employed or unemployed in July
2020.

▪ Employment rate picked-up at 90.0% this July 2020 compared to the record low of 82.3% in April 2020.
However, it remains lower than the employment rate of 94.6% in the same month a year ago. About 41.3 million
Filipinos were employed in July 2020, 42.5 million in July 2019, and 33.8 million in April 2020.

▪ On average, employed persons worked 38.2 hours per week in July 2020, lower than the 41.8 hours per week in
July 2019 but an improvement from the April 2020 estimated average of 35.0 hours per week.

▪ Employed persons who reported with job but not at work was estimated at 3.3% or 1.4 million employed
Filipinos in July 2020, with COVID-19 pandemic or community quarantines as the paramount reason given,
similar to that of the second quarter. This was estimated at 0.8% or 328 thousand employed persons with job
but not at work in July 2019, and 38.4% or 13.0 million in April 2020.

▪ Underemployment rate, the percentage of the workforce taking employment that does not require their level
of skills, is down to 17.3 percent in July 2020 compared to the estimate of 18.9 percent in April 2020. However,
this underemployment rate is still worse than the estimate in July 2019 at 13.6 percent. In terms of count, about
7.1 million were underemployed persons as of July 2020, given the varying working arrangements and reduced
working hours being implemented by companies/establishments. In July 2019 and April 2020, about 5.8 million
and 6.4 million Filipinos, respectively, were underemployed.

▪ While most parts of the country eased the restrictions for community quarantine, five regions still reported
double-digit unemployment rates. The highest unemployment rate estimate of 15.8% was recorded in the
National Capital Region (NCR). It was followed by Region IV-A (CALABARZON), 12.4%; Region VII (Central
Visayas),11.7%; Region I (Ilocos Region), 11.1%; and Region III (Central Luzon),10.9%.

▪ Labor force participation rate is lower among women at 48.5%, compared to men at 75.3%. However, women
and men have the same employment rates of 90% as of July 2020 but more men (19.0%) are underemployed
than women (14.5%).

▪ Arts, entertainment, and recreation was the most affected sector in July 2020 with a drop in employment rate
of 72.9% year-on-year, and a drop of 41.4% compared to the second quarter of 2020. Employment rate in
accommodation and food service activities came next which dropped by 35.9% from last year, although there
was an increase of 4.7% from April 2020.

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 Midterm Period (September 21 to October 31, 2020
Burauen Community College Modular Home Instruction
LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

▪ The top five major sectors with the largest drop in employment are (i) arts, entertainment, and recreation, (ii)
accommodation and food service activities, (iii) information and communication, (iv) fishing and aquaculture,
and (v) professional, scientific, and technical activities.

▪ Meanwhile, the sectors which had the highest increase in employment are (i) mining and quarrying, (ii)
agriculture and forestry, (iii) electricity, gas, steam, and air-conditioning supply, (iv) human health and social
work activities, (v) Wholesale and retail trade, and (vi) construction.

▪ Youth labor force participation rate (LFPR) improved in July 2020 at 38.9%, compared to 38.3% in July 2019,
and 32.4% in April 2020. There were about 7.8 million Filipino youth who were either employed (6.0 million)
or unemployed (1.7 million) as of July 2020. In April 2020, about 6.5 million youth were in the labor force, of
which 4.4 million were employed and 2.0 million were unemployed.

Counteractions to Unemployment

▪ Reducing Occupational Immobility

Labor resources are usually occupationally immobile because it takes time for people to gain the sufficient skills
that are necessary for working in a certain industry. Hence, when there is oversupply of labor in a certain
industry or when there is a recession, people who become unemployed cannot find work immediately or easily
since they cannot be employed in the industry that requires their skills and also cannot work in other industries
since they may not have sufficient skills. Hence, the government can provide retraining programs for the
unemployed, so that they can improve their skills or gain new skills necessary to ensure their employment.

▪ Employment Subsidies
Employment subsidies can be provided by the government for firms who hire workers that are unemployed.
With a subsidy, costs of production for firms go down since the price of each unit of labor resource decreases.
Therefore, employers will be more willing and able to hire more workers and increase the number of workers
that they are willing to hire. This increases the size of the workforce and the number of job vacancies, ultimately
reducing unemployment. It is difficult, however, for governments to determine how much subsidy to provide
and it is difficult to ensure that firms are willing to retain the increased size of their workforce when there are
changes in the economy, especially in times like recession.

▪ Sustained Economic Growth

Having sustained economic growth is another way for the government to address the problem of
unemployment. When there is economic growth, employers will be more willing and able to employ more
workers. This helps to address the issue of unemployment. However, this is a long term strategy that takes a
lot of time to see results.

When we consider these three common possible solutions to counteract unemployment, we can say that the Philippines
can benefit from the first two – reduce occupational immobility and subsidizing employment. There is an oversupply
of workers and a good amount of graduates who fall into unemployment every year. By enlisting them in retraining
courses, they can gain new skills that are necessary to garner them a place in the workforce. The government can also
subsidize employers to hire unemployed workers in sectors that needed boosting.

Learning Activity
You’re The Economist: Types of Unemployment Technological Development Cause
Technological advances continue to enhance our productivity, enabling us to enjoy a greater quantity, quality, and
variety of products that significantly elevate our standards of living as a nation. Every day we witness incredible new
technologies in computing, social media, business management systems, modes of learning, sustainable energy, and an
array of truly amazing life-saving advances in medicine. Robots can now undertake tasks faster and better than humans
ever imagined. Advanced global positioning systems (GPS) enable drones to monitor traffic congestion and may soon
be able to deliver packages to our doors. 3-D virtual reality and 3-D printing opens up many new possibilities for
satisfying human needs and wants. And recent developments in artificial intelligence make it possible for machines to
learn by doing, to recognize speech, and to diagnose diseases.

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 Midterm Period (September 21 to October 31, 2020
Burauen Community College Modular Home Instruction
LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

1. What type of unemployment does technological development cause? Explain.

2. What solution would you propose for any worker threatened by new technologies?

References

Philippine Statistics Authority (July 2020). https://psa.gov.ph/content/employment-situation-july-2020 (accessed 10

November 2020)

The ASEAN Secretariat. ASEAN Key Figures 2019. October 2019. https://www.aseanstats.org/wp-
content/uploads/2019/11/ASEAN_Key_Figures_2019.pdf (accessed on 8 October 2020)

McConnell, C. R., Brue, S. L., Flynn, S. M., and Walstad, W. B. (2009). Study Guide for use with Economics, 18th
Edition. The McGraw-Hill Companies, Inc., New York

Mankiw, N. G. (2018). Essentials of Economics, 8th Edition. Cengage Learning, Inc., USA

Arnold, R. A. (2019). Economics, 13th Edition. Cengage Learning, Inc., USA

Plecher, H. (28 October 2020). Unemployment rate in the Philippines 2020.

https://www.statista.com/statistics/578722/unemployment-rate-in-
philippines/#:~:text=In%202020%2C%20the%20unemployment%20rate,from%203.6%20percent%20in%202014.
(accessed on 10 November 2020)

Rivas, R. (3 September 2020). Unemployment down to 10% in July 2020, says Philippine gov't.
https://www.rappler.com/business/unemployment-rate-philippines-july-2020 (accesed on 10 November
2020)

Tucker, I. B. (2019). Economics for Today, 10th Edition. Cengage Learning, Inc., USA

Asian Development Bank. (May 2020). https://www.adb.org/sites/default/files/publication/604206/adb-brief-133-

updated-economic-impact-covid-19.pdf (accessed 14 November 2020)

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 Midterm Period (September 21 to October 31, 2020
Burauen Community College Modular Home Instruction
LGU Compound, Burauen, Leyte
Second Year BSA/BSMA Professional Courses
First Semester, SY 2020- 2021

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