Aquino’s Okun Bunkum

By Dean de la Paz / Through the Looking Glass

LAST month at least one major broadsheet bannered the bad news. Despite what seemed like resplendent growth during the first two quarters, critical employment data seemed to brazenly ignore what Benigno Aquino III would have us believe are the fruits of his skilled economic management.

That we were coming from a stupidly self-inflicted recession in 2011, Aquino’s first full year of governance, is important. If indeed gross domestic productivity (GDP) growth had fallen from 7.1 percent in Gloria Arroyo’s last year to a miserable 3.8 percent in Aquino’s first, then this year’s first quarter growth of 6.4 percent should have produced new jobs and jump-kicked employment.

Without vibrant employment, consumer spending, a critical factor in the GDP formula, will not come about. Amid worsening aggregate prices as a result of the inability of Aquino’s economic managers to control multipliers such as utility tariffs and fuel costs, then raging unemployment worsens consumer spending.

The benchmark model that relates GDP growth to employment was established by economist Arthur Okun from empirical observations from the 1950s to the middle 1960s. While Okun’s controversial law was hardly an economic statute, it explained to some degree lags and contradictions between growth and employment.

The rule of thumb is that for every percentage increase in the unemployment rate, GDP will be additionally lower than its potential by approximately 3 percent or more. In its original form, the approximation states a 3-percent output increase yields a 1-percent decline in unemployment. Spun on its head and then analyzed against the data initially founding the math, GDP growth must first breach 3.4 percent lest unemployment remain fixed.

Recent jobs data shows unemployment at 7 percent. That’s a magic threshold. In the United States, save for Ronald Reagan, every presidential re-electionist lost their bid for a second term when unemployment was at 7 percent. In Europe, when the global financial crisis bankrupted the small fishing and merchant banking economy of Iceland, their unemployment fell to its worst level at 7 percent.

Ours is now at that level yet Aquino effectively claims we are virtually dazzling in our productivity. It is to our misfortune he was not a better student of economics.

If we grew at 6.4 percent, given Okun’s math we should have less unemployment. We don’t. Might all the hyperbole about growth, as seasonally unadjusted as it is, been nothing more than bovine bunk?

Let us analyze Aquino’s jobless growth.

Between April and July, government data shows 40,000 jobs were lost bringing the jobless to 2.84 million, or, exactly 7 percent unemployed.

Independent private polls estimated the jobless at 13.8 million, or 34.4 percent unemployment. That’s a difference of nearly 400 percent, a discrepancy too large to be due to political hype. Aquino’s numbers are based on government’s Labor Force Survey (LFS). The LFS ignores those who’ve given up looking for work, lost hope and are no longer available for employment.

We claim Philippine GDP grew faster than Malaysia, Thailand, Vietnam and even Singapore. Yet arrayed against each, our 7-percent unemployment rate multiples higher. Malaysia’s was 3.1 percent, Thailand, 0.7 percent, Vietnam, 2.0 percent, and Singapore, 2.7 percent. The regional average was 3.2 percent.

As ludicrous as the discrepancy between Aquino’s jobs data against a private institution’s count, the quantitative anomaly against neighboring economies and against the employment record is just as ridiculous.

Incredulity turns for the worse when we consider the underemployment rate. Within three months, the underemployed rose posting an astonishing underemployment rate of 22.7 percent—the highest since 2006 12 years ago.

Keynoting a recent call-center conference, Aquino highlighted our business-process outsourcing sector and its impact on growth. Again, note the incredulity. While the government identifies the services sector as a principal GDP driver and a booming industry, it is ironic that the highest underemployment rate was also in that sector accounting for over 42.5 percent of the underemployed.

The rate reflects the stark absence of quality employment available under Aquino. Underemployment implies low economic contribution to productivity.

If indeed Aquino is creating jobs, these must be low-quality, undercompensating work with low-economic contributions. Had Aquino used seasonally adjusted GDP data then he would have realized how anemic our growth really is and how, as in 2011’s recession, between the first quarter and today, rather than grow, GDP had actually contracted.