Thursday, 7 July 2011

The only answer to job creation

Business Mirror

There seems to be a never-ending conversation that the Philippines is growing economically without creating enough new jobs. The recent ban by Saudi Arabia of workers from both Indonesia and the Philippines has highlighted the situation.
Each job in the Philippines costs about P150, 000 to “create.” That means it would cost an investment of over P35 billion to have jobs for the 250,000 Filipinos who might not be able to work in Saudi.

As a side note, I believe the issue will be resolved, as it would be impossible to replace all those workers from Indonesia and the Philippines, unless, of course, things get much worse and the US starts sending people abroad.

One disturbing thing is that a lack of jobs globally is not something that just happened in the last couple of years. The other thing that is also troubling is that so many experts both in the government and academia know what the problem is, but cannot come up with a long-term solution.

In the US the Obama experts thought that if the government spent a lot of money, jobs would appear. They were right, but they were also wrong. By the government’s own numbers, each job created or saved cost the American taxpayers $278,000. Many of the jobs did not last long as they were project-based. Think about it. The government would have been more cost-effective giving 2.5 million unemployed people $100,000 cash each to go start their own business. Once again, government cannot create jobs no matter how many times the “propoor” advocates and the policy experts scream that message.

Maybe some basic thinking is necessary to solve the problem.

What is a “job?” A job is a specific task of employment, an occupation by which a person earns a living. Notice that a job is not a handout. Further, we have to assume that a person earns from a job because he produces a good or service with his time and labor.

Now the question is, who provides the employment? A job is provided by a business that requires an employee. And what does a business exist for? It does not exist to provide jobs. A business is a profit-making enterprise. That is the fact that the “experts” cannot get into their thinking. So why does a business employ a person? Because the business believes that creating a job would generate more profits for the business.

Profits create jobs that create more profits that create more jobs.

If you start with that simple economic fact, then it is very simple to create more jobs. The whole cycle begins with the business profits. More profits equal more jobs, because employment is a side effect of the goal of profit-making. If you want to drive employment higher, make it as easy as possible for new businesses to start up and make it as easy as possible for business to make profits.

Perhaps when you read that it would take P35 billion to create jobs for 250,000 overseas workers, you felt a little discouraged. No need to feel depressed. In 2010 the net after tax profits of all the companies listed on the Philippine Stock Exchange was P286.53 billion. And remember, that is only 253 companies.

Therefore, if the profits of these 253 firms could only be increased by 10 percent, theoretically, there would be available cash to create 250,000 new jobs.

What the government can do to help create jobs is to let companies grow their profits, grow their business and, therefore, grow their employment. When business is allowed to make profits, they grow and hire more employees.

Shoemart is the largest retailer in the Philippines. At the end of 2000, SM had built 10 malls. Currently, SM has 41 malls, with another 12 under construction or in the planning stage. Around the time when there were only 10 SMs, there was some controversy that Shoemart employed contract workers for most of their sales-floor employees. It is true that these workers did not enjoy the benefits of tenure. However, these people did have jobs and there were many applicants for each position. Contract employees created more profits for the company, and that is not a bad thing as many “proworker” advocates said it was.

Because SM was able to maximize profits, the company’s outlets have grown fourfold since then and created thousands of direct employment and tens of thousands of indirect jobs. Of course, this is not due just to employing contract labor but you get the idea.

If the government were serious and smart about job creation, there only need be one piece of paper with a list of the 10 things that government could do to increase business profits.

E-mail comments to PSE stock-market information and technical analysis tools provided by Inc.

1 comment:

  1. The Philippines government should hold talks with Saudi Government and sort out the issues, The number of people who will loose the jobs are enormous.