Causes

In the world today, there are a few common causes of unemployment. Let us look at some
of these causes and compare them with some of the causes of unemployment in the
Philippines.

Common Causes of Unemployment

Structural Unemployment

Structural unemployment occurs when there are shifts in the demand among the industries.
The workforce possesses skills for jobs that were previously high in demand. With the shift
in demand for jobs, supply for the jobs that were previously high in demand outstrips the
demand for these jobs. As a result, many people become unemployed until market
equilibrium is reached, where supply equals demand. Moreover, the jobs that are now high
in demand may require skills that the unemployed do not possess. Unless they invest in re-
training, which is time consuming, they will find it difficult to find a place for themselves in
these jobs because firms prefer employees with the necessary skills and experience.

Oversupply of graduates

The number of graduates have been increasing over the years. Getting a degree is all too
common nowadays. However, the labour force does not require so many graduates.
National Development Minister Khaw Boon Wan once said that Singapore, which has a
significant number of graduates, could not be a nation entirely made up of them. “Can you
have a whole country where 100% are graduates? I am not so sure. What you do not want
is to create huge graduate unemployment.”

Economic Recession

Economic recession is one of the main causes of unemployment. During a recession, firms
experience a decrease in revenue. As profit equals to revenue minus cost, firms would want
to cut as much cost as possible. One of the ways to do so is through the retrenchment of
employees, where employees deemed to be not productive enough lose their jobs. As this
happens, unemployment rates go up.

Causes of Unemployment in the Philippines

Unemployment in the Philippines is attributed to reasons including overpopulation,
oversupply of labour force on certain industries and the inability to take on available jobs.
Overpopulation

Philippines has a high population growth rate at an average of 1.7% for the past few years,
consistently higher than the world's population growth rate at an average of 1.2%. The high
population growth rate which translates to a steady supply of graduates outstrips the rate at
which jobs are created, leaving these graduates finding themselves unemployed.

Population growth (annual %)

Data from World Bank
Oversupply of labour force and inability to take on available jobs (structural
unemployment)

Undergraduates are still taking up college courses that are popular but were previously high
in demand. After graduation, these graduates possess skills that are not high in demand in
the job market. As such, there is a skill mismatch. For example, in the healthcare industry,
nurses were previously in demand abroad. Many undergraduates took up nursing and soon
supply matches demand. However, the country's education system continues to produce
college graduates who have taken up nursing. As supply increases above demand, there is
an oversupply of labour (Figure 3). As a result, these graduates are unemployed.

Figure 3: Oversupply of labour (at QActual) in a certain industry causes unemployment