Subsidies (not studies) for the skills mismatch

A national apprenticeship program that provides subsidies to both employers and employees in areas where a skills mismatch has occurred would fix the problem.

The president in answering the questions submitted and rated by viewers on Youtube reiterated many of his “talking points” during his second State of the Nation Address. This comment was raised by many viewers of the 43 minute “Ask PNoy” event co-hosted by World View and the ABS-CBN News Channel.

The very first question asked concerned the plight of millions of Filipinos who seek employment overseas because of a lack of opportunities at home. The president’s reply was to cite the same statistic he noted during his SONA with regard to the skills mismatch of about fifty to sixty thousand job openings on the government’s PhilJobs.net website that have remained unfilled (see video below–at around the 1.30 minute mark to about the 3.30 minute).

The president’s solution as he declared during his speech last July was to instruct the agencies concerned to study ways to address this imbalance through the educational system. This is well and good, but the immediate concern of filling these vacancies, plus the prevailing unemployment of close to three million Filipinos needs to be addressed soon, not down the track.

During his interview, the president spoke of various government sponsored programs: (1) to address the need for “green” energy by replacing thousands of diesel powered engines and vehicles that make up our transport infrastructure, (2) to provide thousands of housing units to soldiers and policemen to address the peace and order situation in the countryside, (3) to beef up our coastline security through a defense modernization fund, and (4) to expand social insurance through conditional cash grants to indigent families to address intergenerational poverty.

But when it comes to addressing the first imperative of any government which is to provide jobs, jobs, jobs, it seems the solutions are not as solid or programmed, as such. A very quick and do-able solution would be for the government to provide employment and training subsidies to the firms unable to fill job vacancies.

The purpose of this subsidy would be to defray part of the costs of training cadets or apprentices on the role they will fill within the firms seeking to employ them. Part of this  subsidy could go to the employer to help pay for the wages of unskilled apprentices and trainees while they undergo a period of formal schooling, on-the-job training, or a combination of both.

This could last for a period of between eighteen-to-thirty-six months. To qualify for such a subsidy, the employer would have to show that an advertised job vacancy remained unfilled by qualified workers after a period of say six-to-nine months.

Another part of the subsidy could go to the apprentice or trainee for such things as transportation, uniforms, tools (if needed for the job) and other similar work-related expenses. Formal contracts of training would stipulate the responsibilities of each party under such a scheme and reviewed periodically.

Fifty-to-sixty thousand internet job ads on the government's website are not filled according to employment officials.

Fifty-to-sixty thousand unfilled vacancies is nothing to sneeze at. It constitutes about two percent of the nearly three million unemployed members of the workforce.  It would cost around one-and-a-half billion pesos annually to provide a two-and-a-half thousand peso subsidy per trainee each month (thirty thousand a year) assuming all of these vacancies are filled via this approach. That is a rounding error in the government’s total budget of over one trillion pesos.

It would provide presumably high paying, sustainable jobs in the end–something that social insurance programs cannot boast of. Surely with the “savings” PNoy was quite happy to highlight during his interview such an “investment” in people’s human potential would be worth making. Surely a new initiative such as this with a very modest budget impact and a significant contribution to raising employment would have earned the president praise from all sides (both employers and employees included). So why shouldn’t he do it?

That question sadly remains unanswered, but if the president were to temporarily overcome his strong aversion to criticism as he expressed by way of a Christmas wish to Santa towards the end of the interview, I am sure it could be made to work real soon.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • Yes, subsidies instead of studies would get the job candidate zeroed specifically on what is needed. I have come to think that education, today, is not as valuable as it used to be, and that we ought to lay across it the practicalities of what happens when a high school or college graduate enters the job market. If that market has shifted so far so fast by going high tech or shrinking, then the student has spent a lot of time preparing for nothing. It would be better to shuffle some off at age 12 into apprenticeships as programmers or telephone repair technicians or call center operators. Or agribusiness workers (not the same as farmers).

    • Perhaps not as young as 12. Maybe when they reach working age after Year 10.

  • J_ag

    http://www.census.gov.ph/data/pressrelease/2011/pr1111tx.html

    Technocrats never look at the qualitative nature of what employment means in the Philippines context.  The quality of the jobs count and those seeking better jobs do not have the means to get the skills and those  that do have the skills find the wages too low in the country. 

    The Labor departments data based on more advanced countries system of calculating employment rates just does not cut it in the Philippines. 

    If the DOLE would only count employment based on non-farm payrolls alone our total employment rate drawn from the labor force participation rate or the labor force market participation rate would be 60%-70%

    Skills mismatch is not primarily caused by supply problems but by demand problems. Low wages… 

    You ask government to subsidize training and eventually the trained workers will move up to places that pay better abroad. 

    The government is content on depending on the the three most strategic sectors of the economy, BPO, OFW’s and Tourism. Most resources and incentives (which are subsidies in disguise) are being showered on these sectors. 

    Pinoys still flock to nursing schools and seaman training schools which to them are keys to getting better than living wages. 

    Low wages here are primarily a result of the shallow nature of our economy in all sectors. 

    The failure to develop a healthy agro-industrial link and the idea that we can leapfrog into the digital based economy without going through the development of our physical economy first will continually fail. 

    It is the state that is responsible for developing the market economy. In weak states this can and will come only if we allow the markets to do their thing. We have been successful from our own  failures to create domestic employment  that created foreign opportunities for pinoys. The government stepped in later to regulate this sector. 

    This became the accidental success story of the failure of economic policy in the country. 

    There is nothing else since Marcos . 
     

    • “You ask government to subsidize training and eventually the trained workers will move up to places that pay better abroad.”–J_ag

      That’s good too. That’s part of the objective—for the government to help takes care of the unskilled to be able to take care of themselves. The industrialists and the capitalists can very well take care of themselves.

    • I have seen the low wage phenomenon operate in advanced economies too. It is not a function of which rung you are on the development ladder. And while it might be true in a few occupations, you cannot generalize it for all.

      In Australia for instance, mining wages have risen dramatically making every other occupation in regional settings seem low by comparison, thus making the need for subsidized apprenticeships all the more necessary. This pull factor created by one industry leads to skills shortages in another even within the same country.

      But without unemployment insurance in the Philippines, even a low paying job would be preferable to no job at all. The only problem is that employers would not be interested in paying for their training especially when they can be poached later on. This market failure sets up the need for subsidized on the job training.

      • J_ag

        In the U.S. less than an hours wage from a minimum wage worker pays for a Big Mac. Here slightly less than a half a day’s days minimum wage pays for a Big Mac.

        Out of the total potential labor force in the Philippines less than 20% have a full time salaried job with benefits. This group includes those on minimum wages. 

        Also in the Philippines there are regional differences of the minimum wage. There is no national fixed minimum wage in the Philippines.  

    • Anonymous

      I can not help but agree with Ja_G when he says :
      The failure to develop a healthy agro-industrial link and the idea that PILIPINAS can leapfrog into the digital based economy without going through the development of our physical economy first will continually fail.

      What a few people of Pilipinas seem to miss is that the digital-based economy has a minimum capital-requirement.  Even worse, the capital-rquirements are defined by second- and 1st-world countries where  the technology and thresholds have already been been passed  so that economies-of-scale can kick in.  Side-glance toJoeAmerica’s plaint that Pilipinas should use the Internet to teach. That works in economies where students can be gathered in buildings with electricity, access to the internet and, yeah… four walls and a roof and desks.

      Side-glance to cocoy asking for government to subsidize a broadband network for Pilipinas.   But who will be the paying users?  I can just see a proposal to raise gasoline or diesel taxes to pay for Broadband being met by “…NO way!!! Pilipinas should first catch the smugglers, then I’ll contribute.   Maybe China or Lebanon can donate to Pilipinas,  why not ask them for freebies?”

      • By providing subsidies in sectors where there are skills shortages, we are not saying that the unemployment problem will be fixed. Not by a long shot. As I mentioned in the piece the 50k represents but two percent of the nearly 3M unemployed. But at least it could add more taxpayers who can help pay for your broadband, etc, etc.

        My purpose for writing this piece was simply to point out that while we are looking to expand the various sectors of the economy, to engage in capital deepening, etc, there are things we can do (low lying fruit) that can make a difference immediately.

        I just wanted to extend PNoy’s line of reasoning when he said that while everyone is focused on generating new jobs by attracting investments, there are actually jobs available that are not being filled due to unqualified applicants. 

        But then he leapt from there into fixing the educational system to address this delayed feedback loop which causes prolonged shortages in skilled manpower in certain areas. In other words, he skipped the part where gov’t can actually intervene to fix the market failure at the back-end without waiting for long-run reforms to kick in from the front-end of the system.

  • “Part of this  subsidy could go to the employer to help pay for the wages of unskilled apprentices and trainees while they undergo a period of formal schooling, on-the-job training, or a combination of both.”–Doy

    Now this is a brilliant idea from Doy which I liked very much. I fully approved of this. Better than the conditional cash grants to indigent families which I would consider a perpetual dole outs that would promote dependency and laziness. 

    As the old saying goes, “Give a man a fish; you have fed him for today.  Teach a man to fish; and you have fed him for a lifetime.” 

    The subsidized OJT jobs should be for skill-acquiring positions only, and for it not to be too taxing to the government must not be less or more than two years which is just enough period for a person to have sufficient skill to land him a decent job after the two-year training.

    O, ano pa Mr. President Noynoy, ito na si Doy, at gustong tumulong talaga. Scrap the budget for the conditional cash grant already, papogi lang iyon pero kapag gutom sila galit pa rin sa’yo. Come on, Pres. Noynoy, convert it na to this very good idea. Sigurado ako, Mr. President, na hindi ka lang popogi dito sa ideyang ito sa loob ng natitira mo pang limang taon, your people, the Filipino people will immensely benefit from this for their whole lives and will remember you for it.

    • Anonymous

      Roberto:  CCT is not to teach the parents to fish.

      CCT is to teach the children (even if it is only via memorization)  because there are things that if you don’t get to know them in elementary- and high-school  prevents a Pinoy to become seaman or a nurse or despatsadora.

      • thanks for agreeing with me, UP n.

      • And, UP n, I think that this CCT program is just a palliative remedy (pa-pogi lang) because once the amount is disbursed to the recipient indigent families, the government has no more control of what they will do with it (baka pang-toma lang ‘o pambili ng yosi, ‘di kaya?) so there’s no assurance of its benefits in the schooling of the children. I’m not sure of this since I’m not familiar with the mechanics of this CCT. My opinion is based on what little I understand of the program.

        • That’s a meaningful argument against CCT. To counter that, the program was designed so that the women are handed the stipend. That significantly reduces the risk of money being squandered on vices (as studies have shown). It does not get rid of all of the risk however which is why the DSWD monitors compliance to the “deliverables” on the part of the household and continually updates information regarding eligibility of beneficiaries.

          The bottom-line is that no system is fool-proof. A program of this magnitude will have some level of waste (although it is proven to be much lower than other programs in the past that provided in-kind rather than cash grants to help the poor).

          • Anonymous

            CCT’s waste will have two sources.  One source of wastage will be the beneficiaries —  this is what Roberto fears will happen — where parents spends the CCT-awards money on cigarettes or lambanog and not on food or internet access. 

            The second source —- the governance problem.  This is when government money are released to KKK’s and BFF’s who otherwise would have been rejected — “not poor enough” —- or to bogus beneficiaries (and then the awards gets into some party-hack’s bank account).

            Surely there has hot to be a third — maybe where the MILF commandeers a portion of the CCT-peso awards for folks in their BangsaMoro  to buy bullets or where hacenderos slap a processing-fee on the CCT-peso-awards for their workers.

    • When it comes to human capital, both types of investments are needed. Kindie programs and investments in early childhood in the early stage of the life cycle, along with apprenticeships and traineeships at the other end of the educational system when individuals reach working age.

      • That’s assuming, Doy, that there’s an unlimited supply of funds for investments in both programs. The Philippines is not as rich as Australia, and we cannot saddle the Filipino people with more additional taxes just to gain approval for an untested undertaking, you know, the people is still wary of any government move related to money, notwithstanding the popularity of the president.

        I know the funds allotted for the CCT is big, but do you think the amount can sustain your proposal in tandem with its original intent for say until the end of Aquino’s term considering that you said you will be needing one and a half billion pesos a year to fund just two percent of the three millions unemployed?  If we think this thing you are proposing is that good, why limit its scope to just 2 percent?

        • That was the figure cited by PNoy which in turn came from the DOLE. In reality, I doubt whether the uptake will reach a full 2%. As for where to source the funds, the savings in PNoy’s first term alone could fund the program for the remainder of his term. It’s simply a rounding error. If we want to reduce the unemployment rate even more, other programs and strategies are required. Abangan!

          • Anonymous

            Pero like you say,   the number created must be more than the number of entrants into the workplace,   and with the current Malakanyang like the previous Malakanyang  not having too many ideas for job creation and also in lackadaisical support for “reproductive health”,  challenges are there.   Abangan!