ECONOMICS REVIEWERINDUSTRIAL SECTOR

▪ Industry⇨ to build2 Integrations▪ Vertical Integration⇨ owner of business owns other businesses that produce materials necessary to manufacture the product of the company▪ Horizontal Integration⇨ owner of business owns or controls other similar businessesSub sectors▪ Mining⇨ extractive industry⇨ draw out mineral resources from mountains and forests⇨ source of livelihood⇨ Mining Act of 1995o signed by Fidel V. Ramoso allowed foreigners to mine in the country▪ Construction⇨ profitable in the early 1990s⇨ widespread building of subdivisions⇨ proportional to the increase in land value⇨ influenced by real estate businesses▪ Services / Utilities⇨ industrial sector provides services necessary to us such as electricity, gas, and water⇨ privatization of these utilities started under the Ramos administration▪ Manufacturing⇨ processing of raw materials to create new products⇨ characterized by semi-processing and assembly type⇨ stages1. Getting raw materials from land and sea. These materials are to be the major ingredients of pro-duction in the manufacturing. The end product of the first stage is also called primary product.2. Processing primary products into intermediate products. May undergo additional processing or be used as materials for products yet to be made.3. Transforming intermediate products to finished products which have been thoroughly processed and have sufficiently met the needs of the customers.⇨ 2 types of finished products1. consumer – goods people can use in their everyday lives2. capital – goods or products used to create other products⇨ value-added – increases as it undergoes a high level of processing (machines); decreases as it undergoes fewer or low level processing (manual labor)Foreign Capital▪ Pro Foreign Capital view⇨ help out in funding industries⇨ introduce modern technology⇨ build factories in the Philippines⇨ source out government funds⇨ create additional jobs for Filipinos▪ Anti-Foreign Capital view⇨ foreign companies could dominate the market and overpower local businesses⇨ monopolize the marketProblems▪ pollution▪ overcrowding in cities▪ unemploymentBarriers to Industrial Resurgence

▪ high cost of energy▪ poor logistics▪ President Aquino continues to ignore the issue of amending or liberalizing economic provisions of the ConstitutionManufacturing: Neglected1. It has to fix many constraints to growth: strong peso, poor infrastructure including inadequate, costly and unreliable power supply, and high costs of doing business.2. We need foreign direct investment in order to propel the economy on a higher, sustainable growth path

INDUSTRIALIZATION▪ Industrialization⇨ the system of production that has arisen from the steady development, study, and use of scien-tific knowledge⇨ based on the division of labor and on specialization and uses mechanical, chemical, and power-driven, as well as organizational and intellectual, aids in production⇨ primary objective of this method of organizing economic life has been to reduce the real cost, per unit, of producing goods and servicesHistory▪ Industrial Revolution⇨ used to identify the period roughly from 1750-1825, during which the accelerated application of mechanical principles, including steam power, to manufacturing in Great Britain produced an iden-tifiable change in economic structure and growth▪ external economies⇨ focused on the operation of an entire economic system with particular reference to the effective-ness of prices, markets, competition, and profit motivation as regulators of production and con-sumptionFactors in Evaluating a Country’s Level of Development▪ Gross Domestic Product (GDP)⇨ the market value of all officially recognized final goods and services produced within a country in a year or over a given period of time⇨ often used as an indicator of a country’s material standard of living▪ Human Development Index (HDI)⇨ a statistical measure developed by the United Nations that gauges a country’s level of human development⇨ a composite statistic used to rank countries by level of “human development”, taken as a syn-onym of the older term “standard of living”⇨ accounts how income is invested in healthcare, education, and other infrastructure▪ per capita income⇨ income per person⇨ income of the people in an economic unit such as a country or city⇨ calculated by taking a measure of all sources of income in the aggregate (such as GDP or GNP) and dividing it by the total population▪ level of industrialization⇨ available labor force, markets for finished products, access to raw materials (local or through for-eign trade), source of investment funds (from the wealth and savings of the private sector, accumu-lations of the public sector, or abroad), and access to technology▪ extent of infrastructure▪ life expectancy⇨ higher birth rate than death rate▪ literacy rate⇨ ability to use written language actively and passively⇨ ability to read, write, spell, listen, and speak▪ general standard of living⇨ the level of wealth, comfort, material goods and necessities available to a certain socio-eco-nomic class in a certain geographic area

Characteristics of Industrialized Countries▪ large base of productive capital▪ sophisticated banking systems and financial markets▪ variety of industries producing a broad range of products▪ vigorous and varied international trade▪ well-established systems of government and law▪ provide educational opportunities for their people▪ at the top of the global socio-economic hierarchy and their populations generally enjoy a high standard of living▪ also commonly referred to as a developed country; a sovereign state with a highly developed economy relative to other nations▪ people living in developed countries have greater access to such sources as food, education, roads, and electricity that their counterparts in less developed nationsIndustrialized Countries▪ The countries in the Group of Seven (G-7) have the most industrialized economies:1. United States – (#1) US $16,800,0002. Canada – (#11) 1,826,7693. Japan – (#3) 4,901,5304. Germany – (#4) 3,634,8235. France – (#5) 2,734,9496. United Kingdom – (#6) 2,521,3817. Italy – (#9) 2,071,307*The G-8 includes the G-7 plus Russia, which may be described as an economy in transition. The transition will take Russia from a planned economy to a free-market, capitalist economy. (#8) – 2,096,777▪ Europe’s Big Four1. Germany2. France3. United Kingdom4. Italy▪ The Four Tigers1. Hong Kong2. Singapore3. Taiwan4. South Korea*They follow a strategy of export-oriented industrialization. These nations ambitiously took Japan as a role model, but concentrated on light manufacturing.Characteristics of Industrializing Countries▪ low standard of living▪ underdeveloped industrial base▪ low Human Development Index (HDI) relative to other countries▪ standards of living in industrializing nations are lower than in developed countries, bur range widely depending on whether a nation is rapidly industrializing or is in decline Benefits of Industrialization▪ employment opportunity⇨ industries have provided employment to people⇨ industries require skilled, semi-skilled, and unskilled manpower, so people having different activ-ities are employed▪ affordable price⇨ industries produce goods in large quantities, so the production cost is reduced and the price be-comes affordable▪ development of skills

⇨ industries develop workers’ skills and abilities, which will contribute to the building of a country’s manpower⇨ helps a person specialize in a particular field▪ utilization of resources⇨ industries utilize the country’s resources and produce finished products which are affordable and of the best quality▪ earning of foreign currency⇨ if the goods are produced in bulk quantities, then the goods can be used for export purposes, which will help in earning foreign currencyProblems caused by Industrialization▪ countries such as United States, Japan, and Western Europe are experiencing low birth rates coupled with longer life expectancies⇨ translates to a “graying” of the population, in which older people will come to outnumber younger people⇨ holds serious implications for funding their retirement and health care▪ threat of terrorism▪ pollution caused by building of infrastructure, use of dangerous chemicals, fouling of rivers, and smoke▪ deforestation⇨ cutting of trees so there would be enough space for buildings, thus, extinction of many varieties of animals and plants▪ migration from the farms to the cities leading to some labor shortage in rural areas, which en-courage illegal immigration to fill these openings▪ crowding and housing shortages in the cities leading to health problems▪ increased use of physical comforts and new products frequently have negative impacts on health leading to diseases such as obesity, diabetes, and heart attacks▪ mass of urbanization and cities that end up resulting from the factory system help to create over-crowded conditions where the delicate balances of the ecosystem are destroyed▪ overpopulation▪ increase competition for jobs▪ increasing crime rate Solutions▪ health care⇨ implement health sector reforms intended to strengthen public funding, expand preventive and primary coverage, and improve operations in the healthcare system through decentralization and administrative measures▪ urbanization⇨ development of practical working partnerships and institutional arrangements between commu-nities and local or national government to address current aspects of poverty, in a manner that takes into account the need for land, infrastructure, and other inputs to further economic develop-ment within cities⇨ strengthening of financial mechanisms that promote partnership-based solutions to the multiple dimensions of poverty experienced in urban areas▪ overpopulation⇨ one-child policy⇨ proper sex education and campaigns▪ competition for jobs⇨ the government must make it conductive for investors to put money in factories and manufactur-ing facilities to bring the agricultural sector a step higher▪ increasing crime rate⇨ strict nationwide implementation of Police Integrated Patrol System▪ pollution⇨ environmental laws like the Republic Act 8749 or the Clean Air Act of 1999

LABOR SECTOR▪ labor force

⇨ also called work force⇨ employed (persons having a job or business)⇨ unemployed (without work, and are actively seeking work)▪ persons NOT in the labor force⇨ unwilling or unable to offer or supply labor services under conditions existing in their labor mar-kets (this includes persons who were full-time students currently attending school)Potential Labor Force vs. Labor ForcePotential Labor ForceLabor Force-size of the adult population-the total of the two groups: persons seeking work but not immediately available and persons avail-able to work but not seeking-the labor force adjusted for movements in the business cycle-all the members of a particular organization or population who are able to work, viewed collec-tively-defined simply as the people who are willing and able to work-labor force = number of employed + number of unemployed Underemployment▪ Underemployment⇨ employment situation that is insufficient in some important way for the worker, relative to a stan-dard⇨ brought about by: immigrants and new graduates⇨ underemployment rate: 18.3% as of June 2014▪ examples:⇨ holding a part-time job despite desiring full-time work⇨ over qualification⇨ overstaffing⇨ skills that hold low market place demand▪ types:⇨ visibly underemployed – worker works less than 40 hours per week⇨ invisibly underemployed – overqualified workersUnemployment▪ Unemployment⇨ occurs when people are without work and are actively seeking work⇨ usually experienced during periods of recession⇨ recession – general slowdown in economic activity⇨ unemployment rate: unemployed individuals all individuals in labor force 100⇨ unemployment rate: 6.7% as of September 2014▪ considered unemployed when:⇨ they are not working, part-time or temporary⇨ they are available to work⇨ they have actively looked for work for the past for weeks▪ two main types of unemploymento voluntary unemployment⇨ people that willingly leave jobs to look for new oneso involuntary unemployment⇨ people who were laid off or fired from their previous jobs, having to need to look for new jobs as replacement▪ types of unemploymento structural unemployment⇨ occurs when a labor market is unable to provide jobs for everyone who wants one due to a mis-match between the skills of the unemployed and the skills needed for the available jobso frictional unemployment⇨ time period between jobs when a worker is searching for or transition from one job to another

o cyclical unemployment⇨ occurs when there is not enough aggregate demand in the economy to provide jobs for every-one who wants to worko classical unemployment⇨ occurs when real wages for a job are set above the market-clearing level, causing the number of job seekers to exceed the number vacancieso hidden unemployment⇨ unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collectedo long term unemployment⇨ unemployment longer for one year⇨ effects are very devastating, both psychologically and financiallyo seasonal unemployment⇨ unemployment brought about by natural changing of seasons▪ causes of unemploymento unavailability of jobs (government and private sectors)o lack of investors and businesseso lack of educationo high rate of population growtho welfare payments⇨ the aids given by government to the unemployed people actually reduce their willingness to worko changing technology⇨ companies hire people having specialization in the advanced techniqueso economic inflation⇨ a state’s economy faces a steep rise in prices as compared to other economies (leads to failure in exports)o job dissatisfaction⇨ person who is not contented with his jobs can never continue it in the long run▪ effects of unemploymento economy⇨ unemployment financial costs⇨ recession⇨ less overall spending⇨ reduced spending power of the employedo society⇨ chronic unemployment⇨ psychological effects⇨ political issues: loss of trust in administration and the government which may lead to political in-stability ▪ solutionso government response⇨ monetary policy – lowering of interest rates⇨ fiscal policy - cutting of taxes; increased government spendingState of the Philippine Labor Sector▪ Labor Policy in the Philippines⇨ is specified mainly by the Labor Code of the Philippines and through other labor laws⇨ they cover 38 million Filipinos that belong to the labor force and to some extent, also the over-seas workers⇨ they aim to address Filipino workers’ legal rights and their limitations with regard to the hiring process, working conditions, benefits, policymaking on labor within the company, activities, and re-lations with employers⇨ implemented primarily by government agencies, namely, Department of Labor and Employment and Philippine Overseas Employment Agency

⇨ non-government entities, such as the trade unions and employers, also pay a role in the coun-try’s labor policy by actively ensuring their proper implementation and on the political level, by lob-bying for development or modification of work-related laws▪ Labor Code of the Philippines⇨ stands as the law governing employment practices and labor relations in the Philippines⇨ it was enacted on Labor day of 1974 by President Ferdinand Marcos, in the exercise of his then extant legislative powers⇨ prescribes the rules for hiring and termination of private employees⇨ contains several provisions which are beneficial to labor▪ Brain-Drain⇨ refers to the emigration (out-migration) of knowledgeable, well-educated and skilled profession-als from their home country to another country⇨ can take place because of several factors; most obvious is the availability of better job opportu-nities in the new country⇨ other factors: war or conflict, health risks, and political instability⇨ commonly when individuals leave less developed countries (LDCs) with fewer opportunities and migrate to more developed countries (MDCs) Job Insecurity▪ 2 conditions underscore the absence of job security in the Philippine work force:1. the escalating number of unemployed workers who command cheap wages for limited and small number of employment opportunities2. the advent of automation that displaced and replaced many workers because employers choose speed and accuracy in production rather than the creative efforts that shall flourish once labor is re-lieved from the drudgeries of work▪ contractualization⇨ comes in the form of job orders, emergency hiring, Contract of Service employment, Memoran-dum of Agreement employment, talent-hiring, project-based hiring, and outright contractuals⇨ Why does government conceptualize?o to depress wageso n o e m p l o y e e – e m p l o y e r relationshipo corruptiono patronage politics⇨ during the first quarter of the year a total of 424 contractual workers have been registeredJob Scarcity▪ refers to the number of workers who are not formally employed▪ different from the unemployment rate because for the person to be classified as unemployed, he/she has to fit the formal definition of unemployment namely:⇨ did not work in the 7 days prior to today⇨ wants to work and are available to start work within 2 weeks from today⇨ has taken active steps to look for work or start some form of self-employment in the 4 weeks prior to the interviewLabor Problems▪ common problems confronted by workers at their place of work⇨ low wages⇨ poor working conditions⇨ inhumane treatment⇨ absence of job security⇨ underemployment⇨ unorganized labor force⇨ discrimination▪ problems met by workers in relation to trade unions⇨ restrictive laws⇨ employers’ resistance and hostility

⇨ divisive trade rivalry and competition⇨ pseudo trade unions▪ common problems confronted by workers in society⇨ high prices (inflation)⇨ massive unemployment⇨ widespread poverty⇨ poor economic performance⇨ foreign interference and control⇨ displacement of workers and communities⇨ flexibilization, informalization, and migration⇨ changing work, workplace, and workforce ▪ How are these problems related to one another?⇨ labor problems are mere manifestations of larger and more encompassing problems that can be traced to unjust structures in society⇨ state policies that are concretized in the form of an economy that is subservient to foreign pow-ers and a labor market that offers cheap labor are a reflection of a scattered people that has yet to establish its national sovereignty, integrity and self-reliance⇨ the Filipino people have yet to unchain itself from more than three centuries of colonialism and have to deliver itself from ignorance, slavery and blind disobedience▪ Minimum Wage in Region X:⇨ non-agriculture: PhP 291⇨ agriculture: PhP 306 SERVICE SECTOR▪ Service⇨ “any activity or service that one party can offer to another that is essentially intangible and does not result in the ownership of anything” (Kotler, 2008)⇨ labor-intensive sectoro to be able to provide service, a firm must hire workerso service cannot be separated from the person who renders the service⇨ generates employmentContributors to the Service Sector▪ Communications Industry⇨ one of the biggest contributors⇨ businesses, large or small, depends on telephones for their day-to-day operations⇨ a large portion of the population, even those who belong in the low-income group, has at least one mobile phone⇨ Internet is used by millions of people to get updated with what is happening around the world. to communicate with friends and loved ones, or to engage in a transaction with a business partner▪ Transportation Service⇨ to be able to move from one place to another, one needs transportation service⇨ bus companies, jeepney operators, taxi operators, airline companies, shipping firs, and rent-a-car companies all provide transportation service for passengers and/or cargo▪ Offshoring and Outsourcing (O&O) Industry⇨ formerly known as the Business Process Outsourcing (BPO) industry⇨ outsourcingo refers to the contracting of a specific business task to a third party⇨ include contact centers, medical transcription firms, legal transcription firms, software develop-ment firms, animation studios, and design engineering companies▪ Tourism Industry⇨ according to the World Tourism Organization, tourism refers to the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business, and other purposes not related to the exercise of an activity remunerated from within the place visited

⇨ activities of tourists include shopping, eating and drinking, engaging in recreational activities, and sight-seeing⇨ considered the biggest and fastest-growing industry in the world because it cuts across several industries that provide services to tourists, particularly hotels, restaurants, and recreation⇨ also important for its multiplier effect⇨ President Gloria Macapagal-Arroyo signed Republic Act 9593, or the Tourism Policy Act of 2009, an act declaring a national policy for tourism as an engine of investment, employment, growth, and national development UNDERGROUND ECONOMY▪ Underground Economy or Black Market⇨ the part of a country’s economic activity that is unrecorded and untaxed by its government⇨ goods or services may r may not themselves be illegal⇨ serves willing customers⇨ imposes unique costs on participants⇨ creates opportunities for monopoly⇨ rewards a suboptimal scale of operations⇨ 40%-80% of GDP the value of shadow economy is PhP 4.3 trillion as of 2012Types of Underground Economy▪ Illegal Economy⇨ income produced by those economic activities pursued in violation of legal statuses defining the scope of legitimate forms of commerce⇨ examples: drug trafficking, arms trafficking, prostitution▪ Unreported Economy⇨ activities that evade the institutionally established fiscal rules as codified in the tax code⇨ amount of income that should be reported to the tax authority but is not so reported*”tax gap” = (amount of tax revenues due the fiscal authority) – (amount of tax revenue actually collected)▪ Unrecorded Economy⇨ activities that circumvent the institutional rules that define the reporting requirements of govern-ment statistical agencies⇨ amount of unrecorded income, namely the amount of income that should be recorded in national accounting systems but is not▪ Informal Economy⇨ excluded from the benefits and rights incorporated in the laws and administrative rules⇨ income generated by economic agents that operated informally⇨ hidden from the state of tax, social security or labor law purposes but is legal in all other aspectsSolutions1. more repression⇨ to impose higher penalties to participants in the underground economy⇨ the economic theory of crime (Becker 1968) predicts that an increase in expected penalty will in-crease the cost of, and reduce, participation in illegal markets2. continue providing more skills development and trainings for the disadvantaged3. created a market place environment that does not disregard the informal4. minimize the neglect of country side development and stop private and public monopolies on the agricultural sector5. promote social protection and provide loan and credit banks for the informal actorsCauses▪ burden of direct and indirect taxation▪ burden of regulation as proxy for all other government activities▪ tax moralityEffects▪ positive⇨ bringing in competitive power to economy⇨ increasing employment⇨ having a multiplying effect on economy

⇨ providing resource to official economy⇨ bringing dynamism to economy⇨ being the assurance of socio-economic system▪ negative⇨ growth of underground economy means shrinkage of official economy and it causes tax losses⇨ the underground firms pay no tax or less tax that the other firms so they gain competitive power and it will be an unfair competition⇨ underground economy causes unreliable statistical data