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ECONOMICS REVIEWER

INDUSTRIAL SECTOR

Industry
to build
2 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 businesses
Sub sectors
Mining
extractive industry
draw out mineral resources from mountains and forests
source of livelihood
Mining Act of 1995
o signed by Fidel V. Ramos
o 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
stages
1. Getting raw materials from land and sea. These materials are to be the major ingredients of
production 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 products
1. consumer goods people can use in their everyday lives
2. 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 market
Problems
pollution
overcrowding in cities
unemployment
Barriers to Industrial Resurgence
high cost of energy
poor logistics
President Aquino continues to ignore the issue of amending or liberalizing economic provisions
of the Constitution
Manufacturing: Neglected
1. 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
scientific knowledge
based on the division of labor and on specialization and uses mechanical, chemical, and powerdriven, 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 services
History
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
identifiable change in economic structure and growth
external economies
focused on the operation of an entire economic system with particular reference to the
effectiveness of prices, markets, competition, and profit motivation as regulators of production and
consumption
Factors in Evaluating a Countrys 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 countrys material standard of living

Human Development Index (HDI)


a statistical measure developed by the United Nations that gauges a countrys level of human
development
a composite statistic used to rank countries by level of human development, taken as a
synonym 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
foreign trade), source of investment funds (from the wealth and savings of the private sector,
accumulations 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 socioeconomic 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 nations
Industrialized Countries
The countries in the Group of Seven (G-7) have the most industrialized economies:
1. United States (#1) US $16,800,000
2. Canada (#11) 1,826,769
3. Japan (#3) 4,901,530
4. Germany (#4) 3,634,823
5. France (#5) 2,734,949

6. United Kingdom (#6) 2,521,381


7. 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
Europes Big Four
1. Germany
2. France
3. United Kingdom
4. Italy
The Four Tigers
1. Hong Kong
2. Singapore
3. Taiwan
4. 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
activities are employed
affordable price
industries produce goods in large quantities, so the production cost is reduced and the price
becomes affordable
development of skills
industries develop workers skills and abilities, which will contribute to the building of a countrys
manpower
helps a person specialize in a particular field
utilization of resources
industries utilize the countrys 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 currency

Problems 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
encourage 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
overcrowded 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
communities 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
development 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
manufacturing 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
markets (this includes persons who were full-time students currently attending school)
Potential Labor Force vs. Labor Force
Potential Labor Force
Labor Force
-size of the adult population
-the total of the two groups: persons seeking work but not immediately available and persons
available 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 collectively
-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
standard
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 workers
Unemployment
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 unemployment
o voluntary unemployment
people that willingly leave jobs to look for new ones
o 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 unemployment
o structural unemployment
occurs when a labor market is unable to provide jobs for everyone who wants one due to a
mismatch between the skills of the unemployed and the skills needed for the available jobs
o 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 everyone
who wants to work
o 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 vacancies
o hidden unemployment
unemployment of potential workers that is not reflected in official unemployment statistics, due to
the way the statistics are collected
o long term unemployment
unemployment longer for one year
effects are very devastating, both psychologically and financially
o seasonal unemployment
unemployment brought about by natural changing of seasons
causes of unemployment
o unavailability of jobs (government and private sectors)
o lack of investors and businesses
o lack of education
o high rate of population growth
o welfare payments
the aids given by government to the unemployed people actually reduce their willingness to work
o changing technology
companies hire people having specialization in the advanced techniques
o economic inflation
a states 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 unemployment

o economy
unemployment financial costs
recession
less overall spending
reduced spending power of the employed
o society
chronic unemployment
psychological effects
political issues: loss of trust in administration and the government which may lead to political
instability
solutions
o government response
monetary policy lowering of interest rates
fiscal policy - cutting of taxes; increased government spending
State 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
overseas 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
relations 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
countrys labor policy by actively ensuring their proper implementation and on the political level, by
lobbying 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
professionals from their home country to another country
can take place because of several factors; most obvious is the availability of better job
opportunities 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 opportunities
2. 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
relieved from the drudgeries of work
contractualization
comes in the form of job orders, emergency hiring, Contract of Service employment,
Memorandum of Agreement employment, talent-hiring, project-based hiring, and outright
contractuals
Why does government conceptualize?
o to depress wages
o n o e m p l o y e e e m p l o y e r relationship
o corruption
o patronage politics
during the first quarter of the year a total of 424 contractual workers have been registered
Job 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 interview
Labor 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
powers 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 sector
o to be able to provide service, a firm must hire workers
o service cannot be separated from the person who renders the service
generates employment
Contributors 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-acar 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
outsourcing
o refers to the contracting of a specific business task to a third party

include contact centers, medical transcription firms, legal transcription firms, software
development 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 countrys 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 2012
Types 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
government 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 aspects

Solutions
1. 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
increase the cost of, and reduce, participation in illegal markets
2. continue providing more skills development and trainings for the disadvantaged
3. created a market place environment that does not disregard the informal
4. minimize the neglect of country side development and stop private and public monopolies on the
agricultural sector
5. promote social protection and provide loan and credit banks for the informal actors
Causes
burden of direct and indirect taxation
burden of regulation as proxy for all other government activities
tax morality
Effects
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