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ISSN 1656-8788

INSIDE: Business Research in Brief


PAASCU and PACUCOA Accredited

February April 2010

Unemployment and Price Levels: Finding the Right Mix


Giovanni R. Barbajera
World economies always attempt to find the most efficient use of their resources. Resources such as land, labor, and capital are described as scarce. Countries struggle to provide their citizens with the perfect combination of goods and services using the resources that are in limited quantities. The early 2000s brought a cloud of uncertainty to world economies. The aftermath of wars against terrorism, accounting mismanagement of big businesses, climate change, and stock market contractions contributed to the decline in trade. Labor, in particular, was heavily affected by reengineering, and restructuring strategies resorted to by firms. Some companies have opted to declare bankruptcy and totally shut down production. Labor, by definition, is the number of people employed plus the number of unemployed (Case & Fair, 1996). Labor participation was low and volatile in some sectors of the economy. This led to the dwindling of the number of people who are employed. Data from the Central Intelligence Agency (CIA) World Factbook estimate that the Philippine labor force is around 37.89 million in 2009. Labor force by occupation reveals that 51% work in the service sector, 34% are in agriculture, and 15% are employed in the industrial sector. In the Philippines, the number of unemployed in a 7year period beginning in 2003 hovers between 7.5% and 11.7%. The table 1 shows the estimated unemployment rates during the period. Samuelson and Nordhaus (2005) define unemployed as people who are not employed but are actively looking for work or waiting to return to work.
Table 1 Estimated Unemployment Rates in the Philippines
Year 2003 2004 2005 2006 2007 2008 2009 2010 Unemployment rate 10.20 % 11.40 % 11.70 % 8.70 % 7.90 % 7.30 % 7.40 % 7.50 % Percent Change 11.76 % 2.63 % -25.64 % -9.20 % -7.59 % 1.37 % 1.35 % Date of Information 2002 2003 2004 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est.

Source: http://www.indexmundi.com

Unemployment is unpalatable. It is consistent to throwing away tangible goods and provided services up in the air. There is the incidence of opportunity costs arising out of the non-production of houses, clothes, buildings, computers, shampoos. Since available human resource is not utilized to the maximum, the knowledge, skills, and experiences of people are not harnessed to their full potential. There is wastage. Let us take a look at the types of unemployment for clearer understanding. The first type of unemployment happens when there are needed adjustments to be made to match available jobs and qualifications of the applicants. This frictional unemployment takes some time to clear. This is usually referred to as the normal workings of the labor market although this is difficult to measure. The different industries in any economy are dynamic and are continually evolving. We see shifts or

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migration of workers from one industry to another. The time it takes to look for a job and land one depends on the availability of jobs that match the skills of the applicant. Frictional unemployment always exists. There are, at any given point, people who are looking for jobs and wait for suitable employment. Structural unemployment happens when there is disparity between what is demanded by firms and what is offered by the labor market. In early to mid-80s there has tremendous demand for nurses. The salary of nurses surged above the usual and there were adjustments made in the labor market. We have seen an increase in the number of students wanting to become nurses. This prompted entrepreneurs to put up businesses that are aligned with the nursing profession. The number of schools offering the nursing program and review rose dramatically. Those in the publishing industry cashed in on the demand for nursing books and review materials. Recent years are telling us a different story. There is now an imbalance between the supply of and demand for nurses. The labor market is saturated with a lot of nurses who are looking for jobs. Some who are lucky enough get a job not related to what they have strived for. The third type of unemployment is termed as cyclical. Thus signifies a decrease in the total demand for labor across many industries. This usually occurs during recessions and depressions. These are economic periods that are characterized by reduced production and increasing unemployment levels caused by a number of factors. These factors may be economic, social, or political in nature. Other minor types of unemployment are seasonal, regional, and technological. The first exists when there are changes in the climate, weather, or season that require different sets of workers for a particular purpose. Farmers cannot plow the fields during prolonged dry spells. The El Nio and La Nia phenomena have displaced a lot of farmers and their families. Unemployment levels are closely related to price levels. An increase in the general level of prices is termed as inflation. This may be caused by two factors. One is when production costs increase. Wages, salaries, rent, interest on loans may increase. These increases are often passed on to the final consumer in the form of higher prices. The ease by which a seller transfers the burden of the payment of the additional cost depends on the value a consumer places on the good or service. The more valuable the good is to the consumer, the easier it is for the seller to transfer a bigger portion of the cost to the buyer. The other reason why prices increase is when there is a remarkable increase in the total demand of consumers. This is clearly seen during special holidays, school openings, graduation periods, and the like. Prices of goods and services increase because of

excess demand for them. A British economist by the name of A.W. Phillips provided an interesting observation in understanding the relationship between unemployment and inflation. The premise suggests that when production levels are high and unemployment is low, wages and prices are more likely to increase. When there are a lot of jobs available workers can easily ask for wage increases than when jobs are few and far between. The availability of other jobs make workers more confident in asking for higher wages. When sales are brisk firms find it easier to increase their prices. Firms need additional workers to satisfy their increased output requirements. Sellers are encouraged to sell more at high prices. This enables them to hire new workers that reduce the number of people who are out of jobs. This, however, is only true and observable in the short-term which usually runs for 2-3 years. In the longterm, as modern macroeconomic theory suggests, there is little or no evidence to prove that unemployment and inflation are mutually co-existent. there will always be a the natural rate of unemployment which can be explained by the types of unemployment. If there are inconsistencies as regards job availability and generation, the government can come in and affect the normal workings of the economy. This may be done through taxation and public spending. Fiscal policy is the general term that refers to this governmental function aimed at achieving certain socially and economically accepted goals. The government can step in and change the employment scenario by setting wage levels that are equitable and just. The tax rates may also be adjusted in the form of legislation. Depending on the goals, the government can either bring tax rates up or it may slash tax rates. Spending on social services and public goods are options used by the government to provide equal distribution of wealth. Other activities done are transfer payments that include Social Security, Philhealth, and Pag-ibig fund distribution. As can be gleaned from the above discussion, the government plays a pivotal role in the upliftment of the lives of its citizens. A thorough understanding in this area is in order.
References th Case K. & Fair R. (1996). Principles of Economics (4 ed.). Upper Saddle River, New Jersey: Prentice Hall. Central Intelligence Agency (2010). The World Factbook. Retrieved from https://www.cia.gov/library/ publications/the-world-factbook/geos/rp.html Index Mundi (2010). Philippines Unemployment Rate. Retrieved from http://www.indexmundi.com/ philippines/unemployment_rate.html rd Mankiw N. (2004). Principles of Economics (3 ed.). Ohio: South Western.

LCCM Research Review

Business Research in Brief


Divina M. Edralin

Globalization, hastened by the technological developments, has dramatically changed the general and functional business management. Firms are becoming more and more astute in their business approaches they strive to achieve optimum profit and ensure continued existence in industry. Moreover, the globalization phenomenon has resulted in increased market competitiveness, adoption on liberalization as economic policy by many countries, forging strong political alliances to boost trade and investment, changes in operational firm-level structures, and upheavals in the nature and conditions of work of human resources. The significant impact of globalization has prompted business enterprises to engage in research, particularly in production, finance, marketing, human resource developments, economics, and politico-legal concerns. Business research as corporate strategy aims at maintaining competitive advantage and attaining organizational objectives most efficiently. Business research has thus gained wider acceptance in industry. Definition of Business Research Research is either basic or applied. Basic research seeks to contribute to knowledge through the development of a theory or concept, while applied research seeks to provide solutions to problems through the development and evaluation of processes, policies, and other activities that require specific courses of action. Business research is a systematic process of answering a question or a problem, involving the methodical formulation of a theoretical framework and methodology; collection, analysis, and interpretation of pertinent data; and presentation of recommendations from which courses of action can be taken. Business research is seen therefore as applied or action-oriented. As a strategic move, research is undertaken by firms either through in-house research units or through private or public research entities. Understandably, these business enterprises will activate resources in research support once convinced in relevant results that can Importance of Business Research With its resultant new insights of commercial significance, research can be of tremendous value to the firm itself and to individuals like students and faculty. Figure 1 summarizes the importance of business research both at individuals and firm levels.

The application and advantages of business research are manifold. Specific applications though depend on the particular purpose or need of the company or the individual. For example, challenged by competitors, Microsoft and Toyota are very much into product development or innovation research. IBM, McDonalds, and Ford Motors, on the other hand, focus on human resource research. A study of successful Filipino entrepreneurs in Metro Manila (1998) reveals that market research is a success factor in the marketing function of about 18% of small and medium-sized enterprises in the area. Since management has began to realize the significance and potential value of research, business research will constantly increase and even take on rapid place in the new millennium due to advances in computer and information technologies. Institutions of higher learning offering degrees in business-related fields, both on the undergraduate and graduate levels, such as marketing, accounting, human resource management, entrepreneurship, banking and finance, are strengthening their programs. They now give more emphasis on business research to responds to the needs of the industry and to provide inputs for policy formulation and legislative agenda for the government. Schools are now beginning to require research in their different courses, and to link in firms and other agencies that could serve as sources of topic, data, and/or funds for business research.

Business Research

Firm

Individual

Effective Financial Control and Management Expansion (Physical/ Manpower/ Capital) Customer Satisfaction

Provide Quality Product/ Services

Acquire skills in Research Additional Income

Effective & Efficient Labor Force Possible Career Sustain Competitive Advantage Provide Inputs to Policy Recommendations Financial Stability (Liquidity & Solvency) Improve Current Trends/ Practices Contribute New Knowledge to the Field

Innovation/ Diversification of Product/ Service High Productivity

Optimum Profit Develop Innovative Research Techniques & Methods

Personal Fulfillment

Figure 1. Importance of Business Research

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Major Steps in Research The steps in conducting business research are: 1. Identification of Research Problem 2. Formulation of Research Problem and Objectives 3. Development of the Theoretical Framework 4. Designing the Research Methodology 5. Collection, Analysis, and Interpretation of Data 6. Presentation of Conclusions and Recommendations 7. Taking Course of Action
Table 1 Comparison of the Types of Business Research

Common Types of Business Research Given the nature of business industry and the existing state of competition in a globalized economy, research must take a functional or utilitarian value. Published and unpublished business research outputs of business firms, private and public research institutions. professional independent research groups, and of researchers in the past decades show that researchers can be classified into (1) feasibility studies, (2) industry studies, (3) corporate strategy, (4) case studies, and (5) basic research. Table 1 illustrates the comparison among these common types of business research.

Type
FEASIBILITY STUDY

Purpose
Determines the viability of a product/service/pr oject which is not yet operational. Analyzes the past and present performance of companies and predicts the future of the firms in the industry. Aims to propose strategies to improve company performance. Describes/Explore s patterns or events in an indepth manner.

Scope
Usually covers one project/service and looks at the marketing, production, management, legal, and financial aspects. Covers one industry and looks at the marketing production, management, and financial aspects. it also looks into legislations affecting the industry. Covers one firm and looks at a combination or all of the functional areas. Covers a particular topic of interest of a person or company.

Respondent
Selected through sampling. This is done for the market study.

Analysis
Percentage, Regression, Ratios, T-test, Z-test, or Chi-square test Frequency, Percentage, Time-series, Ratios, Regression

Examples
1. A Feasibility Study on the Comforter and Pillow in One 2. A Feasibility Study on Beyond Chairs

INDUSTRY STUDY

Selected either through total enumeration or sampling of firms within the industry.

1. An In-depth Study on the Animation Industry in the Philippines 2. An In-depth Study on the Film Industry in the Philippines

CORPORATE STRATEGY

Key informants

Content analysis, Percentage, Frequency Content analysis, Frequency, Percentage

1. Strategic Plan for Duty Free Philippines 2. A Corporate Strategy Paper for National Development Council (NDC), Inc.
1. The Efficacy of Credit Ratings as Bankers Assessment of International Creditworthiness. The Case of LDC Borrowers Capacity and Willingness in Debt Servicing 2. A Case Study of Borrowers of the Professional Moneylenders in Cavite City 1. An Evaluation of the Readiness of Filipino Professionals to Meet International Competition 2. The Anti-Sexual Harassment Law in Retrospect: Advancing or Retarding Womens Status

CASE STUDY

Key informants

OTHER TYPES OF APPLIED RESEARCH

Objectives can be descriptive, correlative, or comparative, to offer solutions or expand knowledge. Aims to develop a theory or concept.

Depends on the objective of the study.

Selected either through total enumeration or sampling. (Not applicable if purpose is for theory development.)

Parametric, Non-parametric Statistics

BASIC RESEARCH

Covers one specific theory or concept or a group of related theories and concepts.

Mathematical modeling, Econometric Techniques

1. Factors Influencing the Observance of the Core ILO Standards by Manufacturing Companies 2. Household Vulnerability to Employment Shocks, 1997-1998

Reference
Edralin, D. M. (2002). Business Research (2nd ed.). Manila: De La Salle University Press.

LCCM Research Digest is published by the Research and Publications Center (RES) to serve as a sounding board of up-to-date ideas and actions related to research, classroom management, and delivery of the faculty in the different schools of the College. It encourages and welcomes condensed versions or a short summary of research or review essays, conference papers, lecture notes, teaching guides, and other classroom materials for its quarterly publication. Editorial Board: Sr. Imelda A. Mora, OSA, President Dr. Divina M. Edralin, Consultant Mr. Giovanni R. Barbajera, Director Lay-out: Venancio N. Santos, Jr.

The Research Digest is now accepting contributions for the May-July 2010 Issue. Feel free to visit us for inquiries.

LCCM Research Review