Monetary, fiscal and exchange rate policies and Philippine output : an application of IS-MP-AS model

The Philippine labor market is highly regulated and labor market policies tend to conform to standards of highly developed markets. The policies adopted by the government are geared more toward protecting the employed rather than promoting the overall employment of the labor force. These policies caused the country to veer off the path of labor intensive development in industrial enterprises and strengthened a powerful labor bureaucracy in the government. Side effects of the regulations and the culture surrounding the disposition of labor management issues encouraged rent-seeking and other motivational distortions in the behavior of labor when employed. The welfare policies as developed have contributed to the distortion in labor skill formation and the tendency to provide an increase of emoluments without any link to productivity growth. The balance between welfare and employment creation needs to be continually brought to the forefront. In undertaking reforms, productivity change needs to be placed in the center stage of reforms. Finally, the labor sector would find it in its interest to deal positively with the challenges of globalization. This means recognizing that labor market policies need to adjust to global competition. Furthermore, this emphasizes the need to accept that economic liberalization requires encouraging the growth of investments from all sources—including foreign direct investments. Such a route will create jobs and improve welfare for the working man.