This paper considers unit labor costs (ulcs), i.e., the ratio of the wage rate
to labor productivity, as the indicator of competitiveness in the Philippines. It
is shown that ulcs have an interpretation from the point of view of the functional
distribution of income (i.e., the distribution of output between labor and capital).
The paper documents the dynamics of the labor share in national income for
1980-2002, and provides an analysis of the long-run performance of the
Philippine economy. The most salient features are: (i) decreasing wage rate (until
the mid-1990s) and labor share; (ii) stable profit rate and increasing capital
share: (iii) stagnant capital-labor ratio; (iv) decreasing capital productivity; (v)
decreasing labor productivity (until the mid-1990s); and (vi) increasing markup,
the latter interpreted as an indicator of the firms’ capacity to enforce a certain
claim on profits against laborers and competitors, or as an index of the capacity
of firms to exert anticompetitive practices. It is argued that these characteristics
indicate that the country is submerged in a “low-level equilibrium trap.” This
situation has profound implications for long-run growth and for the potential
growth rate of the country, and explains the progressive deterioration of the
Philippines during the last two decades, although some signs of recovery can
be discerned.
