Philippine government working to lower unemployment and bring in revenue

 

New job opportunities have accompanied economic growth in the Philippines, but unemployment remains relatively elevated, compared to elsewhere in the region, while chronic underemployment and static wage growth have seen the number of working poor expand in recent years. The government is addressing these challenges through investments in education and health, such as a conditional cash transfer programme and senior high school reforms. However, wage growth remains stubbornly slow, representing one of the most significant challenges facing the country’s labour market. Indeed, gains in productivity have easily outpaced real wage growth, which has stagnated over the previous decade.

Unemployment

After experiencing a 2% increase in jobs over 2015 that brought unemployment down from 6.6% to 5.8% at the start of 2016, unemployment had ticked back up to 6.6% up again by January 2017, according to the National Economic and Development Authority (NEDA). The rise came despite recent improvements in the mix of the economy. Youth unemployment rose most quickly from 14.4% to 15.6% over the year, while adult unemployment was up 0.7 percentage points to 4.8%. Still, this higher unemployment rate remains below the average of 7.4% recorded during the previous decade from 2006 to 2015, and may be a temporary increase.

Employment has continued to shift from the agriculture sector towards the services and industrial sectors. The authority reports that during the period under review, the services sector was the primary employer nationwide, and an expanding one at that, accounting for 57.1% of employment in January 2017, up from 56.4% in January 2016. The industrial sector also experienced a moderate expansion, making up 17.4% of jobs, up from 16.8% the year prior. Agriculture, while still a major employer, was responsible for a declining share of total jobs, down from 26.85% in January 2016 to 25.5% at the beginning of 2017.

Underemployment

While employment has declined somewhat, the number of Filipinos taking on additional work has been on the rise, and underemployment improved over the same January 2016 to January 2017 time frame, from 19.7% to 16.3%. This news paints something of a mixed picture for the overall economy. For example, the research firm Ibon reported in May 2016 that the Philippines has, comparatively, one of the worst unemployment rates in the region, at 5.8% in January 2016, compared to Indonesia (5.5%), China (4%), Malaysia (3.5%), Vietnam (2.3%) and Thailand (1%), and persistent underemployment has, in recent years, been identified as a major challenge by a number of domestic and international stakeholders. Thus, it is possible that the current positive move is only a temporary one. According to Ibon, the country’s labour force participation rate, as measured by the share of the working-age population that is in employment or looking for work, fell to 63.4% in January 2016, only slightly above the 63.3% rate recorded in January 2009, at the height of the global financial crisis.

In its May 2016 report, the firm notes that the labour force participation average is at its lowest levels in over 30 years, after averaging 62.9% annually between 1981 and 1984, with the labour market rising by just 487,000 employees in January 2016, despite the fact that it’s working-age population rose by 1.1m. Ibon attributes this to workers leaving the job market after being discouraged by lack of stable, secure opportunities.

Labour Market Study

The ongoing issues with the labour market were addressed first in a January 2016 study released by the World Bank. “Labour Market Review: Employment and Poverty in the Philippines”, called for more investment in skills and education, as well as flexible labour rules to reduce poverty among the working class. The study, which analysed the labour market from the perspective of workers’ welfare, identified a number of labour market constraints which have kept poverty levels high in the country. The report and research were well timed, as the election season presented an opportunity to put poverty and employment issues at the forefront of national dialogue, and show the government has been listening. Although the study found that economic growth over the previous decade – with GDP rising an average of 5.3% in the 2004-14 period – enabled sufficient job creation for a growing labour market, it also found that poverty levels remain high due to underemployment and low wages. The underemployment scenario has since been showing signs of improvement.

Thus, the central problem in the poverty question has to do with real wage growth, which has not kept pace with productivity, leaving many full-time employees living below the poverty line. As of early 2016, the World Bank reported that roughly 75% of all jobs, and 67% of urban jobs were classified as informal, with six out of 10 waged workers hired informally, meaning that they lack many protections, such as employment contracts, social insurance and protection against unfair dismissal.

Barriers

High incidence of informal employment is attributed to scarcity of “good jobs” – the report notes that the country’s economy is structured around low-value-added activities due to constraints in the investment climate and the high cost of doing business in the formal sector. Gaps in education were also a factor in the low earning capacity of poor workers, many of whom are lacking in basic education. Labourers are the largest occupational group in the Philippines outside of agriculture, and unskilled workers account for nearly a quarter of total employment. Furthermore, as many as 44% of workers have not attained secondary education, with the numbers rising to 57% in rural areas, compared to 30% in urban areas. Youth and poor families are particularly hard hit, with 60% of this demographic lacking secondary education.

Education Impact

The report found that completion of secondary education significantly improves jobs prospects, although it notes that even educated workers are frequently driven to take unskilled jobs. For example, 30% of workers with a secondary education hold unskilled jobs, while 35% of labourers have attained a secondary education, which highlights both a scarcity of “good” jobs, as well as a potential skills mismatch.

The bank suggests a three-pronged approach to reduce working poverty, which emphasises continued investment in education and skills training for disadvantaged youth, particularly in rural areas, as well as simplified labour regulations to encourage employers to augment formal hiring. In a broader context, improvements to the investment climate and lowering the cost of doing business were identified as critical, and the government is poised to intensify its efforts to equip students with industry-relevant competencies and skills, in addition to bolstering skills training for farm workers affected by adverse weather conditions, enabling a smoother transition to more stable work.

Reforms Under Way

The government is already making progress on educational reforms, through increased public spending on both health and education. Of particular significance is the conditional cash transfer programme, a social safety net which expanded school enrolment from 360,000 households in 2008, to 4.5m as of September 2015. The World Bank reports that the Philippines’ programme, called the Pantawid Pamilyang Philipino Programme (4Ps), is among the best in the world, with 82% of its benefits going to the bottom 40% of the population, and accounting for an average of 11% of total income for the poorest households enrolled. These transfers boost both enrolment and attendance, in addition to promoting early childhood development and food security, providing an important foundation for future employability.

The Department of Social Welfare and Development, meanwhile, is moving to support vocational training for low-income families, announcing in October 2016 that it will allow this demographic to enrol in its Sustainable Livelihood Programme, which provides vocational training, even if they are not 4Ps beneficiaries.

Senior high school reforms represent perhaps the most significant future contributor to wage growth and improved career outlooks. In June 2016, under the Enhance Basic Education Act of 2013, senior high schools were launched nationwide, including grades 11 and 12 in its basic education system for the first time. Prior to this move, the Philippines was the only country in Asia with a 10-year basic education system.

Senior High

Although critics predicted new reforms would only prompt massive drop-outs, the Asia Foundation reported in August 2016 that nearly 50,000 more students enrolled in the new grade 11 than the number of students who completed grade 10 during the previous academic year. The new senior high school system is expected to improve low performance and enrolment rates, in addition to boosting the country’s graduate skill levels to international standards – the Basic Education Act also makes secondary education compulsory. Critically for skills development, senior high school students are now able to specialise in one of four learning tracks, including academic, technical-vocational-livelihood, sports and arts.

Wages

Wage growth has been sluggish, but in September 2016, the trade secretary, Ramon Lopez, told media that the government’s economic team is unlikely to back the P125 ($2.60) national wage increase for private sector employees proposed by the Department of Labour and Employment (DOLE). Citing NEDA data, Lopez said the suggested hike would slow GDP growth from between 6.5% and 7.5% annually, to between 5.5% and 6.5%, while driving unemployment to 7.3%.

The Foundation for Economic Freedom reported the same month that the country’s minimum wage – which varied between P454 ($9.60) and P491 ($10.40) per day in the National Capital Region as of June 2016, depending on the industry – was already one of the highest in the world relative to average wages, and argued that a broad wage hike does not consider local conditions and could alienate investors.

However, as of early 2017, with increases in foreign direct investment and continuing GDP growth, there is yet no indication that the investment climate has been affected by the ongoing effort to improve wages.

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