Crossroads (Toward Philippine economic and social progress)
Philippine Star, 15 June 2016


Last week, the Philippine Statistical Authority released the employment data on the economy, for April 2016. While the picture is one that tells us about progress being achieved in the area, it essentially informs us that our record in raising employment is far from what we want it to be.

The employment and unemployment picture. According to the government, 39.9 million workers are employed; 2.6 million are unemployed (representing 6.1 percent of the labor force); and 7.4 million are underemployed (comprising 19 percent of the labor force).

If we compare these with past numbers, employment has increased due to economic growth. Even so, the structural aspects of employment, unemployment and poverty of Filipino workers have not changed much.

For instance, about 50 percent of young people in the labor force (up to 24 years of age) are unemployed. For workers between 25 to 34 years of age, close to 28 percent are also out of work. These numbers give a depressing view about the prospects for improved living standards for the young.

Moreover, most of the 39.9 million employed, 57 percent are in the services sector; 25 percent in agriculture, and only 18 percent in industry. Among the underemployed workers amounting to 7.3 million, 48 percent are in the services sector, 36 percent in agriculture, and 19 percent in industry.

These employment statistics are far from encouraging. Recent analysis will help us understand the nature of the employment issues in the economy. In discussing this, I will defer to other authorities rather than expound my views.

What’s wrong? World Bank’s analysis of labor market policies. Recently, the World Bank addressed this particular problem and focused on analyzing the relationship of “employment and poverty.” This is contained in a recent staff paper, Employment and Poverty in the Philippines, Labor Protection Note No. 9, World Bank, Dec. 9, 2016. (It was prepared by a team led by Jan J. Rutkowski.)

Though the study used 2013 Philippine labor data, the conclusions concerning the relationships of employment, unemployment and poverty in the country continue to be relevant. The study made use of relevant employment statistics and other surveys conducted on this topic.

The findings have major implications of the reforms of labor market policies.

Some findings. First, the study finds that the total number of workers receiving wages and salaries consists of 60 percent of the total employment in the economy. Self-employed and unpaid family members account for the remaining 40 percent.  These do not surprise.

However, but going deeper – and this is a second, more detailed finding – about three-fourths of all jobs, and specifically, two-thirds of urban jobs, are “informal” in nature. (These are defined below.) Among hired workers, six out of 10 are hired “informally.” About one-half of these workers are “informal” wage workers, 40 percent are self-employed, and 10 percent are unpaid family workers. These workers receive significantly lower, non-agricultural jobs.

The study defined “formal” and “informal” employment as follows:  Formal workers are those who (a) have written employment contracts; (b) receive social insurance from their employers; and (c) are protected from arbitrary dismissal. The last two conditions are provided by the application of laws and regulations affecting workers, derived from government policy.

Informal workers comprising three-fourths of all jobs fail to meet the above definition.

By this definition, the study notes that only a small percentage of Philippine workers participate in the “formal” sector where the “good” jobs are located in the economy.

Through extensive labor income and expenditure surveys of 2013, it was possible to calculate the wage distribution of all workers and point out the “median” wage income. The median wage is near average wage earned. It is wage that demarcates the one half of all wage receivers, between below average and above average wage earners. Against this wage, the poverty line (or the wage rate received by those considered “poor” by the government) can be compared also with any calculated minimum wage.

The Philippine government’s poverty line is marked at the 25th percent of the lowest income groups in the country. The World Bank study used a lower poverty line, the 20th percent among the poorest income class. Against the identified-poverty threshold, the coverage of the existing minimum wage can be compared.

The minimum wage, the poverty line, and productivityThe very poor are on the poorest 20 percent of income recipients. The current minimum wage is equivalent to a level of income which is far above this.

The World Bank study placed the poverty threshold, the minimum wage and the median wage together along the wage distribution. The median wage is close to the average wage received by workers. The study finds that the average regional minimum wage is at the level of 80 percent of the median wage of wage workers, which means that it is quite high relative to the wages received in the economy.

Reflecting on this, the World Bank study says: “… In the formal sector, the minimum wage accounts for about 60 percent of the sector’s average wage, which is high, but not dramatically high…. However, it is a major problem for informal firms, which tend to be small and employ less-skilled workers. In the informal sector, the minimum wage accounts for about 115 percent of the sector’s average wage. This means that the cost of formalization of such firms [is] prohibitively high…. As many as 70 percent of informal firms are paid less than the minimum wage.”

On the matter of setting the minimum wage, it is not only the welfare of those already employed which matters. A lot more consideration needs to be given to the fate of the very poor whose incomes are low and who, when they get left out of the minimum wage calculus, are destined to a life of “informality” of employment and hence a life of poverty.

Some degree of balancing is needed if we are also to take care of the welfare of the poor and give them a chance in being included within the formal framework of employment. In short, if the objective of labor laws is also to see to it that those who seek employment are able to find them, the state must find the proper balance so that its policies do not prevent those who seek employment from getting excluded in the market.

Next: “Good” and “bad” jobs; Options on generating good quality jobs in the economy.