unemployment research paper in the philippines

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Unemployment, Labor Laws, and Economic Policies in the Philippines

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• Jesus Felipe 2 &
• Leonardo Lanzona Jr. 3  

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Unemployment and underemployment are the Philippines’ most important problems and the key indicators of the weaknesses of the economy. Today, around 4 million workers (about 12% of the labor force) are unemployed and another 5 million (around 17% of those employed) are underemployed. This Reserve Army of workers is a reflection of what happens in the economy, particularly because of its incapacity to provide jobs (especially in the formal sector) to its growing labor force. The social costs of this mass unemployment range from income losses to severe social and psychological problems resulting from not having a job and feeling insecure about the future. Overall, it causes a massive social inefficiency.

The authors thank participants at the workshop, Employment Creation, Labor Markets, and Growth in the Philippines (19 May 2005, Manila) for their comments and suggestions on an earlier draft of the chapter. They also thank Rana Hasan for useful discussions on labor market issues.

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Felipe, J., Lanzona, L. (2006). Unemployment, Labor Laws, and Economic Policies in the Philippines. In: Felipe, J., Hasan, R. (eds) Labor Markets in Asia. Palgrave Macmillan, London. https://doi.org/10.1057/9780230627383_7

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A Jobless Growth: Why is Unemployment Still High in the Philippines?

This paper investigates the effects of education, inflation, consumption, and GDP growth on unemployment in the Philippines. Using Ordinary Least Squares, the impact of each factors affecting unemployment is determined. To yield robust estimates, possible violations of the assumptions of the classical linear regression model (CLRM) are accounted for. Several theories indicate that an increase in education and consumption is associated with a decrease in unemployment. However, results of this study show otherwise. The findings suggest that the country’s labor force grows faster than its GDP. Furthermore, the government highly invests in education, but focuses less on the availability of jobs for future labor force participants. Because of this, there is an oversupply of potential workers that would not only lead to more unemployment but underemployment as well.

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ADDRESSING YOUTH UNEMPLOYMENT IN THE PHILIPPINES: A policy analysis of JobStart and Enterprise-led Learning Networks (ELLN)

Intended to be an evidence-based policy support for Bureau of Local Employment (BLE) in its continued quest to lower youth unemployment in the Philippines, this issue paper embodies a “choice-problem” type of policy analysis which puts utmost emphasis on both problem analysis and solution analysis.

IOn the one side, the problem analysis reveals various causes and effects of high youth unemployment in the country. Per the problem structuring, there are at least 14 possible causes identified, of which 8 are deemed plausible causes based from review of relevant literature and author’s own previous studies. From the vantage point of BLE, six (6) out of the 8 plausible causes are considered actionable causes. Among the six (6) actionable causes, the policy analysis focuses on SWT and job-skills mismatch. Meanwhile, effects of high youth unemployment EXECUTIVE SUMMARY in the Philippines include, but not limited to the following: hampered economic growth; persistence of poverty and inequality; persistence of unemployment; low returns to human capital investment; social exclusion; and mental health scarring.

IOn the other side, solution analysis revolves around the evaluation of the identified/formulated policy alternatives being proposed for BLE’s consideration: (1) continue JobStart implementation (status quo or no action alternative); (2) terminate implementation of JobStart Program and replace it with Enterprise-led Learning Networks (ELLN); and (3) continue implementing JobStart and then introduce ELLN as a complementary program..

Click Here to Download Full Issue Paper

Title:  ADDRESSING YOUTH UNEMPLOYMENT IN THE PHILIPPINES: A policy analysis of JobStart and Enterprise-led Learning Networks (ELLN)

Researcher: John Emmanuel B. Villanueva 

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Contributor Notes

Unemployment has remained high in the Philippines, at almost twice the level of neighboring countries, despite relatively fast employment growth in the past decade. Employment growth was not sufficient to reduce unemployment because of rapid population growth and increased labor force participation. This paper shows that Philippine employment growth and unemployment declines were positively correlated with real GDP growth and, to a lesser extent, negatively with the real minimum wage. The key policy implications are that higher economic growth and moderation of increases in the real minimum wage are required to reduce unemployment.

F actors B ehind H igh U nemployment in the P hilippines

I. i ntroduction.

The unemployment rate in the Philippines remains high relative to other countries in the region. Unemployment fell to a cyclical low of 8 percent in 1996, prior to the onset of the Asian crisis, but rose to more than 11 percent in 2000 and 2001, more than twice the level of a number of neighboring countries. While employment growth has been higher than in many other countries in the region, this has not been sufficient to lower the unemployment rate given high population growth and a rise in labor force participation.

This paper analyses the factors behind unemployment in the Philippines, by estimating equations to explain employment growth and the unemployment rate. The paper first discusses the performance of the labor market (including a comparison with neighboring countries) and its institutional features. It then presents the econometric analysis and discusses some policy conclusions.

II. L abor M arket P erformance in the P ast T wenty Y ears

The unemployment rate 2 has fluctuated in the range of 7-14 percent over the past twenty years (see chart). In 1996, the rate fell to a cyclical low of about 8 percent, prior to the slow down in economic activity associated with the Asian crisis. Unemployment did not rise sharply as a result of the Asian crisis, but jumped in 2000 to more than 11 percent, as employment contracted due to a sharp fall in agricultural employment ( Table 1 ). By October 2001, however, the seasonally adjusted unemployment rate had declined to 10½ percent, due to some recovery in agricultural employment. In the late 1990s, the under-employment rate 3 was more than twice the unemployment rate, but fell to 17¼ percent in 2001.

PHILIPPINES: Unemployment Rate 1/

Citation: IMF Working Papers 2002, 023; 10.5089/9781451844054.001.A001

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Philippines Labor Market Indicators

(In percent)

1/ Defined as employed and unemployed persons as a percent of the population over 15 years old.

Unemployment has been higher among females than males. The female unemployment rate was about 2-2½ percentage points higher than the male unemployment rate in the 1980s and early 1990s, but the gap has narrowed to about 1 percentage point in recent years. Underemployment, however, has been significantly higher among males than females, averaging 24 percent in 2000 for males compared with almost 18 percent for females.

Urban unemployment has been almost twice the rural rate. The urban unemployment rate in 2001 was 14 percent, while the rural unemployment rate was only 8¼ percent (the labor force is about evenly split between rural and urban areas). However, the under–employment rate in rural areas has been higher than in urban areas, suggesting that rural workers are more likely to want additional hours of work than urban workers. Most of the rural workers are employed in the agricultural sector, where part-time and seasonal work is more prevalent than in urban areas.

Employment growth has been strongest in the service sector. Employment in services grew by almost 50 percent in the 1990s, well above growth in the industry sector (30 percent) and agriculture (8 percent). By 2001, the service sector had the largest share of employment at about 47 percent of the total.

Labor force participation has increased by 6 percentage points over the past twenty years, mainly because of a large increase in participation by women. Nonetheless, the participation rate for males, at 82 percent in 2001, remains well above that for women, at 52 percent.

An important feature of the labor market is the large number of Filipinos working overseas. Partly in response to the lack of job opportunities at home, the number of workers formally deployed overseas has increased substantially and reached 2.9 million by 1999, about 9 percent of the labor force. Worker remittances were equivalent to US$6.8 billion in 1999 (about 8½ percent of GNP), up from less than US$1.2 billion in 1990.

III. C omparison W ith O ther C ountries in the R egion

The unemployment rate in the Philippines is about twice the rate of other selected countries in the region ( Figure 1 ). While Philippine unemployment began to decline in the late 1980s, the recession in the early 1990s contributed to a jump in the unemployment rate. The Philippines did not experience the sharp increase in unemployment associated with the Asian crisis seen in other countries, but unemployment in the Philippines increased in 2000, as employment growth slowed in the agricultural sector. The sources and methods for calculating unemployment in the Philippines and neighboring countries differs in some respects, but the measurement basis appears broadly comparable (see data annex ).

SELECTED ASIAN COUNTRIES: Labor Market Indicators, 1985-2000

Employment growth in the Philippines has been faster over the past decade than in most other countries in the region, with the notable exception of Malaysia. Employment in the Philippines grew by almost 30 percent in the 1990s, compared with growth of less than 20 percent in Korea, Thailand and Indonesia over the same period. In Malaysia, however, employment grew by about 40 percent in the 1990s, contributing to a significant fall in the unemployment rate from more than 8 percent in 1988 to about 3 percent in 2000.

Employment growth has not been sufficient to reduce the unemployment rate given the increase in population and the rise in the labor force participation rate. Population growth in the Philippines was among the fastest of Asian countries, and was only slightly slower than in Malaysia ( Figure 2 ). The increase in the labor force participation rate in the Philippines was about in line with that experienced in other countries in the region.

SELECTED ASIAN COUNTRIES: Population, Productivity, and Real GDP Growth

The relatively fast employment growth contrasts with relatively slow real GDP growth in the Philippines. In the 1990s, real GDP expanded by only one-third in the Philippines, compared with increases of 50-100 percent in Indonesia, Korea, Malaysia, and Thailand. The high employment growth combined with the slow GDP growth is reflected in the relatively poor labor productivity performance in the Philippines. Labor productivity increased by less than 7 percent in the past decade in the Philippines, 4 compared with increases of 30-50 percent in the other selected Asian countries.

The comparison with Malaysia is perhaps the most interesting. Malaysia and the Philippines had similar rates of population growth over the past two decades, and unemployment in Malaysia was also relatively high in the 1980s. However, the unemployment rate fell in Malaysia in the 1990s while it rose in the Philippines, as employment growth was not high enough to offset the labor force growth, in contrast to Malaysia where employment growth was high enough to more than offset labor force growth. The higher population base in the Philippines (at 76 million in 2000, compared with about 23 million in Malaysia) meant that the number of new jobs required in the Philippines to reduce unemployment was about three times that in Malaysia.

IV. I nstitutional S tructure of the L abor M arket

Philippine labor policy supports tripartism, with involvement of the government, employers and unions in labor issues. Tripartism was declared a national policy with the passage of the Labor Code in 1974, itself a product of tripartite discussions. The code prescribed the convening of regular national tripartite conferences on labor issues (which have been held about once a year) together with the establishment of tripartite agencies to deal with labor matters. Also, the Labor Code requires the government to assist in job training, job search, monitoring of conditions of employment, health and safety, and labor relations (with involvement of the employers and unions in all these areas).

Wage bargaining centers on the setting of minimum wages, with limited collective bargaining. Since 1989, Regional Tripartite Wages and Productivity Boards have been responsible for setting minimum wages, and comprise representatives of the government, employers and unions ( Box 1 ). A National Wages and Productivity Commission (also with a tripartite composition) reviews the decisions of the regional boards to ensure they are in accordance with the criteria to be used for setting the minimum wage. Collective bargaining at the enterprise level is advocated by government as the ideal way of setting wages and other terms and conditions, but the coverage of collective bargaining has remained relatively limited. 5

Labor has the right to organize but union membership is relatively small. About 3¾ million workers (12 percent of the labor force) belonged to some 9,000 unions in 1998. The extent of union membership among workers in the sizable electronics sector is limited, as it is in the agriculture sector. Union representatives in the Philippines have expressed concern that employers in some sectors (including the electronics sector) do not treat them as partners in seeking improvements in labor productivity and working conditions.

The National Labor Relations Commission is in charge of resolving labor disputes. The commission has exclusive jurisdiction to decide on disputes related to unfair practices; wages and other terms and conditions of employment; and violation of the legality of strikes. Man days lost to strike action in 1998 (550,000) were about half the level of the early 1990s. Despite this improvement, observers note that the process of resolving labor disputes remains overly legalistic and adversarial.

A Congressional Commission on Labor has been reviewing the Labor Code to ensure that developments in the labor market and the demands of globalization are reflected. Employer groups are seeking a less legalistic approach to the resolution of labor disputes and greater flexibility in working hours (currently restricted to five eight–hour days a week). The Department of Labor also notes the need for the Labor Code to conform with International Labor Organization (ILO) conventions ratified by the Philippines. 6

Determination of the Minimum Wage

Prior to 1989, the Philippine Congress determined minimum wages, with no variation by region or industry. The Legislature would set the minimum wage after public hearings and consultations with employers, unions, and government agencies. Wage adjustments were made irregularly, depending on the extent of public demands for an increase. The main objective of setting a minimum wage was to protect workers from exploitation that may arise from imperfections in the labor market. The minimum wage was to be set at a level sufficient for workers to meet basic living requirements and thereby enable a more equitable sharing of national income.

In 1989, the Regional Tripartite Wage and Productivity Boards were established to take over responsibility for setting minimum wages from the Philippine Congress, in an effort to have the minimum wage better reflect regional and industry variation in economic conditions. The regional wage boards are comprised of three government representatives, two employer group representatives and two union representatives. The Boards conduct public hearings before deliberating on the minimum wage adjustment for their region. The Philippine Congress, however, can still legislate the minimum wage, if it were an across-the-board adjustment for the nation as a whole.

In determining minimum wages, the regional boards must consider a range of criteria, including the following:

the demand for living wages;

wage adjustment vis–à–vis the consumer price index;

the need to induce industries to invest in the countryside (where the cost of living is lower);

the fair return on capital invested and capacity to pay of employers; and

effects on employment growth and family income.

The frequency of wage adjustments is usually not more than once every 12 months (usually in October-December). Adjustments could be more frequent if there are extraordinary increases in petroleum prices or basic goods and services.

The regional boards are authorized to exempt certain firms from paying the minimum wage. These typically include new establishments, distressed firms, and establishments with less than 10 workers.

Compliance with the minimum wage requirements, however, is a problem. Of the almost 50,000 establishments inspected by government in 1999, 19 percent were found to have been violating the minimum wage order for their region.

There is no formal government–funded unemployment income support scheme in the Philippines. The tradition of strong family ties, together with the sizable flow of remittances from workers abroad, provides income support for the unemployed. The government, however, provides a number of services, including job search facilities through an internet–based job matching services, and employment creation assistance through the Public Employment Service Office. The government also sponsors a number of job training initiatives in the private sector and administers the deployment of Filipino workers overseas through the Philippine Overseas Employment Administration.

V. F actors A ffecting E mployment G rowth in the P hilippines

The factors behind employment growth in the Philippines are examined in a simple model that regresses the level of employment on output and the minimum wage (deflated by product prices), as follows. 7

The equation is estimated using the cointegration approach (the Johannsen method in PC FIML). The advantage of this approach is that it enables analysis of the variables in level form (which all tested as non–stationary, I (1) variables). 8

The data is explained in the data annex . Employment is derived from the quarterly household labor survey and the minimum wage was used because of the absence of better wage data (a weakness that needs to be addressed to facilitate better analysis). The use of the minimum wage may imply weaker statistical results for the wage variable in the equation if decisions by firms are based on wages that are higher than the minimum (or reflect non–wage costs), 9 that are not correlated with the minimum wage.

The results from estimating the above equation for aggregate employment show a close correlation between output and employment ( Table 2 ). The coefficient on real GDP is estimated at 0.68-0.93, with the results depending on the sample period (with a somewhat lower coefficient for the 1990s only) and on whether the GDP deflator (a proxy for prices faced by the firm) or the consumer price index (CPI) is used to deflate the minimum wage. The results imply that a 10 percent increase in real GDP is correlated with a 7-9 percent increase in employment. Importantly, the results should not be misinterpreted as implying causality between output and employment—they merely indicate a correlation without testing for the direction of causality.

Philippines: Aggregate Employment Equations 1/

(Cointegration Analysis)

1/ The employment equation is specified as follows: log(employment) = α log (real GDP) + β log (minimum wage/price index) + constant + seasonals.

2/ Indicates whether the GDP deflator or the Consumer Price Index was used to deflate nominal wages to obtain a measure of real wages.

3/ The maximum and trace statistics provide a test of the null hypothesis of no cointegration using the Johannsen approach. If the test statistic is significant, the null hypothesis can be rejected.

** indicates that the coefficient is statistically significant at the 5 percent level

* indicates significance at the 10 percent level.

The estimation results are less robust for the minimum wage. For the full sample period, the minimum wage was not found to be significantly correlated with employment. However, for the 1990s, the period when the minimum wage was set regularly by Regional Boards, a significant negative correlation was found. The results for the equation based on the 1990s suggest that a 10 percent rise in the minimum wage is correlated with a fall in employment of about 5-6 percent over the long run. The overall statistical results for the shorter sample period are not as strong, however, given that the cointegration test is not significant (in contrast, for the full sample, the null hypothesis of no cointegration could not be rejected).

Employment equations were also estimated for the three major sectors of the economy, and show similar results to the aggregate equations ( Table 3 ). 10 The coefficients for real value added in the respective sectors range from 0.73 for agriculture to 1.0 for services, which implies that a 10 percent increase in output is correlated with a 7-10 percent increase in employment in these sectors.

Philippines: Employment Equations by Sector 1/

1/ The employment equation is specified as follows: log(employment) = α log (real GDP) + β log (minimum wage/price index) + seasonals.

The minimum wage was found to be significantly and negatively correlated with employment for the agriculture and services sectors. The results suggest that a 10 percent rise in the real minimum wage is correlated with a 4.3 percent decline in employment in agriculture and a 2.8 percent decline in employment in services. The significance of the minimum wage for agriculture is somewhat surprising, given that about three–quarters of the workers in this sector are not directly subject to minimum wage legislation, as they are unpaid family workers or work on their own account. However, the statistical results suggest either that: (1) employment of the one–quarter of workers in agriculture subject to the minimum wage is sensitive to changes in the minimum wage; and/or (2) that an increase in the minimum wage in other sectors may draw workers away from agriculture (which is often seen as a fall–back occupation when employment in non–agriculture sectors is not available). The result for services is not surprising given that almost two–thirds of workers in this sector are in formal employment (and subject to minimum wage legislation). For the industry sector, the minimum wage was not significantly correlated with employment.

The following table summarizes the findings of the regression analysis and shows that the change in real GDP was the main factor correlated with the change in employment. In the 1990s, total employment increased by 28¾ percent, with the equation suggesting that 34½ percentage points of the change was related to real GDP growth and negative 3 percentage points was related to the increase in real minimum wages ( Figure 3 ). A remaining almost 3 percentage points is unexplained by the equation. The negative relationship with the minimum wage is the most significant for the agriculture sector equation, with a negative 10 percentage point contribution from the real wage to employment growth. The fall in the real minimum wage in the service sector (by about 14 percent in the 1990s, due to a larger increase in the GDP deflator in this sector than in other sectors) was related to a 4 percent increase in employment. Nonetheless, a sizable unexplained residual remains for several equations, which may be because the equations are specified in levels and take no account of the dynamic adjustment to the long term equilibrium relationship.

PHILIPPINES: Employment, Real GDP, and Real Wages, 1990-2000

Philippines: Factors Related to Employment Growth

1/ From 1989:2 to 2000:2, unless otherwise stated.

Direct estimation of the unemployment rate in a reduced form equation is consistent with the above results ( Table 4 ). 11 The results suggest that the unemployment rate was:

positively autocorrelated, with the first lag of the unemployment rate the most significant;

negativity related to lagged output growth, showing that an increase in output growth is related to a fall in unemployment (with the first lag the most significant); and

positively related to changes in the minimum wage (deflated by the CPI), suggesting that an increase in the minimum wage is related to a rise in the unemployment rate (with the first and third lags the most significant).

Philippines: Unemployment Equation

(Ordinary Least Squares Analysis)

* indicates significance at the 10 percent level. Figures in brackets, i.e, (), indicate significance levels.

There is also some evidence that the increase in remittances from Filipino workers overseas in the 1990s was positively related to the unemployment rate ( Table 5 ). This suggests that remittances from abroad provide income while workers search for a new job. The results for this equation, however, show that inclusion of remittances makes the minimum wage variable less significant than in the earlier equation (in Table 4 ).

Philippines: Unemployment Equation (including remittances)

* indicate significance at the 10 percent level. Figures in brackets, i.e., ( ), indicate significance level.

VI. F actors A ffecting the M inimum W age

Given the negative correlation between the minimum wage and employment, it may be useful to understand the factors influencing the determination of the minimum wage. A wage equation is estimated as follows (following Layard, Nickell, and Jackman (1991) ):

The estimation results (again using cointegration) suggest that the minimum wage is correlated with the CPI and unemployment rate but less so with productivity ( Table 6 ). The results show that a 10 percent increase in the CPI is correlated with an 11–13 percent increase in the minimum wage rate, depending on the sample period used. The unemployment rate is negatively correlated with the minimum wage, suggesting that regional wage boards take into account labor market conditions in setting the minimum wage (as required by the criteria used to set the minimum wage). 12 Productivity is significant in the equation for the 1990s sample period when the unemployment rate is excluded, suggesting that the regional wage boards may have taken some account of productivity developments in setting the minimum wage.

Philippines: Minimum Wage Equation 1/

1/ The employment equation is specified as follows: log(nominal minimum wage) = α log (consumer price index) + β log (productivity) + C log(unemployment rate) + constant + seasonals

VII. C onclusion

Unemployment has remained high in the Philippines, at almost twice the level of some neighboring countries, despite a relatively strong rise in employment. Job growth was not fast enough to reduce the unemployment rate, given rapid population growth and increased labor force participation in the Philippines.

This paper found that employment growth and the unemployment rate were strongly correlated with real GDP growth in the Philippines. In particular, a 10 percent increase in real GDP was correlated with a rise in total employment of around 7-9 percent. Similar results were shown for the agriculture, industry and services sectors. The unemployment rate was also found to be negatively correlated with real GDP growth.

A less robust correlation was found between employment and the minimum wage. The results show that a 10 percent increase in the real minimum wage was correlated with a 5-6 percent decline in aggregate employment in the 1990s. The analysis by sector showed a somewhat weaker relationship, with employment in agriculture and services more sensitive to the minimum wage than employment in the industry sector. The unemployment rate was also positively correlated with increases in the real minimum wage.

A key policy implication is that higher economic growth and moderate increases in the real minimum wage are required to reduce unemployment to a level more consistent with other countries in the region. In turn, this will require sustained implementation of a comprehensive policy package focused on macroeconomic stability, structural reform, poverty reduction, and better governance (see for example, IMF Occasional Paper 187, Philippines: Toward Sustainable and Rapid Growth , 1999). Moreover, the results suggest that excessive increases in the minimum wage, not justified by price inflation or productivity increases, will likely adversely affect employment growth, especially in the agriculture and service sectors.

A reduction in population growth may reduce pressures on the job market, and on economic infrastructure more generally, but the impact would only be felt in the long run. Even if the birth rate fell sharply in coming years, the population entering the workforce (i.e., those over 15 years old) would likely grow relatively quickly for the next 15 years (at about 2 percent per year) given that more than one-third of the current population is less than 15 years old. The continued growth in the work force underscores the need for strong policies to support sustained economic growth and thereby create jobs for the new entrants.

Ferguson , C. , 1969 , The Neoclassical Theory of Production and Consumption , ( Cambridge , Cambridge University Press ).

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Jackman , Richard , Richard Layard , and Stephen Nickell , 1991 , Unemployment, Macroeconomic Performance and the Labour Market , ( Oxford University Press ).

Rodlauer , M. et al. , Philippines: Toward Sustainable and Rapid Growth, Recent Developments and the Agenda Ahead , Occasional Paper 187 , International Monetary Fund , Washington DC 2000 .

• Labor Force Survey

Data on the labor force, employment and unemployment (presented in Table 1 ) is derived from the Labor Force Survey. The survey covers 41,000 households and is conducted four times a year, in January, April, July and October. The reference period for the survey is the week prior to the survey interview. The definitions used in the survey are as follows:

Labor force: persons 15 years old and over who are either employed or unemployed.

Employed: persons 15 years old and over who: (1) worked for one hour or more during the reference period for pay or profit (or without pay on the farm or business enterprise operated by a member of the same household); or (2) have a job but are not at work because of temporary illness/injury, vacation, or other reasons.

Unemployed: persons who have no job/business and are actively looking for work. Also considered unemployed are persons without a job or business who are not looking for work because of their belief that no work was available or because of temporary illness/disability, bad weather, or pending job interviews.

Underemployed: employed persons who express the desire to have additional hours of work in their present job or an additional job, or to have a new job with longer hours.

• Comparison with neighboring countries

The statistical basis of the above data is similar to that in neighboring countries such as Indonesia, Korea, Thailand, and Malaysia. 13

In Indonesia, data is derived from a quarterly National Labor Force Survey, based on concepts that are being similar to the Philippine data except that unemployment is defined more narrowly. Unemployment excludes those not actively seeking work because of the belief that no jobs are available, whereas these persons are recorded as unemployed in the Philippines. Employment is defined broadly the same as in the Philippines, except that it covers persons aged 10 years and over (compared with 15 years and over in the Philippines).

In Malaysia, data is derived from a quarterly Labor Force Survey, with unemployment defined in the same way as in the Philippines. The main difference is that persons aged 65 and over are excluded from the employment and unemployment data, whereas they are included in the Philippines. Unemployment is defined in much the same way as in the Philippines, with a distinction made between those actively seeking work and those “inactively unemployed” who did not seek work during the reference week (because they did not believe work was available or those who would have looked for work if they had not been temporarily ill, faced bad weather, or were awaiting answers to job applications).

In Korea, a monthly survey of the labor force is the basis for the data, with the definitions broadly comparable with the Philippines. The survey covers those aged 15 years and over, with the main difference with the Philippines being for unpaid family workers (they need to work for 18 hours or more to be counted as employed in Korea, compared with only one hour in the Philippines). Unemployment is defined much as in the Philippines.

In Thailand, data are based on a survey taken three times a year and the definitions are similar to the Philippines. The survey covers those aged. 15 years and over since 1996 (and 13 years and older before that) who worked for at least one hour for wages, dividends or other forms of payment (or those temporarily out of work). The unemployed are defined much the same way as in Korea, Malaysia, and the Philippines.

• Data used for modeling

Employment and unemployment data used in the paper are derived from the labor force survey outlined above, and is available from 1982.

Wage data used for modeling is based on a weighted average of the minimum wage 14 as a no other consistent and timely data for labor costs is available. Average monthly compensation of paid employees is available from the Annual Survey of Establishments conducted by the National Statistics Office, but the latest data is for 1995. An index of compensation per employee is also published by the National Statistics Coordination Board, but is derived simply as total compensation divided by total employment and therefore is unadjusted for changes in skill levels of the workforce. 15 Better wage data is needed to facilitate labor market analysis. In particular, a labor cost index is needed that adjusts for quality changes in the labor force.

Real gross domestic product data is derived from the Philippine National Accounts, as is data for the GDP deflator. Seasonally adjusted GDP data is used.

The author is grateful to: Bas Bakker, Nigel Chalk, Maple Kongsamut, Sean Nolan, and Markus Rodlauer for helpful comments; and to Clara Eulate, Ioana Hussiada, and Nong Jotikasthira for research and secretarial support.

Derived from a quarterly household labor survey (see data annex for details).

Defined as employed persons seeking additional hours of employment.

In part, the slower productivity growth in the Philippines may reflect statistical problems with the national accounts. The national accounts data has not adequately measured the rapid growth of value added in the electronics and information technology sector in the Philippines in the past 5-6 years, yet the household labor force survey has likely measured the increased employment in these sectors. Therefore, growth in both value added and labor productivity are likely understated in the 1990s.

Only about 500,000 out of 29 million workers are covered by Collective Bargaining Agreements.

The Philippines recently ratified the anti-child labor conventions No. 138 and No. 182, bringing to seven the number of conventions ratified out of the eight fundamental ILO conventions. The Philippines is working toward ratification of the remaining fundamental convention (No. 29) on forced labor.

This approach assumes that the underlying technology is a CES production function, following Ferguson (1969) . A cost function for labor can be derived from the production function, as specified in the equation.

The use of simple Ordinary Least Squares analysis of levels data would likely give rise to spurious regression results, hence the use of cointegration. Moreover, analysis of the change in employment (to ensure stationarity of the variables) would not pick up information in the trends that are clearer in the level data.

A survey conducted by the Bureau of Labor and Employment Statistics that covered non-agricultural establishments employing at least 20 persons in 1998, found that wages and salaries comprised almost 80 percent of total labor costs. The remaining labor costs included bonuses and gratuities, social security expenses, and payments in kind. The annual salary and wage costs per employee were about 107,000 pesos in 1998, compared with the annualized minimum wage of 26,000–46,000 (assuming 250 working days annually—the range reflects the regional variation in the minimum wage in 1998, with a low of 104 pesos per day and a high of 187 pesos per day).

Data are only available for employment by sector since the late 1980s. For the industry and service sector equations, the sample period was shortened to begin in 1991:1 and 1990:2 respectively, due to instability in the coefficients for the full period from 1989:2.

The reduced form equation is specified as follows: log unemployment rate = α log (unemployment rate) + β Δlog (real GDP) + γ Δlog (minimum wage/cpi) + constant + seasonals. Given that statistical tests suggest that the unemployment rate may be stationary, the quarterly change in real GDP and the minimum wage were used to obtain stationary explanatory variables, and the equation was estimated using Ordinary Least Squares.

The unemployment rate is not a strongly trending variable (i.e., it is likely a stationary or I(0) variable), hence it strictly should not be included in the cointegration equation. Therefore, the results of the cointegration equation including unemployment should be treated with caution.

See the International Labor Organization website laborsta.ilo.org for further details.

The minimum wage for Manila and outside Manila are weighted together using employment. A distinction is made between the minimum wage for agriculture and non-agriculture (with the latter used in the industry and services employment equations).

For example, the index of compensation per employee for manufacturing fell by about half in the 1990s (in constant price terms), apparently because a growing share of lower paid jobs lowered the average compensation for the sector as a whole.

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Table of Contents

• Front Matter
• Why is Unemployment High in the Philippines?
• I. Introduction
• II. Labor Market Performance in the Past Twenty Years
• III. Comparison With Other Countries in the Region
• IV. Institutional Structure of the Labor Market
• V. Factors Affecting Employment Growth in the Philippines
• VI. Factors Affecting the Minimum Wage
• VII. Conclusion
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The Philippines’ Unemployment, Inequality, Poverty Research Paper

Introduction, historical economic context, unemployment, addressing unemployment, poverty, and inequality.

The Philippines has vast opportunities for growth and development as the country has shown a significant improvement in the overall political, social, and economic processes. Compared to the previous decades, the rates of unemployment have decreased along with poverty statistics, showing an overall prospective image of the country’s future. However, despite the strong emphasis of the government on income equality and poverty reduction along with the growth of GDP, both poverty and economic and social inequality remain persistent in the Philippines. This paper will explore the economic background of the country with a specific focus on unemployment, poverty, and inequality. Recommendations for eliminating these issues will be made to suggest how the Philippines can decrease the impact of the negative conditions on the population.

It is essential to offer a context for understanding poverty and unemployment in the Philippines. Immediately after 1945, a brief economic increase could not be sustained for a long time, with food deficits becoming a significant problem. During that time, the country’s Gross Domestic Product (GDP) depended on the export of timber, fibers, sugar, and coconuts to sustain the import of food. Manufacturing was inward-looking at that time, focusing predominantly on import-substituting, with the country’s products intended predominantly for being consumed domestically instead of being imported overseas (Leonor, 2018). High tariff limits negatively influenced inefficient industries while the Philippines’s over-valued currency and artificially low capital interest rates made those industries capital-intensive. These conditions reduced the ability of the country to absorb labor in gainful employment.

Farming communities that developed after the end of WWII were economically inefficient areas. The expenditures of the government were focused on big towns and cities while the surplus produced by farmers was taken over by landowners and intermediaries. Therefore, the natural response to the mistreatment of farms was for peasants to move to larger cities, especially Manila, in pursuit of work (Leonor, 2018). With the increase of education migration, the depletion of rural areas and educated specialists caused congestion in cities, thus contributing to open unemployment and other related social problems in cities.

In 1961, the aggregate rate of unemployment in the Philippines was 8.5%, 6.1% in 1965, and 7.8% in 1968 (Leonor, 2018). The figures indicate a relatively narrow variation band despite the timing of data collection. However, between 1974 and 1978, the unemployment rates ranged between 3.9% and 5.2%, suggesting that employment increased to levels at which the economy could be considered to be “running at full employment” (Leonor, 2018, p. 145). Nevertheless, it is essential to mention that the figures are no more than estimations that did not account for the time people spent at work as well as how much they earned. Hence, the estimations did not consider underemployment and the unemployment’s full arithmetic equivalent. According to Leonor (2018), that the direct estimates by the ILO Mission “showed that far from the 4%-8% range, unemployment in the Philippines could be placed at between 25%-34% of the labor force in 1971” (p. 146).

According to the latest Trading Economics (2019) data, in the June quarter, the unemployment rate in the Philippines dropped to 5.1% compared to 5.5% in the same quarter the previous year. The all-time highest rate of unemployment in the country was 13.9% in the first quarter of 2000, while the lowest was 4.7% in the fourth quarter of 2016 (Trading Economics, 2019). While the rates of unemployment may seem low, it is imperative to mention that the labor market of the country suffers significantly from the outflow of talent. As mentioned by Urrutia, Tampis, and Atienza (2017), around 2,500 Filipinos flee the country every day in pursuit of better work opportunities as well as to provide for their families. This trend is also associated with the increase of the population in the country, which does not allow for the positive development of employment. The researchers that aimed to forecast the unemployment rate in the Philippines found that estimated values would range in the 6% to 8% range, which are the figures found to be 72% closely relative to actual values (Urrutia et al., 2017). Such variables as labor force rate and population were identified as significant factors contributing to the unemployment rate in the country.

The lack of work for the population leads to a decrease in their income and the subsequent quality of life, thus contributing to rising poverty in the country. Poverty is defined as a “deprivation of essential assets and opportunities to which every human is entitled. Everyone should have access to basic education and primary health services” (Schelzig, 2005, p. 10). It is worth mentioning that between 1985 and 2000, the number of Filipinos living below the poverty line decreased by 10.5% (Schelzig, 2005). If to look at this figure in isolation, the reduction can be considered as a progress in terms of poverty rate; however, the magnitude of poverty increased by more than 4 million (Schelzig, 2005). This is linked to the boost in population’s growth over time. The population growth rate each year can be estimated to be around 2.3%, with the expectations to reach 105 million by 2020 (Schelzig, 2005). As a result of the rapid growth of the population, there are many young people, with the median age being 24.1 years in 2015 (Statista, 2016). As the comprehensive analysis of poverty is associated with a broad and multi-dimensional approach, it is essential to understand that the rate of poverty in the country does not mean that there are many poor people.

In 2015, the overall poverty rate in the Philippines was 21.6%, which means that every fifth citizen lives beyond the poverty line. The median spending capacity for these individuals is less than $2 per day, which many people, including children and youth are forced to work as street laborers or vendors to have enough money to feed themselves. The highest rates of hunger occur in the fishing and agriculture sectors where the majority of workers are poor (International Monetary Fund, 2015). Therefore, poverty represents a multi-dimensional phenomenon, which means that addressing the problem requires a broader focus. For instance, it is essential to consider human capital, which includes population’s education, skills, health, natural capital such as land, clear air, and forested areas, as well as physical, financial, and social capital. Additionally, communicating the connection between poverty and inequality is imperative for the understanding of the real impact of low income on the population.

A way of understanding inequality is calculating the contributions of various socioeconomic groups to aggregate inequality. In most regions, inequality has risen over time due to the increase in the population number and the decrease in the median age (Canlas, Khan, & Zhuang, 2011). As more people moved to large cities, abandoning the economy of small towns that require support, the distribution of income and life quality was becoming unfair. This means that both social and economic inequality represents major issues in the Philippines, where the gap is expected to increase with time. The degree of inequality has become so high that the Philippines became the state with the highest rate of social and social gaps in Southeast Asia. Importantly, the issue is not limited to personal wealth only.

Such aspects as educational opportunities, the unequal distribution of land, vocational capabilities, as well as general welfare programs, are also influenced by the widening disparity between the poorest and the richest members of society. With the pronounced economic inequality that became persistent in the past ten years, there has been an increase in the geographical disparity. For instance, in Mindanao, the second largest island in the Philippines, between 20% and 40% of families live below the poverty rate. However, nationwide, thirty most neglected and deprived provinces are home to one-third of the poorest families, resulting in generational poverty. It is also important to mention that, similar to the global trend of indigenous populations being more vulnerable to unstable economic conditions, in the Philippines, up to two million people belonging to ethnic groups of the nation are the most disadvantaged.

Creating more and better jobs for the population of the Philippines is a challenge for the government. Although, with the sustained growth of the GDP of 7% per year and the elimination of constraints in such fast-growing sectors as Business Process Outsourcing (BPO), it is possible to accelerate the creation of jobs for the population. As the BPO industry is showing annual growth by 20%-30% in the Philippines, it is potentially possible for the formal sector to offer good paying jobs to around two million Filipinos over the next four years (Duke CGGC, 2016). BPO refers to the process of delegating service-type business processes to third-party providers. In the Philippines, BPO is expanding rapidly due to the generally low cost of living as well as the large population of young Filipinos with generally good skills of spoken English. However, the growth of BPO will not resolve the problem of unemployment alone. It is recommended that the government to implement a comprehensive set of reforms to create a business environment that will enable the private sector to create jobs and increase its human capital. Changes are also necessary to secure citizen’s property rights, open the country’s economy to more competition between companies, make business regulations less complex, as well as increase the private and governmental investment in education, health, and infrastructure.

To reduce the adverse impact of poverty on the population, it is first recommended for the government to invest in making birth control accessible to the poor groups. This will enhance family planning opportunities and ensure that families not to raise children in the environment of poverty. Empowering women by giving them more control over their bodies is expected to reduce the population’s growth as well as allow them to pursue career opportunities. It is recommended for the Filipino government also to offer more economic prospects for the population to enable access to employment, as suggested previously.

The key to reducing social and economic inequality in the Philippines is associated with the provision of better education, a higher quality of healthcare, social safety nets, as well as broader growth of the economy, specifically in agriculture. This points to the need for the government to work on the mentioned components of the economic and social well-being of citizens to increase equality. To achieve this, it is possible to collaborate with international organizations that provide resources to the vulnerable population to break the cycle of poverty and enhance the quality of life. Investments into education are essential for increasing the literacy of Filipinos, thus making them more prepared for their future careers. Improving achievement levels within areas such as English, science, and math is essential for creating a strong foundation that will serve as a basis for children’s further education.

To conclude the paper, it is noteworthy to mention that the Republic of the Philippines has vast growth opportunities since the economy is slowly improving, while unemployment rates are decreasing. The contribution from the BPO industry encourages the creation of job opportunities for young and educated Filipinos, thus increasing their contributions to the economy. However, despite the positive prospects, millions of people live beyond the poverty line and do not have the necessary resources to sustain themselves. The challenge is especially relevant when discussing the growing generations of Filipinos who are raised in unacceptable conditions. Although, through collaboration with relevant authorities in the sphere of healthcare, education, and social support, the Filipino government has the opportunity to reduce the burden of unemployment, poverty, and inequality. Future research on this topic can be done in regards to whether the current efforts of the government have been effective.

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IvyPanda. (2021, September 11). The Philippines' Unemployment, Inequality, Poverty. https://ivypanda.com/essays/the-philippines-unemployment-inequality-poverty/

"The Philippines' Unemployment, Inequality, Poverty." IvyPanda , 11 Sept. 2021, ivypanda.com/essays/the-philippines-unemployment-inequality-poverty/.

IvyPanda . (2021) 'The Philippines' Unemployment, Inequality, Poverty'. 11 September.

IvyPanda . 2021. "The Philippines' Unemployment, Inequality, Poverty." September 11, 2021. https://ivypanda.com/essays/the-philippines-unemployment-inequality-poverty/.

1. IvyPanda . "The Philippines' Unemployment, Inequality, Poverty." September 11, 2021. https://ivypanda.com/essays/the-philippines-unemployment-inequality-poverty/.

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Incentive-Compatible Unemployment Reinsurance for the Euro Area

We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The risk-sharing scheme we analyze is designed to smooth country-level unemployment risk and expenditures around each country’s median level, so that participation and contributions remain incentive-compatible at all times and there are no redistributionary transfers across countries. We show that, relative to the status quo, such scheme would have provided nearly perfect insurance of the euro area member states’ unemployment expenditures risk in the aftermath of the 2009 sovereign debt crisis if allowed to borrow up to 2 percent of the euro area GDP. Limiting, or not allowing borrowing by the scheme would have still provided significant smoothing of surpluses and deficits in the national unemployment insurance programs over the period 2000–2019.

We acknowledge fruitful discussions and comments from seminar participants at the BIS, the ESM, and the IMF research department, as well as from Giovanni Dell’ Ariccia, Katharina Bergant, Matthias Gnewuch, Enisse Kharoubbi and Frank Smets. The views expressed in this paper are solely those of the authors and not necessarily those of the Bank for International Settlements or the National Bureau of Economic Research. Karaivanov gratefully acknowledges financial support from the Social Sciences and Humanities Research Council of Canada, grant 435-2018-0111.

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