PERVASIVE in-work poverty, where workers remain below the poverty line despite having jobs, is the main challenge for the Philippine labor market despite economic growth in the last decade, the World Bank said.
This is why greater investment in workers’ skills and education, coupled with flexible labor regulations, are needed to encourage firms to generate more jobs that offer better pay and social protection, it said.
These are among the key findings of the report “Labor Market Review: Employment and Poverty in the Philippines” released on Friday by the Washington-based multilateral lender.
It analyzed the labor market performance in the Philippines from the perspective of workers’ welfare and identified labor market constraints to reducing poverty in the country.
The report claims that Philippine economic growth in the last 10 years has created enough jobs to absorb the growing labor force.
It said that in the last decade, the Philippine economy has been growing at an average of 5.3 percent, while the working population and jobs have been growing at an average of 1.8 percent and 1.9 percent, respectively. Labor productivity has also been growing at 3.4 percent a year.
“For many Filipinos, however, the main challenge is having jobs that can lift them out of poverty. With sound macro-economic fundamentals and strong growth, the Philippines is well positioned to address this challenge,” Mara Warwick, country director for the World Bank Philippines, said during the launch of the report in Manila.
Nevertheless, the report found that the growth of real wages–or wages adjusted for changes in prices of goods and services–has yet to catch up with rising productivity. As a result, many workers remain poor.
This prevalence of poverty among workers reflects two things: the scarcity of “good jobs” and low earning capacity of poor workers, the report said.
It describes good jobs as those which pay better, are in the formal sector, and provide social protection. Many of the newly created jobs, however, are low-paid, precarious, and informal, the report said.
It said that about three-quarters of all jobs and two-thirds of urban jobs are informal.
Among wage workers, six out of 10 are hired informally. Informal wage workers lack employment contracts and social insurance, and are not protected against unfair dismissal.
Many of the existing jobs require few skills, with laborers being the largest occupational group except for farmers. Even outside agriculture and in urban areas, unskilled workers account for nearly one-fourth of total employment.
The study added that as many as 44 percent of workers nationwide have less than secondary education. The figure is substantially higher at 57 percent in rural areas, while in urban areas about 30 percent of workers have not completed secondary education.
Among youth from poor families, those who have not completed secondary education exceed 60 percent.
Completion of secondary education greatly improves job prospects, it said, but added that even educated workers are often forced by necessity to take unskilled jobs and work as laborers.
About 30 percent of workers with secondary education hold unskilled jobs, and 35 percent of laborers have at least secondary education, reflecting the scarcity of good jobs and skills mismatch.
“The scarcity of ‘good jobs’ reflects the structure of the Philippine economy where low value-added activities predominate. This is partly due to constraints in the investment climate and the high cost of doing business in the formal sector,” said Jan Rutkowski, lead economist at the World Bank’s Social Protection and Labor Global Practice, and the leading author of the report.
“Low-earning capacity of the poor reflects their low education and skills, limited access to formal jobs, and low bargaining power of informal workers,” he added.
Reducing in-work poverty
The World Bank report emphasized several key points as recommendations for reducing in-work poverty.
First, it said the government must continue investing in education and skills development of youth from disadvantaged backgrounds to raise their earning capacity, particularly in rural areas.
“It is commendable that the country’s policy makers are increasingly investing in children and young people’s future through higher spending on health and education, as well as programs like the conditional cash transfer,” said Aleksandra Posarac, lead economist and program leader in the Philippines for the Social Protection and Labor Global Practice unit.
“Ensuring that all Filipino children have access to good quality education and skills development is a must to eliminate extreme poverty and promote shared prosperity,” she added.
Second, the government must address the segmentation of the labor market into “good” and “bad” jobs.
Rutkowski noted that labor market segmentation is not specific to the Philippines and is a problem also faced by many counties, including the high-income ones.
The report said it can be addressed by making it more attractive for employers to hire workers formally; giving voice to temporary and informal workers; and eliminating the abuses of irregular contracts, including sub-contracting.
Simplifying labor regulations to support structural transformation and reallocation of workers from less to more productive activities is also important, it said.
Lastly, the World Bank stressed that the government must improve the investment climate and lower the cost of doing business in the formal sector to create more and better jobs, and to sustain high economic growth.