THE Philippines must establish policies that assist employees' labor market transitions as well as businesses to counteract "hysteresis" in employment, according to the Asian Development Bank (ADB).

In a blog released on Friday, the Manila-based multilateral lender said that prior to the coronavirus disease 2019 (Covid-19) pandemic, the Philippines was enjoying its longest period of economic and job growth in history.

Unfortunately, the pandemic reversed some of these advances by wiping about 1.7 million wage and salary jobs in the year leading up to January 2021, it noted.

"The pandemic could create long-lasting effects on employment. Put simply, this temporary large shock to the economy might produce a persistently lower employment rate even after the economy has started to grow again. This phenomenon is known as hysteresis in employment," the ADB explained.

To address hysteresis in employment, it highlighted five global best practices, including wage subsidies, hiring subsidies, workplace skills funding schemes, industry-led apprenticeship programs and unemployment insurance.

The ADB said wage subsidies have shown to be the single most successful tool for saving jobs by keeping employees connected to their companies during periods of lockdown and slow recovery in business activities.

It went on to say that the Philippines' P46-billion wage subsidy scheme last year was well-designed and successfully implemented, with 3.1 million workers receiving benefits.

"As the economic recovery takes hold, governments will phase out wage subsidies and some are considering replacing them with hiring subsidies to help facilitate the reallocation of displaced workers into new jobs," the institution elaborated.

It added that countries that have successfully enhanced workers' capabilities have done so through industry and employer-led skill development programs.

Skillnet Ireland, for example, provides networks of firms with annual matching funds to cover their short-term worker training. Employers from a particular industry or locality build a network of at least 30 enterprises.

"The network is responsible for designing and implementing the training program. In 2013, ADB assisted the Philippines' Department of Tourism with piloting a similar scheme with tourism enterprises. Forty-eight grants were provided and over 7,000 tourism employees were trained at a cost of P8,000. This proved a cost-effective model for reskilling workers," ADB emphasized.

It further said apprenticeship reforms in the Philippines should include establishing an apprenticeship council to oversee policy, industry-led development of apprenticeship programs, progressive salary scales, extending apprenticeships from six months to two to four years, and extending apprenticeship programs to modern services such as legal, finance, and communication occupations, all of which should be based on international best practices.

ADB also said the Philippines' unemployment insurance program provides only limited coverage.

"Adequate unemployment insurance provides workers with income stability and helps them transition to a new job. A good example is Malaysia's program, which uses a national pooled insurance fund in which both employers and employees make monthly contributions," it pointed out.

Lastly, ADB said workers in the Philippines will have a difficult time recovering from the pandemic in the coming years. It will be necessary to strengthen active labor market programs in order to assist employees and businesses in making this shift.