Philippines: New study says higher investments in skills and education, flexible labor rules can help reduce poverty among workers

June 17, 2016

MANILA, June 17, 2016 – Greater investments 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.

These are among the key findings of the report Labor Market Review: Employment and Poverty in the Philippines released today by the World Bank. The study analyzes the labor market performance in the Philippines from the perspective of workers’ welfare and identifies labor market constraints to reducing poverty in the country.

“Economic growth in the last 10 years has created enough jobs to absorb the growing labor force,” said Mara Warwick, World Bank Country Director for the Philippines. “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.”

The report says 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. However, the growth of real wages – or wages adjusted for changes in prices of goods and services – has yet to catch up with the rising productivity. As a result, many workers remain poor.

The report says this prevalence of poverty among workers reflects two things: the scarcity of “good jobs” and low earning capacity of poor workers. The report describes good jobs as those which pay better, are in the formal sector, and provide social protection. Many of the newly created jobs are low-paid, precarious, and informal.

“Low-earning capacity of the poor reflects their low education and skills, limited access to formal jobs, and low bargaining power of informal workers,” said Jan Rutkowski, Lead Economist at the World Bank’s Social Protection and Labor Global Practice, and the leading author of the report. “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.”

The report notes that around three-quarters of all jobs and two-thirds of urban jobs are informal.  Among wage workers, 6 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 (apart from farmers).  Even outside agriculture and in urban areas, unskilled workers account for nearly one-fourth of total employment.

As many as 44 percent of workers have less than secondary education, which is substantially higher in rural areas (57 percent), but is high even in urban areas (30 percent).  Among youth from poor families, those who have not completed secondary education exceed 60 percent.

The completion of secondary education greatly improves job prospects.  But 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 possibly a skills mismatch.

The report emphasizes a three-pronged approach to reduce in-work poverty:

  • Continue investing in education and skills of disadvantaged youth to raise their earning capacity. This is particularly important in rural areas;
  • Simplify labor regulations to encourage employers to formally hire more workers; and
  • Improve the investment climate and lower the cost of doing business in the formal sector to create more and better jobs, and sustain high economic growth.

“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. 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,” said Aleksandra Posarac, Lead Economist and Program Leader in the Philippines for the Social Protection and Labor Global Practice.

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