Let me start by extending our warmest greetings to Secretary Arsi Balisacan, NEDA Secretary; to our distinguished panelists, to the Representatives from the private sector, civil society, the academe and to colleagues from the World Bank; Good morning!
It’s a real pleasure to welcome you all to this event today, to share and discuss the findings of a new report on inequality “Overcoming Poverty and Inequality in the Philippines: Past, present and prospects for the future.”
It is not news to any of you that inequality is a problem for both developing and developed nations across the world. High inequality slows economic growth… and undermines poverty reduction efforts. During the COVID-19 pandemic, large and unequal job and income losses were reported in many countries, contributing to concerns about rising inequality and reduced shared prosperity. In the Philippines, reducing inequality and promoting inclusion are central to the national development plan and the AmBisyon Natin 2040 vision. Reducing inequality is also integral to achieving the UN Sustainable Development Goals.
The report we are discussing today examines the patterns of poverty and inequality in the Philippines and how the pandemic may affect their trends. The report aims to answer three questions: how did poverty and inequality change over the past three decades and what drove these changes? What drives the persistence of inequality? And how may the COVID-19 crisis affect poverty and inequality trends?
To the first question, the report finds that the Philippines has made notable progress in human development and poverty reduction. Between 1985 and 2018, the national poverty rate declined from almost 50 percent to less than 17 percent; the middle class—defined as those whose per capita daily income is above US$15 (in purchasing power parity)—had expanded by almost 11 million and the Human Development Index rose by over 20 percent, pushing the country’s rank into the High Human Development group.
Four key factors drove this decline in poverty: Sustained high economic growth, increased education enrollment, gradual movement of workers to more productive jobs in services, industry and wage employment, and an expansion of social protection programs all of which helped increase household income and reduce poverty.
Inequality also decreased in the Philippines but only in recent years pre-pandemic. The sharpest decline was in the period 2010-2018, during which the income of the poorer HH increased on average at a faster rate than for richer HH. The shared prosperity premium, which measures how much the incomes of those in the bottom 40 grow relative to the average population, peaked at 3.1 points in 2012–2018 in the Philippines, compared to 2 points or less in Malaysia, Indonesia, Thailand, and Vietnam.
However, inequality is still very high: with an income Gini coefficient of 42.3 percent in 2018, the Philippines ranks as the 15th most unequal out of 63 countries for which income Gini coefficients are available and is second only to Thailand in East Asia.
Several structural factors contribute to the persistence of inequality:
- First, unequal opportunities. Part of any country’s income inequality is due to differences in ability, skills, hard work and luck. But another part of is driven by inequality of opportunity. This is the inequality due to your parent’s education, your gender or your circumstances at birth such as being born in a poor area. Inequality of opportunity unfortunately starts early in life and limits the potential for upward mobility. While there has been considerable progress in expanding access to basic services, large disparities continue to persist between geographic regions and income groups, limiting the development of human capital in lagging areas.
- Second, schooling. While schooling is widely accessible, its quality and attainment vary by income group. Children from poorer households are less likely to reach age-appropriate grade levels and to transition to tertiary education, which severely constrains their earning potential and their prospects for upward mobility.
- Third, the shortage of skilled workers which has kept the premium for college education high. Essentially, with an increasing emphasis on skills in the modern economy, the rewards for those who have skills is high, and those without skills are trapped in informal or low productivity jobs. Additionally, tertiary education tends to deliver much higher returns for rich than poor households, possibly due to differences in school quality or fields of study and employment.
- Fourth, gendered social norms and childcare which contribute to large gaps in the labor market. While comparatively speaking the Philippines is a high performer in gender equality globally, women's participation in the country’s labor force (at about 50 percent) was one of the lowest in East Asia. This was clearly a missed opportunity for economic growth and heightened prosperity. Women have higher education achievement than men, but social norms, which place responsibility for family care on women, seem to prevent their participation to economic activity and their engagement in more productive jobs.
Of course, COVID-19 and climate shocks such as frequent typhoons threaten worsen the problem and even reverse decades-long gains in reducing poverty and inequality. Recently released national poverty rates for 2021 show an increase in poverty from 16.7 percent in 2018 to 18.1 percent in 2021 despite large government assistance.
While the economy has begun to rebound strongly, signs are emerging that the recovery may be uneven. The shock from the COVID-19 pandemic led to a shift in the workforce to less productive sectors and occupations. Employment in wage work has notably decreased and employment in agriculture has risen. These trends have been concentrated among the youth and the least educated.
The COVID-19 pandemic may have long-term negative impacts on development of human capital. To manage the pandemic shock, a considerable number of poor households have relied on such adverse coping mechanisms as reducing food consumption, which may aggravate already prevalent child malnutrition and stunting. The challenges associated with distance learning during the pandemic could also have an adverse effect on the educational attainment and learning outcomes of youth. Children from poorer households are placed at even greater disadvantage because they had less access to resources that could help support remote learning.
The report brings up important policy areas for consideration – from healing the pandemic’s scars and building resilience of vulnerable population groups; to setting the stage for a vibrant and inclusive recovery through education and skilling; and to promoting equal opportunities. But of course, this is a vast topic, and it will be good to hear the insights from speakers today… in particular on how to effectively remedy the reversals from the pandemic and how to build a stronger foundation for future inclusive growth by reducing inequality of opportunity.
Thank you so much for joining this discussion. We are honored that Secretary Balisacan, an academic authority in the area of poverty and inequality is able to deliver a keynote speech. We also have an exciting line-up of panelists, all playing a lead role in helping the Philippines address poverty and inequality. On the Bank side, I am delighted that my colleague Hassan Zaman, Regional Director who oversees our programs in Economic Management, Finance and Institutions in the East Asia region will deliver remarks before the detailed presentation that will be given by the team. I look forward to hearing from all of you during the discussion.
Maraming Salamat Po.
Download Full Report | Report Key Findings | Report Launch Event
Press Release, "PHILIPPINES: Reducing Inequality Key to Becoming a Middle-Class Society Free of Poverty"