Labour market situation and outlook

Limited productive employment opportunities in the formal sector in the Philippines have resulted in a large number of people seeking jobs abroad, and have discouraged others from participating in the labour market, as reflected in relatively low labour force participation rates compared to other Asian countries (King Desjardin, 2010). In 2010, the working-age population of the Philippines, which consists of the population aged 15 years and older, excluding overseas Filipino workers (OFWs) was just over 60 million people, nearly two-thirds of the total population. Out of these 60 million, only 39 million were in the labour force, including 36 million employed persons (table 2).

Between 2001 and 2010, the labour force and employment grew at the same average annual rate as the working-age population (2.4 per cent). As a result, the labour force

27 The underlying baseline assumptions behind the forecasted growth of these two variables are a linear trend over the forecast period in the growth of tax revenues, government spending, official development assistance (ODA), and slowly decreasing remittances growth (growth rate forecasted by the Central Bank for 2011, decreasing slowly to the historical average by 2020). The assumptions behind the growth of government consumption will be revised to simulate a lower government spending/austerity scenario and analysed in Section 2.2. The assumptions on the growth of remittances have also been revised and analysed to produce alternate scenarios, but these are not discussed in this paper, which presents a selected number of applications of the PEPM.

28 The growth rates of gross capital formation and of exports are exogenously determined in the model;

they are based on the EIU forecast. The growth rate of imports is endogenously determined (please refer to El Achkar Hilal, 2012, for more information regarding the model’s assumptions and specification).

participation rate (LFPR) and employment-to-population ratio (EPR) did not increase during this period. Indeed, both the LFPR and the EPR decreased between 2001 and 2008.

In 2009, the LFPR increased by 0.4 percentage points, partly due to the ‘added-worker effect’ – an increase in labour force participation as household members join the workforce to compensate for the decline in household income. This effect is also likely to have driven the 2.9 per cent net employment growth and the rise in EPR in 2009. In 2010, both the LFPR and EPR increased slightly, by 0.1 percentage point.

The unemployment rate in the Philippines increased from 7.0 per cent in 2001 to 7.4 per cent in 2008. In 2009, it increased slightly to 7.5 per cent before decreasing to 7.3 per cent in 2010. In a developing country like the Philippines, the unemployment rate alone does not adequately reflect the extent of labour underutilization. This is because a large share of workers is involved in low-productivity work, or vulnerable employment, often in the informal sector, or is underemployed. Nevertheless, the unemployment rate of the Philippines is high relative to other developing countries. A number of explanations for this relatively high unemployment rate have been suggested, including limited employment opportunities and an inefficiently protected formal labour market where regulation is driven by political rather than economic imperatives (Bocchi, 2008).

Table 2 Labour market aggregates

Annual or average annual change (%)

Actual Projected Actual Projected

2001 2008 2009 2010 2013 2016 01-10 08-09 09-10 10-13 13-16 10-16

Total population (mil.) 77.7 90.2 92.0 93.8 99.1 104.4 2.1 2.0 1.9 1.9 1.8 1.8 Working age population (15+,

mil.)* 48.9 57.8 59.2 60.7 65.2 69.6 2.4 2.4 2.5 2.4 2.2 2.3

Labor Force (mil.) 31.4 36.8 37.9 38.9 41.6 44.5 2.4 3.0 2.6 2.3 2.2 2.3

Employment (mil.) 29.2 34.1 35.1 36.0 38.4 41.4 2.4 2.9 2.8 2.2 2.5 2.3

Unemployment (mil.) 2.2 2.7 2.8 2.9 3.2 3.1 3.0 4.2 1.0 3.9 -0.9 1.5

Labour Productivity (thous.

PHP per worker) 126.4 153.6 151.1 158.2 167.9 186.9 2.5 -1.7 4.7 2.0 3.6 2.8 Labor Force Participation

Rate (%) 64.1 63.6 64.0 64.1 63.9 63.9

Employment-to-population

Rate (%) 59.6 58.9 59.2 59.3 59.0 59.4

Unemployment Rate (%) 7.0 7.4 7.5 7.3 7.7 7.0

Source: PEPM 2012

The slowdown in economic activity caused labour productivity to drop by 1.7 per cent in 2009. This was followed by high productivity growth (4.7 per cent) as the economy recovered in 2010. Labour productivity is projected to grow at an annual average rate of 2.0 per cent between 2010 and 2013, and of 3.6 per cent between 2013 and 2016. The projected average annual growth rate of labour productivity over the forecast period (2.8 per cent) surpasses that of the 2001-2010 period (2.5 per cent).

Labour force growth is projected to be slightly slower than that of the working-age-population between 2010 and 2013, resulting in a decrease in the labour force participation rate to 63.9 per cent.²⁹ The labour force participation rate is then projected to remain relatively constant over the rest of the forecast period.

29 Labour force and working-age population growth projections are taken from the EAPEP database (ILO, 2011a), as exogenous assumptions in the PEPM 2012.

Employment growth is projected to be slower than working-age population growth between 2010 and 2013, but faster than working-age population growth for the rest of forecast period. As a result the EPR is projected to decline to 59.0 per cent by 2013, but increase back to 59.4 per cent by 2016.

The net employment growth projection of 5.4 million workers between 2010 and 2016 is slightly below the PDP 2011-2016 target of 6 million.³⁰

The unemployment rate is projected to increase to 7.7 per cent in 2012, and decline thereafter to 7.0 per cent by 2016. In the first half of the projection period, the unemployment rate would be higher than the rates expected in the PDP (6.8 – 7.0 per cent) but would converge towards these rates in the second half of the projection period. Note that the PEPM GDP growth forecast is also lower than the PDP target. If higher growth rates were realised, the unemployment rate forecast would be revised downwards (provided labour force participation does not change).

Figure 5 EPR, LFPR and UR (2001-2016)

5.0

EPR (Left axis) LFPR - Baseline (Left axis) LFPR - PDP assumption (Left axis) UR - Baseline (Right axis) UR - PDP assumption (Right axis)

Sources: LFS (2001-2010), ILO (2011a), and PEPM 2012

The PEPM unemployment rate projection is also based on the above-mentioned labour force projections (from EAPEP). The labour force growth projection in the PDP 2011-2016 is higher, however (2.75 per cent annual growth instead of 2.3 per cent over the forecast period). If the PDP labour force participation rate projections were realised, the LFPR would increase steadily over the forecast period to 65.4 per cent in 2016 (figure 5). The unemployment rate (UR) would also continue to increase over the forecast period, however, to 9.2 per cent in 2016. Thus, because the PEPM’s main output is the employment forecast, and unemployment is obtained as a residual from the exogenously determined labour force, an increase in the labour force due to a change in the model’s assumptions is absorbed entirely into unemployment. In order for some of the additional labour market participants to be absorbed into employment, additional assumptions such as those underlying the economy’s growth forecast would have to change as well. In other words, unless we also assume that economic growth will be faster than the baseline scenario, leading to higher employment growth, the additional labour force growth will result in higher unemployment levels and rate.

30 NEDA (2011), Chapter 3, p.84. Note that the PDP projection is based on results of a previous run (and previous version) of the PEPM.

Because a large number of workers in developing economies are engaged in low productivity, vulnerable employment, often in the informal sector, employment and unemployment rates and trends alone are not sufficient to adequately depict the labour market situation in these economies. Additional indicators that reflect the quality of employment and the living standards of workers are also needed for a more complete analysis. EPMs can be extended to allow projecting these additional indicators, some of which are presented in the next section.