ANALYSIS: Why many in the Philippines are poor 1

ANALYSIS: Why many in the Philippines are poor

Jose Galang — Your Business

Posted at Apr 19 2018 09:51 PM

More than 4 in 10 Filipinos who are poor actually have jobs. They continue to struggle with poverty because they are employed in poor-quality jobs that pay less than what their counterparts in manufacturing industries get.

But as a growth driver for the country’s economy, manufacturing lags behind the services sector, including wholesale and retail trade, repair of motor vehicles and motorcycles, real estate, tourism, financial and insurance, health and social work, and public administration and defense.

This structure is a result of the unconventional development path that the Philippines has followed in seeking to modernize its old agriculture-based economy by leapfrogging to services without first establishing a steady foothold in manufacturing that could have turned out more higher-value products from farm output.

As a result, the economy is now led by a services sector that provides largely low-end, low-paying work to the nation’s jobseekers. Other countries around the Philippines followed the traditional growth pattern, building labor-intensive, export-oriented manufacturing industries that absorbed workers shifting out of agriculture before expanding to services.

The challenge now for Philippine economic managers, according to the latest Philippine Economic Update (PEU) report, "Investing in the Future," produced by the World Bank Manila Office, is to attract more investments into manufacturing industries that not only create more jobs but also tend to have longer-lasting operations that contribute to stability.

To be sure, steady economic growth for more than three decades now appears to have reduced poverty in the Philippines. But because it still is among the highest in Asia, poverty continues to be a major challenge.

Vulnerable to high inflation

These days, an accelerating pace of inflation, triggered in large part by the government’s imposition of new taxes on a myriad of products and services, can only be expected to hit the poor most.

“Since less than 10 percent of the population has a per capita income above the global middle-income level, the [Philippines] is still a long way from achieving its goal of becoming a middle-class society,” says the PEU report released this week.

While more jobs may have been created during the recent period of sustained economic growth, mean wage rates have “remained stagnant and people are getting poor-quality and low-paying jobs” mainly in the agriculture and service sectors.

The manufacturing sector continues to account for the lowest share—18.1 percent—of the nation’s employed population as of January this year. The services sector is the top employer with 55.9 percent of the nation’s workers while agriculture has 26 percent, according to the Philippine Statistics Authority.

Of particular concern to analysts at the World Bank is the high incidence of poverty even among households where the head of the family has a job. The poverty rate in these households hovers close to the national average of 21.6 percent, according to World Bank calculations.

The World Bank’s PEU notes that poverty reduction in the Philippines is proceeding at a slow rate compared to its neighbors in the region. This is because of “less pro-poor” economic growth, high inequality of income and wealth, high frequency of natural disasters, and conflict in parts of the country.

The report also says that while the role of wage income in poverty reduction is similar to many other developing countries, the Philippines has experienced “much slower growth” in real wages. High-quality jobs and faster growth of real wages are “essential to achieve shared prosperity and inclusive growth,” the report underscores.

Employed but poor

The Philippine labor market suffers from a lack of quality jobs, which means “most of the poor are working poor”, as low-paying jobs of underemployment prevent them from graduating out of poverty, says the PEU.

Some households, the report cites as an example, earn as little as P50 to P100 a day, and many urban poor are “trapped in a low-wage and low-productivity jobs in the informal sector.

The government needs to make growth more inclusive to make it possible for Filipinos to achieve higher and more stable income through productive employment, the report suggests.

The World Bank report lists a number of factors that have contributed to recent cuts in poverty incidence in the Philippines. These include: the government’s conditional cash transfer program, Pantawid Pamilyang Pilipino Program (4Ps), remittances from domestic and foreign sources, and entrepreneurial income.

The 4Ps program, which is estimated to have contributed about 25 percent of the decline in poverty, extends monthly cash grants to the poorest of the poor families in exchange for the recipient families’ commitments to keep young children in school and for mothers to submit to regular health checkups. The program is now on its 11th year.

Contributing an estimated 15 percent drop in poverty are entrepreneurial activities ranging from agriculture-related trades among poor households in rural areas to lower-end services among urban poor, along with businesses pursued by the non-poor.

Entrepreneurial income from agriculture-related activities offers an opportunity to reduce rural poverty if efforts are make to address productivity constraints, access to finance, extension services, and climate change, says the PEU.

Meanwhile, remittances from domestic sources have contributed to about 12 percent of poverty decline while remittances from foreign sources helped cut poverty by 6 percent, the report estimates, adding that two-thirds of all Filipinos—or 15 million households—receive either domestic or foreign remittances.

While foreign remittances, more common among the non-poor, are much higher in value, both types of transfers reduced poverty rate by up to 4 percentage points, with domestic remittances more prevalent among the poor, the report says.

The report also notes a shift in wage-earning employment to jobs with higher earning potential than those in private households, self-employment, and unpaid work in family activities. This trend, however, has resulted in a “minimal” growth in real wages in the private sector which still accounts for the largest share of employed workers.

On the other hand, real wages in government, which employs fewer individuals, recorded significant increases due mainly to the enactment of recent laws that mandated pay hikes.

The World Bank PEU report further suggests that the Philippines needs to make economic growth more inclusive, particularly through the creation of more well-paying jobs, to reduce poverty and create a growing middle class. 

“A vicious cycle of unequal investment in human capital and a lack of quality in job opportunities have trapped generations of households in poverty,” it says.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.