THE WORLD BANK said that better quality jobs and faster real wage growth are the “missing link” to reducing poverty and inequality in the country, even as the government pursues more aggressive infrastructure development.
“The key challenge facing the government is not unemployment, but rather the poor quality of jobs in the labor market, as a large share of employment opportunities in the Philippines consist of low-paid jobs,” the World Bank said in the Philippine Economic Update report it released on Monday.
The multilateral lender also said that the government should spend more on improving the country’s human capital, complementing state efforts to improve infrastructure.
“Really, the push is the emphasis in investment, not only in infrastructure but also really heavily in human capital, expenditures that are going to education, health. So this is really is the foundation for higher growth in the future,” World Bank lead economist for the Philippines Birgit Hansl in a press conference yesterday.
She noted that economic benefits of the current administration’s infrastructure projects won’t be felt until 2020.
The multilateral lender said the country has a lower unemployment rate but high underemployment and slow increase in real wage, which takes into account the impact of inflation.
It explained that this is partly due to agricultural workers’ shift to low-quality, low-skilled jobs in the service sector, as the Philippines has for years failed to improve its manufacturing base that could have provided better jobs, such as in the case of East Asian neighbors.
“So what the Philippines really needs is to attract more investments that lead to jobs and producing higher productivity, so that we see higher real wage increase. That’s why it is really necessary to attract investors from outside and inside for expanded capacity in manufacturing, and invest heavily in human capital to allow people in lower paying jobs to move from sectors like agriculture and low-skilled services to higher, productive jobs that are in high demand,” said Ms. Hansl.
She added that this would help guard the Philippine economy from “overheating,” by which the country fails to sustain its relatively fast economic growth due to poor support from infrastructure and human capital.
“This is what happens when you have high fiscal spending that is pouring into wage growth, causing people to want to spend more,” Ms. Hansl explained.
“Then prices will increase because firms cannot produce more because they have a limited capacity,” she added.
“Even if you would like to produce more, you couldn’t at this point without investing first in new productive capacity or educating more people…” she added.
“This is where the Philippine economy is: where it likes to grow more, but it first needs these investments.”
The Philippine Statistics Authority (PSA) in its January 2018 Labor Force Survey reported that unemployment rate declined to 5.3% from 6.6% in the same survey round last year.
At the same time, however, underemployment rate — which reflects workers who wanted more hours of work or an additional job — increased to 18% from 16.3%.
“The government needs to adopt mutually reinforcing policies that will create a growing middle class that is well-integrated with other income groups. This should include the implementation of interventions across multiple sectors that address both supply- and demand-side constraints for creating more well-paying jobs in the labor market,” the report read.
The World Bank also urged the government to “upgrade value chains to support strong and sustainable growth, and strengthen backward and forward linkages to take advantage of skilled labor and create jobs for the unskilled,” as well as address institutional constraints, strengthen competition, secure property rights, and simplify business regulations.
The lender expects the Philippine economy to sustain 2017’s 6.7% growth in 2018 and 2019, before slightly moderating to 6.6% in 2020. The government, in comparison, targets a 7-8% economic growth rate from 2018 to 2022, while cutting unemployment rate to 3-5% also by then from 5.5% in 2016, and reducing poverty incidence to 14% from 21.6% in 2015. — Elijah J. C. Tubayan