The writer is trustee of Action for Economic Reforms; he holds BS Economics and LLB degrees from the University of the Philippines, Diliman. This is a shortened version of a full paper of the same title that will be presented at the forum “The State of Industry, Labor and Employment: A National Scorecard” to be held at the Sulo Hotel on 25 August 2005, 8:30 am to 12 noon.

This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, August 21, 2006 edition, page S1/5.

In her 2005 SONA, President Gloria Macapagal-Arroyo described our economy as on the verge of take-off. This year, her message is that government now has the funds to meet our expenditure needs.

Behind the President’s optimism is the economy’s growth and fiscal performance in recent years. After a dismal performance in 2001 when she was installed as president, the economy’s real gross domestic product picked up, growing by 4.4% in 2002, 4.9% in 2003, 6.2% in 2004, and 5.0% in 2005. For the first quarter this year, it grew by 5.5%.  The fiscal problem eased in 2005, with the deficit narrowing to P146.5 billion from the P187 billion incurred in 2004.

But public perception does not match the President’s optimism. In the SWS survey for the second quarter this year, 59% of household heads in the country rate themselves as poor. One might be tempted to think that this is a case of a skeptical public refusing to accept the facts. Closer scrutiny, however, exposes deep structural problems in the economy that mere reference to growth and fiscal improvement cannot reveal.

Trapped in Low Productivity

The agriculture, fishery and forestry sector remains a major employer in the economy. In 2005, it employed some 12.1 million individuals, or 37.03% of total employed. Such share has only declined marginally from the 2000 level of 37.45%.

Low productivity marks the agriculture sector. For 2005, agriculture output per unit of labor was P63,828.74 in current terms, or P5,319.06 average monthly. From such low productivity, and considering costs of inputs, we can only expect very low incomes in the agriculture sector. In addition, frequent calamities, poor infrastructure, unstable prices, and seasonality of employment render agriculture incomes vulnerable.

Industry, which could offer better wages because of its higher productivity, as well as better labor standards given its higher degree of formality, has not expanded in terms of the number of people it employs. Its share in employment even contracted from 15.72% in 2000 to 14.86% in 2005.

With industry failing to expand, it is the services sector that has been picking up the employment of the growing labor force. Its relative share in employment increased from 46.5% in 2000 to 48.1% in 2005. The greater ability of the services sector to employ people, however, must be seen with caution. While many service sector jobs share similar levels of formality with industry, there is also a large section that will not be far ahead of agriculture in terms of formality and adherence to employment standards. Thus even as we see more people employed by the big malls, for instance, there are also people being employed in private households, and people doing odd jobs such as “wash-your-car boys”, “pedicab” drivers, “park-your-car boys”, street vendors, and so on.

Unemployment and Poverty Wages

From 2000 to 2005, the country’s labor force grew at an average rate of 2.3% per year. This was outpaced by average real GDP growth of 4.45% for the same period. Still, the higher pace of economic growth has not made a dent on unemployment. In 2000, 10.14% of the labor force, or 3.1 million individuals, were unemployed. In January 2006, the unemployment rate was even higher at 10.7. There is also a high number of underemployed. In 2004, of the 31.7 million employed, 5.4 million or 16.9% were underemployed. Clearly the economic growth is not able to generate a sufficiently high number of new jobs.

A large number of the employed also face the problem of earning poverty-level wages and income. Some 6 million of the 31.7 million employed persons in 2004 were farmers and fishermen. As noted earlier, incomes in agriculture are very low. In addition, the bulk of the employed worked as laborers and unskilled workers. They were 10 million in 2004, and comprised 31.9% of the employed. Using the level of wages in select industries as indicator, a worker in this occupation group earns an average monthly wage ranging from P5,000 to P8,000. At the exchange rate of P55.83 to the US dollar in that year, the average daily wage for this occupation ranges from 3 to 5 US dollars.

Such level of income would put these workers above the US$1 a day international poverty line, but only if they are supporting only themselves. But there is a good chance these wage earners support a family. In 2003, some 8.9 million families, or 54.2% of the total, had family sizes of five or more members. These figures relate very well with the SWS self-rate poverty survey. Indeed with a daily wage rate of 3 to 5 US dollars, one would easily fall below the dollar-a-day international poverty threshold if he or she is supporting five or more family members.

The OFW Safety Valve

Given the depressed employment and income in the country, overseas work has been an important safety valve for the Philippine economy. This has prevented the economy from boiling over.

The Overseas Filipino Workers (OFWs) have mitigated the employment problem in the country. The yearly deployment of OFWs continues to increase. In 1995 the country deployed 654,022 OFWs. This increased to 841,628 in 2000, and to 981,677 in 2005. As of December 2004, the POEA estimated Filipinos overseas to total 8 million.

The OFWs have certainly helped us squeeze through recurrent threats on the balance of payments. No doubt the OFW remittances cushioned the impact of the portfolio capital flight during the Asian Financial Crisis. Now it is helping us cushion the higher deficit in trade in goods. In 2005, OFW remittances through formal channels stood at USS10.7 billion.

At its present levels, OFW remittances have also provided an important source of income for a considerable number of Filipino families. In 2003, some 1.3 million families of the total 16.5 million families relied on cash receipts, gifts and other forms of assistance from abroad as their main source of income.