Rise in informal sector seen amid crisis

THE number of Filipinos in the informal sector will rise as more workers are laid off because of the economic crisis, according to pundits.

Acting Socioeconomic Planning Secretary Augusto Santos said more Filipinos are becoming entrepreneurial because they want to cope with the crisis.

As more workers are laid off and jobs become sparse, Filipinos tend to find ways to survive, he said.

In April, the jobless rate stood at 7.5 percent compared with 8 percent in the same month last year. The National Statistics Office (NSO) is set to release the October jobless figure on Wednesday.

In 2008, the NSO said the number of people in the informal sector reached about 10.5 million, or one in every eight Filipinos.

Of the total number of Filipinos in the informal sector, the self-employed numbered about 9.1 million, while employers, 1.3 million.

The informal sector includes vendors, household helpers, neighborhood handymen, public transport and tricycle drivers, self-employed entrepreneurs, agricultural and rural area workers, and small traders, among others.

Benjamin Diokno, budget secretary during the Estrada administration and economics professor at the University of the Philippines, said an increase in micro-enterprises might be a coping mechanism in the absence of jobs in the formal sector.

ÒThe risk, however, is that particular enterprise activitiesÑfor example, beauty parlors, bakeries, food outlets, sari-sari stores, street hawking, etc.Ñmay easily be crowded, so that the return on investment will fall,Ó Diokno said.Ê

This will be followed by a series of failed enterprises that may be unable to service their debt, he added.

The International Finance Corp. (IFC) said the difficulty of doing business in a country contributes to the growth of its informal sector.

In its Doing Business 2010 report, the IFC last week said the PhilippinesÕ ranking in terms of ease of doing business fell three notches to the 144th place from the 141st spot last year.

The World Bank arm said reforms to help small and medium enterprises (SMEs)Ñconsidered a key prop of the Philippine economy since they employ nearly six in every 10 Filipinos in the labor forceÑremained poor.

Of the 183 economies surveyed, the Philippines scored low in terms of starting a business at 162nd place.

Rigid business, labor regulations

Kim Jacinto-Henares, IFC senior private sector development specialist, said some people choose to go underground because of the PhilippinesÕ rigid business and labor regulations.

ÒThereÕs a saying that when you start paying that is when you start getting harassed. ThatÕs one of the reasons why people donÕt want to get formal. Second, sometimes I hear people say, ÔI want to follow the law, I want to pay the right taxes, but there are people in the bureaucracy [who] tell me donÕt do it,ÕÓ she said.

Victor Abola, economist at the University of Asia and the Pacific (UA&P), estimated the informal sector to have cost the government about P100 billion in forgone revenues each year.

He said the government loses at least P70 billion a year in uncollected income taxes, while another P20 billion to P30 billion was in the form of unpaid value added taxes, business permits, among other levies.

Despite this, he said the informal sector is important to the economy because it contributes about 20 percent to 30 percent a year to Philippine gross domestic product

(GDP), which is the total value of all goods and services produced in the country. –Darwin G. Amojelar, Senior Reporter with Lailany P. Gomez, Manila Times