Higher productivity fails to raise wages: ADB

The Philippines needs to bring more competition into the economy to increase both high-quality employment opportunities and wages, an Asian Development Bank (ADB) report said.

The report, titled “Key Indicators for Asia and the Pacific 2011”, said the biggest issue that has prevented the country from creating higher-quality employment has been “the inability to translate increased productivity into increased wages.”

“This can arise when monopolies create an ultra-competitive environment for work, leaving the negotiation power and provision of work in the hands of the employer,” said the special chapter in the report titled “Toward Higher Quality Employment in Asia”. Data from the report showed that while there has been a substantial shift of workers in the Philippines from the informal sector to the formal sector, there has not been a significant increase in wage growth.

“The Philippines has done relatively well in moving people from informal to more formalized employment and increasing labor productivity, but this has resulted in little wage growth in formal employment,” the report said.

“Given that the Philippines has a relatively stable and overly abundant supply of highly qualified and skilled labor, competition for higher quality positions is fierce and places the power of negotiations and rise in wages in the hands of the monopolies,” the report said.

The ADB report added that the country’s labor market is characterized by a “stubbornness or relative rigidity” of unemployment and underemployment.

It said that the Philippines’ unemployment and underemployment rates are higher than its Asean neighbors. It added that since 1980, the incidence of unemployment in the Philippines has been higher than the unemployment rates in Malaysia, Singapore, Thailand, and Vietnam.

Data from the National Statistics Office shows that the Philippines’ unemployment and underemployment rate as of April 2011 stood at 7.2 percent and 19.4 percent, respectively.

“This trend may explain why efforts to significantly trim the country’s poverty rate and raise average wages substantially have largely failed,” the report said.

“Un- and under-employment are particularly high among the youth, and, given that close to 900,000 individuals enter the labor force each year, the economy’s ability to generate good quality jobs is limited, as the ability of employers to generate higher quality jobs depends on labor productivity growth,” the report added.

Because of limited domestic opportunities, many Filipinos have resorted to finding employment abroad.

“The Philippines’ management of its labor migration is a good model for providing a means to obtain higher quality employment abroad,” the report said.

The report said the Philippines has the most sophisticated network of agencies in Asia responsible for maximizing the benefits of migration, often referred to as the 3Rs: recruitment, remittance, and return migration.

“But the extensive migration may also underlie a lack of domestic innovation and development, if the best and most entrepreneurial individuals choose to work abroad,” the report said.

Thus, the report concluded that there is a need to induce competition in the economy, which could increase employment opportunities.

It added that it could also shift the power to a better balance between employers and employees.

“Eliminating monopolies and fostering competition within the country can have substantial impacts on the creation of higher-quality employment,” it said.

“Monopolies may also have a critical role in constraining the overall growth in employment, as the service sector remains dominant in comparison to the manufacturing sector,” the report added. -ANGELA LORRAINE CELIS, Malaya