Country lags in labor productivity: World Bank

CREATING adequate and quality employment continues to be a challenge for Philippines, making it one of the worst-performing countries in the region in terms of labor productivity and inclusiveness despite the economy’s rapid expansion, according to the World Bank.

In “East Asia Pacific at Work: Employment, Enterprise and Well-Being,” a report released yesterday, the multilateral lender noted that while labor has helped the region develop, over the years, conditions in the labor market have stagnated due to the lack of appropriate policies, resulting in worsening inequality.

“As the region’s economic growth is moderating and labor costs are rising, constraints of the region’s current labor market and social protection policies are becoming a more pressing issue,” the bank said.

“Though relatively strong on paper, those policies are often poorly enforced, driving more people — especially women, young people and those with fewer skills, such as janitors and caterers — into unprotected, unregulated and untaxed jobs, or even unemployment,” the report noted.

The World Bank said that specific problems it found common among countries in the region are widespread economic informality, high youth inactivity and unemployment, rising inequality, and skills shortage.

“For example, in the past decade, the Philippines experienced much slower poverty reduction than its neighbors, despite respectable economic growth,” it said.

“This stagnation in living standards is linked to the low productivity of most forms of employment created by the economy,” it added.

According to the report, labor productivity in the Philippines has been “stagnant,” increasing the least among East Asian economies over the past 20 years.

“In terms of youth inactivity, measured by the number of people aged 15-24 years old not in employment, education or formal training, the Philippines has the highest rate in the region in that statistic,” Axel van Trotsenburg, World Bank East Asia and Pacific regional vice-president, also pointed out in a briefing yesterday.

“This shows that the country has difficulty absorbing young people, young graduates into the labor market… Even as the Philippines has a young population, there’s that difficulty,” Mr. van Trotsenburg said.

Karl Kendrick T. Chua, World Bank senior country economist for the Philippines, said that the country’s labor market woes stem from “a long history of underinvestment”.

“When Filipinos are given the opportunity, as evidenced by the millions of overseas Filipino workers, they can unleash productivity and income-earning activities that can benefit their lives,” Mr. Chua said.

“Majority of Filipinos are not given that opportunity because of underinvestment in human capital and also infrastructure, which hinders businesses from coming in and creating employment here,” he noted.

Mr. Chua said that while skills mismatches are also a problem, the bigger issue is really the lack of jobs and the opportunity for people to create their own jobs.

“We estimate that there are almost 1.2 million entrants to the work force every year… but only 250,000 will find jobs in formal sector, while maybe 200,000 will find jobs abroad, and the rest will be either unemployed or underemployed. ” he said.

Productivity is also hindered by the widely informal labor market, with 75% of employment in the country created in the informal sector, said Rogier van den Brink, World Bank lead economist for the Philippines.

“Nothing is inherently wrong with Filipino labor. They have proven that they are a competitive labor force,” said Mr. van den Brink.

“Creating opportunities for the workforce to prosper is really the challenge… How do you get more capital to go into the Philippine labor force? There is a whole range of issues that need to be addressed… and while it is very challenging, at the moment, things look good,” he noted.

Mr. Chua said that to create more and better jobs to support the government’s “inclusive growth agenda,” among the things that should be ensured are sustained investments in infrastructure, health, and education, the creation of a better business environment, and also complementary reforms in property rights.

For the region as a whole, the report also noted, policies should encourage mobility of labor and human capital and not favor some forms of employment over others.

“Countries should look beyond the labor market and focus on fundamentals, such as policies that ensure price stability, encourage investment and innovation, and support a regulatory framework that enables small- and medium-size enterprises, which employ most people in the region,” it said.

“Top-down industrial policies are less viable in today’s increasingly integrated and rules-based global economy,” said Truman Packard, World Bank lead economist.

“The region’s diverse economies, of course, call for different policy priorities. For the many countries that are still mainly agrarian, the report recommends that policy makers focus on boosting agricultural productivity and encouraging non-farm enterprises. For urbanizing economies, such as China, Indonesia, the Philippines and Vietnam, the report suggests that governments focus on making cities work better by boosting infrastructure and improving services,” Mr. Packard said. –Bettina Faye V. Roc, Senior Reporter, Businessworld