Labour Market Situational Report
Prior to the gut-wrenching pandemic in 2020, the Philippines’ labour market was doing well. Two good things happened for the Filipino workforce, its median wage is increasing steadily from 2014 to 2018, at a CAGR of 2.89%. Its labour market also underwent a seismic shift where more informal workers were jumping into formal roles which led to the shrinking size of informal workers for the first time in a while.
However, unfortunately, the Covid-19 pandemic reversed the progress that the Philippines’ labour market had achieved. Of course, the negative impact of the pandemic was not only localised in the archipelago nation but was a global phenomenon. But, although other countries recovered quite quickly from the pandemic, it is a whole different story for the country’s labour market. The labour market experienced an event called hysteresis in unemployment. Hysteresis happens when the root cause of a negative event has already been removed, but the negative impact persists. In 2021, even one year after the pandemic, the unemployment rate is still very high at 7.8%, significantly higher than the country’s pre-pandemic level of 5.1%. The country will only have lower unemployment than its pre-pandemic figure in 2023, where the country is projected to have a 4.6% unemployment rate.
So why hysteresis occurs in the Philippines? As the negative economic environment in the Philippines persisted for an extended period of time, more people adjusted to a lower standard of living. As they have been accustomed to a lower standard of living, the citizens will be reluctant to chase previously attained higher standards of living. So, what happened is it is socially acceptable to stay unemployed. On the other hand, employers that suffered heavily during the pandemic in terms of revenue losses will think twice about increasing their respective headcount and the employers will demand more from their current employees. The employers will soon realise that there is so much they can squeeze from their workers if they do not invest in training to enhance the employees’ capabilities.
Secondly, the pandemic has exacerbated the skills mismatch issue in the labour market. Covid-19 has triggered a major reallocation of jobs across sectors. While sectors that rely less on labour such as telecommunications recover quickly by re-hiring their highly skilled labourers, companies in labour-heavy sectors such as food services and accommodation start to modify their business models to rely more on technology. This situation will lead to two main things, more unemployed persons as workers do not easily transition between sectors and having the wrong person for a position. The general productivity of the country will suffer in the long term if the country, whether from the public or private sectors, starts to buck up and reskill and upskill the workforce.
Case Study – Ninja Van Philippines
In its move to rely more on technological innovation, Ninja Van, Southeast Asia’s leading logistics provider, is extending its multi-year collaboration with Google Cloud to help businesses of all sizes seize digital growth opportunities and overcome supply chain disruptions. Google Cloud’s scalable, secure and open-source infrastructure will help Ninja Van strengthen its leadership in last-mile courier services and expand upstream into supply chain management solutions.
Ninja Van will use Google Cloud’s services to automate its software development and deployment, improve its security posture, and ensure zero downtime for its 24/7 operations. This will allow Ninja Van to focus on its core business of delivering parcels to customers quickly and reliably.
The third and final major challenge of the Philippines’s labour market is the unregulated informal labour sector. Economic opportunities for Filipinos are scarce, especially in war-torn areas such as Mindanao in the south of the Philippines. A youth that lives there has only a few options to make ends meet and one of them is remote working. The Philippines is well known as one of the global business process outsourcing (BPO) hubs, just second to India. However, this informal sector is not regulated by the Government, the authority does not where to start. This led Western-based companies such as Remotasks to exploit the whole situation and offer pittance pay to Filipinos who work on their platforms. The ’race to the bottom for wages that companies like Remotasks has created is dragging down the growth of median wage in the country, evidently where the wage level only increased by a CAGR of 0.21% from 2018 to 2020, compared to a CAGR growth rate of 4.12% during a similar period from 2016 to 2018.
As a country that has adopted a labour-exporting model since the 1950s, it is not surprising that the development of workforce for the domestic markets is underwhelming, spending less than Malaysia although the country has a bigger population. However, recently, the Philippines Government started to be smart in how they spend on training. Two approaches are utilised, namely targetted spending and partnering with other organisations. Earlier this year, the Asian Development Bank (ADB) and the Government of the Philippines partnered together for the SkillsUpNet Philippines (SUNPh) program. SUNPh is a skills-delivery scheme led by employers. Businesses in the same industry can form networks and apply for grants to finance short-term skills training for their workers. The program will prioritize four industries: information technology-animation, construction, agribusiness, and tourism. Although SUNPh is still in the pilot stages, however, this project indicates a shift in approach by the Government.
Moving forward, on the financial end, apart from forking its own coffers to invest in its workforce, the Philippines Government also received a USD500 mil loan from ADB. The USD500 mil policy-based loan is meant to help the Philippine Government address the impact of the COVID-19 pandemic on jobs, livelihoods, and the labour market. It will also help create an enabling environment for existing and emerging businesses to flourish and spur more employment.
Labour Market Situational Report