While the Philippines has enjoyed rapid economic growth, poverty and inequality rates remain high. Unsurprisingly, in terms of human development, the Philippines ranks behind its peers in ASEAN. To ensure that growth becomes more inclusive, the current administration should address persistent concerns on human capital formation and start preparing for the potentially disruptive effects of new technologies. If they do so, our people will gain a better chance of enjoying the benefits of economic and technological progress.
Unlocking the Filipino People’s Potential in the Next Six Years and Beyond, a Special Study published by the Stratbase ADR Institute, Dr. Vicento Paqueo and Dr. Aniceto Orbeta, Jr. outline strategies to address challenges brought about by the impending Fourth Industrial Revolution (FIRe). The FIRe, a concept popularized by Klaus Schwab, is characterized by new technologies that will disrupt the global value chain and labor markets.
RELAXING LABOR MARKET RULES AND REGULATIONS
Unemployment has lowered in recent years, but still remains high compared to other ASEAN countries. Underemployment, at 16.3%, is also a nagging problem. The share of temporary workers has increased by six percentage points from 2000-2014, stoking fears of job security among workers. At the same time, however, the government should always exercise prudence and refrain from imposing counterproductive measures that could not only rattle the business environment, but make inclusive growth even more elusive.
Paqueo and Orbeta argue that the Filipino potential has not been fully harnessed due to rigidities in the labor market. Restrictive labor laws and regulations, such as the high legal minimum wages and the regularization law, impede the labor markets’ ability to allocate human resources efficiently.
There are currently numerous calls for huge increases in the legal minimum wages (LMW). However, doing so would make the employment of workers less attractive and labor-intensive industries less competitive. The Special Study finds that LMW has, in fact, adverse impacts on the welfare and employment probability of disadvantaged groups, such as women, young, and less educated. Ironically, the average household income declined, while poverty rate has increased as a result of LMW. Small enterprises are also disadvantaged.
Several bills calling for an end to “endo” have also been filed in Congress. Putting a halt to endo could hinder disadvantaged workers from becoming permanent employees, potentially increase the unemployment rate, and reduce efficiency in utilizing human resources. While endo has always been cast in a negative light, a survey on endo workers conducted by the Institute of Labor Studies reveals that 90% of employees are satisfied with their jobs, while 93% receive the benefits due to them.
HUMAN DEVELOPMENT FORMATION
Although the Philippines has one of the fastest growing economies in the region, it has lagged behind its East Asian neighbors in terms of human development. In 1990, the Philippines ranked higher than Vietnam in the Human Development Index. However, in a span of 25 years, Vietnam has already overtaken us. Despite spending fewer resources per student, Vietnam also performed better than the US, UK, and some OECD countries in the Program for International Student Assessment.
Meanwhile, the Philippines still has to work on improving the quality of its education in all levels. The mean percentage scores for Grade 6 & 10 pupils are below 75% or lower than mastery. The average passing rate in professional examinations is less than 40%, implying that over half of the graduates do not get to practice in their chosen profession. During the previous administration, investment in education has been increasing. Pouring money into the sector, however, does not guarantee better quality. This highlights the need for the government to use its resources more efficiently.
Access to education still needs to be expanded, particularly for the secondary and tertiary levels. The primary mode of access to post-secondary education is through state universities and colleges (SUCs), yet, existing Student Financial Assistance Programs (StuFAP) in tertiary education is poorly funded and designed. StuFAP was supposed to be rationalized under Unified Student Financial Assistance System for Tertiary Education (UniFAST). The grant can be used in SUCs or private institutions and covers the student’s allowance and tuition.
However, the Senate undermined the UniFAST by passing the bill providing free tuition for SUCs. Since funds in education are already scarce, providing free tuition might not be the best way to utilize our resources. The bill will only encourage students from private institutions to transfer to SUCs over time, and prioritizes college education over technical vocation.
Technical Vocational Education and Training (TVET) also needs to be more responsive to industry demands. While graduation rates are high, the employment rate of TVET graduates hovers at around 65%. There is a disconnect between what industry needs and the training provided, especially since TVET certifications are not given as much value by employers.
The Philippines needs to invest more in human capital formation to avoid falling behind its neighbors and adequately prepare for the looming FIRe. The government, however, must resist bending to populist pressures, which could inadvertently hurt the people it is supposed to protect.
Victor Andres Manhit is the President, Stratbase ADR Institute
