Unlocking The Filipino People's Potential in The Next Six Years and Beyond

UNLOCKING THE
FILIPINO PEOPLES
POTENTIAL
Dr. Vicente B. Paqueo

DR. Aniceto C. Orbeta, Jr.
UNLOCKING THE
FILIPINO PEOPLES
POTENTIAL
IN THE NEXT SIX YEARS AND
BEYOND
Dr. Vicente B. Paqueo
DR. Aniceto C. Orbeta, Jr.
Copyright 2017 by Albert Del Rosario Institute
for Strategic and International Studies
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BOARD OF TRUSTEES
Ambassador Albert del Rosario
was the Secretary of Foreign Affairs of the Philippines from 2011 to 2016. He also served as
Philippine Ambassador to the United States of America from 2001 to 2006.
Manuel V. Pangilinan
is CEO and managing director of First Pacific Company Limited. He is also the chairman of
MPIC, PLDT, Meralco, and Smart Communications, among others.
Edgardo G. Lacson
is an honorary chairman of the Philippine Chamber of Commerce and Industry (PCCI). He
was the former president of the Employers Confederation of the Philippines.
Benjamin Philip G. Romualdez

is the president of the Chamber of Mines of the Philippines since 2004. He is also the vice
president for Industry of the PCCI.
Ernest Z. Bower
is senior adviser for Southeast Asia at the Center for Strategic and International Studies
(CSIS). He is CEO of BowerGroupAsia (BGA), and a leading expert on Southeast Asia.
Renato C. de Castro, Ph. D

is a full professor of international studies at De La Salle University Manila (DLSU). He
holds the Charles Lui Chi Keung Professorial Chair in China Studies.
Judge Raul C. Pangalangan, Ph. D

is a judge of the International Criminal Court. He was previously a dean of the University of
the Philippines College of Law and publisher of the Philippine Daily Inquirer.
Epictetus E. Patalinghug, Ph. D

is a professor emeritus at the Cesar E.A. Virata School of Business, University of the
Philippines (UP), Diliman.
Francisco A. Magno, Ph. D

is the executive director of the Jesse M. Robredo Institute of Governance and President of
the Philippine Political Science Association. He is a professor of political science at DLSU.
Carlos Primo C. David, Ph. D

is a professor of Geology and Environmental Science in UP Diliman. He heads the Philippine
Council for Industry, Energy and Emerging Technology Research and Development.
CONTENTS
Executive Summary viii
Introduction 1
The Context 2
The Philippines has great potential for rapid and sustainable growth. In
meeting the challenge of making growth more inclusive, the government must
also prepare for the advent of labor-saving breakthrough technologies
Employment, Labor Market and Worker Protection 7

Despite remarkable improvements in GDP growth, the poverty rate is steady
and high underemployment is still a challenge. Allowing more flexibility in the
regularization rule would be more welfare-enhancing, inclusive, and efficient
Human Development and Lifelong Learning 20

There is a need to expand access to all levels of education, address
gaps in quality, and invest in people as early as possible. The countrys
technical-vocational education and training must be responsive
to industry demands and promote an R&D culture
Massive Investments in Human Development 24

Even with recent increases in education spending, our expenditure per
student as a share of GDP per capita is lower than others in the region.
The rate of returns estimates for education show returns that
are higher than typical hurdle rates for investments
Conclusion and Recommendations 35
References 41
Acknowledgements
About the Author

EXECUTIVE SUMMARY
The Philippines economic growth has not been inclusive. Poverty rate still remains
high, and income distribution is still unequal. Since 2010, average real wage rates
have been rising after a decade of stagnation. The countrys previously abundant
labor surplus in agriculture has declined as a result of rapid economic growth.
This could signal the countrys move towards sustained growth, with rising real
wages and increased labor utilization rates, subsequently leading to a greater fall in
poverty and underemployment.
The realization of this rapid and inclusive growth trajectory would depend on
the governments ability to make the country friendly to investors; this includes
avoiding regulations which make workers uncompetitive and unattractive to
employ. Thus, it is imperative for the government to address two challenges
the increasing share of temporary workers and the looming Fourth Industrial
Revolution (FIRe).
The impending FIRe, characterized by breakthrough technologies, will increase
productivity. However, this will also cause disruptions in product and labor markets,
due to more efficient labor-saving technologies. To benefit from new jobs, workers
should be highly trainable. Economies would also need to be more flexible, allowing
enterprises to deploy labor and other resources efficiently and opportunely.
However, unlike its Asian neighbors, the Philippines has adopted a less
competitive regulatory environment. In the past months, labor unions and their
political allies have clamored for an increase in the legal minimum wage (LMW),
and that the same LMWs are applied to all regions. However, huge increases in
LMWs could make the employment of workers less attractive and labor-intensive
enterprises less competitive. Meanwhile, there are also demands to end all forms
contractualization. Ironically, this could have unintended consequences, including
an increased unemployment rate, reduced transition rate from temporary to
permanent employment, and reduced efficiency in the use of human resources.
With these emerging trends and challenges, the country will have to incorporate
the FIRe in its current development planning process, and start thinking about
the adaptations they would have to make in the future. Meanwhile, there is an
urgent need to invest massively in human development, ensuring that the poor and
vulnerable get the assistance they need and have the capacity to flourish under the
imminent new normal.
viii
Unlocking the Filipino Peoples Potential
in the Next Six Years and Beyond
VICENTE B. PAQUEO, PH.D
ANICETO C. ORBETA JR., PH.D
E conomic growth leads to poverty reduction, albeit with few exceptions.1

However, international data also indicate that there is heterogeneity in the
response of poverty rate to economic growth, depending on factors such as the
initial level of income inequality.2 Some responses are large, while others are more
modest.
According to a World Bank (2013) report,3 it is estimated that the elasticity of
poverty rate with respect to income is about -1.37 for the period 1980-2010 in the
Philippines. That is, a 1% income growth is associated with a 1.37 % reduction in
poverty rate, using a USD 1.25 a day poverty headcount. This is lower than the
East Asia and the Pacific region average (-1.83), and that of Thailands (-3.59), as
well Indonesias (-1.5) and Vietnams (-1.54). This means that for a given economic
growth rate, the Philippines could have reduced its poverty incidence at a faster rate
if its growth elasticity of poverty were higher like those of neighboring countries.
However, the World Bank study reports that the Philippine growth elasticity of
poverty has significantly decreased to -0.66 between 2000 and 2009, from -2.44
between 1990 and 2000.
The implication is that, in recent years, it takes a higher economic growth to
reduce poverty incidence than it did in the past. It is no surprise then that poverty
rate has decreased little despite more rapid economic growth in the last six years.
1
2 Unlocking the Filipino Peoples Potential
This country experience points to the lack of inclusiveness of Philippine economic

growth. As discussed later, not only has the countrys poverty rate remained high,
its income distribution has not budged significantly from its highly unequal initial
position. The meagerness of the impact of economic growth on poverty in the
Philippines should not be surprising, given its high income inequality and the
decline in growth elasticity of poverty.
What can the country do more of or differently to achieve rapid economic
growth that will drastically reduce poverty and allow disadvantaged people to enjoy
the benefits of economic and technological progress? This paper lays out some
ideas that could be helpful in answering the above question. Our goal here is not
to provide a comprehensive strategy. Rather, it is to lay out some ideas that, taken
together, could significantly enhance the Filipino masses capacity to flourish and
strengthen the countrys social cohesion and stability in the next five years and
beyond.
In light of this goal, this paper seeks to highlight the need to tackle current
human development concerns in a way that would also address evolving issues
related to the unfolding of the Fourth Industrial Revolution (FIRe).
Looking at the above question from the lens of employment, human development
and social protection, we organize our discussion as follows. Section 2 elaborates
the context of the question. Section 3 presents data characterizing the current labor
market (LM) and discusses their broad policy implications. Section 4 focuses on
selected strategic issues in education, training and child development, and seeks
to identify binding constraints impeding lifelong learning and point to potential
solutions. In this season of global discontent, Section 5 suggests some social
protection interventions that could be strengthened or developed to help ensure
that disadvantaged and vulnerable groups would thrive and flourish in a growing
economy rather than be left behind. Finally, Section 6 summarizes and reflects on
the ideas discussed in the article.
The Context
A sick man of Asia no more, the Philippines is now seen as one of the brightest
spots for investment in Asia and is currently perceived as a country with great
Unlocking the Filipino Peoples Potential 3
potential for rapid and sustainable growth. There are good reasons for this bullish
appraisal. GDP growth during the last administration has been remarkably rapid
at about 6% or more. This accomplishment is founded on sound macroeconomic
policies, institutionalized efficiency-enhancing trade reforms, and increased
national productivity (World Bank 2016 and 2013). At the sectoral level, the
remarkable growth of IT-Business Process Outsourcing (IT-BPO), as well as the
steady remittances of Overseas Filipino Workers (OFWs), has helped diversify the
countrys sources of income. In turn, this diversification has enabled the country to
overcome turbulences in the global economy.
The Duterte government has announced its determination to sustain the high
GDP growth achieved during the previous administration and to raise it even
more. Such ambition is arguably achievable, as long as uncertainty due to economic
and political shocks is well managed. The countrys macroeconomic fundamentals
remain sound. Its demographic situation is in a sweet spot which will last for
some time, allowing the Philippines to benefit from the energy, adaptability, and
talents of its young and growing population. Meanwhile, the older generation will
continue to remain active, working productively and capitalizing on their valuable
experience and knowledge accumulated over the years.
Further along, there are plenty of untapped opportunities for domestic and
international investors. For example, there is much room for improvement in
the productive and efficient use of the countrys human and physical resources.
There are also low hanging fruits that can be reaped by the timely execution of
the governments planned infrastructure program, the liberalization of the
foreign investment law, and effective promotion of tourism. Lastly, there could be
substantial dividends from the peace process currently being forged.
There are, of course, risks to guard against and challenges to meet in order
to bring the countrys development to the next level. Some of those risks and
challenges are selectively discussed below, while others, such as governance and
foreign relations issues, are not covered.
While the country has learned how to grow fast, it has not been as successful in
its effort to make growth more inclusive. As mentioned, the poverty rate remains
high despite recent improvements (Figure 1); and income distribution continues to
be highly unequal and largely unchanged. So, how do we bend the trajectories of
poverty and inequality towards more inclusion of poor and disadvantaged Filipinos
in Philippine development over the next

five years and beyond?
In framing this question, we choose
a time horizon that is longer than the
next five years, since the country needs
to start preparing for the looming
FIRe now. Characterized by advanced
robotics, artificial intelligence, big
data analytics, synthetic biology, super
powerful computers, and other labor-
saving breakthrough technologies, FIRe
is expected to bring about a new normal
one that will be marked by rising
global disruptions in product and labor
markets.
It is not hard to imagine that a
country that fails to take FIRe into account in its current development planning
exercises would likely be left behind by more agile competitors. Worse, current
workers could belatedly find themselves in a situation where familiar jobs are gone
and the new high paying jobs are beyond their competencies. This situation could
lead to a select few enjoying the fruits of technological progress and globalization,
and too many being left behind, frustrated, insecure and angry - a recipe for
political backlash and social instability. On the other hand, FIRe could help the
country move forward towards greater abundance and sharing of wealth, if it is able
to re-position and prepare itself appropriately and opportunely.
The above challenge is not a simple and easy task. It requires a good head
start and systematic planning of institutional and human development. Peoples
mindsets need to change and become more adaptive. This means they must be
willing, ready and able to learn new ways of thinking and doing things. They need
to be able to periodically develop new competencies that would add market value
to their labor and enable them to benefit from the new opportunities emerging
from accelerating scientific and technological advances. Similarly, institutions must
adapt to the evolving reality, as current norms and regulations become obsolete. In
the next section, we highlight some of the adaptations that need to be made in labor
market institutions and in how their stakeholders think about worker protection.
Figure 1. Persistently High Poverty, Unemployment,

Underemployment Rates: 2003-2015
(In Percent)
25
20
15
10
0
2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Unemployment Rate Underemployment Rate Poverty Incidence
Source: Philippine Statistics Authority (PSA) Official Poverty Statistics, Labor Force Survey (LFS)
Reprinted from Paqueo and Orbeta (2017)
Figure 2. Real Average Daily Wages from 2001 to 2015

(in PHP, 2006=100)
280
275
270
265
260
255
250
245
240
235
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Philippine Statistics Authority

Box 1. The Looming Fourth Industrial Revolution (FIRe): What is it and

Why is it Critically Important for Current Development Planning?
The fourth industrial revolution is described in Schwab (2016) as the fusion of

technologies that is blurring the lines between the physical, digital and biological
spheres. One way to distinguish the different phases of the industrial revolution
is to describe what it did to manufacturing. The first industrial revolution in the
late 18th century brought mechanization to textile manufacturing. The second
industrial revolution in the early 20th century was an era of mass production
epitomized by the assembly line. In this era, parts are physically brought into one
place and assembled into a product. The third industrial revolution in the middle
of the 20th century automated the production process through electronics and
information technology.
Schwab (2016) says that the FIRe will be distinguished by the fusion of the
different technologies including artificial intelligence, robotics, the Internet
of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology,
materials science, energy storage, and quantum computing. On the production
side, this will have the promise that in an interconnected world, any design can be
printed in three-dimension (3D) layer by layer into the physical product anytime
and anywhere. On the consumption side, people will have greater access through
their mobile devices, which will have unprecedented processing power and storage
capacities that enables virtually unlimited access to knowledge on their fingertips.
These developments will mean transformation of entire systems of production,
management and governance.
The impact will be systemic rather than in specific sectors alone; and global
rather than in select geographic areas. The speed of change will be exponential
rather than linear.
While it may be difficult to be precise on the configuration of the economies
when the FIRe finally unfolds, it would be beneficial to anticipate and prepare for
it. We dont want our people to realize too late that familiar jobs are no longer there
and emerging jobs are beyond our competencies. We dont want our government
to lag in understanding the rapidly changing environments they are supposed to
regulate. This means that current development planning needs to embrace these
developments and prepare for its unfolding this early.
References: Economist (2012) Manufacturing: The Third Industrial Revolution.

April 21.Schwab, K (2016) The Fourth Industrial Revolution:
What it means, How to respond, Foreign Affairs
Employment, Labor Market and Worker Protection
Figures 1 and 2 give us an overview of trends in wages and prevalence rates of

poverty, unemployment and underemployment. These variables are usually
indicators of economic inclusion. As mentioned, Figure 1 shows that despite
remarkable improvements in GDP growth, the poverty rate remains stubbornly
high. Similarly, the high underemployment rate continues to be a challenge. In
contrast, open unemployment rate appears to have steadily declined to a more
tolerable level from 2005 to 2015. However, data on this point indicate that youth
unemployment rate remains high at just under 20 %.
Wage Upturn and Take-off Possibility. With regards to wages, Figure 2 shows that
the average real wage rate, which was declining from 2001 to 2011, reversed itself
in 2012-2015. During the same time, labor productivity (Figure 3) appears to have
slightly accelerated in recent years. Although the wage rate has not yet completely
returned to its 2001 level, these recent wage and productivity trends, coupled with
the steady decline in open unemployment rate, are good news.
Whether or not the Philippines is in a sustainable take-off stage remains to be
confirmed. It is encouraging, though, that estimates on farm wage rates (in real
terms),4 also show a significant upturn in 2010-2014, after persistent stagnation in
prior years.
In the classical Lewis-type model of development with unlimited supply of labor,
this flat trend in real farm wage rates, a distinguishing feature of a subsistence rural
economy, is seen as evidence of labor surplus. The implication of the model is that,
the rise of real wages in both the farm and non-farm sectors can be interpreted as
a signal that the countrys state of unlimited supply of labor, which tends to keep
downward pressure on non-farm sector real wages, is running out.5
If maintained, these trends will usher in the development stage of sustainable
take-off towards rapid inclusive growth. Dramatic reductions in poverty rate could
be just around the corner, provided the administration is able to maintain a prudent
and stable course of action.
On the job status and wages of regular and temporary employees, Tables 1
and 2 reveal a couple of interesting facts. First, wage and salary (WS) workers
predominantly hold regular jobs. As a share of total WS workers, regular employees
constitute about 75.5% between 2000 and 2010. The share, however, fell to 69.6%
in 2004, which may be creating anxiety and insecurity among workers. This may
be fueling the current anti-contractualization campaign calling for ending endo
practices and other forms of temporary employment contracts (TECs).
Consistent with the above narrative, Table 2 shows that there was a decline in
average real daily wage earnings for both temporary and regular employees from
2001 to 2010 and an upturn between 2010 and 2014. These trends, in particular, are
consistent with the overall wage trends shown in Figure 2, including the fact that
the wage rates for regular and temporary workers remain below their 2001 levels
in constant prices.
Figure 3. Labor Productivity, PHP per Person

(at 2000 Constant Prices)
200000
150000
100000
50000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Philippine Statistics Authority
Undoubtedly, workers labor earnings continue to tightly limit the amount of

basic necessities (food and non-food) they are able buy for themselves and their
families. It should be noted, though, that their current daily earnings and benefits
provide them a higher standard of living that ordinary self-employed or informal
workers can only dream of. It is important to keep this in mind when thinking
about the impact of policy proposals that could adversely impede the ability of
informal workers to move to more gainful formal sector jobs (discussed further
below).
To round out the above discussion, it appears that the labor market is tightening
during the last five years. This tightening is indicated by the upturn in real wages,
amidst a long term decline in the rate of open unemployment. The underlying
causal factors driving the tightening appears to be the higher economic growth
achieved because of, inter alia, slightly accelerated growth in labor productivity, as
well as the maintenance of sound macroeconomic fundamentals.
This narrative implies the need for prudence and avoidance of unnecessary
adventurist moves that create political and business uncertainty and unravel
investors confidence. Moreover, it would be prudent to critically examine the
arguments and evidence to support aggressive policy and regulatory proposals, like
the anti-contractualization bills pending in Congress and calls for huge increases
in legal minimum wages (LMWs), as well as a return to uniform national LMWs
determined centrally by Manila. As discussed in later sections, government needs
to be careful about these measures and their unintended consequences for inclusive
growth.
Table 1. Distribution of Employment by Nature of Job:

Rising Share of Temporary Workers
Nature of
Jobs 2000 2005 2010 2014
Temporary 18.4 20.8 21.9 24.0
Regular 74.5 74.8 74.2 69.6
Others 7.1 4.4 3.9 6.4
Source: Labor Force Survey (LFS) October 2014 Series. Consumer Price Index (CPI) deflator is used.
Table 2. Average Daily Earnings of Wage and Salary Workers

(in 2006 prices)
Recent Rise After Decline but still Below 2001 Level

Nature of Jobs 2001 2005 2010 2014
All Php 290.3 Php 268.6 Php 259.7 Php 265.6
Regular Employees Php 329.4 Php 298.6 Php 289.9 Php 300.8
Temporary Employees Php 201.48 Php 188.63 Php 181.56 Php 194.91
Source: Labor Force Survey (LFS) October 2014 Series. Consumer Price Index (CPI) deflator is used.
The Regulatory Environment of the Philippines and Asian Neighbors. Successful East
Asian economies like Singapore, Thailand, Malaysia, Vietnam and China provide
good examples of poverty-reducing economic growth. From their experience,
one can learn about the crucial role of rapid employment generation to fully
harness their abundant labor resources. During the first stages of their industrial
development, the policies of those countries were focused on the expansion of
private enterprises (both domestic and foreign) that create new job opportunities
for ordinary people. As labor supply became increasingly scarce relative to rapidly
growing demand, sustained real wages rose. It was this combination of organically
rising wages, with expanding demand for labor that led to sustained and dramatic
decline in poverty and reduction in income inequality.
To execute their strategy, they had to maintain a business environment that is
attractive to investors and that encourages labor use. In support of the strategy, they
developed, inter alia, good infrastructure and a labor regulatory environment that
kept the cost of employment roughly aligned with labor productivity as determined
by large market forces. Moreover, they sought to protect labor according to
standards they can realistically afford, given their current economic circumstances.
International labor standards are seen as aspirational goals that countries should
aim for, as economies become more productive and are able to comply with those
standards when deemed suitable.
Table 3. LM Characterization: High Labor Cost, Inflexible, Inefficient

Due to Restrictive Labor Laws
Country Labor Rank in Selected Components (1-7) Ratio of

Market Labor Min. Wage
Efficiency Market to Average
Scorea Efficiency Redundancy Value-Added
(out of 144) Hiring and Costs, Flexibility in per Worker/b
Firing Weeks of Wage
Practices Salary Determination
Singapore 5.7 2 5.4 3.0 6.0

Malaysia 4.8 19 4.9 23.9 5.5 0.23
China 4.6 37 4.6 27.4 4.8 0.33
Vietnam 4.4 49 3.9 24.6 5.1 0.60
Thailand 4.2 66 4.4 36.0 4.3 0.41
Philippines 4.0 91 3.4 27.4 4.8 0.69
Indonesia 3.8 110 4.3 57.8 4.4 0.55
b_
Score of 1 means heavily impeded by regulations, 7 means extremely flexible; means no minimum wage.
Source: World Bank (2016). Data from Global Competitiveness Report 2014-2015 (WEF 2014a); and
World Banks Doing Business Report 2015 (World Bank 2014b)
The Philippines has adopted a different development path and a labor regulatory
environment that is much more compliant with international norms but less
economically realistic, compared to ASEAN and other competitors. Table 3
illustrates this point and highlights the need to re-think and adapt our labor
regulatory environment.
The Philippine labor market (LM) ranks low in comparison to 144 countries
based on various indicators measuring the extent to which a countrys labor market
is impeded or is flexible and how competitive its labor supply is (Table 3). Out of
144 countries, the Philippines ranks 91 on this LME scale. In terms of raw score, the
countrys overall LME score is 4 on a scale of 1 to 7, 1 being heavily impeded and
7 being extremely flexible. In contrast, Singapore with a Labor Market Efficiency
(LME) score of 5.7, ranks as the second most efficient labor market out of 144
countries. Except for Indonesia, other ASEAN labor markets also appear to be
more efficient than the Philippines. With regards to hiring and firing practices,
it appears that the Philippines has the most impeded LM in the ASEAN+China
region. The country has a score of 3.4 on a scale of 1-7, compared to Singapores 5.4
score, Malaysias 4.9, Chinas 4.6 , Indonesias 4.3 and Vietnams 3.9.
In terms of redundancy costs measured in weeks of salary, the Philippines
appears to be in the mid-range along with China - much higher than Singapore
and Malaysia, but lower than Indonesia and Thailand. On flexibility in wage
determination, the Philippines scores 4.8 on a scale of 1-7, which is similar to that
of China. Wage determination in the Philippines is on the flexible side largely due
to the fact that each of the Regional Wage Boards determines its legal minimum
wages (LMWs), according to their individual economic conditions. Despite this
flexibility, the data in Table 3 indicate that Philippine LMWs are high, compared
to its East Asian neighbors. The countrys LMWs relative to average productivity
of labor is much higher at 0.69 than that of Singapores 0.23, Malaysias 0.37, and
Chinas 0.33.
Legal Minimum Wages. Employment protection regulation can affect inclusive

growth. This view is illustrated by analysis of the impact of legal minimum wages
and the potential consequences of proposed abolition of endo practices and all
other forms of temporary employment contracts. In the rest of this section, we
discuss the LMW issue and then the current proposal to abolish all forms of TECs,
for which there are 18 bills pending in Congress.
As usual, labor unions and their political allies are again pressuring the
government to mandate steep increases in LMWs. They are also demanding that
LMWs be determined centrally again so that the same LMWs apply to all regions.
Supposedly, the current regionalized determination of LMWs does not comply
with the equal protection principle mandated by the Constitution. Whether or not
this claim will be supported by the Supreme Court remains to be seen.
In any case, the Labor Code of the Philippines (LCP) mandates employers to
pay workers at least the LMWs. This mandate has been justified by the following
reasons:
to help the poor earn a level of income that would allow them to
maintain healthy and dignified lives
to protect the weak against exploitation by powerful firms able to
dictate wages
to motivate workers and firms to increase their productivity
to keep up with increased cost of living
The concern, however, is that huge increases in LMWs could have a boomerang
effect. In a labor market environment that is already tightly regulated, these increases
could make employment of workers less attractive and Philippine labor-intensive
enterprises less competitive. In fact, they could significantly hurt disadvantaged
groups, the very people that employment protection laws are supposed to help. This
unintended effect is highlighted in Paqueo, Orbeta and Lanzona (2017). In this
article, we argue that theoretically, the impact of LMW on employment and income
can be positive, negative or nil. Therefore, it is important to empirically determine
what the impact is.
The standard textbook economic theory of the firm predicts that the imposition
of higher LMW in a competitive labor market, where an individual employer is
assumed not to have control of wages, will lead to employment reduction. The
logic is straightforward. An employer hires additional workers for as long as the
revenues gained from an additional worker exceeds his wage that is, for as long
as it is profitable to do so. Higher LMW makes hiring of additional workers at that
point unprofitable; therefore, the enterprise would need to reduce employment to
become profitable again.6
On the other hand, LMW advocates argue that giving employees higher wages
would raise their morale and productivity. It will also improve workers health and
nutrition, which will enable them to work harder. In this case, it can be shown
analytically that raising LMWs could result in higher wages and employment.7
Undoubtedly, however, there are limits to how much workers productivity will
rise as LMW is increased. At some point, profit is bound to fall as LMW becomes
increasingly larger and employers are forced to reduce their number of workers to
optimize the firms profit.
On balance, then, the impact of imposing LMWs on employment and income
is an empirical question. A priori, it can be positive or negative. It can also be large,
moderate or minimal. In the US and other developed countries, studies find mixed
results, although they tend to be positive, albeit small. In developing countries, the
empirical findings are also mixed but tend to be positive.
The evidence on the impact of LMW on employment, income and poverty is
summarized in Table 4. The following conclusions can be drawn from Philippine
studies on the impact of LMW on employment, income and poverty, summarized
in Paqueo, Orbeta and Lanzona (2017):
LMW increases have adverse effects on employment, income and

poverty at the individual and family level
the effect of LMW are discriminatory against the poor, women, young
and inexperienced and less educated (those with low human capital and
poor credentials)
labor demand of small and medium enterprises is reduced; but
employment of large enterprises increases with higher LMW
Big increases in LMWs, therefore, would make it more difficult to achieve

inclusive growth. The above findings should also caution policymakers against
returning to the old ways of determining LMWs. The return of setting uniform
nationwide LMWs would mean regions would have to follow NCRs relatively
high minimum wages, regardless of the specific economic conditions of the other
regions. Such institutional arrangement would create more distortions. It is,
therefore, important for the government to continue with its traditional policy of
tempering LMW rises and to resist centrally set uniform LMWs.
Table 4. Whats the Evidence on LMW Impact in the Philippines?
LMW Impact On Change

Labor force participation rate (Lanzona 2014) -
All -
Women -
Young -
Less educated -
Hours of work of employed (Canales 2014) -
Average family income (Paqueo et al. 2014) -
Poverty rate (Paqueo et al. 2014) +
Employment of enterprises (Lanzona 2014)
Small scale -
Large scale +
Source: Paqueo, Orbeta and Lanzona (2017)
Abolition of Temporary Employment Contracts. Another case study illustrating

how labor regulations could have unintended adverse consequences on inclusive
growth relates to Temporary Employment Contracts (TECs). The government is
currently facing intense pressure from populist demands to end contractualization.
These demands range from ending endo practices to outlawing all forms of TECs.
Endo refers to the practice of employers of hiring a worker as temporary
employee (temp) for six months, laying him off just before the end of his contract
and later hiring him again as a temp. An indeterminate number of firms repeat this
cycle over and over.
Duterte publicly vowed during his election campaign to end contractualization
immediately upon becoming President. Although DOLE has clarified that he was
only referring to endo and not all forms of TECs, he is now under pressure to
support the more extreme anti-contractualization view. There are now 18 or more
bills filed in Congress proposing to prohibit all forms of TECs.
In weighing the wisdom of these legislative bills, all of which essentially propose
to end all TECs, it is critical to carefully analyze how approval of the proposals
might affect the achievement of inclusive growth. On this score, we are concerned
about the public demonization of TECs and lack of thorough and informed public
discussions on these proposals. Moreover, we are worried that the policy issue
has been narrowly framed - largely from a legal perspective; it is not grounded
on the proper appreciation of the roles of TECs in the efficient functioning of
labor markets. The idea behind the bills further lacks sound economic analysis
and empirical evidence. Undoubtedly, there is a need for a deeper, broader and
evidence-based economic analysis on the proposed policy idea and the possible
consequences of its adoption.
The objective of the anti-contractualization proposal is to effectively compel
employers to provide all workers the benefits received by regular employees,
including security of tenure. Compared to temporary workers, regular employees
enjoy security of tenure and receive higher wages and more benefits, like social
security coverage, PhilHealth, Pag-Ibig, overtime pay, etc. With regards to security
of tenure, regular workers can be dismissed only for a lawful or authorized cause,
strictly observing due process. This means that it is very difficult and costly for
firms to dismiss regular workers (security of tenure) in practice, especially since
Philippine jurisprudence favors workers in cases of doubt.
Anti-contractualization advocates and supporters contend that ending endo
and prohibiting other forms of TECs are supposedly necessary to comply with the
Constitutional mandate on workers security of tenure. However, there is nothing
in the Constitution that makes it mandatory to outlaw TECs. Like many of its
other provisions, the practical definition of security of tenure and the manner
of implementing it is left to Congress. But even if there were such a mandate,
the question remains whether further curtailing or prohibiting the use of TECs
altogether is good public policy, taking into account its intended and unintended
consequences.
In Paqueo and Orbeta (2017), we note that there are arguably significant benefits
to keep workers as regular employees, such as lower cost of firm-specific training,
supervision and searching for new workers. Enterprises, however, may prefer to
hire workers as temps when the costs of dismissing workers are substantial. These
costs relate to separation payments, financial and opportunity cost of litigation,
and expected costs of penalties, elevated uncertainty and missed opportunities
created by rigid regulatory constraints in the management of business enterprises.
The employers preference for employing regular workers is less, when benefits like
social security coverage and security of tenure depend on workers classification as
regular employees. These workers become more costly to employ and keep.
In the Philippines, as in the US, TECs give employers the flexibility needed to
efficiently deal with economic shocks and uncertainty. Under the buffer stock
hypothesis, TECs allow firms to opportunely produce more when demand for
their outputs goes above expectation and to lower labor inputs when that demand
unexpectedly falls - without having to pay an arm and a leg to make those
adjustments. The implication of this hypothesis is that employment rate would be
lower and unemployment rate would be higher, if enterprises are not allowed to
hire temporary workers.
Second, TECs are mechanisms that allow enterprises to efficiently calibrate their
employment to the seasonal nature of certain business activities and the fact that
certain jobs are project-based with finite duration.8 In this regard, the prohibition
of TECs could induce some reduction in the number of workers employed for
seasonal and project-based production activities, since the marginal profit from
hiring additional workers for those jobs would become more costly relative to the
revenues they bring in. Thats because without TECs, they would have to be paid
wages during times when they have little work to do.
From the perspective of the whole economy, TECs facilitate the timely
reallocation of labor from low to higher productivity jobs when labor demand
shifts, making the economy more efficient. Paying regular salary and benefits to
those seasonal or project-based workers, during periods when productivity in their
current jobs is low, would reduce their motivation to move to jobs in other sectors
where they are more needed and their value added is higher.
Third, TECs can be viewed as devices for screening or filtering work applicants
(Faccini 2014) to ensure quality worker-job matches. These devices provide
opportunities for workers and employers to size each other up more accurately
during the probationary period. The assumption is that information provided by
credentials, paper/pencil test, and interviews is unreliable and entails significant
business risk due to the possibility of mismatches. The risk of some of these
mismatches can be high, depending on the complexity and difficulty of the job.
Getting stuck with unsuitable matches can be costly to employers and workers.
On the other hand, TECs provide a stepping stone or pathway for workers with
poor credentials to become regular employees (good for inclusivity). For these
disadvantaged workers, temporary work gives them a chance to reveal positive
characteristics that are not easily observable and measurable objectively to their
employers. In short, TECs facilitate the timely reallocation of labor to the best-fit
use of human resources and minimize costly lock-in effects of mismatches.
The above discussion on the various roles of TECs in a market economy points to
the following potential consequences of ending endo and other forms of temporary
jobs: (i) decline in employment rate; (ii) increased unemployment rate; (iii) reduced
transition rate from temporary to permanent employment; (iv) less opportunities
for disadvantaged/vulnerable workers to become permanent employees in the
formal sector; and (v) reduced efficiency in the use of human resources. All these
in combination would mean less inclusivity and less economic growth.
The European experience, also known as eurosclerosis, is relevant, since it also
had to face the problem of economic growth with little job creation.This economic
disease was thought to be due to the highly restrictive employment protection
law (EPL) that characterized many countries in Europe. In the late-1970s, these
countries started the TEC reform process to develop more flexible labor markets.
Most of them completed the process by 1997.
According to Faccini (2014), the reform led to a rise in the share of temporary
workers in Europe, which rose from less than 6% in 1983 to nearly 15% in 2007.
Because of its positive impact, liberalization of TECs is now seen as a major
instrument for bringing down high unemployment rates. To illustrate, Annex 1
shows evidence on the effects of tightening restrictions on temporary and regular
employment contracts on unemployment rate. These effects estimated by Faccini
(2014) are consistent with the findings of other studies on the adverse effects of
employment contract restrictions on employment and unemployment rates.
Admittedly, these estimates need to be validated locally. Nevertheless, they
suggest that the Philippines should be careful against rushing to ban all forms of
TECs and further tightening regular employment contracts. Europes experience
provides a cautionary tale that is particularly relevant to the Philippines, since it
tends to imitate developed countries employment protection norms. Ending TECs
in the Philippines, where those norms are being applied without due regard to its
economic constraints, could arguably have an even worse impact. Note that many
of the Philippine small and medium scale enterprises, which are predominant in
the country, have much more limited resources than Europes employers.
There is no readily available rigorous information on the impact of TECs in
the Philippines. But the following findings are relevant to analyzing the wisdom of
the anti-contractualization bills filed in Congress and should caution its members
against rushing to their approval.
First, data reveal that an overwhelming proportion of endo workers appear
satisfied by their jobs (Table 5). Contrary to claims demonizing endo practices and
other forms of temporary employment contracts, the survey of endo workers show
that they are covered by Social Security System (SSS), Pagibig and PhilHealth at
a high rate of 95.7%, 92.8% and 94.8% respectively. A high proportion of them
also enjoy minimum wages, overtime pay/holiday premiums and 13th month pay.9
Clearly, there is still room for improvement. Currently, only a small proportion is
entitled to leave credits, separation pay, security of tenure and other benefits.
Table 5. Survey of 5-5-5 Workers, Contractors and Principals in

Region XI, X, IV-A and NCR
Survey Questions Observations Percent
1. How satisfied are you with your current job?

Satisfied 90 94.7
Dissatisfied 3 2.1
Neither 2 3.2
Total (valid sample) 95 100
2. Are the following social security and welfare benefits
deducted from your monthly salary?
SSS 94 95.9
Pag-ibig 91 92.8
PhilHealth 93 94.8
N.B. These benefits are paid for by contractor/agency
(92.9%) and principal/company (7.1%)
3. Are you entitled to the following rights and
privileges?
Minimum wage 93 94.8
Overtime pay/holiday premiums 86 87.7
13th month pay 95 96.9
Leave credits 27 36.7
Separation pay 36 36.7
Retirement benefits 12 12.2
Security of tenure 9 9.1
Self-organization, collective bargaining 3 3
Safe and healthful working environment 38 38.7
Source: Ivan Cassidy F. Villena, Examining the 555 Arrangement in Contractualization: A Study on the Repeated Hiring
Practices of Firms in Selected Industries, Institute for Labor Studies, Monograph Series 20
Second, there is heterogeneity in the chances and pace of transition of temps

to permanent worker status, depending on their credentials and background
(Paqueo and Orbeta 2017). Workers who fail to transition to a regular job after 6
months of temp work come disproportionately from disadvantaged groups with
poor credentials. These groups include the young, women and workers without
high school diploma (see, for example, Figure 4). Interestingly, temps in services
industry (not shown here) tend to have a higher probability of transitioning to
permanent jobs and do it faster.
Figure 4. Probability of Becoming Permanent by Number of Quarters

and Level of Education
0.58
0.56
0.54
Some HS or less
0.52
HS grads and better
0.5
0.48
0.46
0.44
0.42
1 2 3 4
No. of Quarters
Source: Philippine Statistical Authority
Data from the Philippine Labor Force Survey further reveal that the transition
rate of Filipino workers from temporary to permanent jobs is not unreasonable.
In the Philippines, 40%-55% of temporary workers during the period 2003-2010
transitioned to permanent employment status after a few quarters (using Panel LFS
data). To compare, in 1996, temps in Europe transitioning to permanent jobs one
year later ranges from 56.1% in UK to 20.8% in France.
Given the heterogeneity of peoples abilities and circumstances, the following
implication can be drawn from Philippine data. The current regularization rule is an
inflexible one-size-fits-all rule. It does not allow for differences in peoples abilities,
the complexity or difficulty of jobs, and the firms risk profile. The 6-month period
appears too short for workers with poor credentials to learn on the job and for a
firm to see their competencies. The current rule makes it more difficult and costly
for disadvantaged workers to be regulars.
These findings mean that allowing more flexibility in the regularization rule
would be more welfare-enhancing, inclusive, and efficient. Worse, abolishing or
further curtailing TECs would result in many workers currently employed as
temps to lose their formal sector jobs, increasing, instead of decreasing, the ranks
of informal sector workers. Incidentally, getting these workers out of informal
employment should have a higher priority for government than mandating more
benefits to regular workers.
Human Development and Lifelong Learning
Todays development planning for inclusive growth must seek to resolve not only
medium term issues; it must also look at long term challenges whose solutions
require foresight and long lead time for instituting effective solutions. These issues
include breaking the intergenerational cycle of poverty and exclusion; they also
include the need to prepare for the coming Fourth Industrial Revolution (FIRe)
to keep up with the times, and to flourish amidst constant disruptions. For this,
building a solid foundation on the capacity of the masses to learn and gain new
knowledge from womb to retirement is a sine qua non.
This section first identifies the challenges facing the Human Development (HD)
sector. It then argues for massive investments in human capital formation. Finally,
it lays out suggestions on institutional development and implementation issues for
selected dimensions of human development and lifelong learning.
Strategic Human Development Challenges. There are binding constraints that

currently impede the formation of our workers competencies. We broadly describe
a few of them here. If not effectively addressed soon, they will continue to hamper
the future evolution of an adaptable workforce in the face of the FIRe.
Need to Expand Access to All Levels of Education. The single most important way
to prepare for the FIRe is to increase the levels of education of the population and
expand opportunities for lifelong learning.
With the approval of K-12 law and the inclusion of kindergarten under DepEd
since 2012, the Philippines now follows standard international practice on the
length of basic education. Moreover, school attendance at the elementary level is

now near universal. In contrast, attendance in kindergarten and secondary up to
graduate school levels needs to be increased.
Government provides basic education through public schools, which account
for an increasingly predominant share of schools. But private schools remain a
large (albeit, declining) segment of the basic education providers.
For post-secondary education, putting up state universities and colleges (SUCs)
continues to be the governments primary instrument for increasing access to tertiary
education. Technical Education and Skills Development Authority(TESDA) also
continues to operate training institutes. Remarkably, the reliance on establishing
SUCs for access has been shown not to have significantly raised enrollment rates in
tertiary education, particularly for the poor (Orbeta, et al., forthcoming). Student
Financial Assistance Programs (StuFAP) that adheres to accepted public finance
principles, would do better than supply-induced strategy to increase access. While
there are existing StuFAPs, these are poorly funded and badly designed, but are
now in the process of being rationalized (discussed below).
As mentioned, the expected and ever-accelerating change in technology will
require promoting lifelong learning for everyone. In contrast, the current positioning
of lifelong learning is to provide second chances to those who missed out on having
an education when they were young. With rapid changes in technology, lifelong
learning should be an integral component in making the workforce continuously
productive in the face of changing technology. Opportunities available, such as
technology-mediated learning like, the Massive Open Online Courses (MOOCs),
should be harnessed. De Dios (2015) has pointed out that MOOCs can lower cost
for higher standard Higher Education Institutions (HEIs) and improve quality of
instruction for lower standard HEIs.
Gaps in Quality of Education and Training at All Levels. There is a need to improve
quality at all levels of education, as indicated by student achievement test scores.
Figure 5 reveals that standardized test results at the elementary and secondary
levels are lower than mastery (75% and above), particularly for the latter. Similarly,
passing rates in professional board examinations are mostly under 40%, implying
that less than 40% of our college graduates will be able to practice their chosen
professions (Figure 6) (Paqueo, Orbeta and Albert, 2011; Manasan, 2016).
Figure 5. Mean Percentage Scores for Grade 6 and Grade 10

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011-2012 2012-2013 2013-2014 2014-2015
Grad VI Y4
Source: DepEd
Figure 6. Passing Rate in Professional Board Examinations

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SUCs (with UP) 34.5 38.8 36.6 38.3 35.2 32.4 35.7 47.4 42.3 40.6 39.9
PHEIs 36.1 38.5 39.1 39 36.7 34.5 36.1 40 37.1 39 38.7
All HEIs 35.6 38.6 38.4 38.8 36.3 34 35.9 42.6 39.2 39.8 39.3
Source: Manansan (2016)
The importance of the quality of education in growth is highlighted in Hanushek

and Wossmann (2016). Using data from East Asia and Latin American countries,
they showed that countries with higher quality and access to education had impact
on GDP growth that are six times higher compared to those who provided access
alone.
It is critical that since high quality basic education facilitates lifelong learning,
raising the quality of tertiary education should start with basic education. Low
quality basic education will make higher education expensive because this will
require much more resources at the tertiary level to cover for whatever remedial
measures are needed.
High quality basic education is also necessary to develop highly trainable
graduates. For one, academic grades in basic education are a consistently strong
determinant of tertiary education completion. Hanushek (2016), in addition,
argued that it may be better to spend on improving basic skills in earlier schooling
than simply expanding tertiary education. He showed that there is a strong positive
relationship between achievement test scores and tertiary education. The skills
developed after college graduation depend on the skill that students have upon
entering college. Finally, basic literacy and numeracy are essential for decoding
development in technology.
Investment Gap in Early Human Capital Formation. Investments in human capital

need to start as early as possible. In Figure 7, Heckman (2008) showed the pattern
of the rates of return for a dollar investment starting in the early years, assuming a
dollar is invested at each age. The figure clearly shows that the highest returns are
generated at early ages. He also pointed out that investments early in life will be best
sustained by continued high quality learning experiences later in life. Finally, the
performance of a disadvantaged child will be behind the performance of children
that had interventions early in life. All of these points to the importance of investing
in children as early as possible.
Figure 7. Returns to a Unit Dollar Invested at Each Age

Rate of Return to Investment in Human Capital
Preschool Programs
Schooling
Job Training
4-5
Pre-
0-3 school School Post-school
Age
Source: Heckman (2008)

Relevance of TVET. The countrys technical vocation education and training

(TVET) needs to be more responsive to industry demands. Orbeta and Esguerra
(2016) show that the TVET sector continues to attract students, as enrollment
and graduation rates keep rising. The bulk (74%) of the graduates in 2012 was
unemployed before undergoing training. Additionally, those who seek certification
and are eventually certified continue to grow as well. Certification rates are high
at 80% or better in 2013. The employment rates of graduates, however, are not
remarkably high, which is reflective of TESDA training not being responsive to
industry needs. It is noteworthy that a certification is not given much importance
by the employers. A certification does not merit rewards such as increase in salary,
job security or job promotion. This finding points to the need for TVET to be more
responsive to industry demands.
Promote R&D culture in All Fields. The Philippines continues to underspend in

research and development. It spends much lower than the average of leading
countries in East Asia and the ASEAN (Figure 8).
Figure 8. Gross Expenditure on R&D, 2000-2008

Research and Development Expenditure (% of GDP)
4
2000
3.5
2001
3
2002
2.5
2003
2 2004
1.5 2005
2006
1
2007
0.5
2008
0
Philippines ASEAN-5 China Japan Korea, Rep.
Source: Licuanan (2016)
Massive Investments in Human Development
There has been a recent resurgence of national government spending in education

(mostly in basic education), even though we have not regained the level we achieved
in the later part of the 1990s, as shown in Figure 9 (Manasan 2016). Even with the
recent increases in education spending, our expenditure per student as a share to
Figure 9. National Government Spending as a % of GDP, 1993-2015

National Government Spending on Education as % of GDP
Source: Manasan (2016)
GDP per capita is still lower than countries in the region. Figure 10 shows that we
are spending less than other lower middle income countries and less than Vietnam
which has a lower GNP per capita.
It is imperative, therefore, that the recent trend of increasing spending needs
to continue. It is laudable that the emphasis on spending more in education has
not waned with the new administration, as indicated by the proposed 2017 budget
(Briones 2016). While not a sufficient condition for raising quality, more resources
will improve its likelihood.
Is it economically worth investing more in education? The most recent rate
of returns estimates for education show returns that are higher than the usual
Figure 10. Government Spending on Education as a Share of GNP per Capita
Source: WB-AusAID Philippine Education Note 1

Table 6. Private Returns to Education (%) 1
Unadjusted Adjusted2
1999 2008 1999 2008
Elementary 5.5 7.1 12.0 13.4
Secondary 16.6 17.5 19.9 22.5
Post-secondary 13.9 18.4 20.8 24.4
Tertiary (4 years) 19.1 20.0 22.7 22.2
1
IRR estimates are relative to level immediately below indicated level, e.g.
Elementary refers to elementary graduate against alternative no grade completed,
College (Tertiary) graduate against High School (Secondary) graduate, etc.
2
IRR adjustment (Adjusted) using probability of employment
Source: Paqueo, Orbeta and Albert (2011)
hurdle rate for investments (Table 6). These returns are expected to continue to be
high in the coming years as the knowledge-based FIRe spreads. This implies that
investments in education, even without regard for social benefits, will continue to
be a good private investment. We need private household investments in education
because we know that public resources will fall short of the demand.
Given the need to muster all resources that could be invested in both public
and private education, we should guard against measures that dissipate the already
limited public resources in education such as the proposed free tuition for State
Universities and Colleges (SUCs). Pending bills in the Senate propose to provide
free tuition for all students enrolling in SUCs, purportedly to increase access to
tertiary education, particularly of the poor.
There are several reasons why this is a misguided policy for increasing access
of the poor. One, this untargeted subsidy will not benefit the poor because of the
current structure of enrollment in SUCs.
The APIS 2014 data says that only 12% of the enrollment in SUCs are from
the bottom 20% using national per capita income decile. Two, free tuition only
represents a small proportion of college cost. Estimates from the Students Grants-
in-Aid Program for Poverty Alleviation (SGP-PA) program say tuition accounts for
only 33%. Obviously, the poor cannot be expected to raise the other 67% of the cost
on their own. Thus, the subsidy will only be effective for those with more income
and, hence, will go largely to the better-off.
Three, over time the policy will trigger an exodus of students toward SUCs to the
detriment of the private Higher Education Institutions (HEIs), without due regard
for whether SUCs produce better quality higher education more cheaply compared
to private HEIs. Fourth, it will also unduly favor college education over TVET
without the benefit of knowing whether college education is better than TVET for
all high school graduates. Finally, the untargeted nature of the subsidy will displace
the expenditure that households are currently willing and able to spend on the
education of their children enrolled in SUCs and those enrolled in private HEIs that
will respond to the incentive provided by the subsidy will enroll in SUCs instead.
It should be mentioned that there is a better alternative financing mechanism to
increase access to tertiary education. The recently passed United Student Financial
Assistance System for Tertiary Education (UniFAST) Law (RA 10687) has features
that puts order to all StuFAPS. It has properly delineated purposes for government
financing, i.e. merit scholarship for the bright, grants-in-aid for the poor but able,
and loans for everybody else who desire and can complete tertiary education but
have temporary liquidity constraints. Another important feature of the law is that
it stipulates full financing covering tuition, living allowance, and instructional
materials for all modes of financing. Arguably, full financing is needed by the
poor to effectively access tertiary education. Finally, it does not favor one sector
as financing follows the student regardless if he chooses to attend public or private
HEIs nor will it unduly favor college over TVET.
A simple calculation will illustrate why funding the implementation of the
UniFAST law, particularly its grants-in-aid component, is better compared to the
proposed tuition subsidy measure for SUCs in terms of providing access to poor
students. Commission on Higher Education (CHED) data shows that in AY 2015-
16 there were 1,648,566 students enrolled in SUCs. If a tuition subsidy is provided
to all those enrolled in SUCs, this will amount to Php 33 billion at Php 20,000
tuition per annum. With only 12% of the SUC student population coming from
the bottom 20% of the income distribution, the proposed untargeted subsidy will
only benefit 197,828 students. In contrast, if we allocate the same amount of public
resources to the Grant-in-Aid (GIA) program of the UniFAST (giving 60,000 for
each), 549,522 students or 278% more poor students would benefit.
An additional benefit from the UniFAST alternative is that it will not destroy the
balance between public and private HEIs. Moreover, the HEIs will be incentivized
to improve their education services, since under the UniFAST, they must compete
for the funded students with better and effective programs.

How much does the economy need to invest in higher education? We take
CHED data on total enrollment in public and private higher education and multiply
this with the SGP-PA full-financing budget of 60,000 per student per annum. The
CHED data says there are 4.1 million students enrolled in academic year 2015-
2016. This means that the total investments the country needs just to provide
the minimum support is Php 248 billion. The current government spending is
nowhere near this amount. This result dramatically highlights the need to mobilize
household financial capability to augment limited public funds. After all, most of
the returns to higher education accrues to the individuals, which public finance
principle dictates must be mostly privately funded.
Institutional Development and Implementation Issues
DepEd Needs to be a Learning Institution. The basic education sector has embarked
on one of the most profound interventions in recent memory, with the introduction
of the (a) compulsory kindergarten, (b) the mother tongue-based multi-lingual
education (MTB-MLE) program for Grades 1 to 3; and (c) the senior high school
program adding two years to secondary schooling. In addition, there are other
important initiatives such as involving the community directly in education with
programs such as school-based management and introduction of school governing
councils to improve learning outcomes. These constitute important learning
opportunities for the basic education sector to learn what works and what does not
work. While these programs may have been informed by experiences from other
countries, it does not necessarily follow that it will work as well in the Philippine
context.
Department of Education (DepEd) should then embark on a rigorous
evaluation of these programs and make this a continuing effort for existing and
yet to be introduced programs and use the learning to improve operations of the
department and the effectiveness of its programs. One of the critical aspects that
need to be addressed in line with the FIRe is improving the quality of education.
This is critical for improving trainability in the later part of the education ladder.
Given the low achievement test score, more experiments on improving quality need
to be introduced and lessons from these programs must be harnessed to improve
subsequent programs.
TVET Needs to Concentrate on Regulation and Promote More Enterprise-based

Training. The seeming lack of responsiveness of the TVET system to industry
needs as indicated by moderate employment rates and the lack of appreciation of
training certification should encourage TESDA to do important redirections in its
training strategy. One, TESDA should concentrate more on regulation rather than
be embroiled with training provision. The basic issue is conflict of interest being
the regulator of the industry and a player which will disadvantage other players.
It will also weaken the regulatory function of TESDA, which is the primary public
good the agency is responsible for, given a mostly privately-dominated training
system. Two, promote more enterprise-based training. Enterprise-based training
is commonly accepted as the most effective mode of training. However, enterprise-
based training contributes the smallest (3% in 2014) proportion of enrollment and
graduates. There is a need to boost the contribution of this mode of training.
CHED needs to be an Effective Guardian of Quality and Supplier of Basic Higher

Education Indicators. In addition to access, quality of higher education needs to be
improved if we are to properly prepare our workforce for the FIRe. CHED needs
more teeth in its regulatory function to close programs that are not performing
in terms of primary education outcomes, be it passing the Professional Board
Examinations (PBEs) or reaching target employment rates. First, it needs to build
its information system on the performance of HEIs in PBEs and employment
rates. Second, it needs to regularly do tracer studies to measure external efficiency,
particularly employment rates of graduates. Third, it needs to beef up its capacity
to monitor the quality of inputs (faculty and facilities) and the corresponding cost
education of HEIs. Fourth, it needs to widely and regularly disseminate quality
and cost indicators at the HEI level. This is one of the basic public good CHED
needs to supply incoming students, their families and policy makers. These pieces
of information are critical for prospective students and their parents to make
empirically-based decisions about which programs to pursue and which HEIs to
enroll in.
Social Protection of Vulnerable Workers and Families. With steady and prudent
management of the challenges facing the country, the Philippines can expect more
expansion of economic opportunities for its citizens. But this expansion is likely to
be accompanied by economic and social disruptions that could leave large segments
of the population behind, dispossessed, displaced, disoriented, frustrated, insecure
and angry. Recent U.S and European electoral experiences reminds us of those
risks. It has become clear that despite the benefits that the world has enjoyed from
technological and scientific advances and globalization, certain regions and groups
of people have suffered economic disruptions and loss of social status.
The Philippines is an open market economy and is unlikely to shut its door to
trade and technological advances. It is, therefore, unavoidable that sooner or later
the country will need a much stronger social protection system (usually defined
to include social assistance and social insurance) one that would be capable of
effectively helping Filipinos deal with labor market disruptions, employment
displacements, and other economic shocks. Failure to develop and institutionalize
such system could lead to popular frustration, insecurity, and breakdown of social
cohesion and political stability.
The Philippines has been gradually strengthening its social protection system.
Financially, the share of GDP going to social protection has increased significantly
from a low of 1.6% ten years ago to at least 3.5% in 2013. This figure could be higher
now with the implementation of the sin taxes. With continued high GDP growth of
6%-7% and tax revenue-raising reforms, the Philippines could expect more funds
available for social protection spending to get closer to what countries like Thailand
and Mexico had achieved in 2011 (5% of GDP). The issue is, what is the best way to
use that growing fiscal space for poverty reduction and social protection?
The Duterte administration needs to develop its vision and strategy to address
the above question. It needs to establish a forward-looking social protection system
that takes advantage of current institutions and programs, adapting them over time
as needed. To this effect, the following complementary measures could be worth
investing in. These are:
(i) Strengthening of Pantawid Pamilya Pilipino Program (4Ps) to ensure

that intergenerational poverty is broken by encouraging and enabling the
children of the poor to keep themselves healthy and more educated;
(ii) Developing a coordinated social assistance model for the near poor
and adapting current institutions and programs (the model should be
informed by lessons learned from local and international experience and

should be validated by impact evaluation studies); and
(iii) Designing, testing and institutionalizing enhancements to the current

social system to help formal sector workers deal with the uncertainty
coming from increased business disruptions, faster skills obsolescence,
and more frequent need for workers to move from one job to another.
The expected social returns to investing substantial amounts of public resources

in these initiatives are likely to be significantly high. These returns include
expected gains from a more socially cohesive and politically stable society; more
efficient labor markets that allows timely and less costly adjustments to changes in
technology and trade; and increased capacity of the masses and the disadvantaged
to re-tool and learn new competencies more opportunely.
Continuing Support and Enhancements of 4Ps. The Pantawid Pamiliya Pilipino

Program (4Ps) motivates and enables school-aged children to go to high school and
finish high school education. It also enables parents to reduce early malnutrition
(stunting) and illnesses among poor children. These various effects are expected to
raise the human capital of beneficiary children and help loosen up intergenerational
transmission of poverty and exclusion. Through improved learning capacity, the
next generation of the poor would be more educated and are likely to be more
trainable when they enter the labor force. Therefore, their ability and chances to
flourish in a changing environment would also be better. On this score, the 4Ps
may not be creating jobs for the poor now; it will, however, enable their children to
have better chances of getting good jobs in the future. Contrary to critics assertion,
the program does not encourage laziness, welfare dependency and mendicancy
(Orbeta and Paqueo 2017; Banerjee et al. 2016).
In addition to its long-term effects on the employment and earnings of the next
generation of workers, there is also noteworthy evidence indicating that the 4Ps
has immediate socially beneficial welfare effects. The program makes beneficiary
households feel less poor and more optimistic about their future (Orbeta and Paqueo
2017). Moreover, evidence shows the poor are likely to be more loyal to the state
and less prone to supporting armed insurgencies (Crost et al. 2015 ). These findings
dramatically highlight the potential role and social value of 4Ps in promoting social
cohesiveness and stability. These payoffs are significant in a world that has been
politically unsettled by discontent, driven by population groups threatened by loss
of social and economic status.
Having recognized the social value of 4Ps, it is critically important for the
government to maintain the real value of its grants, as the FIRe unfolds. Moreover,
additional investment in the program could be valuable to fully take advantage
of 4Ps as a platform for social assistance for the poor. For example, regarding the
Family Development Sessions (FDS), the government might want to use FDS
to push for the development of non-cognitive competencies or good character
formation among the young children of 4Ps households.
Tough (2012), citing Nobel Laureate Economist James Heckman, reveals that
about a two-thirds of the success of adults are accounted for by character traits
that were developed when they were young. These traits include grit, discipline,
perseverance, curiosity, honesty, reliability, resilience and the like. In ordinary
circumstances, these are traits that valued in the jobs markets. In the challenging
and changing years ahead, the value of those traits would go even higher. Investment
in character formation among the young would be a great way to prepare the next
generation of workers to survive and flourish in the upcoming new normal that
FIRe will bring about. In our view, investment in non-cognitive development,
using the FDS, could have a high social and economic rate of return.
Modelling Coordinated Social Assistance for the Near Poor. The coordinated social
assistance model (C-SAM) for the near poor should aim to prevent vulnerable
households just above the poverty line from slipping back to poverty and, more
positively, to help them achieve sustained income growth. Paqueo, Orbeta Elvira, et
al. (2014) defined the near poor as households whose incomes are above the poverty
line but live precariously to keep their heads above water. Metaphorically described
as living on a knife edge, they have a high probability of falling into poverty, given
that in life, idiosyncratic changes and covariate shocks do occur. The above study
estimates that households with incomes at a given year above the food poverty line,
but less than 30% greater than that line, have at least a 50% probability of slipping
back to poverty subsequently.
Our proposal is for government to develop and test a C-SAM that would reduce
that probability by leveraging the strengths that the near poor on average possess
but are generally absent among the poor. For example, the near poor tend to be
more educated and have positive savings and other assets like land.
In visualizing the C-SAM, we can learn from the approach taken by the
Graduation Models (GM) originated by BRAC in Bangladesh and tried in various
other developing countries to help the poor achieve sustained income increases
over time. The GM trials were rigorously evaluated by Banerjee et al. (2015 ) and
briefly described in Box 2. The results of the trials were found to be promising. They
found significant improvements in various result indicators that were sustained 2
years after the end of interventions. Moreover, they estimated that the package of
interventions tried was cost-beneficial with acceptable economic internal rates of
return.
There is doubt, however, whether the increased income growth is sufficiently
large to move poor households out of poverty. Nevertheless, the concept of a
coordinated cost-beneficial package of social assistance interventions to induce
sustained income growth is an appealing idea for helping near poor households
from slipping back or falling into poverty. These are those who are vulnerable to
shocks but are more ready than the food poor to sustainably move out of poverty
with highly time-limited social assistance from the government. On this point, the
near poor have positive savings and possess more education and assets compared
to the ultra-poor.
We, therefore, propose that for C-SAM we develop and test a similar social
assistance program, consisting of a coordinated set of complementary measures
that, taken as whole, would give a sufficiently robust push toward self-sustaining
growth of beneficiary households incomes. The objective is for these households
to eventually reach, within a reasonable time frame, a high enough income level
to keep their chances of slipping back or falling into poverty without the need for
direct government financial assistance. The package of measures could include the
following:
(i) Financial assistance for income-generating asset accumulation (asset

transfers or grants);
(ii)Technical skills training in managing the particular asset bought by or

transferred to beneficiary households, as well as regular home visits and
coaching;
(iii) Employment facilitation for some members of the near poor

households, including temporary subsidy for employment, training and
re-tooling for jobs;
(iv) Promotion of savings access to savings accounts and in some cases

collection service/mandatory savings; and
(v) Participation in PhilHealth and other schemes designed to promote

income risk-sharing and/or consumption smoothing.11
Unlike some of the GM models, the actual design of C-SAM should take
advantage of current programs, institutions and their lessons. These could include
Department of Social Welfare and Developments (DSWD) Sustainable Livelihood
Program (SLP), 4Ps, PhilHealth, and TESDA training programs in line with
governments avowed policy of convergence.
Box 2. Findings of Impact Evaluation Studies of the

Gradual Models of Social Assistance
A look at the cross-country Randomized Control Trial (RCT) study by Banerjee
and his team (See Science 2015)
Core idea of research: to find a robust and sufficient set of complementary
measures that, taken as whole, would provide a multifaceted coordinated push
towards sustained graduation of households from poverty
Testing of adapted BRAC-type package of interventions, using RCT data, in
Bangladesh, Peru, Nicaragua, Honduras, Pakistan, India, Ghana, etc.
The package of BRAC-type interventions

(i) asset transfers; (ii) temporary consumption support; (iii) technical skills
training in managing the particular asset; (iv) high frequency home visits; (v)
promotion of savings access to savings accounts and, in some cases, collection
service/mandatory savings; (vi) some health education, basic services, and/or
life-skills training
Promising results
Cost-beneficial with acceptable economic internal rate of return
Sustained impact 2 years after end of interventions
Estimates of impact grounded on robust empirical evidence based on RCT
data from different countries
Conclusions and Recommendations
Economic growth in the Philippines has not led to a substantial reduction in poverty
and inequality. On this score, the question posed at the beginning is: what can the
country do more of or differently to achieve rapid and inclusive economic growth
that will drastically reduce poverty and allow disadvantaged people to enjoy the
benefits of economic and technological progress? The foregoing discussions laid
out some ideas that could be helpful in answering the question. Using the lens of
employment, human development and social protection, the discussions provide a
better understanding on what the country can do more of and what it should avoid
doing to achieve more inclusivity and sustained growth.
Conclusion
Labor markets appear to be tightening with average real wage rates rising after 2010
for the economy as a whole and for farm workers, regular employees and temps.
This rise comes after a decade of real wage stagnation for farm sector workers,
accompanied by persistent decline for employees on the whole, as well as for
regular and temporary employees. On these findings, what we are witnessing can
be interpreted as signals that the countrys previously abundant labor surplus is
running out and that we are likely entering the phase of sustained take-off towards
inclusive economic growth.
The wage stagnation is arguably the result of the agricultural sectors abundant
labor surplus exerting down pressures on formal sector real wages through the
process of migration of labor from rural to urban jobs. Assuming that around the
beginning of the new millennium real wages were higher in urban than rural areas,
this process would explain the decline of the real wage rates in the non-agricultural
sectors in the face of stagnant real wages in 2001-2010.
Further, the concurrent rise of real wages of the average workers (both regular
and temps) and of farm workers after 2010 can at the same time be understood as a
phenomenon arising from the mopping up of that surplus labor in agriculture. This
mopping up most likely came with the acceleration of economic growth during the
last five years. With more rapid economic growth, ex-ante employment demand
growth could have outstripped the growth of available labor supply in both the
farm and non-farm sectors.
If confirmed by further empirical analysis, the country could soon move to a

stage of sustained economic growth with organically rising real wages and increased
labor utilization rates. This situation would arguably lead to greater and steadier
fall in poverty and underemployment rates, as successful East Asian economies
had achieved after their take-off. The actual realization of this rapid and inclusive
growth trajectory would, of course, depend on the ability of the government to
maintain a steady hand in keeping the country stable, predictable, and friendly to
investors. It also depends, of course, on the governments ability to avoid regulations
that make Filipino workers uncompetitive and unattractive to employ.
It is in the context of this narrative that two challenges discussed in previous
sections need to be addressed by the current administration and its successors. One
challenge is the increasing share of temporary workers, a trend that raises concerns
about workers job security. The other (related) challenge is the looming FIRe.
This new industrial revolution is expected to bring about new products, increased
productivity and new job opportunities. But these will also come with unsettling
job disruptions caused by FIRe innovations, which as mentioned, will certainly be
characterized by more efficient labor-saving technologies. The new normal that
those new technologies will bring about will mean workers will have to frequently
move from one job to another. Moreover, to benefit from the new and more gainful
jobs, workers would have to keep re-tooling and, therefore, should be highly
trainable. Economies would also need to be more flexible, allowing enterprises to
deploy and re-deploy labor and other resources efficiently and opportunely.
As a consequence, questions will be raised about the relevance of the traditional
concept of security of tenure that underpins the current labor code. Having said
this, it is critically important to recognize that while the traditional idea of security
of tenure would become increasingly inappropriate to the changing economic
landscape, the issue of income security and the need for new income-risk sharing
mechanisms would be rising in importance as the FIRe unfolds.
In view of these trends, countries will have to start thinking about the adaptations
they would have to make in the future and the preparations they would need to start
now and get rolling. Meanwhile, there is an urgent need to ensure that the poor
and vulnerable get the assistance needed to survive their current deprivations and
vulnerabilities - and, to boot, to build their capacity to flourish under the upcoming
new normal.
Recommendations
To actually realize the promise of rapid, sustained and inclusive growth, it is critical
that the country avoids moves that unnecessarily create volatility and uncertainty.
In the past, these caused take-offs to be aborted. The Philippines cannot afford to
repeat the same costly mistakes. Equally important, it must also stay away from
creating a business environment that is antagonistic to investment and dampens
the incentive for enterprises to employ more labor. On this issue, policymakers
and voters need to critically vet controversial policy ideas to avoid unintended
consequences that are detrimental to the poor and vulnerable groups.
More positively, the Philippines should give a big coordinated push to human
development. This means not only investing more but also allocating those
resources to high priority areas and using them cost-effectively and equitably. In
light of lifelong learning needs, these areas should include the development of
healthy and well-nourished babies in the mothers womb (important for brain
capacity development); early childhood nutrition and stimulation; character
building in and outside the home; quality education in schools and alternative
learning systems (ALS); learning and training opportunities for all new workers;
and periodic updating of competencies and acquisition of new ones at maturity.
Facilitating access of disadvantaged population to good quality lifelong learning
opportunities would be particularly invaluable for breaking down intergenerational
transfer of poverty and exclusion.
On this score and for reasons elaborated in the main sections of this study, the
government would do well to adopt the following specific policies and programs:
(i) Avoidance of regulations that further make employment costly and

labor markets less flexible. These include inter alia: tempering of LMW
increases and keeping them aligned with labor productivity growth
and price inflation; maintaining the current decentralized manner of
setting LMWs; rejecting bills pending in Congress proposing further
curtailment and/or prohibition of all forms temporary employment
contracts; sticking to the administrations policy stance of ending endo
through more effective enforcement without introducing new restrictive
and costly labor laws and regulations; reviewing and updating of the
labor code of the Philippines (LCP); and development of alternative ways
of protecting labor that are more efficient and less antagonistic to labor
utilization and inclusive growth.
(ii) Create a chain of value-adding high quality lifelong learning

opportunities that are accessible to all. Investment in human capital
need to start as early as possible and will need to continue through life.
This is the best way we can prepare the population for a knowledge-
based FIRe. These learning opportunities need to be accessible to all.
Since government resources will never be enough to finance the needed
investments, these limited public resources should be used to leverage
private resources particularly at the higher levels of education where
returns mostly accrue to the student. To achieve the biggest bang per
buck, public funds should fund only services that have clear public
good components such as effectively increasing access of the poor and
the brightest, critical R&D and making the education market work
more efficiently through provision of needed information for informed
decisions of actors, among others. On top of these, more cost-effective
non-traditional ways of delivering learning opportunities based on
digital technology and other methods need to be harnessed.
(iii) Development of an enhanced social protection system. In addition

to above measures, the efforts proposed here would ensure that
disadvantaged and vulnerable population groups would overcome
immediate survival problems; and at the same time, enable them and their
children to break intergenerational poverty. These efforts would include
inter alia: continuing support and enhancements of 4Ps to provide more
effective long term assistance to the poor; developing a coordinated social
assistance model for the near poor in line with governments convergence
policy; and designing, testing and institutionalizing enhancements to
the current social protection system to help formal sector workers deal
with the uncertainties arising from increased business disruptions, faster
skills obsolescence and more frequent need for workers to move from
one job to another.
All these suggested actions must be done along with the various elements of
the governments announced development agenda. The reason is simply that there
are complementarities and synergies that would be highly beneficial to exploit. For
example, getting the governments massive infrastructure program done as planned
will not only directly boost employment in construction; it will also reduce, when
completed, the cost of doing business and, therefore, stimulate economic growth
and sustain employment creation. Approval of foreign investment liberalization
would not only allow and attract foreign enterprises to engage in domestic
production. It could also contribute to transfer of knowledge and facilitate the
countrys networking capability, which would facilitate the countrys ability to ride
the incoming wave of revolutionary innovations. Relatedly, foreign investment
liberalization could also encourage global partnerships with world class universities
and raise needed capital for the development of Philippine academic and R&D
institutions.
Further along, tourism could benefit not only from better infrastructure and
foreign investment but also from increased demand for travel, entertainment,
and other leisure activities, as advances in labor-saving technologies free up more
time for workers to enjoy those activities. Without such complementarities and
synergies, the impact of our suggested measures is going to be modest. If, on the
other hand, the other policies and programs of the governments 10-point program
are successfully put in place, it is highly likely that Philippines would dramatically
bend the trajectory of its future towards greater inclusivity, social cohesion and
sustained economic progress.
Annex 1. Higher EPLs Raise Unemployment Rate: Fixed Effects Model,

Using European Panel Data and Generalized Least Squares
Notes. *, ** and *** denote statistical significance at the 10%, 5% and 1% levels respectively.
Source: Faccini (2014), Economic Journal
1
Augustin Kwasi (2010)
2
The variation arguably also depends on the nature of the underlying stimulus that caused the economic
changes. To illustrate, Vietnamese reform of its social system gave rise to rapid economic growth and caused
sustained and dramatic poverty reduction. By allowing enterprises and individuals to earn profits and income
according to their productivity and ability to meet market demands, economic growth was stimulated. But such
reform allowed pari passu inequality to rise, as brighter and more creative, industrious, thrifty and entrepreneurial
individuals are able to earn more income and accumulate more assets.
3
World Bank (2013)
4
Presented in a recent workshop by PIDS Fellow Roehl Briones
5
The end of the unlimited supply of labor stage of development does not mean that unemployment and
underemployment would be completely gone. It will remain due to frictional and other causes.
6
This is due to the assumption known in literature as the law of diminishing marginal returns, which means
that as an enterprise hires more and more workers, the additional revenue they contribute to the firm become less
and less.
7
Contrary to the above case where the employers are wage (price) takers, profit-maximizing employers able
to control their employees wages and level of employment will pay workers less than their contribution to the
firms revenues. For these enterprises, it can be shown that imposing a higher LMW would raise employment and
wage rate -- but arguably only up to a point. The argument is that the productivity impact of higher wages is also
subject to diminishing returns.
8
The employers incidentally can use temps legitimately through direct hire or through manpower service
agencies (contractors), provided they meet certain conditions.
9
Recent accounts from present and former saleslady personnel of a known department store confirm that
they receive SSS, Pagibig, and Philhealth benefits aside from access to medical benefits.
10
As shown in Orbeta and Esguerra (2014)
11
On the importance of this proposal, see Emmanuel Esguerras note in URL at http://www.econ.upd.edu.
ph/perse/?p=5734
12
For concrete cases of unintended consequences and why they often occur, see Paqueo, Orbeta and Llanto
(2017).
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ACKNOWLEDGMENTS
ADR Institute gratefully acknowledges all those who have extended their support,
cooperation, and commitment in the development of this project. This publication
would not have materialized without their help.
We are fortunate enough to engage with insightful persons from different

sectors, namely: the academe, public and private sectors, as well as civil society
organizations, who have shared their expertise and have actively contributed to
discussions in various fora.
We would also like to thank Prof. Victor Andres Dindo Manhit, President of
the ADR Institute, for his leadership, vision, and guidance in making this endeavor
possible.
Last but not the least, we would like to thank the following for their hard work
and dedication, and for working tirelessly towards the completion of this project:
Deputy Executive Director for Research, Ms. Angelica Mangahas, and Senior
Research Associate, Ms. Weslene Uy, who both served as the editorial staff;
Our design consultant, Ms. Carol Manhit, for the publication lay-out and cover
design;
And the rest of the ADRi team headed by Executive Director, Atty. Katrina
Clemente-Lua, Deputy Executive Director for Programs, Ms. Ma. Claudette
Guevara, Program Associate, Ms. Vanesa Lee, and External Affairs and Social
Media Associate, Ms. Krystyna Dy.
ABOUT THE AUTHOR
Dr. Vicente B. Paqueo is currently a Distinguished

Visiting Fellow of the Philippine Institute for
Development Studies (PIDS), a Fellow of the
Social Weather Station (SWS) and the Foundation
for Economic Freedom (FEF), and a World Bank
Consultant. Dr. Paqueo was a Lead Economist at the
World Bank in Washington, D.C. and a Professor at
the University of the Philippines School of Economics.
Until recently, he was Lead Consultant of the ADB
Social Protection Support Project for the Pantawid
Pamilya Pilipino Program (4Ps). He was also consultant
at various times of other organizations like the ILO, WHO, UNICEF, UNESCAP,
NEDA, DSWD, POPCOM and Population Center of the Philippines.
Dr. Paqueo finished his AB (cum laude) at the University of the Philippines School
of Economics and got his Ph.D. from the same institution. He was appointed visiting
post-doctoral fellow at Princeton University in New Jersey with a grant from the
Population Council. He has since then published numerous articles and books
and presented papers in local and international conferences. As a young man, he
received the Outstanding Young Scientist Award for Human Resources Economics
from the Philippine National Academy of Science and Technology (NAST).
Dr. Aniceto C. Orbeta, Jr. is Senior Research

Fellow at the Philippine Institute for Development
Studies. He is also Professorial Lecturer at the
School of Economics, University of the Philippines.
His research interests include education and labor
market issues, impact evaluation, applied economic
modeling and information and communication
technologies. He did post-doctoral studies at Harvard
University and a Ph.D. in economics at the School of
Economics, University of the Philippines. He served
as consultant to Asian Development Bank, World
Bank, Australian Agency for International Development, International Labor
Organization, Millennium Challenge Corporation and principal investigator for
the Innovations for Poverty Action.

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Victor Andres Dindo C. Manhit

Benjamin Philip G. Romualdez

Renato C. de Castro, Ph. D

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Francisco A. Magno, Ph. D

Carlos Primo C. David, Ph. D

Executive Summary viii

Employment, Labor Market and Worker Protection 7

Human Development and Lifelong Learning 20

Massive Investments in Human Development 24

Conclusion and Recommendations 35

About the Author

E conomic growth leads to poverty reduction, albeit with few exceptions.1

This country experience points to the lack of inclusiveness of Philippine economic

in Philippine development over the next

Figure 1. Persistently High Poverty, Unemployment,

Unemployment Rate Underemployment Rate Poverty Incidence

Figure 2. Real Average Daily Wages from 2001 to 2015

Source: Philippine Statistics Authority

Box 1. The Looming Fourth Industrial Revolution (FIRe): What is it and

The fourth industrial revolution is described in Schwab (2016) as the fusion of

References: Economist (2012) Manufacturing: The Third Industrial Revolution.

Employment, Labor Market and Worker Protection

Figures 1 and 2 give us an overview of trends in wages and prevalence rates of

Figure 3. Labor Productivity, PHP per Person

Source: Philippine Statistics Authority

Undoubtedly, workers labor earnings continue to tightly limit the amount of

Table 1. Distribution of Employment by Nature of Job:

Table 2. Average Daily Earnings of Wage and Salary Workers

Recent Rise After Decline but still Below 2001 Level

Table 3. LM Characterization: High Labor Cost, Inflexible, Inefficient

Country Labor Rank in Selected Components (1-7) Ratio of

Singapore 5.7 2 5.4 3.0 6.0

Legal Minimum Wages. Employment protection regulation can affect inclusive

LMW increases have adverse effects on employment, income and

Big increases in LMWs, therefore, would make it more difficult to achieve

Table 4. Whats the Evidence on LMW Impact in the Philippines?

LMW Impact On Change

Abolition of Temporary Employment Contracts. Another case study illustrating

Table 5. Survey of 5-5-5 Workers, Contractors and Principals in

Survey Questions Observations Percent

1. How satisfied are you with your current job?

Second, there is heterogeneity in the chances and pace of transition of temps

Figure 4. Probability of Becoming Permanent by Number of Quarters

Human Development and Lifelong Learning

Strategic Human Development Challenges. There are binding constraints that

length of basic education. Moreover, school attendance at the elementary level is

Figure 5. Mean Percentage Scores for Grade 6 and Grade 10

Figure 6. Passing Rate in Professional Board Examinations

The importance of the quality of education in growth is highlighted in Hanushek

Investment Gap in Early Human Capital Formation. Investments in human capital

Figure 7. Returns to a Unit Dollar Invested at Each Age

Source: Heckman (2008)

Relevance of TVET. The countrys technical vocation education and training

Promote R&D culture in All Fields. The Philippines continues to underspend in

Figure 8. Gross Expenditure on R&D, 2000-2008

Massive Investments in Human Development