THE expansion of the country’s informal sector and the growth of the gig economy may be symptoms that the country is caught in a middle-income trap, according to United Kingdom-based bank Hongkong and Shanghai Bank Corp. Ltd.
In a report, HSBC economist for the Association of Southeast Asian Nations (Asean) Aris Dacanay, however, said the growth of the informal sector and online work has improved the economy’s resilience.
The “middle income trap” is a term used to describe the situation of an economy that has escaped poverty but is still unable to graduate into high income status due to uncompetitive industries and underdeveloped human capital, among others.
“This isn’t a story of absolute resilience. It can also be a symptom of the middle-income trap. With many working in less formal arrangements, labor productivity has dipped in the Philippines, putting some risk on the country’s aspiration to upskill its workforce,” Dacanay said in the report.
The HSBC economist said jobs in the informal sector grew faster compared to the pre-pandemic rates. These informal jobs include unpaid family workers, residents who work for their relatives for food and shelter in return.
Dacanay added that these informal workers include those engaged in “pop-up jobs” such as those in food stalls and sari-sari stores. This can also include “content creators and freelancers.”
Essentially, these workers are considered the country’s self-employed workers. OFW returnees and other residents are also relying on the informal sector for incomes.
Dacanay said informal work will decrease the country’s labor productivity. This will again spur an increase in Overseas Filipino Work (OFW) deployment as more Pinoys search for greener pastures abroad.
“Without better jobs at home, we may see the trend of OFWs turn again—as residents try their luck again [abroad] in search of better paying jobs,” he added.
Dacanay said he hopes the Philippines can maximize the opportunities presented by digitalization and Artificial Intelligence (AI) in order for the local gig economy to move up the global value chain which could reduce informality.
He said the Philippines is in a strong position to progress in so far as digitalization and AI. The country’s Business Process Outsourcing industry can upskill and transform into Knowledge Process Outsourcing.
This will allow workers to get higher incomes by being able to offer knowledge-intensive services, such as data analytics and game development.
Higher wages is part of the reasons Filipinos turn to the informal sector, mostly as a source of additional income as well as the lack of employment opportunities in the country, especially for low-skilled workers.
“With not enough jobs in the formal sector to absorb the boom, many have found refuge in the informal sector. Yes, there was a steep rise in unpaid family workers,” Dacanay said.
“All in all, both OFW returnees and some residents are finding refuge in the informal sector for now, looking for resourceful ways to earn and contribute to the economy,” he also said.
Earlier, the Philippine Statistics Authority (PSA) reported that while the number of jobless Filipinos improved in September, the industry that recorded the largest number of jobs lost was manufacturing with 888,000 workers.
The data showed 2.26 million Filipinos were unemployed in September, some 234,000 lower than the 2.5 million recorded in September 2022. However, the September 2023 figure was 50,000 more than the 2.21 million unemployed in August 2023.
Further, PSA said the size of the labor force shrank to 49.93 million—down by 151,000 workers from the 50.08 million posted in September 2022 and 358,000 less than the 50.29 million recorded in August 2023.
This translated to a labor force participation rate of 64.1 percent in September 2023, lower than the 65.2 percent posted in September 2022 and 64.7 percent in August 2023.
National Statistician Claire Dennis S. Mapa said survey respondents identified schooling as the top reason. He said 355,000 respondents said they are not part of the labor force because they are in school.
There were also 124,000 workers who said they tried looking for jobs and couldn’t find one, so they opted out. Some 140,000 workers opted out of the labor force because they believed no jobs were available for them.
Data obtained by BusinessMirror from the PSA showed the size of the labor force in the third quarter declined to 49.04 million in 2023 from 50.2 million in 2022.
In addition, the PSA noted a drop in the labor force participation rate (LFPR) among women.
The agency reported a female LFPR of 53.4 percent in September 2023, lower than the 54.8 percent posted in the same period last year. Household duties were among the main causes for this decrease.