ADB study compels PHL to hike labor productivity

The country’s economic growth could slow if it fails to raise labor productivity in the coming years, according to a study published by the Asian Development Bank (ADB).

In the study,  titled “Why Has the Philippines’ Growth Performance Improved? From Disappointment to Promising Success,” ADB advisor and Senior Economics Officer at the Economic Research and Regional Cooperation Department Jesus Felipe and Gemma Estrada said the potential growth of the country last year of 6.3 percent was exceeded by actual growth at 6.7 percent.

Potential growth, the authors said, is the growth rate that keeps the unemployment rate constant. It is largely based on labor productivity.

“Given that actual growth is already about half a percentage point above potential growth, that the economy is expected to continue registering high growth, and that the accumulated gap [actual growth minus potential growth] is approaching zero, authorities should take measures to increase the economy’s potential growth,” Felipe and Estrada said.

“This will allow actual growth to continue increasing without subjecting the economy to inflationary pressures,” they added.

The authors found that the country’s potential growth rate has been increasing due to the rise in labor productivity growth. This is mainly due to manufacturing productivity growth.

However, with actual  GDP growth exceeding potential growth in 2017, the authors urged the government to focus on increasing potential growth further. This will also allow the country to post higher actual GDP growth in the coming years.

“To raise potential growth, authorities ought to focus on increasing labor productivity growth. Supporting a more vibrant manufacturing sector will help boost productivity growth,” Felipe and Estrada said.

This also means increasing labor productivity in the services and agriculture sectors. The authors found that labor productivity in services is declining, while the rise in labor productivity in agriculture  has been very slow.

The authors said their study showed gaps between actual and potential GDP growth between 1957 and 2017.

The authors added actual growth was higher than potential growth in 40 out of the 61 years, with an average gap of 1.1 percentage points.

In the 21 years when actual growth is lower than potential growth, the average gap is 2.1 percentage points, with the largest gap being observed in 1984 at 8.3 percentage points.

In years when actual growth is higher than potential growth, the authors said the latter is significantly higher than in periods when actual growth is lower than potential growth.

“While actual growth has improved, the evidence shows that this has had little impact on reducing unemployment. Estimates show that higher actual growth does not necessarily lead to a lower unemployment rate,” the authors said.

“However, the evidence indicates that faster growth is associated with a higher total underemployment rate. Understanding such dynamics requires a careful review of the country’s labor market,” they added.

In March Socioeconomic Planning Secretary Ernesto M. Pernia emphasized the need to raise labor productivity to boost the country’s employment data.

He said there is a need to help move the labor force in the agriculture sector out of low-productivity jobs. This can be facilitated by shifting rice farmers to high-value crops, promoting crop diversification, accelerating development of local infrastructure (e.g. farm-to-market roads, etc.) and training farmers in technological advancements.

“These improvements in the labor market indicate that more Filipinos are encouraged to join and rejoin the labor force, and that more people are being employed. This signals that the economy is responding positively to the economic reforms and programs that the government has been laying down,” Pernia said.

“But despite these encouraging numbers, the government must continue to raise investments and improve productivity, which, in turn, will help boost the productive sectors of the economy and encourage the generation of higher quality employment opportunities,” he added.

In the January 2018 Labor Force Survey (LFS), conducted by the Philippine Statistics Authority, employment rate rose to 94.7 percent, equivalent to 41.8 million Filipinos employed. This rate is the highest in all of the previous January rounds of the LFS since 2009.

Labor force participation rate (LFPR) also increased by 1.5 percentage points, rising to 62.2 percent in January 2018. Furthermore, female LFPR bounced back to 47.5 percent or a 2.3 percentage points increase from 45.2 percent in January 2017.

The National Economic and Development Authority said this reflects the sharp decline in the number of economically inactive married women and females who opt out of the labor force due to household duties.


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A professional journalist for over a decade, Cai U. Ordinario currently writes macroeconomic and urban development stories for BusinessMirror. She has received awards for excellence in reporting on the macroeconomy and statistics. She was also cited for her contribution to statics reporting by the National Statistical Coordination Board (now the Philippine Statistics Authority). She is a recipient of journalism fellowships including the Jefferson Fellowship from the Honolulu-based East West Center. She is currently completing her Masters degree in Communication at the University of the Philippines. She graduated with a degree of Bachelor of Arts Major in Journalism from the University of Santo Tomas.