THE absence of a real wage growth in the Philippines is among the major obstacles that could undermine the country’s efforts in turning the “American dream” of every Filipino into reality, according to the World Bank.
In a briefing on Monday, World Bank Philippines senior economist Rong Qian said there was
zero real wage growth in the country between 2000 and 2016, which she found unusual for a developing country.
The AmBisyon 2040 states that all Filipinos would like to reach middle-class status by 2040, which means an income of P120,000 a month, their own house and lot, and a car. This describes typical middle class living in many places in the United States.
“Actually, this phenomenon that you see, the real wage increase between 2000 and 2016, the growth rate was zero in the Philippines. And this is something that I’ve never seen in other countries, especially in other developing countries,” Qian said in a briefing. “We looked not only on the average but we also looked at it per sector, by skill level, by region, and the same [growth was observed].”
Qian said raising real wages—which can also be defined as purchasing power—would be essential in achieving the AmBisyon 2040 because of the need to triple per capita income to $9,350 by 2040, from the current $2,892.
This can be done by posting an average GDP growth of 6.5 percent on average in the next 22 years, from the 5.3-percent average posted in the past 17 years or between 2000 and 2017.
These efforts must also be accompanied by sustaining a total factor productivity of at least 1.8 percent a year for the next 22 years. The TFP between 2011 and 2016 was actually higher at 2.2 percent.
In order to achieve these, the World Bank’s primary recommendation is to raise the level of competitiveness so that small and medium enterprises may thrive.
Qian said competitiveness remains weak in the Philippines, particularly in the telecommunications and transport sectors. In telecommunications, there are only two players and in transport, certain restrictions prevent the entry of more players.
Expensive logistics
The lack of players in the transport sector, she said, contributes to making Philippine logistics expensive. Qian said logistics costs in the country is double that of Thailand and substantially higher than Vietnam.
Having a level playing field, Qian said, is crucial in raising incomes and boosting foreign direct investments (FDI). Having more local and foreign companies in the economy will create more jobs and raise incomes.
“By creating an equal playing field and simplifying business regulations, firms will be encouraged to enter the market and invest, grow and innovate, leading to higher labor productivity,” said Qian. “Market competition, coupled with a flexible labor market, allows higher productivity and raises the real incomes of Filipino workers.”
Some of the specific recommendations identified by the report include pursuing more balanced regulations between employees and employers by lowering the costs, and simplifying procedures for hiring and firing workers and making regular employment contracts more flexible.
The World Bank said sustaining higher productivity growth will be key to the Philippines’s attaining its vision to become a prosperous society free of poverty by 2040.
The report finds that the more efficiently the country can use its resources (human capital, natural resources, machines, technology and knowledge, among others) the better chances it will have to generate high-paying jobs and reduce poverty.
Productivity growth is particularly important for the agriculture sector where many poor families derive their incomes, the report adds.
By “productivity,” the study refers to “total factor productivity or how the country’s economy efficiently and intensely uses the inputs to produce goods and services that the local and global markets need.”
According to Mara K. Warwick, World Bank Country Director for Brunei Darussalam, Malaysia, the Philippines and Thailand, “The the Philippines’s ability to sustain its current high growth rate will depend primarily on two factors: how the country can accelerate investment in improving its physical infrastructure, and how it can make better use of capital, labor and technology to increase productivity.”
She added: “In the long run, a persistently booming economy will require constant boosts in productivity.”
The Philippines introduced reforms in the late-1980s and 1990s that transformed it into one of East Asia’s top performers.
Image credits: Nonie Reyes