Philippines a long way from being middle-class

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The Philippines has a long way to go to achieve its goal of becoming a middle-class society, according to the World Bank.

In a report titled 'Philippines Economic Update: Investing in the Future' in April 2018, the Washington D.C.-based multilateral lender says the Philippines stands out among many East Asian countries for its lack of progress in eliminating poverty and promoting economic security and its middle class.

“The country’s persistent high level of income inequality has limited the responsiveness of poverty reduction to economic growth. Even at the middle of the spectrum of the country’s income distribution the Philippines’ performance lagged. Many East Asian countries have fared better such as China and Vietnam, which have made significant progress in reducing economic vulnerability,” it says.

The World Bank says the share of the economically secure in the Philippines increased from 37 percent in 2002 to only 44 percent in 2015, compared to one-fifth to two-thirds in the region. Moreover, the share of the Philippines population with per capita income above the global middle-income line of $15 per day was only 9.2 percent in 2015, lower than in Malaysia (65.7 percent), Thailand (35.4 percent), and China (19.4 percent).

“Unlike in high-performing East Asian countries with booming economies and manufacturing sectors that provide large numbers of labor-intensive jobs, the majority of workers in the Philippines that transition out of agriculture generally end up in low-end service jobs. The anemic 4 percent growth in real wages between 2006 and 2015 brought limited gains for workers following the economy’s structural transformation and limited the impact of economic growth on poverty alleviation,” it says.

“The inclusiveness of growth needs to increase if it is to substantially reduce poverty and create a growing middle class. Government policies can help establish mutually reinforcing positive cycles that will accelerate more inclusive growth and create a growing middle class well integrated with other groups. Creating more well-paying jobs will require interventions across multiple sectors that address both supply- and demand-side constraints,” the World Bank says.

It says the Philippines’ slow pace of poverty reduction compared to other countries in the region is due to various factors, including less pro-poor economic growth, high inequality of income and wealth, the high frequency of disasters and the presence of conflict.

“While the role of wage income in poverty reduction is similar to many other developing countries, the Philippines has experienced much slower growth in real wage incomes. The Philippine labor market suffers from a lack of quality jobs, which means that most of the poor are working poor, as low-paying jobs or underemployment prevent them from graduating out of poverty,” it says.

It says some households earn as little as P50 to P100 (US$1 to US$2) a day, and many urban poor are trapped in low-wage and low-productivity jobs in the informal service sector. “Therefore, the government needs to make growth more inclusive to make it possible for Filipinos to achieve higher and more stable income through productive employment,” it says.

The country’s labor market has been characterized by a low unemployment rate, a high underemployment rate, and a limited increase in real wages. The average employment and earning status of Philippine households has changed little over the past decade, according to the World Bank.

On average, the ratio of the working-age population to total population was about 66 percent over the past decade. The unemployment rate fell from nearly 8 percent in 2006 to 6 percent in 2015, but this masks the challenges associated with low-quality jobs. Despite the decline in unemployment, underemployment—those who work but are willing and available to work “more adequately”— has remained persistently high, in the range of 20-22 percent, since 2006.

“The government needs to improve human capital, especially for poor households, to ensure that Filipinos acquire the skills needed in the 21st century economy. It is especially important to invest in children starting in the first 1,000 days and target support to poor households and vulnerable groups to help them mitigate shocks and improve their human capital,” the World Bank says.

17 April 2018

 

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