NATIONAL UNIVERSITY

Manila, Philippines

Labor Market and Income Inequality: What are new insights

after public consensus

A Project Innovated Proposed Product

Presented to
The Faculty of College of Business and Accountancy
Accountancy Program
National University

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In Partial Fulfillment of the

Requirements for the course
ECONOMIC DEVELOPMENT
“’’’’’’’’

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Presented by:

Antonio, Lalaine C.
Marzo, June Maylyn D.
Moran, Lenhell Christianne T.
Toong, Elijah Rosette B.

AIS191

Presented to:
MR. IRENEO R. AGUILAN

July 23, 2019

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Abstract

This paper is meant to analyze and provide an overview of empirical

issues concerning labour market and income inequalities. The researchers begin by

analyzing the problem of labour market and inequality that can be found in different

sectors: wages and earnings, quality of work, labour market access and between

organized and unorganized sector. The researchers also discuss the insights of the

people’s attitude and opinions through survey and investigate the effect of Labour

market and Income inequalities.

While economic growth is important for poverty reduction, the rather stellar

performance of the Philippines in economic growth has still not translated into

reduction of poverty. This is in large part due to issues pertaining to distribution.

Inequalities in income, as well as inequities in labour and education have provided

barriers for everyone to participate in growth processes.

The researcher will discuss the economic reform policies and regulations

set under the labour market to reduce the inequality and to achieve the growth

development of the Filipino Laborers through this Case Study. The absence of

applying policies we’re taken off the advantage of these Filipino Workers in Market

Institution.

At the end of this Study, we will be able to recommend strategies that may

help all the Filipino Workers to distinguish and to know their rights between these

issues of Labor Market and Income Inequalities in the Philippines

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Introduction

This study analyzes the labour market and income inequality in the

Philippines. It argues that pervasive in-work poverty is the main challenge facing

labor policy. Poverty is primarily due to low earning capacity of the poor and to their

limited access to regular and productive jobs. Behind these are the two interrelated

root causes of in-work poverty - low education of the poor, and the scarcity of

productive job opportunities.

The labor market is segmented into good and bad jobs, with the poor

working in the latter. They hold jobs that are informal, temporary or casual, and low-

paid. Widespread informality means that the poor neither benefit from the minimum

wage policy nor from employment protection legislation. They do not benefit from

wage growth either, because their bargaining power is weak. Good jobs are so few,

especially in rural areas, that even better educated workers are often forced to take

unskilled jobs and work as low-paid laborers. The reduction of in-work poverty

hinges on removing constraints to gainful employment in both supply side (better

education and skills) and demand side (better jobs). It is critical that the young poor

have improved access to quality education, and be equipped with skills required in

the modern sector of the economy. But in parallel, better jobs need to be created,

which can be attained from the growth of the formal and higher value added sector

of the economy. The process of structural transformation should be supported by

effective labor policy. Labor regulations need to be made simpler and more flexible

to facilitate the reallocation of labor from less to more productive activities, and from

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informal to formal sector. Targeted training programs have the potential to address

the problem of low skills among the poor workers, especially the young ones. Such

programs should be developed on a pilot basis and expanded if proven to be cost-

effective.

Background of the Study

The Philippines is among Asia’s premier labor markets. The country

houses a large and growing young population, a vital demographic advantage that

can be leveraged with proper investments in education and infrastructure.

Currently, about 44.1 million people out of the 70.9 million – aged 15 years and

above – are in the labor force. This is approximately 62.2 percent labor force

participation rate, - As of June 2018. With these large number of population, finding

a job in the Philippines has been a problem, most of them did'nt finished school yet

they go after to different countries. Perhaps, most of fresh graduates we're migrate

to different countries because of high Salary. The Philippines is an resourceful

island, but why Filipino's experienced Income Inequalities? That most companies

we're overused these workers for the sake of low salary wages but high Labor

Market. This was in connection to the Multinational Companies we're International

Company will invest to the Developing Country to have an Discount in Workers, for

instance China, they have an overpopulation manpower and resources that can fill

a whole country shortages.

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Income inequality in the Philippines is the extent to which income, most

commonly measured by household or individual, is distributed in an uneven manner

in the Philippines. The difference of income between the rich and the poor could

cause tension in society and political instability. During the 2010-2011 fiscal year,

the increase in the wealth of the richest families in the Philippines, amounting to

47.39%, comprised 76.5% of the GDP increase for that year. Thus, the benefits of

this economic growth has not yet trickled down to the poorer segments of the

population, as seen with the malnutrition, and poverty that continue to plague the

country despite the fact that the economy seems to be growing. According to data

gathered in 2009, the poorest 20% of the population only had a share of 4.45% of

the national income. As the employment in the Philippines is largely concentrated in

low productivity activities, informality looms large; approximately, three-quarters of

all jobs are informal in the country. Comprising up to 38% of Labor force are all

Informal Workers. Mainly because of lack of skill, education and proper training that

make a work ineffective to some Filipino Families.

The Labor Code of the Philippines stands as the law governing

employment practices and labor relations in the Philippines. It was enacted on Labor

day of 1974 by President Ferdinand Marcos, in the exercise of his then extant

legislative powers. It prescribes the rules for hiring and termination of private

employees; the conditions of work including maximum work hours and overtime;

employee benefits such as holiday pay, thirteenth month pay and retirement pay;

and the guidelines in the organization and membership in labor unions as well as in

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collective bargaining. The Labor Code contains several provisions which are

beneficial to labor. These state the rights of the Filipino Workers. Some of these

Policies are disregard because of in need in a Manpower but low cost. Normal hours

of work, Regional Minimum Wages must apply, have an Contractor in each working

place that deals the contract of a certain time of its working their, wage deduction,

this according to the accountability of the workers if he/she is involved, it must have

an agreement between the employer, discrimination prohibits, minimum employee

ages, assistance of employer, compulsory coverage, coverage employee’s right to

self-organization, Assistance by the Department of Labor, Security of Tenure,

Continuation of Insurance Policies and Indemnity Bonds and Repealing Cause are

the policies that the Companies must follow, yet some unorganized sector continue

to employ workers that doesn’t rely to this policies.

While the Philippines gross domestic product (GDP) growth rate has been

described as the fastest among Southeast Asian economies over the past few

years, this growth has also been among the slowest in terms of closing the gap

between the nation’s rich and poor citizens. This is being done in the Philippines,

where the rich-poor gap is also widening. It is because of the Filipino’s OFW

working in different countries, mainly the benefits of international Labor Market and

their GDP’s affect their Income Salary.

On the other hand, there are two arguments that explains how does

income inequality affect the economy.

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(1) Wages & earnings- Earnings or wage income which can be defined as the returns

to labor, accounts for the largest proportion of total household income and is a major

contributor to total household income inequality. The macroeconomic effect of

minimum wage increases on gross domestic product (GDP) is ambiguous. Minimum

wage increases may increase labor costs and output prices, reduce firms' profits

and job training, and cause adverse employment and hours effects, each of which

may reduce in GDP. Growth rises as the investment in human capital increases,

assuming that the main characteristic of the process of development is the

complementarity between physical and human capital. Poor people would not be

able to invest in education due to the credit constraint, which implies that inequality

will affect the growth negatively by increasing the number of people who are unable

to invest in human capital.

(2) Quality of work- Furthermore, because of the minimum wage in the Philippines,

firms are reluctant to hire younger, less educated, and female production workers.

To minimize costs, increasing training for these younger and less educated

production workers may no longer be an option as minimum wages rise. These

findings may have serious consequences in the way the Labor Code affects

production efficiency, as well as social protection. There is thus a need to coordinate

these policy areas in a way that reinforces one another.

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Proposed Alternative Solution

Trade globalization: two sides of a coin. Trade has been an engine for growth in many

countries by promoting competitiveness and enhancing efficiency. Nonetheless, high

trade and financial flows between countries, partly enabled by technological advances,

are commonly cited as driving income inequality. In advanced economies, the ability of

firms to adopt laborsaving technologies and offshoring has been cited as an important

driver of the decline in manufacturing and rising skill premium (Feenstra and Hanson

1996, 1999, 2003). Trade openness could potentially have mixed effects on the wages

of unskilled labor in advanced countries. It raises the skill premium, but could also

increase real wages by lowering (import) prices (Munch and Skaksen 2009). At the

same time, increased trade flows could lower income inequality in EMDCs by increasing

demand and wages for abundant lower-skilled workers. Thus, disentangling the impact

of trade on inequality is challenging as it depends on relative factor abundance and

productivity differences across countries, and the extent to which individuals obtain

income from wages or capital.

Some countries rely heavily on taxes and transfers to influence distributional outcomes

Tax and transfer systems play a key role in lowering overall income inequality. Cash

transfers – such as pensions, unemployment and child benefits – account for more than

three quarters of the overall redistributive impact, and taxes for one quarter. However,

there are large differences across the OECD in the size, composition and progressivity

of taxes and cash transfers (Joumard et al., 2012). On the transfer side, pensions

account for the bulk of total transfers in most but not all countries. They primarily aim at

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redistributing income over the lifetime of individuals – those with higher incomes

contribute more but will also receive higher pensions. Thus, pensions often redistribute

comparatively less across different individuals. Other transfers are usually more

progressive, although how much depends on their design, e.g. the relative portion of flat

versus income-related benefits. In most countries, family and housing benefits are either

universal or means-tested, thus involving more redistribution across individuals.

Proposed Solution

Innovation starts when the power country demands an adoption of new

trends and technology in a relationship with APEC, this may lead to increase

manpower productivity with the usage of interconnection to other countries. This

opportunity is a solution to the problems of many Filipino workers. When the foreign

country depicts a higher standard, it also follows the partner-country and their skills

will also innovate. This solution we’re benefit to those households that has a lowest

income bracket enjoyed the highest increase in income compared to the highest

income bracket. “Furthermore, among the prices of unskilled labor, skilled labor and

capital, the price of unskilled labor obtained the highest increase for both fixed and

flexible exchange rate regimes. Since unskilled labor usually belongs to the poorest

segment of the population, this benefits the poor. Moreover, the price of capital

increased faster than the general price of labor.”

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Adopting new trade and investment facilitation approaches will combat

jobless growth and worsened inequalities that may lead to increased vulnerability of

the poor and heightened social instabilities. When foreign country needs a people,

especially to those country whose growing in terms of population, they need every

number of it. This will lead to Liberalization of Trade within different countries, if

liberalization of trade in goods increased employment in the manufacturing sector,

employment in the services sector can also be stimulated as services are inputs to

many industries. Policymakers should consider complementary policies that will

ensure the benefits from opening up markets will cascade to smaller companies and

marginalized poor. Specifically, such measures must enable domestic small and

medium-size enterprises to become integrated into the national, regional and global

distribution networks.

Inclusive Trade and Investment can also be hastened by including more

workers in the formal economy through aligned trade skills programs, setting wages

based on productivity and principles of collective bargaining, and enhancing ICT

connectivity. Additional measures recommended include increasing infrastructure

investment, providing gender-balancers access to education, and ensuring a social

dialog on policy reforms. “Legacy countries need to avoid getting squeezed

between more advanced Leading countries, which can offer more advanced

manufacturing, and Nascent countries that can offer lower cost labour,” , the WEF

said “Legacy countries, in particular, can accelerate readiness and transformation

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by utilizing the private sector more actively in tackling macro level challenges,” it

added.

We can only reduce income inequality and lack of labor market through

strengthening the power country. Relation through other countries takes policies

and rules that doesn’t guaranteed its returns to Labor Sector, we must take

individual policies in order to make an equality business, because most foreign

countries takes us, Philippines as an easy country because we are just a

developing one. They build business in partners to those countries have major

population and give them a low income.

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