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As the Philippines rebounds from the pandemic, strengthening labor market programs
will be critical to help workers and enterprises make the transition.
Prior to the COVID-19 pandemic, the Philippines was experiencing its longest ever
economic and job expansion. There was remarkable growth in wage and salary employment (a
measure of modern employment), growing at an average of 4.6% annually from 2015 to 2019.
This rapid expansion in modern employment was strong enough to pull workers away
from the informal sector in such big numbers that total informal employment was shrinking for
the first time ever in the Philippines.
Unfortunately, the pandemic reversed some of these gains, wiping out 1.7 million wage
and salary jobs in the 12 months to January 2021. In contrast, employment in the informal sector
rose by about 435,000. The pandemic could create long lasting effects on employment. Put
simply, this temporary large shock to the economy might produce a persistently lower
employment rate even after the economy has started to grow again. This phenomenon is known
as hysteresis in employment.
There are three transmission channels of the pandemic on modern employment. First,
there will be a higher number of jobseekers, including people who lost their jobs, school
dropouts and new labor market entrants. The longer laid-off workers and new labor market
entrants remain unemployed, the more likely they become less employable in the future because
of lost skills.
Second, the pandemic has triggered a large re-allocation of jobs across sectors. While job
losses have occurred across most sectors, the hardest-hit sectors are those dependent on personal
contact, such as accommodation, food services, transportation, and recreational services. In
contrast, the sectors that recover quickly and present positive job growth are those that tend to
absorb lower shares of labor such as communications and technology and several higher-skilled
services sectors.
Third, companies are modifying their business models to rely more on technology,
thereby reshaping their workforces and the types of skills demanded by employers. Digital
transformation and remote working will transform jobs, facilities, processes, and skills needs,
including skills required for higher value-added services. These will further exacerbate the skills
mismatch in the labor market.
What are the policy lessons for employment? The early evidence from other countries
suggests that policies should support workers’ labor market transitions as well as enterprises.
Below we discuss five global best practices for addressing hysteresis in employment.
Wage subsidies. This has proven to be the single most effective tool for saving jobs. It
does this by keeping workers attached to their employers during periods of lockdown and slow
recovery in business activities. The Philippines’ wage subsidy program of P46 billion in 2020
was well-designed and successfully implemented with 3.1 million workers receiving subsidies.
The government is planning for a second round of wage subsidies this time targeted to workers
in specific sectors.
Hiring subsidies. As the economic recovery takes hold, governments will phase out wage
subsidies and some are considering replacing them with hiring subsidies to help facilitate the
reallocation of displaced workers into new jobs.
The network is responsible for designing and implementing the training program. In
2013, ADB assisted the Philippines’ Department of Tourism with piloting a similar scheme with
tourism enterprises. Forty-eight grants were provided and over 7,000 tourism employees were
trained at a cost of Php8,000. This proved a cost-effective model for reskilling workers. This
Workers in the Philippines will be facing a challenging next few years as the country
rebounds from the pandemic. Further strengthening of active labor market programs will be
critical for helping workers and enterprises to make this transition.
References
Kelly Bird, C. L. (2021, June 6). https://blogs.adb.org/. Retrieved from Asian Development
Blog: https://blogs.adb.org/blog/philippines-covid-19-employment-challenge-labor-
market-programs-to-rescue