1-Factors Affecting Employment - de Jesus

FACTORS AFFECTING EMPLOYMENT
OUTCOMES OF FILIPINO JOBSEEKERS:

A DURATION ANALYSIS OF UNEMPLOYMENT
IN THE PHILIPPINES
By
Claire Dennis S. Mapa and Jeremy L. De Jesus
Presented by
Jeremy L. De Jesus
Bangko Sentral ng Pilipinas
13th National Convention on Statistics

October 3-4, 2016, EDSA Shangri-La Hotel, Mandaluyong City
Factors Affecting Employment
Outcomes of Filipino Jobseekers:
A Duration Analysis of Unemployment
in the Philippines
BACKGROUND
Unemployment has been stubborn

for years.
Unemployment
10.0 3,000
9.0 2,900
8.0 2,728 2,800
7.0 2,700
6.0 2,600
6.6
5.0 2,500
4.0 2,400
3.0 2,300
2.0 2,200
1.0 2,100
0.0 2,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number (in thousands) Rate (in percent)
Source: 2015 Yearbook of Labor Statistics, PSA
BACKGROUND
2014 Unemployment Snapshot

As % of total unemployed
Male 63.6
Young* 49.1
College educated** 35.3
0.0 20.0 40.0 60.0 80.0 100.0

Source: 2014 Annual Labor and Employment Status, PSA
Notes: *aged 15-24 **college undergrads and grads

MOTIVATION
Informal or vulnerable employment

is the bigger problem but…
Poverty Incidence Among Population: 2012
(in percent)
30.0 29.0
25.2
21.9
20.0 18.7
10.0
0.0
Total
Employed
Vulnerable
Employed* Unemployed
Source: 2012 Official Poverty Statistics for the Basic Sectors, PSA
Note: *self-employed and unpaid family workers

MOTIVATION
…economic and non-economic costs of

unemployment cannot be downplayed.
• Economic costs • Non-economic costs
– Adverse effect on
– Foregone economic health
output – Strained family
– Reduction in relations
government revenue – Rise in cases of
alcohol and substance
– Decline in household abuse
incomes and wealth – Higher suicide and
crime rates
– Negative impact on
human capital
The longer the unemployment spell, the worse the effects become.
MOTIVATION
Aggregate measures of unemployment flows

for macroeconomic forecasting are available…
Outflow Rate* by Unemployment Duration
1.00 (in percent)
0.77
0.75 0.69
0.50 0.54
0.25 0.36
0.00
d<1 mo.
d<3 mos.
d<6 mos.
d<12 mos.
2009 2010
Source: Key Indicators of Labor Market 9th
edition, ILO (Estimates based on Shimer, 2012)
Notes: *Refers to the monthly instantaneous rate of transition from
unemployment to employment; ‘No duration dependence’ rejected
MOTIVATION
…but policy analysis of unemployment

duration on a micro-level is lacking.
• Studies on unemployment duration in developing
countries is very limited (Dendir, 2007; Tansel and
Tasci, 2010).
• Although anecdotal evidence abounds, to date,
there had been no previous research in the
Philippines specifically on unemployment spell.
• The bulk of the micro-level policy research on
unemployment in the Philippines were based on
stock variables (e.g. unemployment rate, labor force
participation rate).
MOTIVATION

OBJECTIVES
What individual, household, and

community characteristics lead
to longer unemployment spells?
• This paper aims to examine how demographic and
socio-economic characteristics of active Filipino job-
seekers affect the length of their unemployment
spell and the likelihood of exiting to employment.

OBJECTIVES
Does unemployment beget

unemployment?
• Equally important, this study intends to determine if
the amount of time individuals already spent without
a job hurts their chances of exiting to employment.

FRAMEWORK
Theory of Sequential Job Search

• Given that imperfect information exists in the labor
market, search is inevitable.
• Stigler (1962) proposed the fixed sampling approach
to job search i.e., choose a sample of n jobs at a cost
c per wage sampled and then accept the highest offer.
• McCall (1970) and Mortensen (1970) developed the
sequential “stopping” approach to job search i.e., jobs
are sampled one at a time and deciding on the sample
obtained to date whether or not to stop the search or
to continue.
• The sequential approach was deemed more
reasonable given that “search” takes place in real time
and that offers must be accepted shortly after they are
made.
FRAMEWORK
Modern Job Search Framework

• In a stationary environment, the search for job will
continue until a job offer is received after which the
choice of whether to accept or reject the job offer will
be decided by comparing the wage offer with the
reservation wage (or the lowest wage at which a job-
seeker will accept a job).
• If the offered wage is greater than or equal to the
reservation wage, the search will cease. Conversely,
if the wage offer is less than the reservation wage,
the search will resume.

FRAMEWORK
Reservation Wage
where z is the net instantaneous income in

unemployment*, λ is the arrival rate of job offers, r is
the discount rate, q is the rate of job loss, w is the
offered wage.
*unemployment benefits less search cost

FRAMEWORK
Hazard Rate from Unemployment
Since a job-seeker becomes employed when he or

she receives a job offer which occurs at rate λ and
the offered wage is at the very least equal to his or
her reservation wage which occurs with probability
[1-F(wR)], the hazard rate from unemployment is
given as:

FRAMEWORK
Average Unemployment Duration

Assuming that the hazard rate is constant, the
probability that a job-seeker is still unemployed after
a spell of length t is:
Consequently, the average unemployment duration

Tu can be derived as follows:

FRAMEWORK
Search-theoretic Model
• The search-theoretic framework postulates that the
exit rate from unemployment will be a function of
variables that affect the probability of receiving a
job offer and variables that affect the probability of
accepting the job offer.

METHODOLOGY
Data Description
Sample rotation scheme
(1) July 2009 and January Year Quarter
January
Rotation Cluster/Group
A1 B1
2010 rounds of the 2007
April
July
A2
A3
B2
B3
Labor Force Survey October A4 B4
January A1 B5
(LFS) 2008
April A2 B6
July A3 B7
(2) 2009 Family Income October
January
A4
A5
B8
B5
and Expenditure Survey 2009 April A6 B6
(FIES year) July A7 B7
(FIES) October A8 B8
January A7 B7
April A6 B9
2010
July A5 B10
October A8 B11
January A9 B12
April A10 B9
2011
July A11 B10
October A12 B11
Adapted from: Barcenas (2004)
13th National Convention on Statistics 18
METHODOLOGY
Unit of Analysis
(1) Sample consists of individuals aged 15 to 64 who
were unemployed and were actively looking for
work in July 2009 (N=2,896).
(2) Taking out household-based attrition, the final
sample size of the person data is 2,734 (67.5
percent of which are right-censored observations
i.e., still unemployed, left the labor force, employed
abroad, and observed in July 2009 only).

METHODOLOGY
Duration Data from LFS

July 2009 January 2010
TIMELINE
Transition
Interval-censored
U-E : Completed
U-U : ?
U-OLF : ?
Right-
U-OW : ? censored
U-A : ?
No. of weeks 26 weeks

looking for work, t0
Duration
METHODOLOGY
Variables on Receiving Job Offer

Personal Previous Work
Characteristics Experience
• Age • First time to look for
• Sex work
• Marital Status Trainings (proxy)
• Education • Registration in
Local Labor Demand public/private
employment agency
• Unemployment Rate

METHODOLOGY
Variables on Accepting Job Offer

Reservation Wage Unemployment Income
(proxy) • Assistance from Abroad
• Minimum Wage • Assistance from Local
Schooling Status • Loans from Other
• Attending School Households
Household Composition • Withdrawal from
• Dependents Savings
• Non-dependents
• Informal Worker

METHODOLOGY
Duration Model: Single-Risk Discrete-

time Proportional Hazards Model with
Flexible Baseline Hazard Specification
where θij is the probability that individual i has left

unemployment during interval j, Dij is a vector of
functions of the cumulative duration by interval j with
coefficients α, and xij is a vector of covariates with
coefficients β.
References: Prentice and Gloeckler (1978) and Jenkins (2005)

METHODOLOGY
Piece-wise constant specification of

the baseline hazard
The baseline hazard αDij , is specified to be a step
function,
where D1,…D4 are dummies for time intervals

j=1,…4 which are as follows: 1-27 weeks, 28-54
weeks, 55-81 weeks, and 82 weeks and over.

METHODOLOGY
Estimation Procedure
- For this study, the complementary log-log model was
selected as the estimation procedure due to the following
reasons:
(1) at low hazard values, the logistic and complementary log-
log functions are virtually identical; and
(2) it builds in a proportional hazards assumption similar to the
Cox regression model where the estimated parameters (i.e.,
exponentiated coefficients) can be interpreted as hazard
ratios.
- In order to estimate the grouped data hazards model, the
person data was transformed to person-period data which
increases the final sample size to 4,658 obs with 890 failures
(i.e., total no. of exit-to-employment events).
RESULTS
What individual, household, and

community characteristics lead
to longer unemployment spells?
Holding other personal characteristics constant…
Age
• The hazard of exiting unemployment initially
increases as job-seekers become older but begins
to decline at about the age of 35-36.
Sex
• Females, in general, were estimated to face 0.867
of the hazard of males or they have 13.3% smaller
hazard than males. Note that a hazard ratio of less
than 1 indicates that exiting from unemployment is
occurring slower for females than for males.
RESULTS
Holding other personal characteristics constant…

Marital Status
• Ever married job-seekers, in general, were estimated to face
1.205 of the hazard of never-married unemployed (or they
have 20.5% higher hazard than the never-married).
Sex and Marital Status (Interaction)
• Married women were estimated to face 0.866 of the hazard of
married men (or they have 13.4% smaller hazard than
married men).
Education
• College undergrads and college grads face 0.710 and 0.647
of the hazard of primary grads or 29% and 35.3% smaller
hazard than the reference group, respectively.
• Graduates of engineering and services programs face 0.535
and 0.342 of the hazard of primary grads or 46.5% and 65.8%
smaller hazard than the reference group, respectively.
RESULTS
Controlling for personal characteristics and other factors…

Previous Work Experience
• New entrants to the labor force were estimated to face
0.674 of the hazard of experienced job-seekers (or they
have 32.6% smaller hazard compared to the reference
group).
Local labor demand
• For every 1% increase in unemployment rate, the
hazard to employment decreases by 2.7%.
Trainings (proxy)
• Job-seekers who registered in public employment
agency were estimated to face 1.329 of the hazard of
job-seekers who either approached employer directly,
friends or relatives, placed or answered advertisements,
or did some other methods of finding work (or they have
32.9% higher hazard than the reference group).
RESULTS
Controlling for personal characteristics and other factors…
Reservation wage (proxy)
• For every 10-peso increase in minimum wage, the hazard to
employment decreases by about 2%.
Household composition
• For every additional employed member in the household, the
hazard to employment falls by 9.9%.
• Jobseekers living with an informal worker in the household
have 13.4% higher hazard to employment than that of
jobseekers in households with no informal worker
Unemployment income
• As the amount of assistance received from abroad and
domestic sources increases by 10%, the hazard to employment
falls by 35% and 20%, respectively.
• As the amount of loans from other families increases by 10%,
the hazard to employment rises by 26%.
RESULTS
Baseline Hazard
Shape of Baseline Hazard Controlled for Covariates
(with quadratic trendline superimposed)
1.40
1.20
1.00
Hazard
0.80
0.60
0.40
0.20
0.00
1-27 weeks 28-54 weeks 55-81 weeks >=82 weeks
Intervals of Unemployment Duration
Source: Author’s computation
RESULTS
Does unemployment beget

unemployment?
• Yes! There is evidence indicating negative duration
dependence after 28-54 weeks. The hazard to
employment falls monotonically thereafter.
• The initial positive duration dependence indicates
that it is difficult to find and start a new job which is
common among those individuals who are first-time
job-seekers and have no previous work experience.

REMARKS
Conclusions
• Several personal,
household, and
community attributes
were identified as
influential factors to
unemployment duration.
• In the medium- and long-
term, unemployment
begets unemployment.

REMARKS
Policy Implications
• Preparing our youth for their entry to the labor force is
desirable.
• Giving employment opportunities to married women may
improve the labor force participation of women in
general.
• It is beneficial to match the skills of the workforce with
the demands of the labor market.
• The disincentive albeit unintentional effect of inter-
household transfers on labor supply decisions of left-
behind families of migrant workers is a cause for
concern.
• A review of the LFS current design and questionnaire
should be seriously considered by the PSA.

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FACTORS AFFECTING EMPLOYMENT

OUTCOMES OF FILIPINO JOBSEEKERS:

13th National Convention on Statistics

Unemployment has been stubborn

2014 Unemployment Snapshot

College educated** 35.3

0.0 20.0 40.0 60.0 80.0 100.0

13th National Convention on Statistics

Informal or vulnerable employment

13th National Convention on Statistics

…economic and non-economic costs of

Aggregate measures of unemployment flows

…but policy analysis of unemployment

13th National Convention on Statistics

What individual, household, and

13th National Convention on Statistics

Does unemployment beget

13th National Convention on Statistics

Theory of Sequential Job Search

Modern Job Search Framework

13th National Convention on Statistics

where z is the net instantaneous income in

*unemployment benefits less search cost

13th National Convention on Statistics

Hazard Rate from Unemployment

Since a job-seeker becomes employed when he or

13th National Convention on Statistics

Average Unemployment Duration

Consequently, the average unemployment duration

13th National Convention on Statistics

13th National Convention on Statistics

13th National Convention on Statistics

Duration Data from LFS

No. of weeks 26 weeks

Variables on Receiving Job Offer

13th National Convention on Statistics

Variables on Accepting Job Offer

13th National Convention on Statistics

Duration Model: Single-Risk Discrete-

where θij is the probability that individual i has left

References: Prentice and Gloeckler (1978) and Jenkins (2005)

13th National Convention on Statistics

Piece-wise constant specification of

where D1,…D4 are dummies for time intervals

13th National Convention on Statistics

What individual, household, and

Holding other personal characteristics constant…

Controlling for personal characteristics and other factors…

Does unemployment beget

13th National Convention on Statistics

13th National Convention on Statistics

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