Economist sees P191B in foregone wages a year

THE PHILIPPINE economy stands to forego around P191 billion worth of wages a year at the rate people are dropping out of its labor force, suggesting labor market conditions that are turning “bearish,” an economist from Citigroup warned.

In a research note dated Sept. 11, Citi economist for the Philippine Jun Trinidad said he was worried over an elevated reading of “not in the labor force” (NILF) category in the latest labor force survey as of July.

Based on government data, 1.9 million able-bodied workers had dropped out of the labor force during the period, which translated to an opportunity wage loss of P191 billion or equivalent to 1.4 percent of Citi’s forecast gross domestic product for 2015, Trinidad estimated.

The latest data showed that the Philippines’ unemployment rate declined as a ratio of the labor force in July to 6.5 percent from 6.7 percent a year ago as new jobs were created in construction, manufacturing as well as transport, storage, public and other private services.

But taking a closer look at the latest labor data, Trinidad said “bearish” conditions were emerging.

Other than the creation of higher employment, the economist noted that the decline in the jobless ratio for the most recent period was partly due to the lower labor participation rate of 62.9 percent in July compared to 64.6 percent in April. Metro Manila’s labor participation rate was reported at 64 percent, implying a much lower rate in areas outside Metro Manila in the same period.

A lower labor participation rate meant that there were less able-bodied workers aged 15 and up who were now actively looking for jobs, Trinidad said.

He noted that such NILF level had expanded materially by 1.9 million or 8.2 percent year-on-year in July. In the last labor force survey in April and December, he said the NILF levels likewise swelled by 3.5 percent and 4.6 percent, respectively.

The economist said there was no data on NILF breakdown, for instance, on whether there was an increase in able-bodied people choosing to stay home or studying full time. He noted, however, that “rising NILF at a time of declining farm output, low commodity prices and other headwinds doesn’t jive particularly well for those in the regions with diminished to declining incomes.”

“Rising NILF could reflect most workers’ preference to seek jobs overseas as they face limited onshore job opportunities and lackluster wages,” the economist said.

The lower labor participation rate in July, Trinidad noted, resulted in a mild expansion in the labor force by 667,000 or 1.6 percent year-on-year, a number easily matched by 721,000 in job creation.

Meanwhile, Trinidad also noted that the underemployment rate in the country edged up to 21 percent in July, driven by the rise in the underemployment rate in the National Capital Region to 9.8 percent. The ratio was driven by the 1.1 million increase in the number of able-bodied Filipinos who were underemployed, or desired more hours of work than what they had, up by 16.6 percent year-on-year.

The economist said slumping farm output and declining real farm prices accounted for the sharp rise in regional underemployment, adding that higher underemployment could easily result in pent-up consumption.

As such, Trinidad said authorities might have to tolerate a weaker peso level against the dollar alongside sustained fiscal expansion and monetary accommodation “to offset bearish labor market conditions taking root.”

A weaker peso, the economist said, would bode well for remittances and business process outsourcing (BPO). On the other hand, greater fiscal spending and a sustained period of ample liquidity and record-low interest rates are suggested to help stimulate the economy in order to boost job creation.