(DP 2004-03) “Successes” and Adjustment in the Philippine Labor Market

Gerardo P. Sicat


A high degree of unemployment and underemployment characterizes the Philippine economic development record. In large part, the mainstream labor policies that emphasized high labor welfare standards and high minimum manages over the creation of employment are responsible for this outcome. In spite of this poor record of employment generation, some successes have been achieved in generating jobs and incomes in specific areas of industry and services. Focusing on these successes gives an insight on what works well. These “successes” in employment and income creation represent a common thread: they try to avoid the jurisdiction of the mainstream labor market policies or they are efforts of firms to adjust to the labor policies within the law to avoid their worst effects on cost and efficiency. The successes that are discussed in this essay are the following: the overseas contract workers; employment of labor in export processing zones; market for professionals among multinational companies; labor employment in the information technology sector; and domestic outsourcing of labor services and manufacturing. In an open economy, the country benefits from outsourcing by taking jobs away from high wage centers to the country. The same pattern of outsourcing happens when firms in the country forsake the country to transfer of their mainline operations in other countries to take advantage of lower wage costs. The main lesson from this paper is to point towards the need to reform the country’s labor market policies so that they attain a higher degree of flexibility.

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