(DP 2004-04) Reforming the Philippine Labor Market

Gerardo P. Sicat


Philippine labor market policies, in the presence of a high degree of excess labor supply, are highly regulated and they tend to be along standards of highly developed markets. The policies adopted by the government are more pro-employed labor than to promote the overall employment of the labor force. These policies made the country to miss the path of labor intensive development in industrial enterprises, a pattern typical of the early growth of East Asian economies. These policies strengthened a powerful labor bureaucracy in the government. Side effects of the regulations and the culture surrounding the disposition of labor management issues encouraged rent-seeking and other motivational distortions in the behavior of labor when employed. The welfare policies as developed have contributed to the distortion in labor skill formation, the tendency to provide an increase of emoluments without any link to productivity growth, and so on. The last part of the essay focuses on the areas of reform suggested by this state of affairs. The balance between welfare and employment creation needs to be continually brought in the forefront. In undertaking reforms, productivity change needs to be placed in the center stage of reforms. Finally, it is argued that the labor sector would find it in its interest to deal positively with the challenges of globalization. This means recognizing that labor market policies need to adjust to global competition. This further means that it emphasize the need to accept that economic liberalization would require encouraging the growth of investments from all sources – including foreign direct investments. Such a route will create jobs and improved welfare for the working man.

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