Joint Foreign Chambers

ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

Advocacy Paper

JOINT FOREIGN CHAMBERS ADVOCACY PAPER ARANGKADA PHILIPPINESLabor 2010: A BUSINESS PERSPECTIVE ________________________________________________________________________ ADVOCACY PAPER ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE 1. Continue judicial reforms to speed up justice in all courts by hiring more judges ________________________________________________________________________ and increasing salaries. Continue to reduce the case load of all courts by more Labor encouragement of arbitrated settlements in civil cases. Improve BIR, BOC, and Ombudsman legal staff to prepare better cases with better prospects of successful prosecution and conviction. 2. The Supreme Court should request amicus curiae expert advice in ruling on issues that may adversely impact on the investment climate. The Supreme Court could reduce its case load by being more selective in accepting case. Rules of the With a population of nearly 100 million growing at 2%, the Philippine economy needs to create Court should be changed to recognize foreign arbitration decisions without many more jobs, as well as better quality jobs, than it has been doing. The size of the labor force as reopening cases. of July 2010 was 39 million, out of an estimated 61 million population aged 15 years and over. Of Create a special court for Strategic Investment Issues. Oversee the environmental 3. this total, some 36 million persons were employed. The unemployment rate stood at 6.9 percent, courts 2.7 so million that application environmental laws strongly supports representing persons, andof thePhilippine underemployment rate was 17.9 percent, representing 6.5 responsible mining practices . million persons. Over nine million Filipinos would like to work more or would like to have some
work, either full or part time (see Figure 180). Figure 180:Labor Labor market, 1990-2009 Figure 180: market,key keyindicators, indicators, 1990-2009
50 45 40 35 30 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

DRAFT September 22, 2010 Not Recommendations for Distribution Headline JOINT FOREIGN CHAMBERS

Labor force, in Mn, lhs Unemployment rate, rhs

Labor force growth rate, rhs Underemployment rate, rhs

35% 30% 25% 20% 15% 10% 5%

0%
-5%

Source: NSO; Note: Definitions changed in April 2005

Filipinos who enter the workforce each year 846,000 for the past decade (see Figure 181: New entrants to averaged the labor force, in '000 Figure 181). The economy does not create enough quality jobs to employ them all. Some of those 1,200 seeking jobs instead go 985 abroad to join the more than Filipino immigrants and overseas 8908 million 887 869 865 1,000 818 793 761 745 workers, while others remain unemployed and underemployed in the Philippines, often assisted 800 222 600 relatives working abroad. by remittances from A significant percentage of college graduates 400 cannot find employment until some years after they leave school; 19% of the unemployed in 2009 200 were college graduates (see Figure 16). Without the demand for Filipino employment overseas, the 0 countrys unemployment and underemployment could be two to three higher. 2001 2002 2003 2004 rates 2005 2006 2007 2008 times 2009
Source: DOLE-BLES

222

Remittances to relatives in the Philippines are expected to reach US$ 20 billion in 2011.

DECEMBER 2010

307

_____________________________________________________________________301 NOVEMBER 2010

30 25 20 15 10 5

20% 15% 10% 5%

Joint Foreign Chambers 0

1990 1991 1992 1993 1994 1995 PHILIPPINES 1996 1997 1998 1999 2000 A 2001 2002 2003 2004 2005 2006 2007 2008 2009 ARANGKADA 2010: BUSINESS PERSPECTIVE

0%

-5%

Advocacy Paper

Source: NSO; Note: Definitions changed in April 2005

Figure 181:181: NewNew entrants to the labor force,force, in 000, Figure entrants to the labor in2001-2009 '000
1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009

985 793

818

869

890

865

887

745

761

Source: DOLE-BLES

rates among the PAPER ASEAN-6 (see ADVOCACY Figure 182). The ARANGKADA other four ASEAN-6 had employment rates at around four percent and below with PHILIPPINES 2010: A BUSINESS PERSPECTIVE Thailand at two percent. ________________________________________________________________________ Figure 182: Unemployment rates, ASEAN-6, 1990-2009 Figure 182: Unemployment rates, ASEAN-6

DRAFT September 22, 2010 Indonesia and the Philippines have the highest unemployment Not for Distribution JOINT FOREIGN CHAMBERS

_____________________________________________________________________ 301 14% NOVEMBER 2010 12%

10% 8% 6%

_____________________________________________________________________ 307 4% NOVEMBER 2010 2%

0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Indonesia Philippines Singapore Malaysia Vietnam Thailand

Sources: ADB and respective national statistics offices; Note: no data for Vietnam before 1997; Philippines revised the its definition 1 Singapore of "unemployed" in April 2005 1
2009-10 Figure 183 shows that the Philippines the highest brain drain Figure 183: Brain has drain rank, ASEAN-6, 2009 of the ASEAN-6, with 46 Thailand 42 Singapore, Indonesia, Malaysia, and Thailand ranked among the top 30% of the 139 countries 61 Vietnam Singapore 5 covered in the Global Competitiveness Survey. 49 A reason for the low rank of the Philippines is that Indonesia 25 60 Indonesiasufficient jobs to allow the economy doesMalaysia not provide them to remain at home. 59 31
Thailand Vietnam
Malaysia 30 36

2010-11

Longstanding emigration relationships with Australia, Canada, New Zealand, and the US and Philippines 104 0 20 40 60 80 100 120 140 their English-speaking skills provide many Filipinos with better access to foreign job opportunities 0 20 40 60 80 100 120 Source: WEF Global Competitiveness Reports; Total number of countries evaluated: 200910 (133); 2010-11 (139) than workers in the other ASEAN-6 economies. Source: WEF Global Competitiveness Report 2010; Total number of countries evaluated=133
Figure 183: Brain drain rank, ASEAN-6, 2009-2010 Figure 184: Employment by class of worker, 2009
Singapore Indonesia

Philippines

32 76

122 123

Informal sector, 42.6%

Unpaid family 27 workers, 12.0%

25 28 31 32 38 60

4 5

Private Household, 5.4%

2010-11 2009-10

Malaysia
Thailand

Self employed, 30.6%

Vietnam Philippines

Private Establishment, 39.4%

76 85 104

Source: NSO; Informal sector 60 80 120 BLES definition Source: WEF Global Competitiveness Reports; Total number of countries evaluated: 200910 (133); 2010-11 (139)

Employer, 4.1% With pay (family owned 0 20 40 business), 0.3%

Government/ government 100 corporation, 8.2%

308

DECEMBER 2010
Singapore Vietnam 1 1 4 6 6

2010-11 2009-10

Joint Foreign Chambers ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

Advocacy Paper

Some find employment abroad because they lack the skills for locally available jobs. For example, in the BPO sector demand for qualified applicants is very high, but only a few qualify. While a customer relations agent in Manila earns as much as a household help in Hong Kong, a Filipino in the latter category may lack the skills to qualify for BPO employment at home. Despite considerable efforts undertaken by the private sector, education officials, and government, much remains to be done to match the educational and training curriculum to available jobs. In recent years awareness has increased of the need for schools to revise their curricula to address the mismatch of skills and jobs. Until this challenge is solved, inadequate skills (e.g. English, math, science, engineering, entrepreneurship, logical thinking, research, writing, and blue collar training) will prevent many young Filipinos from qualifying for available jobs in the private sector. More young Filipinos need to acquire specialized fields related to the Seven Big Winner sectors, especially in agribusiness, creative industries, manufacturing, and mining. The fast-growing BPO sector, which is expected to hire 100,000 more employees in 2010 (and require commensurate new office space), would grow even faster if new college graduates and older applicants had better skills. The Department of Labor (DOLE) is undertaking Project Jobs Fit to identify the new, emerging employment sectors for the next decade and the skills needed for future jobs in these sectors.223 Educational institutions and other stakeholders should develop the curricula and teaching materials that will train students in order to increase their chances of being employed in the new sectors, thus reducing the job mismatch and unemployment. The DOLE categorized the emerging employment sectors as (1) Key Employment Generators (KEGs), (2) Emerging Industries, (3) Hard-to-fill Occupations, (4) In-demand Occupations, and (5) Overseas Employment KEGs. (1) Key Employment Generators a. Agribusiness b. Cyberservices c. Health and Wellness d. Hotel, Restaurant, and Tourism e. Mining f. Construction g. Banking and Finance h. Manufacturing i. Ownership Dwellings and Real Estate j. Transport and Logistics k. Wholesale and Retail Trade l. Overseas Employment

223

DOLEs Bureau of Local Employment headed a multi-agency team that prepared a 200-plus page study available at http://ble.dole. gov.ph or at http://www.dole.gov.ph.

DECEMBER 2010

309

Joint Foreign Chambers ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

Advocacy Paper

(2) Emerging Industries a. Creative Industries DRAFT b. Diversified/Strategic Farming September 22, 2010 c. Power and Utilities Not for Distribution JOINT FOREIGN CHAMBERS ADVOCACY PAPER d. Renewable Energy ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE (3) Hard-to-fill Occupations a. Agribusiness - Food processors/Food technicians Figure 182: Unemployment rates, ASEAN-6 b. Cyberservices - Animators c. Health and Wellness - Spa/Massage therapists 14% d. Hotel, Restaurant, and Tourism - Cooks 12% (4) In-Demand Occupations 8% a. Agribusiness - Aquaculturists 6% b. Health and Wellness - Opticians 4% c. Hotel, Restaurant, and Tourism - Bakers
2% 10%

________________________________________________________________________

Indonesia Philippines Singapore Malaysia Vietnam Thailand

0% (5) Overseas Employment KEGs 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 a. Healthcare Sources: ADB and respective national statistics offices; Note: no data for Vietnam before 1997; Philippines revised the its definition b. ofBuilding and Construction "unemployed" in April 2005 c. Petroleum/Oil and Gas/Energy d. Hotel, Restaurant, Tourism, and Gaming Industry e. IT/Cyberservices Figure 183: Brain drain rank, ASEAN-6, 2009 f. Manufacturing Singapore 5 g. Seafaring Indonesia 25 h. Electronics Malaysia 31 Thailand 32 i. Household Services Vietnam 76 j. Production and Production-related Work Philippines

104

0 20 40 60 100 120 Since job creation requires investment, the government should pursue80high growth policies that Source: WEF Global Competitiveness Report 2010; Total number of countries evaluated=133 maximize investment and improve productivity. This in turn will create better quality jobs in the formal sector that pay better, offer more job security, and yield increased payroll tax revenue for the BIR.

184: Employment byworker, class of worker, 2009 FigureFigure 184: Employment by class of 2009
Unpaid family workers, 12.0% Private Household, 5.4%

Informal sector, 42.6%

Self employed, 30.6%

Private Establishment, 39.4%

Source: NSO; Informal sector BLES definition

Employer, 4.1% With pay (family owned business), 0.3%

Government/ government corporation, 8.2%

310

DECEMBER 2010

Joint Foreign Chambers ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

Advocacy Paper

In Figure 184, showing employment by class of worker, the informal sector was 42.6% of the workforce in 2009. By developing programs to improve the quality of jobs, policy makers hope to substantially increase the share of full-time employment with private firms from its current 39.4% of the workforce. Minimum wages and holidays are discussed in Part 4 under Business Costs, and Part 3 Manufacturing and Logistics discusses the decline of Philippine export industries based on lowcost labor manufacturing in the Philippines. Investment in such manufacturing for export has concentrated within Asia over the last decade in China, Indonesia, and Vietnam. Falling tariffs from global and regional trade liberalization and weak anti-smuggling enforcement have exposed Philippine manufacturers to competition from cheaper imports in the domestic market, causing loss of market share for Philippines exports in international markets as well as for Philippine-produced goods in the domestic market. Consequently, hundreds of thousands of jobs in manufacturing have been lost. However, with wages rising in the fast-growing coastal areas of China, manufacturers are moving inland, where wages are 30% less, or to other Asian countries. Potentially, millions of manufacturing jobs may shift away from these provinces in the next few years. The Philippines may be able to attract some of them to relocate to industrial estates in Central Luzon and Cebu if a competitive package for electricity, labor, and other operating costs can be created. The Clark/ Subic SEZs and Mactan, with their logistics connections and large populations, should be able to offer an opportunity to set up new zones with special incentives, such as discounts, for exporters who relocate to the Philippines and are willing to hire large numbers of workers. The Philippine Labor Code is 36 years old, out of date, and out of tune with regional developments. Efforts to reform it have been objected to by militant labor groups and their allies in Congress, who advocate amendments that would make the Philippines less attractive to private sector investment relative to regional competitors. Foreign observers have commented that the statist advocacies of leftist groups in the Philippines have learned little from the success of China and Vietnam becoming integrated into the global logistic chain and attracting high volumes of FDI to build strong export manufacturing industries that have created millions of jobs. Disruptive labor action has almost disappeared in recent years, as shown in Figures 185 and 186. The incidence of labor strikes has declined steadily since a high in the years immediately after the fall of the dictator president Marcos in 1986. In recent years, very few actual strikes have taken place, and most lasted for only a few days. Notices of strikes have been much higher than actual strikes. However, preventive mediation action has usually resolved issues without workers going on the picket line. Increasingly, labor and management in the country have been able to resolve differences without the disruption of business operations.

DECEMBER 2010

311

Joint Foreign JOINTChambers FOREIGN CHAMBERS JOINT FOREIGN CHAMBERS

Advocacy Paper ADVOCACY PAPER PAPER ADVOCACY ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE ARANGKADA PHILIPPINES A BUSINESS PERSPECTIVE ARANGKADA PHILIPPINES 2010: 2010: A BUSINESS PERSPECTIVE ________________________________________________________________________ ________________________________________________________________________ DRAFT

DRAFT DRAFT September 22, 22, 2010 2010 September Not for for Distribution Distribution Not

Not for Distribution JOINT FOREIGN CHAMBERS ADVOCACY Figure 185: Notices of strikes filed andactual actual strikes, 1990-2009 PAPER Figure 185: Notices of strikes filed and actual strikes, 1990-2009 Figure 185: Notices of strikes filed and strikes, 1990-2009 ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE 1,800 1,800 Notices filed filed ________________________________________________________________________ Notices
1,600 1,600 1,400 1,400 1,200 1,200

September 22, 2010

Actual strikes strikes Actual

1,000 1,000 800 800 1,800

Figure 185: Notices of strikes filed and actual strikes, 1990-2009

Notices filed Actual strikes

600 600 1,600 400 400 1,400 200 200 1,200 0 0 1,000 800 600 400 200 1990 1990 1991 1991 1992 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004

2007 2007

2005 2005

2006 2006

2008 2008 2008 2009 2009 2009

Source: BLES-DOLE BLES-DOLE Source:

0 Figure 186: Workers involvedin in strikes strikes and lost, 1990-2009 Figure 186: Workers involved in strikes andmandays mandays lost, 1990-2009 Figure 186: Workers involved and mandays lost, 1990-2009

2007

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

80 Source: BLES-DOLE 80 70 70 60 60

Workersinvolved, involved, in in '000 '000 Workers Mandays lost, lost, in in '000 '000 Mandays

1,600 1,600 1,400 1,400 1,200 1,200

Figure 186: Workers involved in strikes and mandays lost, 1990-2009 50 1,000 50 1,000
40 40 80 30 30 70 20 20 60 10 10 50 0 0 40 30 10 0

Workers involved, in '000 Mandays lost, in '000

2001 2001

2002 2002

1990 1990

1991 1991

1992 1992

1993 1993

1994 1994

1995 1995

1996 1996

1997 1997

1998 1998

1999 1999

2000 2000

2003 2003

2004 2004

2005 2005

2006 2006

2007 2007

2008 2008

800 800 1,600 600 600 1,400 400 400 1,200 200 200 01,000 0 800 600 400 200 0

Source: BLES-DOLE BLES-DOLE 20 Source:

Economists comment on the inability of the Philippine economy to raise labor productivity Figure 187: Labor productivity index, 1980=100 Figure 187: Labor productivity index, 1980=100 over many decades, as shown in Figure 187 comparing the Philippines within the ASEAN-6. All Source: BLES-DOLE five of the other ASEAN economies have increased productivity since 1990. It more than doubled Singapore Malaysia 400 Singapore Malaysia 400 in Thailand and more than tripled in Vietnam. Productivity is GDP divided by the workforce.
2001 2002
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2006 2007 350 350 300 300 250 250 400 200 200 350 150 150 300 100 100 250 50 50 200 0 0 150 100

Figure Labor productivity index, 1980=100 Figure 187: 187: Labor productivity index, 1980=100, 1980-2009
Singapore Thailand Indonesia Malaysia Philippines Vietnam

Thailand Thailand Indonesia Indonesia

Philippines Philippines Vietnam Vietnam

1980 1980

1984 1984

1988 1988

1992 1992

1996 1996

2000 2000

2004 2004

2008

2009

2009 2009

2008 2008 2008

1981 1981

1982 1982

1983 1983

1985 1985

1986 1986

1987 1987

1989 1989

1990 1990

1991 1991

1993 1993

1994 1994

1995 1995

1997 1997

1998 1998

1999 1999

2001 2001

2002 2002

2003 2003

2005 2005

2006 2006

2007 2007

Source: The The Conference Conference Board; Board; Note: Note: The The index index was was based based on on labor labor productivity productivity per per person person employed employed in in 2009 2009 US$ US$ (converted (converted Source: 50 price to 2009 2009 price level level with with updated updated 2005 2005 EKS EKS PPPs); PPPs); EKS stands for for the the originators originators of of this this PPP PPP formula, formula, Eltoto, Eltoto, Kovacs Kovacs and and to EKS stands Szulc, which which essentially essentially is is a a multilateral multilateral Fisher Fisher index. index. Szulc,
0

1980

1984

1988

1992

1996

2000

2004

1981

1982

1983

1985

1986

1987

1989

1990

1991

1993

1994

1995

1997

1998

1999

2001

2002

2003

2005

2006

2007

Source: The Conference Board; Note: The index was based on labor productivity per person employed in 2009 US$ (converted to 2009 price level with updated 2005 EKS PPPs); EKSstands for the originators of this PPP formula, Eltoto, Kovacs and Szulc, which essentially is a multilateral Fisher index.

312

_____________________________________________________________________309 309 _____________________________________________________________________ DECEMBER 2010 NOVEMBER 2010 2010 NOVEMBER _____________________________________________________________________309 NOVEMBER 2010

2009

2009 2009

Indonesia

27 25 28 31 32 38 60

2010-11 2009-10

Malaysia
Thailand

Joint Foreign Chambers

Vietnam

Advocacy Paper
85

76 PERSPECTIVE ARANGKADA PHILIPPINES 2010: A BUSINESS Philippines 104

0 comparatively 20 40 60 80 120 As a consequence of its high minimum wage (see100 Part 4 Business Costs) and Source: WEF Global Competitiveness Reports; Total number of countries evaluated: 2009flat productivity, the Philippines is low ranked among the ASEAN-6 in the pay and productivity 10 (133); 2010-11 (139) category of the WEF Global Competitiveness Report (see Figure 188).

Figure 188: Pay and productivity rank, 2009-2010

Singapore Vietnam Malaysia Indonesia Thailand Philippines 1 1 4 6 6 9 20 29 29 38 74 82

2010-11 2009-10

10

20

30

40

50

60

70

80

90

Source: WEF Global Competitiveness Reports; Total number of countries evaluated: 2009-10 (133); 201011 (139); Q: To what extent is payin your company related to productivity?

1.

Headline Recommendations

Modernize the Labor Code. Rationalize holidays. Allow overseas service firm workers compensatory days off. Maintain the flexible working arrangements introduced in recent years. Focus on improving labor productivity. Create several million new direct jobs and many more indirect jobs. Attract manufacturers relocating from China. Reduce the unemployment and underemployment rates. Continue to resolve differences without disruptive labor action. Allow selfregulation of companies with support of chambers of commerce and industry associations. Reform the NLRC. Further narrow the skill-jobs mismatch by revising curricula and training. Re-introduce dual training system and support greater interaction between TESDA and private sector.

2.

3.

Recommendations: (9) A. Modernize the 36-year old Labor Code to end the disadvantage it has created for the Philippines with regional competitors. Areas for possible amendment include allowing night work for women, making it easier to dismiss employees for sound business reasons and poor performance, non-diminution clause of wages and benefits and revising rules on labor contracting. (Medium-term action DOLE, DTI, Congress, trade unions, and private sector) B. Rationalize holidays to approach ASEAN average of 15 paid days without reducing income of full time employees and increasing income of casual workers (see Part 4 Business Costs). (Medium-term action DOLE, OP, and Congress)
DECEMBER 2010 313

Joint Foreign Chambers ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

Advocacy Paper

C. In order to increase competitiveness, continue to allow firms providing same day services to overseas clients to provide employees, who have to work on Philippine holidays, substitute days off with pay in lieu of paying holiday premium.224 (Immediate action DOLE and private sector) D. Make wage increase consistent with inflation and productivity. Redefine the basis for the minimum wage to take into account smaller families and more than one wage earner. Create industry-specific minimum wages. (Medium-term action DOLE, Tripartite Regional Wage Boards, Congress, and private sector) E. Further narrow the skill-jobs mismatch by revising curricula and training and retraining the workforce and older students better for the hard-to-fill jobs of the present and future economy. Ensure that skills required for the successful growth of the Seven Big Winner Sectors are included in the curricula; involve the private sector in curriculum development and re-promote dual technical training. Support greater interaction between TESDA and the private sector. (Long-term action DOLE, DTI, DEPED, CHED, TESDA, Congress, and private sector) F. Create millions of new jobs, many of higher quality, through increased investment. Reduce the annual shortage of jobs and give Filipinos better choices of domestic and overseas employment. (Immediate action all concerned public and private sector entities) G. Develop a package of incentives to attract manufacturers relocating from China, with a target of creating several hundred thousand new jobs within five years. Promote the package to potential investors. (Immediate action DTI, DOF, DOLE, CEZ, SBMA, and private sector) H. Maintain the low level of labor disruption of business operations through good communications and cooperation between labor and management. Allow self-regulation of companies with the support of chambers of commerce and industry associations. (Immediate action DOLE and private sector) I. Improve the speed and fairness of the adjudication of labor cases before the National Labor Relations Commission (NLRC). (Immediate action DOLE and NLRC)

224

This scheme is already in place and needs to be maintained. Companies are required to convince more than 50% of their employees to accept this scheme. When that is achieved, DOLE certifies.

314

DECEMBER 2010