Appropriate programs needed to address COVID-19 impact on labor and enterprise per ADB

Strengthening labor market programs required for workers’ welfare

MANILA – The Asian Development Bank (ADB) today said with the Philippines recovering from the COVID-19 pandemic, the government needs to strengthen its labor market programs which is of prime importance to assist workers and enterprises into transition.

In an article entitle Philippines’ COVID-19 employment challenge: Labor market programs to the rescue written by Country Director for the Philippines Kelly Bird and associates Christina Lozano and Teresa Mendoza, they said the Philippines prior to the onset of the pandemic, had the longest economic and job expansion.

“There was remarkable growth in wage and salary employment, a measure of modern employment, growing at an average of 4.6% annually from 2015 to 2019. They rapid expansion in modern employment was strong enough to pull workers away from the informal sector in such big numbers that total informal employment was shrinking for the first time ever in the Philippines,” the report said.

However, the pandemic reversed some of the gains achieved, as in most countries, as it wiped out 1.7 million wage and salary jobs in the 12 months to January 2021. Employment in the informal sector rose by some 435,000 as the possibility that the pandemic may create long lasting impact on employment.

“Put simply, this temporary large shock to the economy might produce a persistently lower employment rate even after the economy has started to grow again. This phenomenon is known as hysteresis in employment,” the report further said.

The report identified three “transmission channels” of the pandemic on modern employment. They see an influx of jobseekers, including people who lost their work, school dropouts and new labor market entrants. They also see the longer laid-off workers and new labor market entrants remain unemployed, they become less employable in the further because of lost skills.

The pandemic has triggered a large re-allocation of jobs in different sectors. With job losses took place across most sectors, the hardest-hit sectors come from those dependent on personal contact, including accommodation, food services, transportation, and recreational service. Sectors that recover quickly and present positive job growth are those that tend to absorb lower shares of labor, including communications and technology and several high-skilled services sectors.

Though a share of these jobs will recover as the economy recoils, the change in employment composition to persist in the medium to long term. They foresee the divergence would increase skills mismatches in the labor market, “as workers do not transition easily between sectors given differences in required skills and experiences.”

The ADB study also noted companies are modifying their business models to utilize technology which would definitely reshape their workforces and the types or skills demanded by employers.

“Digital transformation and remote working will transform jobs, facilities, processes, and skills needs, including skills required for higher value-added services. These will further exacerbate the skills mismatch in the labor market,” the report added.

Described as policy lessons for employment, evidence from other countries suggests that these policies should support workers’ labor market transitions as well as enterprises.

Said to be the most effected tool for saving jobs is wage subsidies as it keeps workers attached to their employers during periods of lockdowns and slow recovery in business activities. The Philippines’ wage subsidy program of P46 billion last year was designed carefully and implemented successfully where 3.1 million workers received subsidies. The government is currently planning a second round of wage subsidies targeted to workers in particular sectors.

With the projected economic recovery, different governments will phase out wage subsidies and this early, some are considering replacing them with hiring subsidies to help facilitate the reallocation of displaced workers into new jobs.

According to the ADB, countries that successfully upgraded workers’ skills used the industry and employer-led skills training schemes. Skillnet Ireland provides networks of employers with annual matching grants to finance their short-term training of workers. Employers form a sector or locality formalize a network of at least 30 enterprises. It said the network is responsible for designing and implementing the training program. The ADB, in 2013, assisted the Department of Tourism with piloting a similar scheme in tourism enterprises. Forty-eight grants were provided and over 7,000 tourism employees were trained at a cost of P8,000. It was found to be a cost-effective model for reskilling workers.

For this year, the ADB is launching a larger pilot for funding enterprise-led skills training programs to help with reskilling and job transition in tourism, construction, and other selected sectors.

In the Philippines, the ADB said, flaws in apprenticeship programs resulted in an “extremely low uptake’ in apprenticeships creating skills shortages. With success stories from different countries, apprenticeship reforms need to include the establishment of an apprenticeship council to oversee policy, industry-led development of apprenticeship programs, progressive salary scales, extending apprenticeships for 6 months to 2-4 years, and extending apprenticeship programs to modern services like legal, finance and communication occupations.

The Philippine’s unemployment insurance scheme is limited. Adequate unemployment insurance ought to provide workers with income stability and helps them transition to new livelihoods. Malaysia’s program which utilizes a national pooled insurance fund where both employers and employees make monthly contributions. The government provides funding if there is a financing gap and workers qualify only if involuntarily unemployed. Over in Chile, employers and employees make month contributions to an account in the name of the employee. This is complemented by the Solidarity Unemployment Fund, which employees can access only after depleting their individual savings accounts. According to the ADB, the Chilean scheme does not create contingent fiscal liabilities.

“Workers in the Philippines will be facing a challenging next few years as the country rebounds from the pandemic. Further strengthening of active labor market programs will be critical for helping workers and enterprises make this transition,” the report concluded. (Melo M. Acuña)

Mr. Kelly Bird, ADB Country Director for the Philippines. (ADB file photo)