ADB backs more subsidies to avert long-term damage to PHL labor market


The Philippines needs to support its labor market by incentivizing hiring and introducing unemployment insurance to prevent long-term damage to the work force, Asian Development Bank (ADB) officials said in a blog post.

“The pandemic could create long-lasting effects 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,” ADB country director Kelly Bird, country specialist Maria Cristina Lozano-Astray, and senior economist Teresa Mendoza said in a blog post Friday.

They said 1.7 million jobs were lost in the formal sector between January 2020 and January 2021, while employment in the informal sector increased by 435,000.

“The early evidence from other countries suggests that policies should support workers’ labor market transitions as well as enterprises,” they added.

They said granting wage subsidies is the most effective measure for saving jobs after the pandemic and lockdowns forced businesses to shut and lay off workers.

Last year, the government implemented a P46-billion wage subsidy program designed to support employers in keeping workers at their jobs. It is estimated to have benefited 3.1 million workers. It will be followed by another round this year worth P24 billion.

“As the economic recovery takes hold, governments will phase out wage subsidies and some are considering replacing them with hiring subsidies to help facilitate the reallocation of displaced workers into new jobs,” the ADB blog read.

Another program that the government can consider is unemployment insurance.

“The Philippines’ unemployment insurance scheme offers limited coverage. Adequate unemployment insurance provides workers with income stability and helps them transition to new job,” they noted, citing examples from Malaysia  and Chile.

Malaysia has a national pooled insurance fund to which employers and workers make monthly contributions, with the government stepping in if funding is insufficient or if the job loss was involuntary.

In Chile, both employers and employees also make monthly payments to the worker’s account. This complements the Solidarity Unemployment Fund, which workers can tap if they have exhausted their savings. The ADB said such a system does not create contingent fiscal liability.

Mr. Bird, Ms. Lozano and Ms. Mendoza said one of the major impacts of the pandemic on the labor market is loss of skills and declining employability for the long-term jobless.

The labor market could also see more skills mismatches over the medium to long term after tjobs were re-allocated across sectors which were affected differently by the pandemic.

“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 to make this transition. — Beatrice M. Laforga