THE country’s informal sector, which accounts for a third of Philippine GDP, has helped stabilize the economy but kept Filipino’s incomes low, according to the Bangko Sentral ng Pilipinas (BSP).
In a briefing at the World Bank-International Monetary Fund (IMF) Spring Meetings, BSP Governor Felipe M. Medalla said the informal sector does not need much input from abroad.
Their removal from the formal sector, Medalla said, causes decisions such as those on policy rates to “matter very little” to them. This helps, in a way, stabilize the economy by cushioning the impact of such decisions on these workers.
“It’s both sad and good because that means they’re so excluded from the system that what happens to the formal system hardly affects them and that’s negative because the incomes in a formal system are higher. But at the same time, the economy is a lot more stable, because the informal sector doesn’t need much inputs from abroad,” Medalla said.
Medalla also said incomes in the informal sector account for less than half the average income in the formal sector. Workers in the informal sector also do not enjoy benefits such as medical insurance.
Despite this, the informal sector is able to provide jobs for Filipinos. During hard times when heads of families working in the formal sector lose their jobs, they are able to rely on other family members to pitch in and get informal employment, Medalla noted.
This, he noted, shows that there is a certain level of countercyclicality in terms of employment during hard times. Times of crisis would sometimes lead to an increase in employment, albeit in the informal sector.
“When the father of a family who was in the formal sector gets laid off, his wife and his son may have to work to replace his income. So sometimes, overall employment numbers are very hard to interpret. Sometimes the employment numbers go up when times are bad,” Medalla said.
The low incomes that result from informal employment can lead to poorly nourished children. Medalla lamented the high levels of stunting in the country.
Stunting does not only cause children to be shorter than what is appropriate for their age but also prevents these children from maximizing their brain power.
This causes them to lag behind in school. This diminishes their chances of getting higher incomes through their productive years.
Medalla notes that poorly nourished children do not start when they are born but when they are still inside the womb of their mothers. There is a high chance that women who are poorly nourished produce stunted children.
“You can also see a very high level of stunting of children from poor families. So that the day they’re born, they’re already behind. In fact, nine months before they are born, they’re already behind because the mother is also not well fed. So these are the things that should keep us awake at night, but at the same time it is very hard to change,” Medalla said.
Medalla said programs such as the Pantawid Pamilyang Pilipino Program (4Ps) which translates to “Bridges for Families,” is a good program to ensure that children are in school and receive proper nutrition. Pregnant women, under the program, should go for regular check ups.
The BSP Governor said the program received support from multilateral institutions such as the World Bank and the Asian Development Bank, proof that the international community believes in the merits of the program.
In 2007, Medalla proposed that the country adopt a similar program to Brazil’s Bolsa Familia program which gives up to 95 reals a month to families who can keep their children in school and take them to clinics for health check-ups.
This was a proposal made in order to help lift millions from poverty. At the time, Medalla lamented that economic growth only benefitted college graduates who work in Business Process Outsourcing/Call Center firms and possess all the skills that global markets require.
If the government decides to adopt a cash incentive program, Medalla projected that the government will only spend P20 billion to P30 billion a year for the program at that time in 2007.
He also said this was still better than encouraging the poor to seek self-employment opportunities, which would still pose them financial risks that they no longer need.
Meanwhile, in 2017, the Philippine Statistics Authority (PSA) said the unorganized or informal sector accounted for more than a third of the country’s total GDP of P14.48 trillion last year.
Using current prices, PSA Assistant National Statistician Vivian Illarina pegged the contribution of the informal sector to the country’s economy in 2016 at P5.013 trillion.
The Department of Labor and Employment’s Bureau of Workers with Special Concerns also said in 2017 that around 35.1 percent of the total 40.83 million labor force were “own account workers,” or self-employed.
