D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
CHAPTER 3
UNEMPLOYMENT &
INFLATION
Learning Objectives
• Discuss and explain the economics of labor markets;
• Determine and analyze labor and employment issues particularly in developing countries;
• Discuss and critique the public policies and approaches to labor and employment issues
Economics of Labor Markets
Land, labor, and capital are the three most intrinsic
factors of production. In this particular chapter, we
look at the value of human labor for firms and in
the larger scale, the economy.
Economics considers labor as a good or service;
therefore, it has demand and supply. On the
demand side, labor is derived; meaning that “a
firm’s demand for a factor of production is derived
from its decision to supply a good in another
market.” The labor demand curve is not constant
and at certain times, it shifts. These movements
may be attributed to the following reasons:
1. Output price – The value of the marginal product
of labor is equal to the marginal product of labor
times the price of the firm’s output. Note that when
output price changes, marginal product changes
and the labor curve naturally shifts. For instance,
increasing the price of mangoes raises the value of
the marginal product of each mango farmer, which
then increases labor demand from the firms that
produces and distributes these mangoes. Increase
in output prices increases labor demand, while a
IBON Foundation offers a
different perspective on
unemployment rates in the
country. They note that certain
changes in government
definition of unemployment
in 2005 affected our labor
statistics. Full employment
is an economic goal for all
countries. In the Philippines,
it is an important metric
of economic growth and
development. How do we best
understand the realities of our
labor sector? (Source: __)
decrease in output prices decreases labor demand.
2. Technological change – Technology offers new
and better ways of accomplishing tasks. Advances
in technology improves the marginal product of
labor.
3. Supply of other factors – The availability of
one factor of production can affect the marginal
product of other factors. Smaller lands to grow
mango trees affect the productivity of mango
farmers, and additional equipment to help farmers
pick mangoes may increase the number of outputs
produced.
The demand side focuses on the perspective of
firms hiring workers. Labor supply, on the other
hand, are the workers. Changes in the labor supply
may be attributed to the following:
1. Changes in taste – New trends and ideas may
alter value chains and production of certain goods.
In the same vein, labor supply may follow these
trends to keep themselves employable in the near
future. Secretarial and typing jobs lost steam when
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computers entered the market. Employers now
demand computer literacy instead of the usual
stenographic skills from the clerks and secretaries
they hire.
2. Changes in alternative opportunities – Available
options in other labor markets affect labor
supply. In the Philippines, teachers and nurses
were top professional choices in the early years
of independence because of good pay. Later on,
because of overseas employment prospects, the
supply of teachers declined while the supply of
nurses remained and even increased.
3. Immigration – The movement of people
from one place to another, either temporarily
or permanently, affect labor supply. Entry of
immigrants increase labor supply in the receiving
country or area, while sending countries or areas
suffer a decline in labor supply because of worker
exit. This is the case of overseas Filipino workers
(OFWs). One may also note that oversupply of
workers in a certain area do not bode well for local
employees as it crowds out their job opportunities.
Negative externalities such as discrimination and
wage differentials may ensue to appease a certain
worker demographic or demands of the host
country.
Wage Determination
Labor supply and demand determine the
equilibrium wage, and in turn adjusts to its
movements. Wages are also equivalent to the value
of the marginal product of labor (VMPL). Mankiw
notes that “any event that changes the supply and
demand for labor must change the equilibrium
wage and the value of the marginal product by
the same amount, because these must always be
equal (p. 406).”
In particular, firms have a direct relationship with
their employees. They work together to ensure
that firms earn profits, and profits in turn secure
the wages of these workers. Firms consider
employment rent in determining the wage of
workers. This means that there is a cost to job
loss—individuals are better off employed than
being fired from their jobs because of inadequate
effort. Wages therefore motivate workers to work
hard.
Variations in Productivity & Wages
Productivity and wages vary overtime and across
geographical locations or countries. Such changes
are largely attributed to long-run economic growth
and may require a different time to fully discuss.
For now, we focus on three key determinants of
productivity and wage differences:
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1. Physical capital – Equipment and structures help
workers increase their productivity. They produce
more when given better equipment; in turn, poor
equipment would just diminish outputs and affect
the motivation of workers.
2. Human capital – Significant investments on
education and on-the-job trainings (OJTs) would
improve the skills of workers and make them more
productive. Chapter 7 discusses this aspect in
detail.
3. Technological knowledge – When workers
have access to more sophisticated and advanced
technology, they produce more. Poor use of
technology adversely affects the outputs of
workers.
Now that we know that some people are more
productive than their peers, we now discuss wage
differences. Why do some people earn more than
their colleagues? Office jobs, businesspeople, and
computer programmers tend to earn more than
garbage collectors, farmers and even fisherfolks.
Among similar professions, a certain professor
gets a higher salary than a fellow instructor in the
same college. Various ideas are put forward to
explain variations in wages. We discuss some of
them here:
1. Compensating differentials. Some jobs are fun
and easy, while others are difficult and dull. One
will find it hard to measure the difference between
fun and dull or between easy and difficult, hence
the use of compensating differentials. These are
differences in wages that arise from non-monetary
characteristics of different jobs. If we do not use
differentials, most people would tend to choose the
fun and easy jobs over the difficult and dull ones,
anytime. Compensating differentials help induce
people to take on these difficult and dull jobs.
2. Human capital. These are the accumulations of
investments in people such as education and on-
the-job trainings (OJTs). They are less tangible but
are equally important to raising productivity and
improving the economy. Firms are willing to pay
more to hire educated and skilled workers; and in
turn, workers are willing to spend additional years
in school or engage in skills trainings if there is a
commensurate reward for it. It turns out that the
promise of higher wages incentivizes workers and
even the government to invest on human capital.
This topic is fully discussed in Chapter 7 of this
module.
3. Education as signaling. Contrary to the human
capital insight, some economists believe that
education could instead be a way to sort out
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
high-ability from low-ability workers. Similar to
the theory of advertising, education has no real
productivity benefit; instead, the worker signals
to the employee their innate productivity by their
willingness to spend more time in school or engage
in skills training. Human capital sees the value of
education in equipping future workers with skills
and knowledge for work; but signaling directly
contradicts this idea. Should we choose between
the two? The truth may lie not on the extremes
of both ideas but rather in balancing the two, so
studying remains an important choice for future
workers.
4. Ability, effort, and chance. People may be
employed in similar professions but differ in
wages. Some factors to consider include a person’s
natural ability—genetic differences and variations
in upbringing may create certain distinguishing
physical and mental attributes on a person which
may be useful for the job or profession they
choose. Effort or the degree of hard work may also
be a defining factor for certain professions. Lastly,
chance could play its hand on the jobs and wages
we receive. This is more difficult to measure. We
look at professional versus local league basketball
players. The natural ability of certain basketball
players shines during games and help athletic
scouts sign them for larger playing contracts.
Effort helps professional basketball players stay
in the game for the longer haul than those who
choose to be complacent. Chances such as being
teammates with better players or distinguished
coaches may help boost a player’s credibility in the
professional field.
5. Benefits of beauty. There are benefits to
being good looking. A study by Hamermesh and
Biddle (1994; as cited in Mankiw) note several
interpretations for the “beauty premium”. One, it
serves as an indirect measure of other types of
ability—a handsome man may indicate that he
can be a successful salesperson or a good office
personnel while a beautiful woman may mean that
she can be a dependable company member or a
smart employee. Two, for professions that rely on
public image and attractiveness, beauty and good
physical appearances play a large part in securing
higher wages. Celebrities, models, news anchors,
and even politicians invest on their make-up,
wardrobe, and overall physique in an effort to stay
on top of their profession. Three, discrimination.
We will look into this last reason in greater detail
later.
6. Superstar phenomenon. Some jobs earn
little, while others earn more. Boxing legend
Manny Pacquiao and celebrity Angel Locsin both
earn astronomical incomes compared to their
colleagues in their respective professions. The
same is true among secretaries or carpenters.
Excellent secretaries earn more than mediocre
ones; artisan and meticulous carpenters secure
better clientele than run-off-the mill ones. Yet, the
best secretaries and carpenters do not earn as
high as the likes of Manny or Angel. Why? We must
understand the special features of the markets
they sell their services: (a) every customer in the
market wants to enjoy the good supplied by the
best producer; but (b) the good is produced with
a technology that makes it possible for the best
producer to supply every customer at low cost.
Applying these to our examples, Angel is the best
producer of superhero acting and good drama,
and technologies such as the television and digital
copies of her movies allow people to enjoy her
services as an actor at a low cost. A carpenter
on the other hand may be the best producer of
furniture, and technology may help them produce
more but always only for a limited number of
customers.
7. Presence of above-equilibrium wages. If we
strictly follow the movement of labor demand
and supply, we arrive at an equilibrium wage. But
several factors contribute to wages offered way
above the agreed market equilibrium. First, the
presence of minimum wage laws distorts the
equilibrium. Minimum wage laws are provided to
meet decent living conditions for workers with
various skills sets. Second, the market power of
labor unions also plays a huge role in securing
above-equilibrium wages. Unions are worker
associations that bargains with employees over
higher wages and improved working conditions. If
certain conditions are not met, unions are strong
enough to undertake an organized withdrawal
of labor from a firm, commonly known as strike.
Lastly, above-equilibrium wages are present
because firms find it productive to do so. It is a
good motivation for workers to increase their
productivity, which in turn increases profits of
firms.
8. Work discrimination. Discrimination is defined as
“differences in opportunities to similar individuals
who differ only by race, ethnic group, sex, age, or
other personal characteristics.” It may be classified
as to firm decisions, customer preferences, or
even government policies. The discussion in
Mankiw notes that discrimination usually happens
because of compensating differences or human
capital investments—for instance, minorities such
as blacks or Hispanics receive less education,
hence they do not earn as much as their white
counterparts. It could also be because customers
prefer a certain type of worker or when the
government mandates a specific discriminating
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factor for employment.
Neoclassical theory of distribution believes that
discrimination could be naturally remedied by
market-based approaches. Imagine an economy
where people are hired based on the color of their
hair. Workers have the same set of skills and
knowledge, only with different hair colors. Firms
choose to hire black-haired workers only, which
later on, increases their value in the market. This
may happen for some time, until competitors catch
on and start hiring colored-hair workers even at
lower wages. Competitors are able to produce
more because they pay less for labor. In the long-
run, firms that hire only black-haired workers would
find it difficult to maintain such discriminatory
policy when their competitors can produce
more at a lower labor cost. They may choose
to abandon their discriminatory policy against
colored-hair workers and lower their production
costs; or eventually exit the market because
they’re unable to maintain high labor costs relative
to retaining their discriminatory principle. The
idea is summarized here: firms who are intent on
discriminating would later be taken over by firms
focused on gaining more profits.
Unemployment
For most economies, full employment is an
important development goal, all members of
the economy are productive and contributing
to national growth. But certain circumstances
lead to a significant part of the labor force
becoming unproductive or without a job, we call
this unemployment. Unemployment is a pressing
developmental issue for developing countries. The
International Labor Organization (ILO) specifically
defines the concept as follows:
- Individuals without work during a reference period
(usually four weeks), which means they were not in
paid employment or self-employment;
- Available for work;
- Seeking work and have taken specific steps
in that period to seek paid employment or self-
employment.
The following diagram illustrates how employed
and unemployed individuals are present in a
community, as adopted from Core-Econ Project.
Now, let us identify basic measures for
employment and unemployment. We measure
labor force participation rate as the proportion
of the working age population that is in the labor
force. It is illustrated as follows:
Labor force participation rate=(labor force)/
(population of working age)
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Labor force participation
rate=(employed+unemployed)/(population of
working age)
Employment rate is the proportion of the
population of working age that are paid in work or
self-employed. It is illustrated as follows:
employment rate=employed/(population of
working age)
Unemployment rate is measured as the proportion
of the labor force that is unemployed. It is
illustrated as follows:
unemployment rate=unemployed/(labor force)
Note that there are different denominators
for unemployment rate and employment rate.
This shows that countries may have same
unemployment rates but have different rates of
employment if one has higher participation rate
while the other country has a lower one. Degrees of
labor participation and the population of working
age are significant indicators of the quality and
quantity of labor in a certain society.
There are three types of unemployment:
Frictional unemployment – labor market does not
operate faultlessly in matching workers with jobs.
Often this happens when new graduates enter the
workforce or former workers re-enter the labor
force, change in employment due to resignation,
removal from work, or changing interests, or
migration.
Structural unemployment – associated with a skills
mismatch or a significant change in demand or
technology altered the structure for labor demand.
Cyclical unemployment – often caused by
recession or a breakdown in the economy.
We now ask if full employment or zero
unemployment is possible? As much as it is a
noble vision, it is not possible. There will always
be some form of involuntary unemployment in
a certain society. Why? Core-Econ explains that
if there is no unemployment, the cost of job loss
is zero, meaning there is no employment rent.
Therefore, unemployment is necessary to motivate
workers to provide effort on the job. Otherwise,
they’d find it okay to just resign or get fired because
a worker would always find a job that would absorb
them for another gainful employment.
While some form of unemployment is workable,
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
a large rate of unemployment is not good for the
economy. It does not only affect the welfare of
the individual who lost or is without a job, it also
translates to macroeconomic repercussions. If
people are without work, they resort to various
means to earn an income. They can enter into
precarious and insecure work conditions, those not
covered by the law or regulatory agencies. Others
juggle odd jobs to ensure a larger income; and at
some point, people are pressed by circumstances
to commit crimes or other violent activities just
to ensure there’s money to spend for basic needs
such as food, health, and shelter. Employment is
important, quality and secure employment are
much important goals to pursue.
We look at several issues that result or may cause
unemployment, particularly in developing countries:
Overpopulation – high population means more
people needs to be considered for employment.
Right now, the Philippines has a 1.7% population
growth rate, higher than the world’s 1.2% growth
average.
Oversupply of labor force and inability to
absorb available jobs – this is directly related
to overpopulation, but also the quality of our
education and training institutions. While several
quality jobs are available, the supply of graduates
and workers are not directly responsive to the
demand present in our labor market. A clear
mismatch may have to be resolved overtime by
regulatory agencies and education policies to
ensure that we would later on match skills with
available jobs. Otherwise, potential labor force
participants would just move to other markets or
accept existing jobs without the necessary skills to
meet the needs for the job.
Tradeoffs Between Work & Leisure
A certain worker may compare tradeoffs between
work and leisure. Should a worker choose to spend
more time for leisure, then time for work and
productivity may be lessened. On the flip side, a
worker who chooses to accomplish more would
have lesser time for leisure. Wages increase,
and so the incentives relative to the tradeoffs
and choices we make between work and leisure
may change. For instance, a worker with higher
wages can choose to spend lesser time on work
to compensate for leisure. This may be the reason
why some people choose to work hard in their
younger years to enjoy the fruits of their labor once
they retire.
A more critical lens, however, notes several
observations:
1. It assumes that productive work includes
only those provide income. Leisure and hobbies
therefore are not productive, so do household
chores, taking care of children and elderly people,
or even giving birth. The definition is quite rigid
and discriminatory, often at the expense of women
and minority populations. Had women chose to
forego giving birth in favor of work or rear children,
the economy might suffer from a smaller labor
force. Indigenous peoples who live in the far-flung
communities, taking care of the forests and the
rivers entrusted to them centuries back by their
ancestors may also be considered unproductive.
The same logic may be applied to people who
volunteer in rescue operations or those that work in
informal settings.
2. It pushes people to choose between the binaries
of work and leisure, when it may be possible to
undertake both. They are not mutually exclusive.
People can choose to enjoy both work and
leisure to achieve a more balanced and holistic
perspective in life. If the only choice we give them
is between working and playing, people may feel
guilty about relaxing or taking a much-needed
leave. This brings us to the last point.
3. Creating work-leisure binaries could force people
to commodify the hobbies that interest and relax
them. Creative endeavors, musical inclinations,
and even home skills are monetized because of
the whole idea of income equals productivity. A
number of self-help gurus tell us we can write a
book in a week, or a year’s worth of blogposts in a
month. It is not bad to sell our wares or earn from
the things that interest us. But if the only idea of
pursuing a hobby is to commodify it later on, then
maybe our income productivity gospel may have
gone too far.
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CASE STUDY: “BAGONG BAYANI” NARRATIVE
Overseas Filipino workers are “Bagong Bayani”
according to our government. They bring much
needed foreign remittances to keep our flailing
economy afloat. But much of the discourse also
points to the struggles faced by our so-called
heroes. The social and economic costs of overseas
work have since taken a toll on the Filipino labor
force—families are torn-apart with most parents
foregoing child-rearing in favor of earning a higher
income to put food on their tables and roof on the
head of their children. The best and the brightest
Filipinos are also choosing to leave for promise of
higher income and better opportunities.
The Philippines: Beyond Labor Migration, Toward
Development and (Possibly) Return
July 12, 2017 | By Maruja M.B. Asis
Migration Policy Institute | Source: https://www.
migrationpolicy.org/article/philippines-beyond-labor-
migration-toward-development-and-possibly-return
In the Philippines, a deeply rooted and pervasive
culture of migration has made moving abroad
common, acceptable—even desirable—as an option
or strategy for a better life. For decades, sizeable
numbers of Filipinos have left home in search of
permanent settlement or temporary work overseas,
trends long attributed to the fragile economy (and
exacerbated by frequent natural disasters). Today,
more than 10 million Filipinos—or about 10 percent
of the population—are working and/or living abroad.
While a markedly improved economic situation
in recent years has not diminished the outflows,
it has allowed the country to move beyond its
longstanding labor migration policy to incorporate
migration into long-term development planning and
strengthen the return and reintegration of overseas
Filipino workers (OFWs).
When the Philippines launched an overseas
employment program in the 1970s, the thrust was
finding labor markets: The state not only promoted
Filipino workers to the oil-rich but labor-short
Gulf Cooperation Council (GCC) countries, it also
sold these uncharted Middle East destinations
to Filipinos. By the latter half of the 1970s, as
deployment and competition with other origin
countries increased, surfacing labor migration
problems (including poor working conditions and
abuse by employers) prompted the government
to address migrant welfare and protection. As
destinations diversified and women joined the labor
migration flows, the protection aspect assumed
more importance.
The government subsequently developed a
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Remittances are band-aid solutions to larger
problems such as poor quality of jobs, prevailing
poverty and unequal incomes, and lesser
incentives to stay (e.g. potential to move up the
socio-economic ladder, traffic and congestion, the
promise of a better life). Politically, it is profitable
to be supportive of OFWs than work hard towards
improving the conditions at our own turf. The result
is a fragmented society and the costs are higher
than before. Should we continue working towards
a stronger labor export policy or start investing on
better domestic conditions to ensure that the next
generations would not see leaving the country a
better choice than staying?
number of institutions, laws, and policies aimed
at enhancing the protection of OFWs and their
families, spurred on by civil-society advocacy.
This dual approach of facilitation and protection
contributed to making the Philippines a major
source country of workers and talent for the global
labor market, while also providing protection to
OFWs. The “success” of this approach, however,
may have trapped the Philippines into complacency:
Large, steady flows of remittances have become the
country’s lifeline. The Philippines ranks third after
India and China as major recipients of remittances.
In 2016, the country received US $26.9 billion in
money transfers, according to the Central Bank of
the Philippines. There are concerns that reliance on
remittances may have delayed the implementation
of needed reforms.
Recent attempts to link migration policies with
development policies demonstrate a remarkable
shift in governance in the Philippines, earning
positive reviews from the international community.
After several boom-and-bust decades, in the
2000s the Philippine economy entered a period of
impressive growth: Between 2011 and 2016, gross
domestic product (GDP) grew by an average of
approximately 6 percent yearly, and the economy
proved resilient through political crises and
transitions. Nonetheless, the positive economic
news has not slowed or halted emigration. This
is likely because Filipinos have more resources
to migrate, and though the economy has grown,
unemployment has yet to be tempered. Thus,
sustainable development that provides decent work
opportunities continues to elude the Philippines.
This country profile examines the evolution of
migration policymaking and trends over the
past several decades and through the present
administration of President Rodrigo Duterte.
Background: The Centrality of the United States in
Early Filipino Migration
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
After more than three centuries of Spanish colonial
rule, the Philippines became a U.S. territory as a
result of the Spanish-American War in 1898. For
much of the 20th century, “international migration”
for Filipinos meant moving to the United States and
its Pacific territories.
The first batch of Filipino workers arrived in Hawaii
on December 20, 1906 to work on sugarcane
and pineapple plantations. More workers, mostly
single men, followed; others left Hawaii to work in
agriculture in California, Oregon, and Washington, or
the salmon canneries of Alaska. On the mainland,
low-wage service work in the cities provided
income between agricultural seasons or when
other jobs were not available. Some 4,000 Filipinos
were employed in the merchant marine, but this
employment possibility ceased with the Merchant
Marine Act of 1936 requiring the crew of U.S. flag
vessels to be at least 90 percent American citizens.
The Commission on Filipinos Overseas includes
the following categories of migrants in its stock
estimates:
• Permanent Migrants - Filipino immigrants and
legal permanent residents abroad, Filipino spouses
of foreign nationals, Filipinos naturalized in their
host country, Filipino dual citizens, and their
descendants.
• Temporary Migrants – Filipinos whose stay
overseas, while regular and properly documented,
is temporary, owing to the employment-related
nature of their status in their host country. Include
land-based and sea-based Filipino workers,
intracompany transferees, students, trainees,
entrepreneurs, businessmen, traders, and others
whose stay abroad is six month or more, and their
accompanying dependents.
• Irregular Migrants - Filipinos who are not properly
documented or without valid residence or work
permits, or who may be overstaying their visa.
Estimates place the number of Filipino workers
coming to the United States, chiefly to Hawaii,
between 1906 and 1934 at 120,000 to 150,000. A
small number of scholars, known as pensionados,
also migrated to the United States before the 1920s.
They were typically either sponsored by the U.S.
government or by missionary-related programs.
Some returned and assumed important positions in
Filipino society, while others remained in the United
States.
Because the Philippines was a U.S. colony, the
movement of Filipinos to the United States was
considered internal migration. As U.S. nationals,
Filipinos could enter and leave the country freely,
but could not access citizenship. It was not until the
passage of the 1934 Tydings-McDuffie Law, which
provided for the granting of Philippine independence
within ten years, that the Philippines became
subject to immigration quotas, and Filipinos in
the United States became aliens. The law limited
the Philippines to 50 visas per year, and migration
dropped off dramatically. But even so, there was
an exception clause: In case of a labor shortage,
the governor of Hawaii was authorized to hire
Filipino workers. World War II intervened and further
migration to the United States stalled, until the
Philippines became independent in July 1946.
Following passage of the 1965 Immigration and
Nationality Act, which struck down nationality-
based restrictions, Filipino immigration grew and
diversified. Other countries of settlement also
dismantled their pro-European immigration policies
in the 1970s, paving the way for Filipinos to enter
Canada, Australia, and New Zealand under family-
or skills-based provisions. The Philippines eventually
became one of the top ten origin countries in these
traditional immigration destinations.
This permanent migration, however, was
overshadowed by the larger and thornier temporary
labor migration that started in the 1970s. Although
the Commission on Filipinos Overseas (CFO)
estimates the stock of permanent migrants (which
includes Filipinos born overseas; see Box 1) is larger
than that of temporary migrants, the country’s
migration policies have focused on the significant
annual outflows of temporary workers, their
distribution throughout the world, and the myriad
related issues.
Becoming a Source Country of Workers
A number of factors led to the ascent of the
Philippines as a major labor exporter in Asia and
worldwide. When large-scale labor emigration
began in the 1970s, the push factors—already
quite strong—were worsened by the 1973 oil
crisis. Economic gains could not keep pace with
population growth, and the country was hard
pressed to provide jobs and decent wages while
grappling with severe balance of payment problems.
At the same time, the GCC countries needed
workers to realize their ambitious infrastructure
projects. With supply and demand converging, the
Philippines was ripe for large-scale labor migration,
an opportunity the government of Ferdinand
Marcos recognized. In 1974, the Labor Code of the
Philippines established the framework for what
became the government’s overseas employment
program.
The Philippines’ foray into organized international
labor migration was supposed to be temporary,
lasting only until the country recovered from its
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economic problems. However, the ongoing demand
for workers in the GCC countries and the opening
of new labor markets in other regions, especially in
East and Southeast Asia, fueled further migration.
On the supply side, the push factors did not abate.
Lack of sustained economic development, political
instability, unabated population growth, persistent
unemployment, and low wages continued to
compel people to head abroad.
The flow of OFWs, numbering a few thousand
per year in the early 1970s, surged past 1 million
beginning in 2006 (see Figure 1). In 2015 alone,
more than 1,844,000 Filipinos worked abroad. The
data on deployed workers include seafarers, who
account for 20 to22 percent of all OFWs every year.
Filipinos dominate the global seafaring industry,
accounting for 25 to 30 percent of the world’s
seafarers.
As of December 2013, the stock of overseas
Filipinos totaled slightly more than 10 million,
including some 4.9 million permanent settlers (64
percent of whom are in the United States), about 4.2
million temporary migrants (mostly labor migrants,
or OFWs, with Saudi Arabia hosting close to 1
million), and an estimated 1.2 million unauthorized
migrants worldwide (primarily in Malaysia and the
United States).
Filipinos are present in the far reaches of the globe,
mostly because of work. Although the destinations
of OFWs have diversified, to this day, the Middle
East still receives the largest share, with 64 percent
heading to the region in 2015, followed by Asia
with 28 percent (see Figure 2). In 2015, six of the
top ten destinations for both new hires and rehires
were in the Middle East (Saudi Arabia, United Arab
Figure 1. Annual Deployment of Overseas Filipino
Workers (OFWs), 1975-2015. Source: Philippine Overseas
Employment Administration (POEA), “Compendium of
OFW Statistics,” accessed July 6, 2017, available online.
42
Emirates, Qatar, Kuwait, Oman, and Bahrain), and
the remainder were in Asia (Singapore, Hong Kong,
Taiwan, and Malaysia).
Filipino women are very visible in international
migration. They not only compose the majority of
permanent settlers, i.e., as part of family migration,
but are as prominent as men in labor migration.
In fact, since 1992, females have generally
outnumbered men among the newly hired land-
based workers legally deployed every year. In 2015,
domestic work was the top occupation for new
hires, at 38 percent.
While the demand for domestic workers has long
been the main driver of female migration from
the Philippines and Asia in general, until 2005, the
demand for entertainers, mostly in Japan, also
fueled this migration. With work in the domestic and
entertainment sectors unprotected and prone to
abuse, the safety and well-being of women migrants
became a significant concern. Entertainer migration
was particularly controversial and stigmatized
because of perceptions that women ended up in the
sex industry. From a deployment to Japan of tens
of thousands of Filipino entertainers annually, the
numbers dropped sharply in 2005 following Japan’s
decision to adopt more stringent requirements for
foreign entertainers. Likewise, the significance of
domestic worker migration was a major push for
the Philippines to ratify the 2011 Convention on
Domestic Workers, which recognizes domestic
work as labor that must be protected.
Beyond Labor Migration
The growing volume of labor migration from the
Philippines has increased the incidence of problems
and challenges faced by migrants and their families.
Figure 2. Deployment of Land-Based OFWs by Region,
2015. Source: POEA, “Compendium of OFW Statistics.”
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
The participation of private recruitment agencies
in matching workers with employers abroad has
contributed to the challenges. The problems that
emerged in the 1970s remain the same today: illegal
recruitment, contract substitution, illegal placement
fees, long working hours, and no days off (in the
case of domestic workers), among others.
Over the years, institutional and policy development
in the Philippines was geared toward worker
protection. The 1995 Migrant Workers and Overseas
Filipinos Act, a landmark law, aimed to provide
protection to OFWs from predeparture through
arrival and return. The focus on protection shifted
during the presidency of Gloria Macapagal-Arroyo
(2001-10), when the government for the only time
to date set a target for the deployment of workers.
The Medium-Term Philippine Development Plan
2004-2010 set a goal of sending 1 million workers
overseas every year.
This thrust was reversed by the subsequent
administration of Benigno Aquino III (2010-16). His
social contract with the Filipino people included the
goal of moving “from a government that treats its
people as an export commodity and as a means
to foreign exchange, disregarding the social cost
to Filipino families, to a government that creates
jobs at home, so that working abroad will be a
choice rather than a necessity; and when its citizens
do choose to become OFWs, their welfare and
protection will still be the government’s priority.”
This stated desire to a return to welfare and
protection was accompanied by legislative and
executive actions to further regulate labor migration
and expand services for OFWs. Soon after Aquino
took office, he signed Republic Act (RA) 10022
into law, aiming to further strengthen measures to
protect migrant workers, their families, and other
overseas Filipinos in distress. Among the law’s key
provisions is the restriction of deployment only
to countries that have been certified as safe and
offering protection. Implementation-wise, certifying
a country as safe or unsafe can be politically and
diplomatically sensitive, and deployment bans
(even for good reasons) have not proven effective
in stopping migration. The law also mandates
recruitment agencies or employers to provide OFWs
with compulsory insurance to cover accidental
death or disability, among other protections.
The Philippines Overseas Employment
Administration (POEA) also amended recruitment
industry regulations, resulting in the 2016 Revised
POEA Rules and Regulations Governing the
Recruitment and Employment of Seafarers, and a
separate set of rules and regulations applying to
land-based workers. These measures were aimed at
curbing the illegal practices of recruitment agencies,
such as exorbitant placement fees and contract
substitution, which negatively impact migrants.
The welfare and protection of OFWs received
another boost in 2016 with RA 10801, which
launched a new charter bolstering the Overseas
Workers Welfare Administration (OWWA). This
agency’s mandate is to provide programs and
services for the welfare of OFWs and their
families, and to manage the funds from member
contributions and interest from investments. The
contributions come from the OWWA membership
fee of US $25 per contract (which employers
or recruitment agencies are supposed to cover
but instead pass on to OFWs). A number of
nongovernmental organizations had criticized
the government for not financially contributing
to OWWA operations. The 2016 OWWA charter
changed this, stating that the national government
would allocate a regular budget for the operations
and personnel expenses of the agency, which would
free up more funds for programs and services. The
law also identified the reintegration program as a
core function for OWWA, shifting responsibility from
the Department of Labor and Employment.
The government’s antitrafficking measures also
strengthen the protection environment (although
trafficking can also occur internally). The Expanded
Anti-Trafficking in Persons Act of 2012 (RA 10364)
amended the 2003 Anti-Trafficking in Persons Act
to enhance concerted efforts to combat trafficking
and increase penalties for violators. Those who
are identified as victims of trafficking can access
support and assistance.
Growing marriage migration also has caused
anxieties about the welfare of women who
marry foreign nationals. A new law (RA 10906)
strengthening the Anti-Mail Order Bride Act of
1990 was enacted in 2016. Unlike the earlier law,
the amended version applies to Filipino men as
well as women (though marriage migrants are
overwhelmingly female), and takes into account
trafficking and new developments, such as online
transactions. The law mainly prohibits commercial
or for-profit matching or offering of Filipinos to
foreign nationals through the mail, in person, or
over the Internet, for the purpose of marriage or
common law partnership.
Linking Migration and Development
Beyond the now-traditional facilitate-and-protect
policy framework, migration governance in recent
years has also started to make inroads on migration
and development. The global discussion on the
migration and development nexus may have
influenced reflections in the Philippine context. A
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2007 conference and a 2010 comprehensive study
on migration and development in the Philippines
brought to the fore five key observations:
1. Migration policies in the Philippines were primarily
focused on temporary labor migration.
2. The development impact of migration was
mostly discussed in terms of economic benefits,
particularly remittances.
3. The social costs of migration to families were
often mentioned.
4. National, regional, and local development
plans did not take international migration into
consideration.
5. At the regional and local levels, there were few
migration institutions.
In other words, the migration and development
nexus was more of a disconnect: Except in the
case of remittances, policies in these areas were
not linked, and the national framework was out of
sync with local frameworks. The Central Bank of
the Philippines had taken the lead on improving
the remittance environment, likely driven in part
by the enormous importance of these money
transfers as well as the relative ease of monitoring
formal remittances, compared to other impacts
such as social costs. However, other migration and
development initiatives were not as persistently
pursued, implemented, or monitored.
Despite this implementation gap at home,
the Philippines has become a global leader in
discussions on migration and development. It
has actively participated in the Global Forum on
Migration and Development, and hosted the second
such forum in 2008.
These development-related discussions have also
expanded the domestic migration conversation to
encompass the broader population of overseas
Filipinos, not just OFWs. At the start of the Aquino
administration in 2010, the CFO, created in 1980 to
look after the concerns of permanent migrants and
nurture their links to the Philippines, embraced the
task of “Responding to the Challenges of Migration
and Development.” The commission began more
actively reaching out to the Filipino diaspora
through global and regional summits and developed
a one-stop online portal for diaspora engagement,
BaLinkBayan.
CFO also lobbied and cooperated with the National
Economic Development Authority (NEDA), the key
government agency responsible for development
planning and policy, to integrate international
migration issues into the Philippine Development
Plan 2011-16. Sixty provisions on migration
and development appeared in seven out of nine
chapters of the plan. Further, in 2014, NEDA created
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an interagency structure to promote attention
to migration and development and improve
coordination among migration-related agencies and
other government agencies.
There has also been movement toward involving
local governments in developing institutions,
policies, and programs on migration and
development, including under Phase II of the Joint
Migration and Development Initiative (JMDI). In
the past, local officials tended to think of overseas
employment as a national government concern and
responsibility. While few local governments have
established migration centers, the POEA and OWWA
have forged partnerships with local governments to
enhance the reach of their programs and services.
Migration Governance under Duterte: Is Change
Coming?
After campaigning on the promise of “change
is coming,” Rodrigo Duterte became the 16th
president of the Philippines on June 30, 2016,
succeeding Aquino. Like Filipinos at home, those
overseas largely voted for Duterte.
A year into the Duterte presidency, his
administration has sent mixed signals on how
it will handle international migration. In his first
State of the Nation Address in July 2016, Duterte
rattled off a list of migration-related goals, namely
to combat human trafficking and illegal recruiting,
provide mandatory financial education to migrants,
and consolidate offices and agencies dealing with
overseas Filipinos to more efficiently respond to
their concerns.
The first—waging “war against traffickers and illegal
recruiters”—basically continues predecessors’
protection thrust. Similarly, the nod to financial
education for migrants and their communities was
part of the package of migration and development
initiatives in the 2000s.
In its first 100 days, the Duterte administration
introduced some immediate moves to hasten
government processes affecting OFWs, including
setting up one-stop shop service centers at the
POEA. These centers gather in one location the
government agencies where applicants or overseas
workers secure documents needed to process
their papers. Other changes, such as dropping
the requirement for vacationing OFWs to secure
an overseas employment certificate and the
introduction of an online seafarer registry, were
hailed by OFWs. Discussions are underway to
cut through more red tape, such as extending the
validity of Philippine passports from five years to ten
years.
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
However, Duterte’s proposal to create a single
department to effectively address various
OFW concerns would be a departure from the
multiagency approach that the Philippines has
fashioned over the years.
To Consolidate, or Not To Consolidate?
Duterte’s allies in Congress lost no time in proposing
versions of the bill to create a single migration
department. Proponents argue that the proposal
is intended to fulfill Duterte’s campaign promise to
better serve OFWs, suggesting a single department
would be more efficient. Civil-society organizations
are divided on this proposal. Opponents argue
that the various agencies that cater to different
types of overseas Filipinos and/or have different
mandates have already developed competencies to
perform their functions. Rather than create another
bureaucracy whose components will be carved out
from existing departments or divisions, opponents
argue it would be more constructive to improve
coordination among agencies.
Interestingly, Labor Secretary Silvestre Bello III has
a different idea. He sees a department devoted
to OFWs as further institutionalizing overseas
employment, which he claims is the very opposite
of what this administration wants. He said, “Our final
goal is to bring them back to the country and we
can only do that if we give them decent jobs, decent
pay.” However, while the goal of bringing OFWs
home one day has been expressed by all presidents,
it has largely been unrealistic.
Duterte Finds Approval Among OFWs
The response of OFWs to President Duterte is
one of overwhelming support . In his first year as
president, he made 21 overseas trips, visiting 18
countries and touching base with Filipinos abroad,
who greeted him enthusiastically.
In his visit to Saudi Arabia, Bahrain, and Qatar in
April 2017, Duterte stated he was ready to kneel
before OFWs to show his appreciation for their
sacrifices in sending remittances home. Appearing
before Filipino communities in these GCC countries,
he repeated his promise to deliver better services
through the proposed Department of Overseas
Filipino Workers.
When he met with Filipinos in Japan, the crowd
applauded his promise to end the Filipinos’ search
for opportunities outside the country: “I work hard
that we will earn more so that by the time, this is
my promise to you and God and to those working
abroad, this will be the last. The next generation of
Filipinos will work in the Philippines. So we will do
away with so many things. Corruption, then drugs.”
Indeed, in his visits abroad, Duterte never fails to
discuss the central program of his administration:
the war on drugs. His overseas audience sees his
hardline stance, which has received international
condemnation, as decisive and the war on drugs as
necessary to rid the country of drug addicts. Since
he took office, more than 7,000 alleged drug users
and dealers have died in extrajudicial killings carried
out by police or vigilantes, according to Human
Rights Watch. The reactions of Filipinos abroad
to the killings, mostly of poor Filipinos, as well as
the disregard for human rights and the culture of
violence that the war on drugs has bred have been
muted.
Long-Term Development
Offering another glimpse into how the new
administration will address migration, in February
2017 it approved the Philippine Development
Plan 2012-22. The new PDP builds on the
previous development plan, but also situates
the development agenda within the longer-term
AmBisyon Natin 2040 (Our Vision 2040; literally,
ambition), which reflects the aspirations of Filipinos
for themselves and their country.
This long-term view in the new PDP is novel, as
development plans are typically anchored on the
six-year cycle of each administration. The new
PDP explains, “As one of Asia’s better-performing
economies today, the Philippines is in a more
favorable position than it has ever been in the
last four decades. No longer weighed down by an
unmanageable fiscal deficit and more secure in its
political legitimacy, the government can now afford
to think about national goals based on a longer
time horizon.” The Duterte administration’s target
is to achieve annual GDP growth of 7-8 percent
in the medium term, and the PDP aims to cut the
poverty rate from 21.6 percent to 14 percent overall,
and from 30 percent to 20 percent in rural areas. It
also seeks to reduce the unemployment rate of 5.5
percent by 3-5 percentage points by 2022.
The new PDP gives special attention to overseas
Filipinos by incorporating international migration
issues, often referencing migrants directly,
throughout. It gives attention to the special
circumstances of migrants and their families, and
aims to protect their rights and improve their well-
being, strengthen their engagement in governance,
facilitate their participation in the country’s
development, and ensure their smooth reintegration
upon return.
In its chapter on human-capital development,
the PDP acknowledges the push factor in labor
migration, noting that “Limited employment
opportunities force Filipinos to migrate by necessity
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 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T
and not by choice.” It points to regional integration
initiatives such as the Association of Southeast
Asian Nations (ASEAN) and efforts to strengthen
ties with China and Russia as opportunities to
diversify destinations. ASEAN Member States,
notably Singapore and Malaysia, have long been
OFW destinations. In the case of China and Russia,
Duterte overtures to these two countries may
have played a hand in identifying them as potential
future destinations. For now, these two receive a
small number of Filipino workers, although reports
indicate some 200,000 unauthorized Filipino
domestic workers live in China, where they earn a
higher income than in Hong Kong.
Limited employment opportunities also affect
higher skilled Filipinos. A study assessing the
country’s innovation found that the supply of
STEM (science, technology, engineering, and
mathematics) workers outpaces local demand,
which leads to emigration and underemployment
of skilled scientists and engineers. And their
emigration results in brain drain, which deprives
the country of human capital important for
development. The PDP calls for strengthening
the long-running Balik Scientist (Return Scientist)
Program and similar schemes, and is open to the
idea of tapping foreign experts, including overseas
Filipinos, for institutional capacity building and
development expertise.
Since 2016, the National Reintegration Center for
OFWs has been conducting consultations with
stakeholders nationwide in preparation for the
reintegration summit that will be held in August
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2017. The summit aims to produce thoughtful
reflections and action plans that will respond to the
opportunities and challenges that return migrants
carry with them.
Looking Ahead
In the past decade, migration governance in the
Philippines has gone beyond labor migration
policies and remittances, making strides toward
linking migration policies to broader development
goals. The last two Philippine Development Plans
have integrated migration into national development
planning; the government’s key planning agency,
NEDA, has come to appreciate the importance of
migration; and a mechanism, the Subcommittee on
Migration and Development, has been established
within NEDA to improve coordination among
government agencies and devote more attention to
migration and development.
These are important milestones that need to be
fleshed out and sustained over time. At the local
level, mainstreaming and upscaling projects for
local institution capacity building, the setting up of
Migration Resource Centers and similar structures
in local government units and integrating migration
in local development plans, among others, have
been implemented in selected regional and local
governments. In other words, the groundwork
for the expansion of migration policies in the
Philippines has been started; the next task is to keep
up the momentum to maximize the development
potentials of migration, while continuing to look out
for the well-being of migrants.
Baby Ruth Villarama’s critically-acclaimed
documentary film “Sunday Beauty Queens”
offers a glimpse into the lives of Filipina
expatriate workers in Hong Kong. We see
how these Filipinas find empowerment in
the beauty pageants they join and organize
among themselves. (Photo Source: https://
rappler.com/entertainment/mmff-2016-
entries-full-list).
We recommend you watch this film to
learn more about the growing discourse on
labor migration, a prominent development
challenge for developing countries. Other
recommended films that tackle OFW
expreiences include: Caregiver (2008),
Transit (2013), and Ilo-Ilo (2013).
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
REVIEW QUESTIONS
• Define employment and unemployment.
• Determine and critically analyze the causes of unemployment.
• What are possible measures to improve employment conditions in developing countries?
STUDENT EXERCISES / ASSESSMENT
Exercise 1. Descriptive Research
Try to understand the different perspectives on variations on wages by undertaking a simple survey
among members of your family who are already working. You may use the following guide questions to
help you start with your research:
• How are their salaries / wages similar or different? You may look into the ranges of their salaries
or wages, or salary grades (for government officials).
• What were the considerations for the salary or wage offers?
• What kind of jobs were given the aforementioned salaries or wages? How do these types of jobs
influence wage determination?
Exercise 2. Understanding Labor Statistics
Does the official employment and unemployment rates capture the real labor condition of a country?
Discuss why or why not using the following statistics:
• Philippine labor statistics from the Philippine Statistics Authority (PSA) and the Department of
Labor and Employment (DOLE). Determine how the Philippine government defines employment and
unemployment.
• Using these definitions, critically analyze how such standards for employment and
unemployment affect the way we measure labor force participation.
• Look at ILO statistics on employment and unemployment. Compare the status of our Southeast
Asian neighbors with the Philippines. How are we similar and different? Identify and critically analyze
the reasons why.
Exercise 3: Comparative Analysis of OFW-Related Laws
One of the reasons why Filipinos leave the country is because of our socio-economic conditions. The
government, in part, also crafted laws in favor of labor export. Find at least three (3) related legislations
and government policies on OFW welfare, labor export, and migrant protection implemented in our
country. Critically assess these public policies using the following questions as guide:
• What are the salient provisions and major goals of the identified public policies?
• How are these salient provisions and major goals consistent with our Philippine Development
Plan and AmBisyon 2040, as articulated by our national government?
• Looking into recent studies and news articles on the plight of Filipino overseas workers, how are
these policies responsive to identified OFW issues and challenges?
• Using you field of specialization, how would we best support OFWs and respond to challenges
that affect their welfare?
REFERENCES USED FOR THIS PART
Mankiw, N.G.(2012). Principles of Economics, 2nd Ed. Southwetern Cengage Learning: Ohio.
San Juan, D.M.M. (2018). Journeys Through Our Contemporary World. Vibal Group: Quezon City,
Philippines.
Todaro, M. P., & Smith, S. (2015). Economic Development (12th ed.). Pearson: New York, United States.
Online: www.dole.gov.ph; www.ilo.org
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