AVELLANOSA, Allyssa Mae F.

ECOSEM

Restricted Opportunity Theory as an Analysis of Poverty in the Philippines

Poverty is an economic issue prevalent around the world. It is generally defined as not

having sufficient money to obtain basic needs such as food, clothing, and shelter (Government of

New Brunswick, n.d.). A poverty threshold is calculated to compute the total costs of necessary

resources an average adult consumes in a year in a particular country to measure the minimum

level of income enough to acquire basic needs (Ravallion, 1992). Individuals who are estimated to

be under the poverty line are considered to be living in poverty (Kenton, 2018). As a developing

country, poverty is one of the economic problems that the Philippines experiences. According to

Philippines Statistics Authority (2016), the proportion of the population below the poverty

threshold at the end of 2015 was estimated at 21.6 percent. Additionally, the rate of poverty

reduction in the country is much slower compared to its neighboring countries such as China,

Vietnam, Indonesia, and Thailand (Asian Development Bank, 2009).

In this analysis, the causes of poverty in the Philippines will be analyzed to determine if

the lack of economic opportunities for Filipinos is the reason of poverty in the country – as stated

by the restricted opportunity theory.

The restricted opportunity theory argues that poverty is caused by forces beyond the control

of the individual (Pineda, 2018). According to Schiller (1972), opportunities such as adequate

access to high-quality education, jobs, and income affect the socioeconomic status of an individual

and the lack thereof results into poverty. This theory explains that improved opportunities like

improved access to quality education, better enforcement of child-support obligations, new job

openings, or expanded health- and child-care assistance would assure poverty reduction (Schiller,

1972). In this paper, the presented causes of poverty do not encompass all sources of poverty and
AVELLANOSA, Allyssa Mae F. ECOSEM

are only chosen by the author among several others to prove or disprove the mentioned theory in

relation to the causes of poverty in the Philippines.

Table 1. Magnitude of Poverty in the Philippine Population, 1985-2000

Year Poor Population Changes from Previous Survey
1985 26,674,645
1988 25,385,200 (1,289,445)
1991 28,554,247 3,169,047
1994 27,372,971 (1,181,276)
1997 26,768,596 (604,375)
2000 30,850,262 4,081,666
1985-2000 4,171,617
Table 1. Source: Asian Development Bank (ADB)

Figure 1. Source: World Bank Data

As seen in Table 1, the number of poor population during 1985 to 2000 has been fluctuating

because of the change in overall population. However, the overall result over the 15 years has

shown an increase of 4,171,617 poor people in 2000 since 1985, which suggests the upward trend

of the poor population. In contrast to the trend of poverty population in 1985 to 2000, it can be

seen in Figure 1 that there has been a downward trend of national poverty rates from 26.6% in

2006 to only about 21.6% in 2015.

AVELLANOSA, Allyssa Mae F. ECOSEM

Given that there is still about a fifth of the total population that are registered as poor

Filipinos in the first semester of 2018 (Philippine Statistics Authority, 2019), this shows that

poverty still exists in the Philippines. Several reasons can be attributed to the persistence of poverty

in the country.

One cause of poverty in the Philippines is that there is low to moderate economic growth

for the past 40 years (Asian Development Bank, 2009). Shown in Figure 2, Figure 3, and Table 2

are the average and annual gross domestic product (GDP) growth rates and average annual GDP

growth per capita of the Philippines from 1961 to 2015.

Figure 2. Source: Asian Development Bank (ADB)

Table 2. Source: World Bank Data

AVELLANOSA, Allyssa Mae F. ECOSEM

Figure 3. Source: Philippine Statistics Authority (PSA)

The GDP of a country is computed by adding private consumption, gross investment,

government investment, government spending, with the difference of exports and imports (Lumen

Learning, n.d.). In Figure 2, the average GDP growth rates of the Philippines compared with other

countries are among the lowest in ASEAN, with 1.80% being the lowest during 1981 to 1990.

Similarly in Table 2, out of the 10 countries in East Asia, the Philippines ranks 10 th in both the

average annual GDP growth, with only 5.43%, and average annual GDP growth per capita, with

only 3.80% during 2006 to 2015. In Figure 3, there has only been 3.57% average GDP annual

growth rate from 1982 until 2015, with the highest of 7.3% in 2010 and lowest of -7.0% in 1984.

Economic growth is coherent with opportunities for employment and income growth, which

affects poverty rates as stronger labor markets and higher income levels are likely to help

individuals living in poverty move above the poverty threshold (Grunewald, 2006). Alternatively,

according to Asian Development Bank (2009), slow economic growth sustains poverty by

constraining the poor in terms of opportunity to escape poverty and increases the probability of

nonpoor to become poor.

AVELLANOSA, Allyssa Mae F. ECOSEM

Another cause of poverty in the country is that there is weakness in employment generation

and quality of jobs generated (Asian Development Bank, 2009). Shown in Figure 4 is the

unemployment rate in the Philippines from 2006 to 2016.

Figure 4. Source: Philippine Statistic Authority (PSA)

The unavailability of jobs in the country is one result of low level economic growth and

consequently, no jobs equate to inability to earn income and vulnerability to poverty (Asian

Development Bank, 2009). Comparable to the downward trend of poverty rates from 2006 to 2015

shown in Figure 1, it can be seen in Figure 4 that the unemployment rate also shows an overall

downward trend from 2006 to 2018. However, it is important to note that it is not enough that there

are job opportunities as the quality of jobs, which includes the level of earnings and security the

job provides, affects the poverty rates as well (Cazes & Saint-Martin, 2014). Shown in Figure 5

and Figure 6 are poverty rate by employment sector and by employment status of household heads

in 2015.
AVELLANOSA, Allyssa Mae F. ECOSEM

Figure 5. Source: World Bank Data

Figure 6. Source: World Bank Data

As seen in the figures, the employment sector, namely agriculture, industry, and services,

and employment status of household head is closely associated with poverty, rather than
AVELLANOSA, Allyssa Mae F. ECOSEM

unemployment alone. In Figure 5, it can be seen that household heads working in agriculture have

the highest poverty rate of 42% among other sectors. Additionally, in Figure 6, household heads

who are unemployed only represent 9% of the poor while household heads who are employees or

self-employed represent 43.3% and 43.1% of the poor, respectively. Given these data and the

downward trend of poverty rates, shown in Figure 7 and Figure 8 are daily minimum wages and

average nominal wages from 2006 to 2015 in the Philippines.

Figure 7. Source: Trading Economics

Figure 8. Source Trading Economics

AVELLANOSA, Allyssa Mae F. ECOSEM

As seen from Figure 7, there has been an evident upward trend of daily minimum wages

only Php 350 per day up to Php 481 per day in 2015. Similarly, in Figure 8, average nominal

wages also increased from Php 6,931 per month in 2006 to Php 9,876 per month in 2015. These

data show that the quality of jobs improved in terms of wages from 2006 to 2015 which is coherent

with the decrease of poverty rates during the same period.

The last presented cause of poverty is natural disasters and conflicts (Asian Development

Bank, 2009). In 2013, Philippines ranked 1st in the top 10 most affected countries in the Climate

Risk Index (Kreft, Eckstein, Junghans, Kerestan, Hagen, 2014). In November 2013, Typhoon

Yolanda, one of the most powerful tropical cyclones recorded entered the Philippine Area of

Responsibility and left a total of 6,300 individuals dead, 26,688 injured, 1,062 missing, and over

4.4 million people losing their homes, with the cost of its damages summing up to Php

95,483,133,070.67 (NDRRMC, 2014). The geographical location of the Philippines makes it

susceptible to numerous natural hazards like typhoons, earthquakes, etc. making it one of the most

disaster prone countries in the world (World Bank, 2005). Relative to poverty, the poor suffers

more from external shocks than the rich as they are the ones most likely to be dependent on natural

systems for their livelihood and health, which in turn spikes the poverty rate following natural

disasters (Asian Development Bank, 2009; World Bank, 2018).

Given the presented causes of poverty in the Philippines, slow economic growth and weak

employment and job quality generation conform to restricted opportunity theory as these causes

result to failure to provide opportunities, specifically quality jobs, for people in poverty to break

free from poverty. However, natural disasters and conflicts as a cause of poverty in the Philippines

cannot be explained by the restricted opportunity theory as they are adverse events and beyond the

capacity of humans to control.

AVELLANOSA, Allyssa Mae F. ECOSEM

In summary, some of the causes of poverty in the Philippines as presented by Asian

Development Bank (2009) include slow economic growth, employment generation and quality of

jobs provided, and natural disasters and conflicts. In conclusion, not all causes of poverty can be

explained by lack or absence of opportunities such as the occurrences of natural disasters which

are caused by adverse environmental factors instead. On the other hand, some causes of poverty

in the country are coherent with the restricted opportunity theory such as slow economic growth,

lack of job opportunities, and quality of jobs generated.

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