THE PHILIPPINES: IMPLICATIONS OF RAPID LABOR FORCE GROWTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00310R000100110002-2
• Release Decision: RIPPUB
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• Document Creation Date: December 21, 2016
• Document Release Date: February 6, 2009
• Sequence Number: 2
• Publication Date: May 1, 1984
• Content Type: REPORT

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Directorate of Confidential
Intelligence
The Philippines: Implications of
Rapid Labor Force Growth
Ao Intelligence A eet
Confidential
EA 84-10109
May 1984
Copy 3 2 5
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Directorate of Confidential
Intelligence
The Philippines: Implications of
Rapid Labor Force Growth
This paper was prepared byl Office
of East Asian Analysis. Comments and queries are
welcome and may be directed to the Chief,
Southeast Asia Division,
Confidential
EA 84-10109
May 1984
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The Philippines: Implications of
Rapid Labor Force Growth
Key Judgments Creating jobs for a rapidly growing labor force will be as intractable a
Information available problem for Philippine economic policymakers over the next decade as
as of 15 April 1984 coping with the country's precarious financial position. The working-age
was used in this report.
population is growing about 3 percent annually, faster than the population
as a whole. Unemployment, by some definitions, is already approaching 30
percent in Manila, and underemployment is pervasive.
Almost one-third of the population-15 million people-is under 10 years
old, and it is this group that will provide most entrants to the labor force
between now and the year 2000. We have projected two paths for the labor
force during this period. Our base projection places the labor force at 33
million in the year 2000-up from about 20 million currently. Improve-
ments in adult mortality and slightly higher labor force participation rates
could easily push this to 36 million, however.
For demographic reasons, the most rapid period of labor force growth will
be between 1980 and 1990. Accordingly, we believe the rate of job creation
will have to nearly double during the late 1980s if Manila is to contain the
unemployment problem. This will require far-reaching changes in the
structure of the economy, posing new political challenges for whatever
regime holds power.
To make matters worse, foreign debt service problems simultaneously will
force Manila to adopt policies that deemphasize industry in favor of
agriculture. Thus the country's urban centers-unless IMF and World
Bank mandated economic policy reforms succeed in rejuvenating a stag-
nant manufacturing sector-will be unable to shoulder their traditional
share of the job-creation burden.
Manila's ability to increase investment will be the key to meeting the
demographic challenge. Even with policy reform, enhancing long-term
political stability by promoting job creation requires productivity improve-
ment and considerable expansion of plant and equipment, and thus
restoring investment to levels reached during the 1970s.
iii Confidential
EA 84-10109
May 1984
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Such an investment push will probably require lower living standards
during the 1980s. For now, the need for austerity is being magnified by the
country's financial problems, which are devastating capital outlays. If the
poor investment climate continues-and we believe it will-future govern-
ments will inherit far more serious unemployment problems than the
country currently faces-a development we expect to undermine long-term
political stability by weakening the mandate of any regime that holds
power.
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Key Judgments
Population and Labor Force Pressure
Underemployment: Already Straining the System
Population and Labor Force Trends to 2000: No Relief
Economic Policy Options: What Manila Is Doing
Promoting Capital Formation
Liberalizing Exchange Rate, Commercial, and
Industrial Policy
Expanding Overseas Employment
Outlook: The Politics of Economic Change
A. Vital Statistics: The Population and the Labor Force
B. Assumptions Underlying Population and Labor Force Projections 17
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Figure 1
Rural Poverty by Region
Rural families below
poverty level
Palawan
f
Malaysia
Capital
National
Olongapo
0 50 100 150 Kilometers
0 50 100 150 Miles
P l, : n P 1 11 f,
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The Philippines: Implications of
Rapid Labor Force Growth
Population and Labor Force Pressure
Table 1
The Philippines: Unemployment Rate
by Educational Status, 1970
Providing jobs for a rapidly growing labor force will
be Manila's most difficult economic challenge be-
tween now and the turn of the century. Population
growth of 2.6 percent annually has been among the
highest in East Asia. More serious, the working-age
population is growing about 3 percent annually-
faster than the population as a whole. Moreover,
because a greater share of the working-age population
is seeking employment, the labor force itself is grow-
ing 3.5 percent each year (see figure 2).
Underemployment: Already Straining the System
Population pressures have already saturated the labor
market. The mainstay manufacturing and agricultur-
al sectors have been hard pressed to cope with rapid
labor force growth and have expanded job creation by
at most 2.5 percent annually since the late 1950s,
forcing many new workers into ill-paying jobs in the
service sector. According to the commercial press,
one-fourth of these jobs involved hawking or ped-
dling-subsistence employment averaging more than
10 hours of work per day. The continued rapid growth
of such menial employment underscores the inability
of the economy to keep up with demographic trends.
Nevertheless, because half the labor force is employed
in agriculture, there are few meaningful ways of
measuring slack in the labor market. Rural labor
markets distribute agricultural production among
workers-an institution of shared poverty that is
common in Asia and which precludes the existence of
open unemployment in the countryside. Meanwhile,
government statistics and surveys are constructed to
assure that urban unemployment is understated (see
box). The Ministry of Labor and Employment has
shied away from extensive labor force surveys in
manufacturing zones and official figures on layoffs
are therefore incomplete. There is also considerable
labor mobility between the urban and rural econo-
mies, so that openly unemployed urban workers easily
become members of the employed, but seriously un-
Junior high school 6.8
Some high school 13.7
High school graduate 15.3
Open unemployment of the sort found in urban
industrial economies is a comparative luxury in the
Philippines and paradoxically increased when labor
was in relatively short supply. A 1970 survey, whose
findings we believe remain valid, showed that most
open unemployment was confined to those workers
who could finance periods of job search (see table 1).
The survey found that the rate of unemployment
among high school graduates was three times the
national average precisely because high school gradu-
ates could afford to be selective about job prospects.
Workers from poorer families could rarely afford to
be without even the most menial job, and the lowest
category of unemployment in the survey was that
category of worker with the least schooling.
Population pressures are also playing a large part in
preventing the Philippines from sharing the gains in
living standards recorded by other Asian nations since
1.960. A recent survey of wages for unskilled workers
derutilized, agricultural labor force.
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Figure 2
The Philippines: Government Estimates of
Population and Labor Force, 1960-82
~u 4.0
3.5
3.0
in Manila shows that real wages are lower now than
they were 25 years ago, even though government-
mandated allowances have escalated sharply
(see figure 3).
The true picture could be even worse. A 1976 study
found that only about two-thirds of the firms surveyed
complied with Manila's minimum wage and cost-of-
living regulations, suggesting that Central Bank data
on minimum wages overstate actual minimum earn-
ings. More recent studies suggest that less than half
the industrial firms comply.
Rural workers who migrated to the cities in large
numbers in the late 1970s in search of higher living
standards undoubtedly depressed urban wages (table
2). Convincing data on rural wages are lacking, but
our best guess is that the countryside has not fared as
badly. Wages for corn and rice workers in 1984
appear to be at least one-third higher than in 1972-a
Table 2
The Philippines: Population and Growth of
Major Cities, 1970-75
Population A
(thousands) (p
nnu
erc
al Gr
ent)
owth Rate
P
opu
lation
Labor Force
Total urban population 13,306
2.
7
5.0
Metropolitan Manila 4,970
5.
1
8.0
Cebu
Iloilo
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The official government unemployment figure is de-
rived from a labor force survey that asks respondents
not whether they are employed but whether they have
worked at all during the previous quarter. In 1980,
95.1 percent of the work force answered yes, produc-
ing an official open unemployment rate of 4.9 percent.
In 1981, after heavy layoffs in the manufacturing
sector, the government's unemployment rate rose only
marginally, to 5.0 percent, prompting widespread
cynicism about government labor statistics.
Because of the way Manila collects its data, however,
it is almost impossible for the unemployment rate to
reflect the degree of slack in the labor market.
Because of widespread poverty, Philippine workers
cannot afford to be without a job for long, and even
middle-class families have great difficulty financing
extended job searches. Thus open unemployment is a
comparative luxury, and official surveys, which count
only workers who have been unemployed for at least
three months, are almost guaranteed to produce
misleading figures
The government-funded Development Academy of the
Philippines has conducted its own surveys using a
questionnaire patterned after the US model. When
respondents were asked in 1981 whether they were
employed currently, rather than whether they had
worked for any specific amount of time during the
preceding three months, the data produced far fewer
affirmative responses than the government survey,
painting a far grimmer picture of the Philippines'
result of productivity improvements attributable to
pressing ahead with the green revolution and intro-
ducing hybrid varieties. Accordingly rural-urban
migration has slowed in recent years.
Population and Labor Force
Trends to 2000: No Relief
Manila can expect virtually no relief from population
pressures before the year 2000. The Philippines is in
the middle stage of demographic transition; because
unemployment. The survey pegged the unemployment
rate at 9 percent for heads of households, 30 percent
for all others, and 14 percent nationally for the labor
force as a whole. Manila's open unemployment rate
turned out to be 26 percent. Even this understates
unemployment, however. Although 14 percent of the
labor force may have been unemployed at any given
time during 1981, many workers with jobs worked
only briefly. The government admitted that, if it
modified its questionnaire to count as employed only
those workers who had worked at least 30 days
during the preceding quarter, the 1981 unemployment
rate would have been 16 percent.
Measuring underemployment is even more sensitive
to problems of definition. A National Statistics and
Census Office study conducted in 1981 attempted to
capture underemployment in two ways. Those work-
ers with jobs were counted as underemployed by the
standard of time worked if they worked less than 40
hours weekly but were seeking further employment at
the prevailing wage. The survey pegged this form of
underemployment at 10.7 percent of the workforce. If
the workers were working 40 hours or more weekly,
but failed to earn a subsistence wage and sought
further employment, they were counted as "invisibly"
underemployed. These totaled 15.8 percent of the
work force. Thus the survey pegged total unemploy-
ment and underemployment at 31.5 percent of the
work force. It developed that half the workers under-
employed had been so more or less permanently, in
this case for at least six months.
mortality rates of children and adults improved before
fertility rates were reduced, the population not only is
growing rapidly but is also increasingly young. Half
the population is under 18; almost one-third-15
million people-is under 10, and it is this age group
that will provide most of the entrants to the labor
force between now and the year 2000. Moreover, the
government cannot slow the expansion. Reducing
fertility rates through family planning programs
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Figure 3
The Philippines: Real and Nominal Wages, 1960-83
Pews per day
Nominal
Vllosances include the cost -oLlicing a llowance granted ^nnually by
presidential decree and a mandated 13th-month pay
h i he real wage i, calculated on the basis of the Central Bank's consumer
price indev and is cypressed in constant 1972 pesos
would not affect these age groups before 2000, and
health programs that reduce adult mortality will boost
labor force growth rates further.
We have examined a variety of paths for population
growth between now and the turn of the century that
could provide a realistic account of what the Philip-
pines is likely to experience (see figure 4). Our base
projection, based on moderate improvements in adult
mortality, places the turn-of-the-century population
at 77 million people-up from 54 million now (appen-
dix A contains our assumptions on fertility rates).'
The population problem is more immediate than these
figures suggest, however. The 1980-90 period will
Rapid improvement in mortality rates, according to our calcula-
tions, would swell the population to about 79 million by the turn of
the century. The potential labor force in such a case would exceed
Pews per day
Real
Real wage h
0 1960 65 70 75 80
Source Central Bank of the Philippines Series for daily earnings of
common laborers in metropolitan Manila,
feature the most rapid growth because of the age
structure of the present population.' In our base
projection, the population grows by 2.3 percent annu-
ally until 1990, after which growth slows to 1.8
percent because of the population's changing age
profile and reduced fertility rates. Moreover, the
annual growth rate of the working-age population
exceeds the growth rate of the general population in
either scenario.
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Figure 4
The Philippines: Population and Labor Force Projections, 1975-2000
Million persons at midyear
80
20 1975 80 85 90 95 2000
z The high estimates For both population projections assume it rapid decline
in mortality rates, with 80 percent of the decline coming before 1990. They
also use the same rates of fertility decline postulated by the LIS Bureau of
the Census (see appendix B)_ Emigration to the I'nited States and Canada
is assumed to grow at 1,300 a year through the year 2000 Additional labor
emigration peaks in 1981 and remains constant through 2000.
The base estimates litr both population projections assume it moderate
decline in mortality, but use the same assumptions on fertility and
emigration as the high estimates
Million persons at midyear
t0
`The base estimate litr the labor force pr ueci:on n.,ime, hi,tnrieal
participation rates and it moderate decline in nnnalit' rites I he high
estimate assumes a participation rate that is higher than the histuricul
average-especially for women and a rapid dedire in mortulitr_ Both
estimates use the decline in fertility postulated h, Ih.. 1'S Bureau of
the Census.
The Labor Force Explosion
The expansion of the labor force will be as sensitive to
changes in labor force participation rates as it is to the
demographic factors that will determine the size of
the working-age population. As part of our projec-
tions, we have postulated labor force participation
rates over the next two decades on the basis of their
historical trends and the experience of other develop-
ing nations at a similar stage of economic develop-
ment (see appendix A). We believe participation rates
for males will change little over this period, but,
according to the World Bank, female participation
rates almost certainly will continue to increase (see
table 3).
population and the higher of our participation rate
scenarios, places the labor force at 35.6 million in the
year 2000-up from about 20 million now (see figure
5). This represents about 900,000 new workers each
year. Our low series, based on modest growth of the
working-age population and the lower of our partici-
pation rate scenarios, places the labor force at 33.3
million at the turn of the century, nearly 800,000 new
workers per year.
Labor force growth could exceed these levels for brief
periods with rapid economic growth, which tradition-
ally boosts labor force participation rates by improv-
ing prospects for finding employment. Such expansion
Even under favorable conditions, the labor force could
almost double during the next 15 years. Our high
series, reflecting rapid growth of the working-age
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Table 3
The Philippines: Projected Labor Force
Participation Rates, 1981-2000
25 to 44
High 98.0 98.0 98.0 98.0
Low 96.5 96.5 96.5 96.5
High 29.5 30.0 32.0 33.0
Low 27.0 27.5 28.5 29.5
25 to 44
High
Low
Over 65
High
Low
is not sustainable for more than several years, but it
could compound the problem of meeting worker ex-
pectations. In addition, as with population, the most
rapid period of labor force growth will be 1980-90; the
labor force could grow 3.3 percent annually during
the 1980s before falling off to 2.9 percent during the
following decade.
Without economic policy changes, rapid labor force
growth, at minimum, would ensure that the Philip-
pines' underemployment problem slowly worsens over
the next decade. This would almost certainly fuel the
Communist insurgency in the countryside and gener-
ate new inroads by the left in the urban labor
movement. We cannot predict what level of urban
unemployment would produce social unrest, and sev-
eral social institutions in the Philippines, such as the
extended family system, act as "shock absorbers" in a
deteriorating labor market. At the very least, howev-
er, these institutions will undergo added strains for
the near future, and we believe the risk of social
unrest will increase as a result.
In addition, we believe that demographic change will
have a stronger-and more politically explosive-
impact on politically strategic cities than on the
countryside. No area will feel the impact of change
more acutely than metropolitan Manila, for example,
which, despite economic recession, will draw a dispro-
portionate share of internal migration because of its
prevailing high living standards-three times the na-
tional average. Population growth and migration have
already boosted the population to about 6 million, and
metropolitan Manila contains 55 percent of the Phil-
ippines' manufacturing employment. If Manila gets
its traditional share of national population growth
during the 1980s, the metropolitan population would
rise to 10.8 million by the end of the decade, and
Manila would contain one out of every six Filipinos.
We think Manila's labor force growth will turn out to
be far more modest, given the presence of over a
million seriously underemployed squatters. A more
likely scenario than continued population expansion
along historical lines, we believe, is that the influx of
migrants will force real wages in Manila even lower
than they are now-thus reducing the incentive for
migration before it reaches critical proportions. In any
case, the capital city appears destined for a particular-
ly poor decade from the standpoint of economic
performance. Increased open unemployment is almost
certain, and by 1990 it appears that Manila's living
standard advantage will be either eliminated or sub-
stantially reduced.
25X1
25X1
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Figure 5. Squatter housing in
Manila. The skewed distribu-
tion of income has provided
grist for political analysts re-
dictingsocial upheaval.
Economic Policy Options: What Manila Is Doing
Because the course of demographic change during the
next two decades has been largely determined, Manila
has few policy options that will affect the growth of
the labor force. It could try to improve the quality,
and thus the employability, of the work force-but
this prospect is seriously diminished by the govern-
ment's limited education budget and its ongoing
financial problems. Nonetheless, we believe the rate
of job creation will nearly have to double during the
late 1980s if the government is to keep a lid on the
unemployment problem.
The Demand Side of the Labor Market
Promoting Capital Formation. Although much in-
vestment has been in capital-intensive enterprises that
create few jobs, the Philippines' capital formation
level over the last decade has been good. Investment,
as a share of output, rose from 16 percent of GNP to
28 percent of GNP during the 1970s, reflecting the
government's intensive efforts to increase public capi-
tal outlays. Government efforts to promote private
saving through high interest rates-a move the World
Bank recommended-are continuing and may provide
at least some help enabling the Philippines to continue
this high level of investment (see table 4).
Substantial improvement in the share of total savings
created by the public sector, however, will be required
to sustain this momentum. Tax performance-the
chief source of public-sector savings--is 11 percent of
GNP, a substandard level compared with other devel-
oping countries. In addition, public corporations satis-
fy little of their capital needs out of operating reve-
nues and must compete with private firms in capital
markets, thus draining the total supply of investable
funds.
Manila may make progress on both these fronts if it
implements requirements of the World Bank and the
International Monetary Fund, with reform of budget
techniques and fiscal policy as conditions of releasing
balance-of-payments loans. The Philippines' balance-
of-payments problems could, however, nullify the
effects of reform if they persist. Capital formation has
had a heavy foreign exchange cost, with imports of
capital goods amounting to about 6 percent of GNP
annually. The country's financial difficulties rule out
continuing imports at this level.
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Figure 6
The Philippines: Employment by
Worker Category, 1974
Percent
Wage and Self
salaried employed
All sectors
Agriculture
Mining
Manufacturing
Utilities
Construction
Commerce, retail
Transportation
finding it almost impossible to import spare parts or
raw materials. Ford Motor Company of the Philip-
pines, for example, will shut down its assembly plant
in August for this reason, costing the Philippines
2,000 jobs. If foreign investors conclude that Manila's
foreign exchange problems are destined to recur
through the decade-as seems likely-foreign equity
participation may never regain its former level.
Liberalizing Exchange Rate, Commercial, and
Industrial Policy. The pattern of job creation reflects
the fact that the Philippines has lagged the more
dynamic economies of East Asia-Taiwan, South
Korea, Singapore, Hong Kong, and more recently,
even Thailand and Malaysia-in developing an ability
to manufacture for export. During the 1963-73 peri-
od, for example, manufacturing provided 42 percent
of all new jobs in South Korea, compared with 8
percent in the Philippines. This occurred despite
vigorous efforts by the Philippine Government to
promote local industry. A 1979 University of the
Philippines study found that the government's invest-
ment incentives during the 1970-77 period actually
reduced the number of jobs in that sector by 41,000
because economic policy encouraged capital-intensive,
as opposed to labor-intensive, enterprises.
Wooing Foreign Investment. Capital imports financed
by direct foreign equity give Manila an attractive
alternative for promoting capital formation and job
creation in the face of financial stringencies. More-
over, the Philippines would appear to be an excellent
investment opportunity because of its literate work
force and the government's relatively liberal foreign
investment rules
Manila, nevertheless, will have to resolve the foreign
debt crisis and return the trade deficit to a sustainable
level if it is to maintain historical levels of foreign
investment. With IMF talks at an impasse and for-
eign debt rescheduling talks on hold, the shortage of
import financing and the Central Bank's foreign
exchange restrictions are making it difficult for for-
eign firms to either operate or to remit profits. In
addition, firms producing for the local market are
Unpaid family
worker
The Philippines' recent capital-intensive growth pat-
tern, according to the World Bank and the IMF, is
partly attributable to exchange rate and foreign trade
policies that artificially cheapened capital good im-
ports while penalizing labor-intensive exports. This,
however, is changing. In 1981, the World Bank began
a series of Structural Adjustment Loans designed to
rehabilitate industries such as textiles through low-
interest loans. The loans required that Manila lower
tariffs, liberalize foreign exchange controls, and re-
form tax incentives to favor export-oriented enter-
prises-a series of moves meant to streamline the
manufacturing sector by opening it up to international
competition. Manila has already made considerable
progress implementing the Bank's program, and fur-
ther Structural Adjustment Loans are expected later
this year when the new IMF program is completed.
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Table 4
The Philippines: Sources of Investable
Funds as a Share of GNP, 1979-83
a Estimated.
b Foreign savings equal the current account deficit.
All maturities.
The IMF, meanwhile, is insisting that Manila imple-
ment a more aggressive exchange rate policy in a bid
to trim the current account deficit and promote labor-
intensive exports. Manila devalued the peso twice in
1983, and further adjustments are expected later in
1984. We believe this, in conjunction with the World
Bank program, will redirect investment toward the
labor-intensive export sector of the economy, thus
promoting job formation. The World Bank believes-
and we agree-that if total investment outlays can be
maintained, the reforms could triple annual job cre-
ation in manufacturing.
Expanding Overseas Employment. In recent years,
Manila has touted overseas employment to ease the
domestic unemployment problem. Labor Minister
Blas Ople claims that as many as 614,000 Filipinos
were employed overseas at the end of 1982-about 3
percent of the labor force. Because the government
monitors new contracts but not returnees, it is diffi-
cult to evaluate this claim, but the Philippines' per-
formance as an LDC labor exporter has been impres-
sive by any standard. We estimate that between 1979
27.9
28.7
28.6
27.0
6.5
7.8
8.2
7.6
18.2
17.9
17.8
16.4
3.2
3.0
2.6
3.0
27.9
28.7
28.6
27.0
5.3
5.9
6.0
8.5
7.6
7.7
8.1
11.8
-2.3
-1.8
-2.1
- 3.3
22.6
22.8
22.6
18.5
5.9
5.9
4.3
4.1
and 1982, overseas employment expanded by over
55,000 positions annually. By the end of 1982, there
were over 250,000 Filipinos working in the Middle
East alonei
Manila's ability to tap overseas labor markets will
depend largely on the vagaries of the global oil market
and the propensities of Persian Gulf governments to
recycle their oil earnings on development projects at
home. The Philippines is shielded from falling oil
earnings to some degree by a concentration of projects
in Saudi Arabia. Riyadh's large foreign reserves have 25X1
enabled the Saudis to escape the cutbacks common to
other OPEC members. The current oil glut nonethe-
less has already produced several retrenchments, and
the flow of new projects has slowed to a trickle. In any
case, only another oil price runup is likely to enable
Manila to resume its pace of labor export, and this
seems unlikely soon
25.0
6.0
16.0
3.0
25.0
7.0
10.5
18.0
4.0
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We cannot predict the point at which labor force
pressures would produce social unrest, but the foreign
debt crisis is already causing Manila serious short-
term unemployment problems. Comprehensive data
are lacking, but Philippine private economists predict-
ed layoffs in early 1984 of 300,000 in the capital
region alone because of the shortage of imported
industrial raw materials being induced by the finan-
cial crisis.
In our judgment, the country has been cushioned from
the effects of the financial crisis by a large buildup of
raw materials in the fall of 1983 that delayed the
effects of last winter's shortage of import financing.
In addition, the government has manipulated econom-
ic policy during the last several months to minimize
unemployment as the National Assembly election in
May approached: government bailouts for financially
distressed domestic financial institutions have kept
credit available, and manipulation of Central Bank
foreign exchange allocations in favor of labor-inten-
sive firms has confined much of the strains in the
economy to large capital-intensive projects. Unem-
ployment will probably rise in June and July as the
Central Bank implements announced plans to trim
industrial imports further, but it is too soon to say if
this will cause political problems for Marcos
We believe the long-term effects of the current poor
economic outlook will be greater. For one thing,
falling real wages are compromising the employability
of the work force. Families are responding to incomes
reduced by recession by placing school-age children in
the work force. Although the new entrants are ex-
panding household incomes, the future educational
level of the work force is being eroded.
Over the longer term, the policy reforms mapped out
by the World Bank and the IMF will only succeed if
the Philippines can maintain sufficient investment to
develop labor-intensive enterprises. Capital formation
faces a bleak future because of the country's financial
problems, and only an extended period of austerity-
during which per capita consumption expenditures
would fall rapidly-is likely to improve the invest-
ment outlook. Over the longer term, investors must
also weigh political factors, such as the possibility of a
Selected Remarks of the 1974 International
Labor Organization Mission
In 1974, the ILO published the definitive work on the
political economy of equity and employment genera-
tion in the Philippines. An article that summarized
the Mission's findings contained the following:
The Mission is convinced that, from a technical
point of view, major increases in output and
employment are possible and that they would
result in a simultaneous improvement in the distri-
bution of income, both familywise and regionally.
It is the Mission's belief that, in a labor surplus
economy, the only reliable and sustainable way of
improving equity is to make fuller use of the
country's resources by adopting a more employ-
ment-oriented growth path....
To move the economy of the Philippines onto the
new growth path proposed by the Mission requires
both technical competence and the political will to
bring together and secure agreement among the
various parties to the social contract. That some
groups in society for example, landless rural
workers, small farmers, and medium- and small-
scale entrepreneurs-stand to benefit is clear. On
the other hand, some sacrifice would be called for
on the part of certain groups that bent from the
present narrow growth path....
Any reform raises problems in political economy,
however, and it may well be that a country rich in
natural resources (like the Philippines), while more
able, may be much less willing to effect necessary
policy changes because it is not pressed into such a
course of action. Especially at a time when raw
materials prices are on the upswing, there will be a
natural tendency to avoid painful policy changes
and maintain things as they are ... This makes all
the heavier, perhaps, the political burden of under-
standing that any such alternative is not really
viable in the longer run...
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Table 5
The Philippines:
Trade Balance, by Sector, 1979-83
1979
1980
1981
1982
1983a
Current account
-1,576
-2,072
-2,589
-3,347
- 2,700
Merchandise trade
-1,541
-1,939
-2,667
-2,805
- 2,250
Minerals (net)
771
1,169
984
950
1,200
Iron ore
49
74
60
60
70
Agriculture (net)
1,568
1,563
1,137
1,180
1,100
Imports
527
708
777
790
1,080
Fertilizers
91
139
105
120
140
Raw materials
2,279
2,267
2,570
2,910
3,370
Capital goods
590
650
623
550
590
Energy (net)
-1,628
-2,484
- 2,703
--3,.-210
- 3,220
1,385
2,248
2,458
2,396
2,090
Capital goods
280
290
301
850
950
-591
-846
-1,101
-1,811
-2,200
365
421
546
690
830
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change of regime and shifts in the regulatory environ-
ment, before committing capital expenditures to the
Philippines. We see little prospect that investors' fears
will be eased soon.
The demographic explosion during the late 1980s will
coincide with two other notable transformations in the
Philippines that, in our judgment, will make it diffi-
cult to deal with labor force pressures. On the eco-
nomic front, we believe that the practice of using
surplus sectors such as agriculture and mining to
subsidize the import-dependent urban economy is
over. The Philippines' development pattern has his-
torically required large current account deficits and
overvaluation of the exchange value of the peso. The
dearth of commercial financing from foreign banks
that will almost certainly linger even after resolution
of Manila's current financial problems assures an end
to this practice.
The countryside, rather than the politically strategic
cities, thus will have to provide most of the new jobs
during the next decade. The rural economy faces its
own problems, such as increasing landlessness and the
growing insurgency, that will weaken its ability to
perform this task. The most fertile lands, according to
the World Bank, have already been exploited. In
addition, key cash crops, such as sugar and coconut,
face bleak futures in the international marketplace,
and new crops will have to be developed to take
advantage of the shift in competitiveness. The cities'
traditional role of relieving pressure on the country-
side by taking migrants from the rural economy,
meanwhile, will also end.
On the political front, the shift to agriculture will
have far-reaching consequences, as new political-
economic power centers emerge and traditional pa-
tron-client relationships are strained. Marcos, for
example, will have to allow the development of a new
class of politically independent agrobusinessmen if the
economy is to succeed in shifting its center of gravity;
his policy preference so far has emphasized reliance
on cronies. In addition, he would have to allow a
greater role for the foreign investor than the tradition-
al Philippine business elite has tolerated. Finally, in
the cities, bleak prospects for reducing unemployment
will create a far more volatile political environment.
Table 6
The Philippines: Sources of
Farm Income
From the long-term perspective, we believe the Mar-
cos era is winding down, and a change of regime
appears virtually certain by 1990. Because future
governments will require time to consolidate their
power, stability requires that the economy be able to
cope with the effects of demographic change during
the political transition. This, in turn, will depend
largely on policies in the next several years. If Marcos
fails to carry through with austerity measures, future
governments will inherit far more serious unemploy-
ment than the country now faces. On balance, we are
pessimistic about Marcos's commitment to reform
and the economy's ability to cope, and we believe that
sharply higher unemployment is the most likely out-
come of impending demographic change in the Philip-
pines.
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Appendix A
Vital Statistics:
The Population
and the Labor Force
The Population
The 1970 census placed the population at 36.7 million
people, and preliminary results from the 1980 census
suggest the 1982 population was about 50.9 million. A
US Bureau of the Census analysis of 1975 intercensal
data provides an upward revision of about 5 percent,
resulting in an adjusted 1975 population of 44.4
million people and an adjusted 1982 population of
about 53.2 million (see figure 8). A complete demo-
graphic breakdown of the 1980 census is not yet
available, so our current projections are based on an
adjusted 1975 demographic profile (see appendix B).
When 1980 data become official after analysis later
this year, they will reflect some combination of three
factors: improvements in mortality rates, more accu-
rate survey techniques, and changes in the rate of
fertility decline. In the meantime, the Philippines'
population is almost certainly bigger than official data
suggest, but the growth rate is probably close to 2.3 to
2.4 percent annually
The Labor Force
Changing demographics and varying labor force par-
ticipation rates have produced wide swings in labor
force growth since 1960. From 1960 to 1970 the
population expanded by almost 10 million but pro-
duced net labor force growth of only 3.4 million. From
1970 to 1980, however, a population increase of about
12 million produced a labor force expansion of over 5
million. Several factors account for the difference. A
younger population provided more entrants to the
labor force as it aged, and participation rates reached
an average of 37 percent as a growing economy
provided new job opportunities.
Participation rates affect the size of the labor force in
two ways. The size of the work force changes during
the agricultural season, swelling the labor force by as
much as 10 percent of its size during the slack season
Figure 7
The Philippines: Employment by Sector. 1961-80
Million pcr,om, at midccar
18
l tilitlc, and
11,n, t rilct ion
during harvests. This year, for example, 2 million
Filipinos who are not otherwise economically active
will look for harvest work. Multiple cropping moder-
ated these swings in recent years, but seasonal varia-
tion can still be substantial. At the same time, for a
given season, labor force participation rates also vary
because of swings in the business cycle.
25X1
25X1
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Figure 8
The Philippines: Alternative Demographic Profiles, 1975
80
80
75-79
75-79
70-74
70-74
65-69
65-69
60-64
60-64
55-59
55-59
50-54
50-54
45-49
45-49
40-44
40-44
35-39
35-39
30-34
30-34
25-29
25-29
20-24
20-24
15-19 15-19
10-14
10-14
5-9
5-9
0-4 M
I 0-4
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
US Bureau of the Census.
Philippine Government census.
0.5 1.0 1.5 2.0 2.5 3.0 3.5
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Table 7
The Philippines: Labor Force
Participation Rates, 1965-80
10 to 24 years old
47.5
45.5
44.0
47.0
25 to 44
96.5
96.0
97.6
97.6
45 to 64
94.0
92.5
93.1
94.0
Over 65
56.5
53.0
56.8
56.0
25 to 44
46.0
45.5
46.7
47.0
45 to 64
46.0
44.0
45.3
45.0
Over 65
20.0
18.0
20.3
20.0
Estimated.
b Share of population 10 and older.
Labor force estimates are clouded by various prob-
lems of definition. Our current estimate of the work
force, 21 million, includes a large, mobile informal
sector of "own account" workers. These are people
who move in and out of the work force-hawkers,
street vendors, and peddlers. We also include a wide
range of participants in rural labor markets who have
multiple employer-employee relationships.
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Appendix B
Assumptions Underlying
Population and Labor
Force Projections
To establish upper and lower bounds for both the
population and labor force, we have derived a high
and low series that contains their paths with reason-
able certainty. Both assume roughly a 5-percent
undercount of the 1975 population by the government
census based on an analysis of the raw data conducted
by the US Bureau of the Census. Both projections are
based on an adjusted 1975 population of 44 million
(see figure 9).
Fertility Rates
A number of demographic trends over the next two
decades appear reasonable. The decline in fertility
rates observed since the mid-1960s because of delayed
marriages is expected to continue. The effects of
modernization, we believe, will have a greater effect
in the late 1980s and 1990s than the government's
family planning efforts in any case. Critics contend
that Manila is reluctant to press birth control pro-
grams because of the risk of offending a politically
powerful Catholic Church, and we are inclined to
agree. There is thus no reason to expect fertility rates
to approach those of Singapore (2.2 children per
woman), Japan (1.8 children per woman), or Western
countries. The easiest portion of the reduction in birth
rates has probably already been achieved.
As a result, the more moderate of various forecasts of
fertility rates is the most appropriate for our projec-
tions (see figure 9). Variations in fertility rates will in
any case affect the size of the labor force with a 10-
year lag, and even then will be confined to the first 2
five-year cohorts during this century. At most, these
cohorts will constitute 15 percent of the labor force.
To put our expectations in perspective, the Philip-
pines' fertility rate will continue to exceed slightly
that for Thailand and will not even approach that of
Malaysia (3.8 children per woman) until 1990. If the
number of children per woman were to fall to 3.3 in
the year 1995, as we expect, it would still not match
that of the rate for Singapore.
Figure 9
The Philippines: Fertility and
Mortality Projections
Fertility
3 30
2?
1 1960 70 80 90 2000 1 li
Children per woman.
Lile expectancy at birth.
for females.
Mortality Rates
Mortality rates will continue to improve over the next
20 years; life expectancy at birth stands at 62 for men
and 67 years for women. We have considered two 25X1
possible rates for mortality improvement. The degree
to which these affect the labor force will depend on
whether the improvements occur in adult or child
mortality rates. We assume the former. Our moderate
trend in mortality improvement would see male life
expectancy rising to 66 years and female life expec-
tancy rising to 72 years by the turn of the century.
Alternatively, a rapid improvement in mortality 25X1
would see life expectancy rise to 69 for males and 75
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