Presented to the Economics Department
De La Salle University - Manila
High Unemployment Rates in the Philippines
In Partial Fulfillment of the Course
Requirements for
Applied Economics
1st Term, A.Y. 2022-2023
Members:
Clarete, Nadine Claire A. (12233781)
“Lack of Skills Matching”
Galindo, Joanna Pauline P. (12275247)
“Numerous Requirements Needed During Job Hiring”
Llarenas, Alexius Aaron I. (12208169)
“Remittances and OFWs”
*All members have contributed to the overall synthesis*
Submitted to:
Ms. Eva Marie DG. Aragones
October 21, 2022
INTRODUCTION
The high unemployment rate is not new to the Philippines. The country has been suffering from a
high unemployment rate since 2010, even before that. In 2010, as presented in Table 2, the unemployment
rate of the country was at 7.3%, almost the same as the rate in July 2021. Fortunately, it decreased to 5.2%,
presented in Table 1, after a year but this can still be considered high as the number of unemployed
individuals is at 2.60 million.
Table 1.
Unemployment Rate of the Philippines from July 2021 to July 2022
Note: Unemployment rate table of the Philippines. Reprinted from Employment Rate in July 2022 is
Estimated at 94.8 Percent in Philippine Statistics Authority, 2022, https://psa.gov.ph/content/employmentrate-july-2022-estimated-948-percent
Table 2.
Unemployment rates of the Philippines from 2009 to 2010.
Note: Employment status table of the Philippines from 2009 to 2010. Reprinted from 2010 Annual Labor
and Employment Status in Philippine Statistics Authority, 2011, https://psa.gov.ph/content/2010-annuallabor-and-employmentstatus#:~:text=About%202.9%20million%20Filipinos%20were,45.2%20percent%20of%20all%20unempl
oyed.
The high rate of unemployment in the country produces adverse effects to an individual and to the
economy as a whole, and can potentially become long-term effects. According to Indeed Editorial Team
(2022), individuals can suffer in terms of health problems, both physical and mental, as well as reduced
income. Unemployment damages a person’s health since it increases their chance of developing headaches,
heart diseases, and insomnia to name a few, due to excessive stress. Mentally, unemployment also increases
a person’s risk of depression and anxiety. Furthermore, being unemployed reduces one’s income. This
makes it even more difficult for them to sustain their daily needs and pay their other living expenses
(utilities, rent, transportation, etc.). In an economic context, unemployment increases poverty, and reduces
the labor force and productivity of the Philippines. As cited by Metha (n.d.), poverty can increase due to
unemployed people; they lack the monetary resources to meet their wants and needs. Moreover, high
unemployment rate means that there is a low amount of labor force which would then result in a reduction
of labor productivity in the Philippines.
Given the information presented, this paper aims to discuss the factors causing the high
unemployment rate in the Philippines as well as why and how they happen in the first place. The three
subtopics are (1) numerous requirements needed during job hiring, (2) lack of skills matching, and (3)
OFWs and remittances.
NUMEROUS REQUIREMENTS NEEDED DURING JOB HIRING
Have you ever encountered a “job hiring” sign and thought, “These requirements are so
ridiculous!”? If not, let me paint a picture for you. You’re hunting for a job as you’re a fresh senior high
school graduate. Then, you find a poster for a cashier position, an entry-level position, and think, “This can
work”. However, you read the requirements and somehow, it states that you need a college degree and 5
years of experience, which can alternatively be fulfilled by months of Point of Sales Training. These
situations are common in our country, making it harder for people to get a job.
A lot of Filipinos shared this sentiment, with some comparing the qualifications of job hiring in the
Philippines to other countries. One said that there are too many standards, especially height requirements,
which is a discrimination against short people who only want to work (Nelz, 2021).
There are a bunch of jobs that do not require absurd requirements. However, they are rare and hard
to find. In some cases, people see jobs that fit them and do not require these requirements but it is far from
their area which can be expensive considering the transportation costs and/or rental expenses.
This topic will further explain why people choose not to apply for these jobs, aside from not being
able to do so, therefore causing an increase in unemployment rate, by relating the following economic
principles: (1) incentives/wages, and (2) cost/benefit.
The Philippines is one of the lowest in the world in terms of minimum wage, with the average wage
being P15,200 (Cabuenas, 2020). This is approximately P500 a day, which is almost not enough for a person
to live with especially with inflation. Because of this, most people are not attracted to get the job, but those
who do want to get the position are not qualified to do so.
These low wages can be related to the cost/benefit principle. Two costs are considered here, the
direct and indirect costs. The direct costs account for the money spent on going to the job. For instance, the
transportation costs, rental expenses, food for living, and more. The indirect costs account for the
opportunity cost. Money spent for completing the qualifications such as a college degree is considered as
indirect. This can include the tuition fee, miscellaneous expenses of the school, and other expenses that are
needed to finish college.
Considering these costs and the benefit, which is the salary of the job, we can say that it is not wise
to complete this qualification. As we all know, finishing college is expensive. Knowing the average wage
given before, we know that it is not enough to make up for the opportunity cost. In the long run, the person
will lose more money if they complete a college degree for a job that gives minimal salary.
To begin with, why are job qualifications in the Philippines so demanding? A lot of factors can be
considered. In the point of view of the recruiter, once they open a job position, there will be a lot of
applicants that will be trying out for the position. They would want to get the best possible candidate for
the improvement of their company so for them to save time and get the best candidate, they put high
requirements upfront.
We can now say here that numerous requirements bar the people from getting a job and it
contributes to the high unemployment rate of the country. Certain economic principles, like
incentives/wages and opportunity cost, were analyzed to see why people don’t consider filling the gap of
the qualifications like getting a college degree. The real question here now is, given that a lot of people
already shared their insights about the demanding job qualifications in this country over the years and are
still unhappy about it even now, why hasn’t this been resolved yet?
LACK OF SKILLS MATCHING
Consider this scenario: Grace Ramos, someone who worked as a business analyst manager for the
marketing department during the past 5 years, is now working at an international company as a management
trainee - an entry-level position. Compare this scenario with Joshua Mercado, a fresh AB in Art
Management graduate working in logistics as his first job. How do these situations affect the economy of
the Philippines? Many people may think that there is nothing wrong since both characters are employed
which contributes to the economic growth of the country. However, this is not the case since both situations
exhibit job skill mismatch. This concept pertains to the situation wherein a person’s set of skills is not in
line with what the company requires them to have (International Labor Organization, 2020). In the case of
Grace Ramos, she is experiencing vertical skills mismatch wherein she is overqualified for the job that she
currently has. On the other hand, horizontal skills mismatch can be seen in Joshua Mercado’s situation, in
which the skills he learned in college are not entirely related to his current occupation. Job skill mismatch
is one of the main causes of unemployment, particularly structural unemployment. To define, structural
unemployment refers to when “employees have certain skill sets that might not translate to other positions
or industries” (Shearing, 2022) and typically maintains the high rate of unemployment to its other types.
With this, the above-mentioned scenarios will be explained using the following economic principles: (1)
supply and demand, and (2) incentives. Learning about these principles will be beneficial in explaining why
and how there is a high unemployment rate in the Philippines.
According to Bergin et al. (2019), “an interplay of supply and demand” causes skills mismatch.
There may be instances wherein the demand for competent and skilled workers in a certain field of work is
high, but the supply of such is low. One factor that may contribute to this is the lack of proper education
and training received by graduates and even non-graduates. In a news report by Aurelio (2020), the
Philippines estimated that around 2.4 million jobs will not be supplied if the government fails to enhance
the country’s education and training systems. Supposed that the demand of new employees for entry-level
jobs suddenly increased. Many would not be qualified and be given the entry-level job if the applicant’s
skills do not meet the standard of the company. Additionally, there are instances wherein there is a high
supply of potential workers, but not many jobs are created for them (low demand/availability of jobs). This
shows an opposite scenario wherein supply of skilled job seekers is high, but the demand for them (in a
certain industry) is low. Figure 1 shows the connection between supply and demand and why there is
unemployment due to mismatch of skills. In the graph, the point where supply and demand meet (Qe) means
that enough labor force supplies the demand for work. In contrast to this, Q Actual represents what is truly
happening - a surplus of labor force wherein there is not enough demand for them to supply. Thus, these
kinds of situations will contribute to the rising rate of unemployment in the country.
Figure 1.
Oversupply of Labor Force
Note: Supply and demand equilibrium showing unemployment. Reprinted from Unemployment in the
Philippines: Causes in Weebly, 2014, http://econsilp2014.weebly.com/causes.html
Moreover, incentives, as an economic principle, play a part in the decision-making of people in
relation to the jobs they are willing to do. To be specific, these economic incentives are higher wages and
more work benefits. Factors that might have caused people to work for jobs that are completely unrelated
to their college degrees are because working in that job has a higher monthly income, and it may be deemed
to be a “more” secure type of job. Presume that P25,000.00 is the monthly income of a person working in
a job not related to their college degree and P18,000.00 is for a job that is actually related. If he/she is
knowledgeable with this difference, then the person might take the first job. Taking into account that the
Philippines is an underdeveloped country, the P7,000 difference per month makes a significant change to
the worker. By taking a job not related to their degree, people with a much more related one would have
difficulties looking for work. Aside from this, it could also just be that people want to work for a job which
they personally view as more meaningful. Furthermore, there may be some kind of underlying incentive as
to why there are currently employed workers who switched to a job with a lower job title. This could be
that the workload may not be too difficult so they have more time for themselves, or the company and the
job position are offering more and better job benefits. Instead of being stressed working as an employee
with a higher position but minimal benefits, they could have chosen a lower job/position with more benefits
(e.g., higher health insurance given that she is now working at an international company). For someone
who is overqualified for the job, people like them are decreasing the opportunities of new graduates to be
employed at an entry-level job related to their field.
Overall, by analyzing the aforementioned information, it can be said that skills mismatch heavily
affects unemployment rate. When companies hire employees with mismatched skills, that person will
eventually find the job too strenuous and demanding, resign from working, and be unemployed again. If
this cycle continues, the person may be unemployed for a long time. In addition, if the market is unable to
create good jobs, job seekers have higher potential to settle for jobs in which they are overqualified for,
instead of being completely unemployed, which can be derived from the experience of Grace Ramos. Other
job seekers may also tend to settle for jobs unrelated to their degree or field of interest solely because they
choose practicality over passion. This is observed in Joshua Mercado’s situation wherein he chose a job
with a potentially higher paying salary. In order for skills to match (between individuals and companies),
there must be a collective effort by the government and companies. The government must be able to reform
the education and training systems to improve the quality of skills produced by learners. Moreover,
companies should offer better job opportunities with appropriate wages, benefits, and working conditions
depending on the nature of the job and the tasks an individual needs to accomplish.
OFWs and REMITTANCES
Up to the present, the Filipino culture remains to be strong when it comes to supporting family
values and the closeness of the family. One great example of this culture is when a family member sacrifices
to work abroad and leave their families behind, just so they can have a more lucrative job and sustainable
income, most especially for their families. In the Philippines, emigration is a significant force. Millions of
Filipinos are leaving the country to work. These Filipinos who live and work abroad are called Overseas
Filipino Workers (OFWs). As of 2020, the estimated number of OFWs is 1.77 million (Philippine Statistics
Authority, 2022). By applying chiefly the following economic principles: (1) supply and demand, and (2)
incentives, we can further understand the whys behind the upsurge of OFWs.
According to Garcia (2004), considering the drastic economic crisis in the past few years, the
Philippines has emerged as a key contributor to the international labor force and one of the world's largest
sources of labor to many other countries. There are some instances that some professions abroad demand
Filipinos. Nowadays, Filipino nurses and healthcare workers remain in demand overseas due to the lack of
supply of the labor force. Take into account, an auntie of mine, Katrina, a registered nurse who went to
Qatar but is now in the United States to practice her profession. She had the opportunity to go abroad as the
demand for her profession is high. There is another reason she went abroad, which can be related to
economic incentives.
On the other hand, incentives play a major role in working abroad. These incentives are directly
related to the first economic principle, supply and demand. In relation to the aforementioned scenario, when
a country demands an increase in labor supply, then the remuneration of that specific job also increases for
that country to attract workers. Related to the given situation, Katrina and her fellow healthcare workers
abroad enjoy numerous benefits. First and foremost are the living wages. They greatly benefit from the
higher salary compared to the salary in the Philippines. Next, are the well-equipped hospitals, medical
insurance, provision of permanent accommodation, and the possibility of citizenship. A lot more economic
incentives are still available why Filipinos work abroad.
A lot of Filipinos became OFWs to seek economic opportunities. When they already sought these,
they often give money back to their families in their motherland. This financial transaction is called
remittance, and this is one of the huge components of the Philippine economy, accounting for nearly 9.66%
of the nation’s total Gross Domestic Product (GDP) in 2020 (Statista Research Department, 2021). People
who receive remittances typically use the money to make basic expenditures such as food, shelter, and
education. This constant supply of funds serves as insurance for them and their family as a whole, enabling
them to withstand financial stress.
Numerous studies have found that households give rise to some level of dependence as a result of
migration and remittances. According to Rodriguez and Tiongson (2001), adults solely rely on money from
abroad rather than looking for jobs, or can afford to stay unemployed instead of taking a job that is
minimally paying. In relation to this, there is a paradox of the remittances and OFWs to the Philippine
economy and workforce. The remittances of OFWs significantly impacted the economy, but there is a
hidden consequence.
Imagine this real-life circumstance. There has been a family of 5, a single mother and her four
children, and their extended family members living in one household. For their family to avail necessities,
the single mother went to New York, USA in early 2010 to become a domestic helper. Since then, she still
did not go home, and it has been 12 years already since she went there. Imagine her sacrifice just by sticking
to the culture of valuing and supporting the family by providing financial support. The children missed
motherly guidance and support, by that, these children did not know the path to take in their lives. These
children heavily rely on their mother. Their mother always buys the wants of her children. In addition, these
children are spoiled until now and often flex their material things. Now that they all are young adults, they
do not have the drive to apply for a job, and their employment decisions have been affected. The reason
behind this is that they become too dependent on their OFW mother in such a way that they thought of
having her as the one who will provide financial support through remittances throughout their lives. They
also become complacent that their lifestyle will be full of material things in the long run. In this
circumstance, having heavily reliant and too dependent on their mother causes a strain on the economy and
workforce, assuming these children not applying for a job, as a result, contributes to the reasons why there
is a high unemployment rate in the Philippines.
Figure 2.
Unemployment Rate by Presence of OFW in Filipino Households
Note: The data shown are from “Overseas filipino workers and their impact on household employment
decisions,”
by
G.
Ducanes
and
M.
Abella
(2008).
Retrieved
from
https://
www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_160579.pdf
Figure 2 supports the premise that remittances and OFWs are one of the reasons of the high
unemployment rate of the Philippines, although the data are from the years 1998 to 2004. This shows and
compares the unemployment rate between households with and without OFWs. According to Abella and
Ducanes (2008), having an OFW household member may lead to a lower labor supply (higher
unemployment) caused by the other household members (unemployed). The remittance transactions tend
to make the household members become lazy and decrease their willingness to seek a job.
Figure 3.
Household Receiving Remittances Have Fewer Working Members
Note. The data shown are from “Migration and the labour market in the philippines,” by OECD/Slabrini
Migration Center (2017). Retrieved from https://www.oecd-ilibrary.org/docserver/9789264272286-8en.pdf?expires=1666310783&id=id&accname=guest&checksum=66971A4DAEB4B4C4F9C9D27D90C
1BA88
Figure 3 also supports the premise that OFWs and remittances are one of the reasons of the high
unemployment rate of the Philippines. In the study of OECD/Scalabrini Migration Center (2017), household
members are less willing to be working when their household has at least one emigrant, and they receive
remittances from them.
Working abroad also affects the Philippine workforce. It is a means of addressing unemployment,
with the argument that more individuals leaving the nation implies greater chances for those who stay.
However, working abroad is not always the solution to combatting unemployment. In fact, it is one of the
major causes of why the Philippines is suffering from high unemployment rates. It was studied that OFWs
and remittances foster a culture of dependency among household members. If proven in the long run, this
hidden consequence, as a hazard, is detrimental to the present and future output growth of the economy and
workforce. Thus, OFWs and remittances are considered as one of the causes of the high unemployment
rates in the country.
CONCLUSION
Even with a thriving economy, several countries are facing a high unemployment crisis. The
country has made some significant economic improvements, but this does not mean that Filipinos are
already financially stable. According to the research group, IBON Foundation, the Philippine
unemployment rate remains one of the highest among Southeast Asian neighbors.
Various reasons have been considered why the country is still experiencing unemployment issues.
This includes the following: First, due to the numerous qualifications that are required by job recruiters,
most Filipinos have no choice but to not take the job, especially considering the cost/benefit analysis and
incentives of the job. This can contribute to the high unemployment rate of the country. Second, job skill
mismatch. A mismatch of skills occurs when job seekers settle for work that is not completely in lined with
their particular set of skills. They may be overqualified or underqualified for the job or even be employed
in a job unrelated to their educational degrees. This factor can cause unemployment in a way that the
expected output of companies is not met by the employees due to skills mismatch. And lastly, OFWs and
remittances. There is a paradox between OFWs and remittances and the economy and workforce. The
country is one of the top remittance recipients, but it does not mean that OFWs only contribute this. There
is also a hidden consequence, and let us consider this as a cost, of becoming an OFW. Often, households
with OFW members has a high unemployment rate. Unemployed household members tend to be very idle,
lazy, and unwilling to seek a job because they heavily rely on remittances.
To address the high unemployment issue, the government must reform programs, implement laws
on over demanding of requirements, and provide more opportunities to hone everyone’s skills for them to
get a job. Furthermore, businesses should provide better employment possibilities with suitable
compensation, benefits, and working conditions based on the nature of the job and the activities that a
worker must complete.
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