Philippines: Post-COVID-19 Business and Employment Recovery Program - Subprogram 1

Sovereign Project | 55300-001

The coronavirus disease (COVID-19) pandemic had an unprecedented and long-term impact on the labor market in the Philippines. Unemployment rate has come down since it peaked in April 2020, but the labor market recovery remains uneven and new jobs are of lower quality. In response, the government launched the National Employment Recovery Strategy (NERS) on 1 May 2021 to improve access to employment, livelihood, and training opportunities and support existing and emerging business to create employment. The proposed Business and Employment Recovery Post-COVID-19 Program will support the government implement elements of the NERS to improve the medium to long term environment for quality job creation. The program is aligned with the third pillar on investing in people of the Asian Development Bank (ADB) country partnership strategy, 2018 2023.

Project Details

  • Project Officer
    Khatiwada, Sameer
    Southeast Asia Department
    Request for information
  • Country/Economy
    Philippines
  • Sector
    • Education
Project Name Post-COVID-19 Business and Employment Recovery Program - Subprogram 1
Project Number 55300-001
Country / Economy Philippines
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan: Business and Employment Recovery Post-COVID-19 Program - Subprogram 1
Ordinary capital resources US$ 400.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Knowledge solutions
Partnerships
Sector / Subsector

Education / Technical and vocational education and training

Public sector management / Economic affairs management

Gender Equity and Mainstreaming Effective gender mainstreaming
Description The coronavirus disease (COVID-19) pandemic had an unprecedented and long-term impact on the labor market in the Philippines. Unemployment rate has come down since it peaked in April 2020, but the labor market recovery remains uneven and new jobs are of lower quality. In response, the government launched the National Employment Recovery Strategy (NERS) on 1 May 2021 to improve access to employment, livelihood, and training opportunities and support existing and emerging business to create employment. The proposed Business and Employment Recovery Post-COVID-19 Program will support the government implement elements of the NERS to improve the medium to long term environment for quality job creation. The program is aligned with the third pillar on investing in people of the Asian Development Bank (ADB) country partnership strategy, 2018 2023. It will contribute to Strategy 2030 on addressing remaining poverty and reducing inequalities; accelerating progress in gender equality; and strengthening governance and institutional capacity.
Project Rationale and Linkage to Country/Regional Strategy

Macroeconomic context. The Philippines has been hard hit by the COVID-19 pandemic. Gross domestic product (GDP) shrunk by 9.6% in 2020, and unemployment peaked at 17.6% of the labor force in April 2020 during the most severe lockdown to contain the spread of the virus. The economy is on a recovery path, with 5.7% GDP growth in 2021 and an 8.3% year-on-year growth rate in the first quarter of 2022. The economic growth rate is projected to rise above 6.0% in 2022, bringing inflation-adjusted GDP back to its pre-pandemic level before the end of 2022. The unemployment rate eased to 5.8% or 2.8 million persons in March 2022. Progress in vaccinating the population against COVID-19 and further relaxation of mobility restrictions have helped restore consumer and business confidence. The government's post-pandemic macroeconomic policy framework aims to sustain growth. The Philippine economy is expected to grow by 6.3% in 2023, while the debt ratio is expected to start declining in 2024 in tandem with a narrowing fiscal deficit. Domestic debt accounts for two-thirds of total debt, which helps alleviate vulnerability to foreign exchange shocks.

COVID-19 impact on employment. Prior to the COVID-19 pandemic, the Philippines was experiencing its longest-ever period of economic and job expansion. Wage and salary employment in private establishments grew at a remarkable average of 4.6% annually from 2015 to 2019, to reach 51.5% of total employment in January 2020. The sharp recession in 2020 and subsequent business closures resulted in job losses in the private sector, lowering wage employment in private establishments to 47.1% of total employment in December 2021. Consequently, employment has shifted to lower-quality jobs, with an additional 3.2 million persons engaged in the informal sector, raising its share of total employment from 37.0% in January 2020 to 41.1% in December 2021. Informal employment comprises mainly self-employed, unpaid family workers, and domestic help in private households. Government agencies have helped to absorb job seekers by expanding public sector employment by almost 500,000 workers since the pandemic began. Prime-age and mature adults, especially women, have been the most negatively affected. Prime-age and mature adults' share of total unemployment increased from 57.3% in January 2020 to 71.0% by December 2021, while women's share of total unemployment increased from 36.8% to 43.7% over the same period. Prime-age and mature adults are at substantial risk of suffering from long-term unemployment because they may not have relevant skills to easily transition to new jobs. Meanwhile, the lack of childcare support further undermines women's retraining and employment opportunities.

The pandemic shock to the economy created a longer-lasting negative impact on modern private sector employment, which has persisted even after the economy has started to recover. Therefore, the labor market will experience a significant adjustment over the next 5 years. There are three transmission channels of this negative impact on wage employment. First, there are more jobseekers, including people who lost their jobs, school dropouts, and new labor market entrants. The longer laid-off workers and new labor market entrants remain unemployed and not in training, the more likely they become less employable because of lost skills. Second, the pandemic has triggered a large reallocation of jobs across sectors. The hardest-hit sectors are those dependent on personal contact, such as accommodation, travel, and food services. In contrast, the sectors that have recovered quickly and show positive job growth are those that tend to absorb lower shares of labor such as communications and technology, and several higher-skilled services sectors. This divergence will increase skills mismatches in the labor market, as workers do not transition easily between sectors given differences in required skills and experiences. Third, companies are modifying their business models to rely more on technology and automation, thereby reshaping types of skills demanded.

Binding constraints. There are three key binding constraints to effectively facilitating the post-COVID-19 labor market adjustment and creating quality private sector employment: (i) restrictive post-pandemic business and investment framework, (ii) pandemic-induced skills mismatches and weak institutional linkage between training and employment, and (iii) limited coverage of labor market programs to meet post-pandemic employment needs.

Restrictive post-pandemic business and investment framework. In the past 10 years, the government has taken an incremental approach to improving the investment climate, including reinvigorating public private partnerships in 2011, enacting a competition law in 2015, and introducing the Build Build Build infrastructure development program in 2016. However, the business investment framework remains highly restrictive across four different areas compared to regional peers, which has constrained the Philippines' long-term economic growth trajectory. First, there are prohibitive restrictions on foreign investment in the services sector, including a 40% ceiling on foreign equity ownership in public services and substantial minimum paid-up capital requirements for foreign investors. The retail trade sector is highly restricted to foreign retailers and investors, as there were cumbersome prequalification requirements for foreign retailers and investors. Second, the tax system is inefficient and deters quality investments. The corporate tax rate remains high at 30% partly because generous fiscal tax incentives undermined the tax base, as incentives were not well targeted and not performance based. Third, business regulatory compliance costs are high and are accompanied by cumbersome administrative requirements to register and operate a business that particularly hurt micro, small, and medium-sized enterprises. Fourth, there is no enabling environment for a business innovation ecosystem, which constrains the competitiveness of enterprises and their ability to adapt to emerging digital technologies.

Pandemic-induced skills mismatches and weak institutional linkage between training and employment. Since 2010, there has been higher demand for middle- and high-skill occupations. The Fourth Industrial Revolution will continue this shift from routine to nonroutine and analytical work. There are four key underlying factors that contribute to the weak institutional linkage between skills training and employment. First, there is a lack of sector-based skills frameworks to better address the mismatch between demand and supply. The Technical Education and Skills Development Authority (TESDA) provides publicly funded training but faces challenges to keep pace with rapid technological advancement and changing industry needs. Second, the coordination between the public and the private sectors on skills development remains weak. Collaborative research on identifying skills gaps and timely forecasts of future skills demand should contribute more to the technical and vocational education and training (TVET) policy and programs. International evidence shows that public private coordination through national and regional skills boards can be effective conduits for improving market-relevant skills development. Third, there are limited partnerships between the public and the private sectors in developing and delivering TVET programs that are relevant to the demands of employers. Many of the publicly funded TVET institutes underinvest in equipment and provide outdated curriculums. Fourth, the pandemic has exposed the lack of skills training programs relevant for displaced prime-age workers and programs custom-made for women re-entering the labor market.

Limited coverage of labor market programs to meet post-pandemic employment needs. Active labor market programs are critically important to help young people, displaced workers, and women re-enter the labor market. Public employment services are efficient conduits for matching job seekers with employers. Although ADB has provided the Philippines with assistance to develop and implement innovative labor market programs since 2014, these reforms are long-term efforts. The pandemic and the subsequent labor market adjustment require active labor market programs to adapt, expand, and be responsive to business needs, so that displaced workers can be easily reintegrated into the labor market. Continuing the institutionalization of public employment service offices (PESOs) at local government units, combined with making investments in the capacity development of PESO staff, is key to expanding coverage of employment facilitation services. It is also important to expand the menu of active labor market programs to cater for different demographic groups and needs of employers. This includes expanding the JobStart Philippines program for at-risk youth, developing programs for specific needs of prime-age and mature displaced workers, developing programs to meet the needs of women (including childcare assistance), and developing new ways to deliver workplace skills development to assist workers and jobseekers through the labor market adjustment.

Impact
Outcome
Outputs
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Khatiwada, Sameer
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Human and Social Development Division, SERD
Executing Agencies
Department of Finance
DOF Building
Bangko Sentral ng Pilipinas Complex
Roxas Blvd., Manila, Philippines
Timetable
Concept Clearance 30 Jun 2022
Fact Finding 28 Jul 2022 to 08 Aug 2022
MRM 19 Aug 2022
Approval -
Last Review Mission -
Last PDS Update 01 Aug 2022

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