Philippine Markets Newsletter

MONDAY MACRO: These indicators point to a recovery in the labor market, one that is likely to continue given the accommodating economic environment

May 30, 2022

After multiple stages of lockdowns over the last two years, a majority of the Philippines has finally been placed under Alert Level 1, which is the closest status to pre-pandemic activity levels. This means that the jobs that had been removed since then are once again available.

It’s interesting to see just how much the labor market has changed from its previous lows. For that, we look at three indicators to gauge the recovery of the labor market following the stringent business restrictions.

Philippine Markets Newsletter: 
The Monday Macro Report
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Recessions are a normal part of the business cycle, caused by the economy overheating after a period of significant growth and subsequently slowing down.

A combination of one or more factors can initiate a recession, including high interest rates, loss of consumer confidence, business failures, debt crises, and other external shocks. These factors typically put a damper on spending for both firms and consumers which lowers demand and overall output.

During this time, businesses face falling revenues, rising costs, and decreased debt capacity. To offset the decline in cash flows, businesses cut down costs by downsizing, streamlining, or most commonly, reducing employee pay or laying them off completely.

The most recent recession caused by the pandemic was an especially unique situation for the labor market.

Quarantine lockdowns made it so that there was little to no demand for retail stores and other outdoor-related businesses. Therefore, customer-facing employees such as retail workers, airline attendants, and other service industry workers were laid off—not because their jobs would be streamlined and be given to someone else, but because they weren’t needed at all.

In the Philippines, employees in the service sector accounts for more than half of the country’s total employed population, which means that the labor market would be an obvious recipient of heavy disruptions.

Today we look at three indicators to evaluate the state of the country’s labor market during and after the lockdowns.

First, the unemployment rate, which is arguably the most commonly used indicator of a labor market’s health. This measures the total number of people 15 years and older who are unemployed, are available for employment, and may or may not be seeking employment.

The unemployment rate was steadily decreasing from around 10% in the 2000s to just 5%-6% in 2019. When the lockdowns were enforced in 2020, about 7.3 million Filipinos lost their jobs, and the unemployment rate spiked to an all-time high of 17.7% in April of the same year.

Since then, the unemployment rate has eased slowly, declining to 10% in July 2020 to 8%-9% levels through September 2021 to just 6%-7% through March 2022 as vaccinations have rolled out, travel restrictions are eased, and the economy operates back in full swing.

Another important indicator, which should be analyzed together with the unemployment rate, is the Labor Force Participation Rate (LFPR). This measures the total number of people in the labor force who are employed or are actively seeking employment.

An increasing labor force participation rate would indicate a potential for GDP to grow more quickly as more people contribute to the aggregate output of goods and services.

The LFPR also saw a steady decline from 65% levels in the 2000s to 60% in the last five years. Notably, it took a dip in April 2020 to all-time lows of 55.6% as people were laid off and likely discouraged to seek new jobs amidst tight labor conditions.

Much like the unemployment rate, the LFPR recovered over the next two years, once again reaching previous high levels of 65% thanks to a more open economic status and government initiatives such as the Reform, Rebound, Recover: One Million Jobs to increase job opportunities.

The last indicator, although not quite as referenced as the previous two indicators, is the underemployment rate. This measures the number of people who have high skill levels but are working low-paying or low-skill level jobs—basically a measure of the quality of the labor market.

There are about 7.4 million underemployed Filipinos as of March 2022, or an underemployment rate of 15.8%. This is marginally higher than the previous month’s 14% but slightly lower than the previous year’s 16.2%.

At worst, high underemployment rates lead to discouraged workers who may quit their job or the labor force entirely, negatively impacting both the unemployment and LFP rates.

Overall, the labor market seems to have recovered greatly, with the LFPR currently reaching previous highs and the unemployment rate set to reach previous lows. We are likely to see an accelerated recovery momentum going forward as COVID cases remain low and businesses are now allowed to operate at 100% without age restrictions.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim

Research Director
Philippine Markets Newsletter
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