Philippine Markets Newsletter

MONDAY MACRO: Underlying factors to this overlooked indicator show more optimism than expected for the local labor market

May 3, 2021

Unemployment rate reached its all-time high in April 2020, an effect of business closures due to the highly restrictive community quarantine.

While the number has come down from that peak, it is still higher than historical averages, making analysts concerned about the Philippines’ economic recovery.

However, we need to remember to look at data as a mosaic, and not as stand-alone indicators. It is inaccurate to just look at the unemployment rate without looking at all the other factors involved. In commemoration of May 1st Labor Day, we talk about this other labor-related indicator that should shine a better light on the current situation.

Philippine Markets Daily:
The Monday Macro Report
Powered by Valens Research

One year later, and the Philippine government is still using the same tactics it did when the pandemic started.

Repeating the cycle of tightening and easing quarantine restrictions continues to make it difficult for businesses in the Philippines to operate with some level of certainty. That has only made investors and analysts grow more wary and pessimistic about the country’s recovery potential.

The Asian Development Bank (ADB) even downgraded its forecasts for the Philippines’ annual GDP growth, reducing its minimum target range from 6.5% to just 4.5% as new daily cases remain high, especially in the NCR+ bubble.

Investors may be worried about downgrades from other agencies as well, further confirming fears the economic recovery could take much longer than initially expected. That isn’t a good sign for foreign investors, and with less capital entering the market, that could be worrisome for the country’s growth potential.

One of the factors of production that is immediately affected by an economic slowdown is labor. Unfortunately, not all businesses have the same capability to transition to a work-from-home setting, especially for businesses in the service sector.

As we’ve seen in April 2020, within just a month of most businesses having no operations, 18% of the labor force immediately found themselves unemployed. This is the highest rate recorded since July 2005 when the Labor Force Survey was revised to accommodate an updated definition of unemployed people.

Before the pandemic, the Philippine unemployment rate averaged 6.7%, following a generally declining trend from July 2005 to January 2020. Looking at this chart alone, it would seem like the Philippines is able to address unemployment issues as more Filipinos are employed.

After the pandemic hit, the unemployment rate surged to an all-time high of 17.8% in April 2020. Fortunately, the unemployment rate fell to 8.7%-8.8% levels from October 2020 to February 2021 as the economy started to slowly reopen.

Once again, looking at this chart, one might say unemployment is not as big of an issue, especially as it stabilizes around 8%-9%. However, it still hasn’t come down to historical averages, which may be a cause for concern, especially if more than 8.8% or 4.2 million Filipinos continue to be unemployed.

To make things worse, with the number of new COVID-19 cases outpacing the vaccine rollout, the tight quarantine restriction overhang may keep unemployment rates above historical averages.

However, it is important to stress that the unemployment rate does not consider every Filipino that is not working. The unemployment rate reflects the conditions of the labor force only.

According to the Philippine Statistics Authority (PSA), the labor force refers to the population of 15 years old and over who contribute to the country’s production of goods and services.

In other words, the unemployment rate does not factor in people who are discouraged or uninterested to actively seek work. Some examples of people who are not part of the labor force are students, prisoners, and retirees.

What we don’t see when we just look at unemployment rates is why it dropped just as fast as it rose, and why it has managed to remain at the same level in the past months.

This is why it is equally important to look at the labor force participation rate, which is the proportion of the population that is either working or actively seeking work.

The chart above shows the Labor Force Participation Rate (LFPR) averaging 64.0% from July 2005 to the end of 2016. Its general trend has been on a decline since then, falling to 60.7% by January 2017. This also translated to a slight uptick in the unemployment rate.

The LFPR reached its lowest point of 55.7% during the start of the community quarantines. Many were laid off from their jobs as industries and businesses were forced to close. Many were discouraged to seek new work, leaving the labor force in the process.

In addition, because of the pandemic, fears of contracting the virus and strict quarantine restrictions prevented more people in the labor force from opening their businesses or seeking employment.

By late 2020, unemployment rates improved. In October 2020, 3.8 million Filipinos were unemployed, while 39.8 million were employed, resulting in 43.6 million Filipinos being part of the labor force.

In February 2021, the number of unemployed Filipinos increased to 4.2 million together with the employed Filipinos at 43.2 million, resulting in 47.3 million Filipinos. The slightly higher unemployment rate in February 2021 was mainly due to the increased number of people into the labor force, not because more people lost their jobs.

More Filipinos were able to find more jobs in the span of five months and unemployment rates stayed at 8.7%-8.8% levels.

Meanwhile, from 58.7% in October 2020, the participation rate from the labor force expanded to 65.5% in February 2021. This means that approximately 3.7 million more Filipinos are actively looking for work and that approximately 375,000 more Filipinos have found employment.

When businesses start returning to pre-pandemic conditions, there will be a larger pool of talent to be able to hire from. As more people are hired, a higher level of output may be expected, positively impacting GDP growth.

Though an 8%-9% unemployment rate may not be as good as 6% on paper, this is not necessarily a bad thing given the current health crisis.

However, even if we see improvements in these indicators, for the resulting economic recovery to be sustainable, a fast and effective vaccine rollout is crucial so that economic activity similar to pre-pandemic levels may resume.

About the Philippine Market Daily
“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 Daily
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683