High unemployment in the Philippines is expected to persist over a longer period of time as the lingering impact of the pandemic has caused job destruction in the formal sector and shift towards the informal sector, worsened by increasing skills mismatch between workers and industry needs, the Asian Development Bank said.

At the virtual 2022 Philippine Economic Outlook of German Chamber of Commerce of the Philippines, ADB Country Director for the Philippines Kelly Bird showed data on the gains in formal employment during the period of 206-2019, but which had been reversed following the almost two years of pandemic and private sector struggling to recover.

The country’s unemployment rate peaked at 17.6 percent in April 2020 from a record low of 4.59 percent in December 2019. The unemployment rate has so eased significantly at 6.5 percent in November 2021, the lowest since January 2021.

“We've seen a reversal in those trends. So formal employment is struggling to recover. And there's been a shift, there’s been job destruction in the formal sector,” said Bird citing the 500,000 jobs in the private sector, or private establishment establishments lost over the last 12 months. “We've seen a shift of the labor force towards the informal sector,” Kelly added.

“What we're concerned is that this may persist over the medium to long term,” he said pointed to an alarming loss of jobs.

Bird stressed that formal employment offers better pay. Formal employment is defined as workers in private establishments, and in government, while the informal sector is defined as those who are in uncertain self employment or household work, or unpaid work, or the more unstable precarious jobs.

Bird also observed of massive sectoral reallocation of jobs in 2021 over early 2020 and GDP shift from sectors heavily dependent on personal contact services such as accommodation, food, services, transportation to sectors that are higher skilled and where remote working is possible.

“So we've got this massive sectoral reallocation,” he noted. As such, Bird believes that the higher informal sector employment sector might persist for some time.

What this also means, he said, is increase in the skills mismatch because it is not so easy for workers to transition between sectors.

“So, we're going to see a more persistently high unemployment rate,” he said. “Some sectors are going to have skills shortages, while other sectors will be losing jobs.”

He also cited a number of factors occurring. One, he said, businesses are going to move towards more digitalizing their workforce’s work practices as much as they can. Those sectors that can move towards automation, which already occurred even before the before the pandemic, will most likely to accelerate.

With that, he expects sectoral gross domestic product contraction. He sees persistent contraction in the accommodation, transport and other services, but growth in the IT professional business services. “So again, we're seeing this massive sectorial shift in GDP, which of course, reflects what's happening to employment,” he added.

In addition, for those who have lost their jobs, or who have had disruptions in schooling or job training, Bird said there is going to be skill erosion. For those who are spending longer periods in unemployment, could lose their skills and they become less employable.

“It means that the unemployment rate will persist ... for some time,“ he said. It will also lower the potential capacity of the economy. “So, this is a long term or medium long term concern for the economy,” he added.

What this highlights though, he said, is the importance of workplace skills development schemes to help young people and workers to retrain.

With that, he said ADB is developing a skills development program in collaboration with the Department of Trade and Industry, Department of Tourism and the Department of Labor and Employment, and also with the private sector.

The pilot project to be funded by an ADB grant is expected to be launched in the first quarter this year.

Dubbed “SkillsUpNet Philippines”, the project is a competitive matching grants funding scheme where employers in the priority sector and location will be encouraged to establish a network of at least 10 enterprises.

For example, teen enterprises in the construction sector in a particular location will form a network through a memorandum of understanding then that network would apply for an ADB grant on a competitive basis. The grant would be for short term training of employees that belong to enterprises in that network.

ADB has already identified five priority sectors for phase one of this pilot. These are agribusiness, construction, ICT-animation, tourism and women’s enterprise.

“We hope to have phase two in 2023 and then phase three in 2024,” he said.