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Money sent home by Filipinos working abroad have kept at least 4 million Filipinos out of poverty as of 2006, an Asian Development Bank (ADB) economist said Tuesday.
Kelly Bird, senior economist at ADB's Southeast Asia department, described remittances as "a major anti-poverty driver" in the country.
"Remittances have reduced the national headcount poverty rate by at least 5 percentage points," said the economist.
However, central bank deputy governor Diwa Guinigundo expressed doubts on the study's claim that remittances are a major cure for poverty.
Citing data from the National Statistics Office, Guinigundo said nearly half of OFWs are skilled workers and only 33 percent are classified as laborers and unskilled. In other words, if these OFWs opt to work at home, they can still earn a considerable amount of income to sustain a well-off lifestyle for themselves and their families.
The central bank deputy governor backed his assertions with data from the 2006 Family Income and Expenditure Survey (FIES), which revealed that remittances are concentrated on non-poor families and that high-income families are major beneficiaries of remittances.
According to the FIES survey, remittances from abroad accounted for as much as 16 percent of income of households in the high-income bracket while poor families received fewer international remittances and relied more on domestic earnings.
Bird countered that these arguments ignored poverty dynamics.
In his study, the economist said many of recipient families "would be poor or were poor without remittances."
By taking away remittances from all households that received them in 2006 and assuming their consumption falls by the same amount, Bird said an additional 4.3 million people spread across income groups in the country would be poor.
Investments
Bird also said that contrary to a common perception that remittances from overseas Filipino workers (OFWs) go mainly to consumption, much of these are actually spent to invest in family members' education and small enterprises.
He also cited the 2006 FIES, focusing on the portion, which reported how families receiving remittances spend the money. It said 5.2 percent of total remittance income were invested in education and 3.9 percent in health. Bird said these investments are higher than the national averages of 3.7 percent and 2.5 percent, respectively.
Another survey conducted by the ADB showed OFW households spend up to 40 percent of remittances received on children's education. This survey was carried out between February and March 2009 comprising of random samples of 500 households in Cebu and Metro Manila.
Weak labor market causes poverty
While better paying jobs attract more Filipinos to fly overseas, a major factor pushing them to leave the country is the inefficient local labor market.
The Philippines' unemployment rate declined from an average 7.9 percent in 2006 to 7.6 percent in 2008, consistent with economic growth. However, overall, Bird said joblessness in the country has been persistently higher than in other countries like Korea, Malaysia, Indonesia and Thailand.
The weakness in the local labor market also shows in the dominance of informal sectors and the difficulty of graduates to find a good and permanent job after school, Bird noted.
He added labor policy rigidities like relatively higher minimum wages, severance of social security costs, and restrictions on use of fixed-term contracts have also dampened employment growth.
"There are important policy implications of the study's findings. Government must address the slow youth transition from school to work. This will require hard political decisions for reform of the labor market covering high minimum wages and in particular, the need for relaxing rules of employment contracts," Bird concluded
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