Enhancing productivity in labor-absorbing services is an essential priority for both growth and equity given the services sector predominantly leads the growth of the economy and employment, according to a study released by the Philippine Institute for Development Studies (PIDS).
PIDS Senior Research Fellow Ramonette Serafica, Research Specialist Queen Cel Oren, Distinguished Visiting Research Fellow Emmanuel Esguerra, and Emeritus Research Fellow Aniceto Orbeta Jr. said this growth pattern, however, has resulted in increased employment primarily within subsectors characterized by relatively low labor productivity and wages.
Serafica, Oren, Esguerra and Orbeta said low productivity sectors –wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food service activities, and other services– account for 73.56 percent share of total employment in the services sector and primarily employ low- to medium-skilled occupations.
They said a vast majority of employed women (68 percent) are in the services sector, especially in the low productivity sector, such as wholesale and retail trade, accommodation and food service activities, and other services.
The authors added boosting productivity of these subsectors thus needs to be prioritized in terms of government support.
“Improving the productivity of these sectors while ensuring women benefit from, rather than are disadvantaged by, productivity gains is essential to closing the gender gap,” Serafica, Oren, Esguerra and Orbeta said in a discussion paper.
“Services that are not necessarily big employers, but have high forward linkages, especially to the manufacturing sector, should also be a focus of policy reforms, as productivity improvements in these subsectors have positive spillover effects to the rest of the economy,” they said.
The paper also underscored the importance of implementing a mix of strategies to enhance the capabilities of firms and workers, and to incentivize them to upgrade.
“Firms in the services sector can overcome challenges to productivity by focusing on management quality and practices, business innovation, workforce development, and technology adoption. Although beyond the control of the firm, broader structural reforms can help create an operating environment that is conducive to upgrading,” it said.
Serafica, Oren, Esguerra and Orbeta said different government agencies provide various types of assistance to workers and micro, small and medium enterprises (MSMEs).
“A strategic framework that integrates key policy areas —labor market, enterprise and industry development, technology, innovation, and structural reform— can help maximize the impact of public interventions towards increasing productivity in services,” they added.
To increase labor productivity in the services sector, the paper said a high-level Theory of Change (ToC) can be used by national government agencies as well as the local government units to design programs and integrate productivity objectives in their initiatives.
“It allows them to zoom in on specific issues while still being guided by the overall productivity goal. Highlighting the extent of the problem for specific subsectors could also justify the allocation of resources towards programs with a higher potential for productivity impact in services,” it said.
The paper said the ToC can be tailored to the needs of specific service industries, groups, or regions.
“Industry experts can help identify appropriate digital technologies and design productivity improvement activities related to industry-specific quality standards,” it added.
