Host Derek is lucky to have as guest, the leading economist of the World Bank, Birgit Hansl, discuss the economic opportunities in the Philippines and its relevance specifically to the outsourcing sector.
This is part two of two episodes featuring also the latest reports from the Philippines Economic Update. For more insights you may visit the first episode, that’s Episode 183.
- According to Birgit, the unemployment rate in the Philippines is pretty low at 5%, which means there is full employment as most people are employed. However, underemployment is high at 18%, which means that many are still looking for more formal employment, or more working hours, or more outsourcing jobs.
- The growing population is a great opportunity as many young people will be entering the workforce with long periods of work life ahead. They can become extremely productive if after getting good education, they train further in their jobs, and continue learning.
- There is a growing demand for human resources in the services sector, and correspondingly there have to be more investment in the human capital, in formal education, health programs, and in the development of cognitive skills particularly social skills or the ability to connect, understand and respond to client needs.
- English speaking skills, social skills and cultural familiarity are key assets that must be preserved or nurtured for the Philippines to step ahead or gain comparative advantage, more significantly in the services sector like the BPO industry.
- The government is doing its part to improve the country’s support and learning system to scale up its competitive advantage.
- The young and growing population is one backbone to the Philippine economy as these young people can become extremely productive given the right training and learning support systems.
- There is a growing demand for human resources particularly in the services sector like the outsourcing industry and a corresponding need for more investment in human capital.
- A comparative advantage of the Philippines particularly in the services sector is the English-speaking skills and cultural alignment of its people.
Welcome to the Outsource Accelerator Podcast. This is a short format podcast where we explore business and outsourcing mastery. My name is Derek Gallimore, and I am really excited to bring you the leading podcast in outsourcing.
Derek: Hi. And welcome to another episode of the Outsource Accelerator Podcast. My name is Derek Gallimore, and this is Episode 184.
So today, I am really excited, this is Part Two of the interview we had with the lead economist, Birgit Hansl of the World Bank. So, if you haven’t listened to Part One, that is Episode 183, please go into that. You can listen to this one in isolation. Obviously, there’s still a lot you can learn but I do sincerely suggest that you go back and listen to Part One to get the full story of the Philippines Economic Update.
So, as mentioned in the introduction for Episode 183, we are lucky enough to have Birgit Hansl, the lead economist of the World Bank as our guest to discuss the content and results of the bi-annual Philippines Economic Update.
Really interesting conversation, we had with her in Part One. This is Part Two where we discuss inflation of the country. There has been huge growth rate in the Philippines for the last, at least five years, and projected forward for at least two more years. And with high growth, you always get an inflationary component and I think that maybe has been noticed at least in the outsourcing sector where people are noticing seemingly an inflationary effect on the salaries there. So, we deep dive into that with Birgit and we also go into employment.
Generally, did you know that there is a very low official level of unemployment in the Philippines which might surprise some people? So, we discuss all of this super interesting conversation but without further ado we will get into this podcast. I just want to say, of course if you want any of the information, if you want to download the Philippines Economic Update itself, then I recommend you go to our show notes with all of this information and more. You can find this information at outsourceaccelerator.com/184. Enjoy!
And one very sort of commonly observed inflation in outsourcing socketry[?] [00:02:42] is the salaries of the BPO workers and I supposed anecdotally and certainly within the central outsourcing centers we’ve seen very high salary growth and that’s being sustained over the last maybe, two, three, or five years. But it is kind of a tale as we were talking before this podcast, it’s a tale of very contrasting pictures. There’s about a hundred million people in the Philippines, and there’s only still one million employed formally in the outsourcing sector. So, this [brought][?] 00:03:21] to the high levels of the unemployment but I assumed that there are about many sufficiently qualified and educated people to slip into the outsourcing sector. And also, within your reports, you’ve mentioned that in order for this economic growth to continue, they need human and capital investment, they need education, they need upscaling, so where do you see that I supposed balance and equilibrium specifically for the outsourcing sector which is I supposed I might put them is kind of mid-level educated, or mid to upscaled kind of functions?
Birgit: Yeah that’s a good question. And it’s not an easy one in general because of course the average numbers for unemployment, underemployment or wage growth average is right. So, if I look for instance at the average number just to start with unemployment is actually pretty low in the Philippines. It’s around 5% a little bit higher, 5.7% last year. By all accounts we would call that full employment because most of your people are employed. And you have only a small amount that maybe is looking for a job at the moment, that’s the definition of unemployment. It’s the answer to the question; did you look or are you looking for more work, and did you work last month or certain month or not? But on the other hand, in the Philippines you have this interesting phenomenon that you have very high underemployment which is still around 18% on average which tells you that why you have maybe a lot of people that are not necessarily searching for a job which is the unemployment definition but you have a lot of people that answered to the next question; would you like to work more? Yes! Which means you are underemployed basically or you’re giving in number of hours in other answers to questions that is not indicating that you’re fully employed.
So, your work maybe six hours per week or three or something which obviously means you’re underemployed and that gives you again this snapshot of this division between what you refer to as the formal and the informal sector. A lot of this underemployment captures informally employed people that would like to actually have a more formal arrangement for their employment but also the average is as you rightly point out not the same for each sector.
So, I hear the same from many colleagues that in certain sectors they actually look for higher skilled or specifically skilled people that they have a much harder time to find perhaps affordable human resources. But it’s also a question of geography in the Philippines. I’m sure many companies that are based in the Metropolitan Manila area faced a much harder time to find many recruits for their positions because just in general the unemployment level in Manila is much lower compared to the rest of the country. So, I think it also points to a few opportunities that could be out there for the BPO sector or related services sector that perhaps the market is quite saturated in this area, and it’s harder to find human resources here. But there are the big metropolitan centers in the Philippines where I think there could be perhaps still more opportunities to get employees that have a more reasonable way to expectation.
Derek: Right, yes, absolutely. Do you see that as a risk because I suppose within the formal economy then there is a very high level of employment and that could potentially be the engine of growth for the country moving forward? Perhaps now I supposed the balance there is that it is a very young population and there’s high numbers coming out of universities every year, where do you see the balance of risk and opportunity there?
Birgit: I think the still growing population is definitely a great opportunity for the country compared to all neighboring countries. That’s only country that still has that bone. I would call it a bone and not a burden because you still have many more people in the next few years entering the workforce that is young. That has still a long perhaps period of work life in front of them that are reasonably educated and that could you know, if they also train further in their jobs and in lifelong learning systems become extremely productive, not just for society but most for the companies that are also ready to invest more in these people. So, I think it is still a very good picture for the Philippines.
But I agree with you of course especially in the services sector. The education or skills level constantly, the demand for it is constantly increasing. So, there is really a recognition that there have to be more investment in human capital, and human capital is way broad. It’s not just formal education, it’s not just health. It is also really about the cognitive skills. The skills of interacting, the social skills of people which we found in our studies on what the firms are looking for, especially in the services sector is much more social skills than pure technical, engineering or whatever programming skills because ultimately that’s what services sectors are about. You have to be able to connect to your client. You have to be able to understand their needs. You have to be responsive. You have to understand where they’re coming from and what their goals are. So, I think that is an area where we see that the formal education system is perhaps still in development and addressing all these skills that could be much more useful so going forward and in the future for a society that is young and mainly based in terms of employment in the services sector.
Derek: Fantastic! And just one final question because we have to go a bit. From the position I’m in, and I want your opinion on this, whether there is an inherent advantage that the Philippines has from its development as a largely English-speaking country and its role to be anglicized in terms of the cultural alignment because of things that happened 500 years ago with the Spanish invading. And for better words had a lot of cultural alignment, in some sort of Statistics, it is said that they are the largest English-speaking country in the world. Do you see these as inherent advantages when we’re moving over more towards a borderless online working environment, and there’s potential for the Philippines to upscale and adopt these roles, and the cultural alignment and the language advantage are significant enough to give them potentially a step up ahead of many of the other developing countries in the same boat?
Birgit: Yes, I think there you go really hit the point. It’s not just about English speaking. It’s clear. It is really a lot of familiarity with the cultural aspects of the countries that your language is also associated with.
Man: [Excuse me. I would like to inform you that IMF would be calling you any minute from now.]
Birgit: Okay, one minute.
Derek: No, no, no. It’s all right. So just going from what was that?
Birgit: So exactly, if somebody calls you right from whether it be a call from a call center in the Philippines and it’s originating for instance in the US, and you just start your small talk how is everything and the person feel that you can relate to it, right? And if you can understand their environment it happens and that is a crucial advantage for the Philippines that it should not lose because then…
Derek: And it’s something that can’t easily be taught, you cannot teach that in the university.
Birgit: No. I mean I mean it ranges as you say from very simple issues that you have similar brands here that you can refer to in your conversation and people understand automatically what do you mean if you have a conversation with a client. But also, to bigger issues. How society functions, right? How and what institutions you have? And how similar they are to other countries? So, I think that’s a really important point and advantage that you can have here in the Philippines. And I think it’s going to be very interesting how this is evolving too because the Philippines is of course is part of a region that also develops its own identity and institutions.
So, I think forward looking, I see also this combination of the language and familiarity with the institutional environment is a key asset that should be preserved for the country. And actually, I hear from some colleagues that are working at the local level in the regions that they are actually very concern that perhaps English is not anymore such a key part of society and ultimately that would be not good in terms of the comparative advantage that the Philippines has now. So again, investment in these language skills which was really fostered in the past decades is a really important priority for not just the education system but for the society.
Derek: Yeah! That’s good pointers. I hope because as background the government has deep prioritize the learning of English. But I hope there’s enough momentum there now. And the kids are now being raised really on a diet of YouTube and NBA basketball. And hopefully there’s enough momentum there with the language.
Birgit: World Cup!
Derek: And World Cup of course. It’s very timely, very timely. But anyway, thank you so much and I’ve really enjoyed this conversation, and I wish you well.
Birgit: Very well. Thank you so much. I appreciate it and good luck to you and to your listeners.
Derek: Thank you.
Derek: That was Birgit Hansl, the lead economist of the World Bank. If you want any information about Birgit, or the World Bank or specifically the Philippines Economic Update report then go to our show notes at outsourceaccelerator.com/184. You can get all of the downloads there, you can download the report from there and I’m sure if you haven’t listened to Part One, please go into that which is at Episode 183.
Thank you for listening. See you next time.