By Claire Dennis S. Mapa and Jeremy L. De Jesus

1. FACTORS AFFECTING EMPLOYMENT OUTCOMES OF FILIPINO JOBSEEKERS: A DURATION ANALYSIS OF UNEMPLOYMENT IN THE PHILIPPINES By Claire Dennis S. Mapa and Jeremy L. De Jesus Presented by Jeremy L. De Jesus Bangko Sentral ng Pilipinas

2. Factors Affecting Employment Outcomes of Filipino Jobseekers:A Duration Analysis of Unemployment in the Philippines

3. BACKGROUND Unemployment has been stubborn for years. Source: 2015 Yearbook of Labor Statistics, PSA

4. BACKGROUND 2014 Unemployment Snapshot Source: 2014 Annual Labor and Employment Status, PSA Notes: *aged 15-24 **college undergrads and grads

5. MOTIVATION Informal or vulnerable employment is the bigger problem but… Source: 2012 Official Poverty Statistics for the Basic Sectors, PSA Note: *self-employed and unpaid family workers

6. MOTIVATION …economic and non-economic costs of unemployment cannot be downplayed. • Economic costs • Foregone economic output • Reduction in government revenue • Decline in household incomes and wealth • Non-economic costs • Adverse effect on health • Strained family relations • Rise in cases of alcohol and substance abuse • Higher suicide and crime rates • Negative impact on human capital The longer the unemployment spell, the worse the effects become.

7. MOTIVATION Aggregate measures of unemployment flows for macroeconomic forecasting are available… Source: Key Indicators of Labor Market 9th edition, ILO (Estimates based on Shimer, 2012) Notes: *Refers to the monthly instantaneous rate of transition from unemployment to employment; ‘No duration dependence’ rejected

8. MOTIVATION …but policy analysis of unemployment duration on a micro-level is lacking. • Studies on unemployment duration in developing countries is very limited (Dendir, 2007; Tansel and Tasci, 2010). • Although anecdotal evidence abounds, to date, there had been no previous research in the Philippines specifically on unemployment spell. • The bulk of the micro-level policy research on unemployment in the Philippines were based on stock variables (e.g. unemployment rate, labor force participation rate).

9. MOTIVATION

10. OBJECTIVES What individual, household, and community characteristics lead to longer unemployment spells? • This paper aims to examine how demographic and socio-economic characteristics of active Filipino job-seekers affect the length of their unemployment spell and the likelihood of exiting to employment.

11. OBJECTIVES Does unemployment beget unemployment? • Equally important, this study intends to determine if the amount of time individuals already spent without a job hurts their chances of exiting to employment.

12. FRAMEWORK Theory of Sequential Job Search • Given that imperfect information exists in the labor market, search is inevitable. • Stigler (1962) proposed the fixed sampling approach to job search i.e., choose a sample of n jobs at a cost c per wage sampled and then accept the highest offer. • McCall (1970) and Mortensen (1970) developed the sequential “stopping” approach to job search i.e., jobs are sampled one at a time and deciding on the sample obtained to date whether or not to stop the search or to continue. • The sequential approach was deemed more reasonable given that “search” takes place in real time and that offers must be accepted shortly after they are made.

13. FRAMEWORK Modern Job Search Framework • In a stationary environment, the search for job will continue until a job offer is received after which the choice of whether to accept or reject the job offer will be decided by comparing the wage offer with the reservation wage (or the lowest wage at which a job-seeker will accept a job). • If the offered wage is greater than or equal to the reservation wage, the search will cease. Conversely, if the wage offer is less than the reservation wage, the search will resume.

14. FRAMEWORK Reservation Wage where z is the net instantaneous income in unemployment*, λis the arrival rate of job offers, r is the discount rate, q is the rate of job loss, w is the offered wage. *unemployment benefits less search cost

15. FRAMEWORK Hazard Rate from Unemployment Since a job-seeker becomes employed when he or she receives a job offer which occurs at rate λand the offered wage is at the very least equal to his or her reservation wage which occurs with probability [1-F(wR)], the hazard rate from unemployment is given as:

16. FRAMEWORK Average Unemployment Duration Assuming that the hazard rate is constant, the probability that a job-seeker is still unemployed after a spell of length t is: • Consequently, the average unemployment duration Tu can be derived as follows:

17. FRAMEWORK Search-theoretic Model • The search-theoretic framework postulates that the exit rate from unemployment will be a function of variables that affect the probability of receiving a job offer and variables that affect the probability of accepting the job offer.

18. METHODOLOGY Data Description (1) July 2009 and January 2010 rounds of the Labor Force Survey (LFS) (2) 2009 Family Income and Expenditure Survey (FIES)

19. METHODOLOGY Unit of Analysis • Sample consists of individuals aged 15 to 64 who were unemployed and were actively looking for work in July 2009 (N=2,896). • Taking out household-based attrition, the final sample size of the person data is 2,734 (67.5 percent of which are right-censored observations i.e., still unemployed, left the labor force, employed abroad, and observed in July 2009 only).

20. METHODOLOGY Duration Data from LFS July 2009 January 2010 TIMELINE Transition Interval-censored U-E : Completed ? U-U : ? U-OLF : Right- censored ? U-OW : ? U-A : 26 weeks No. of weeks looking for work, t0 Duration

21. METHODOLOGY Variables on Receiving Job Offer Personal Characteristics • Age • Sex • Marital Status • Education Local Labor Demand • Unemployment Rate Previous Work Experience • First time to look for work Trainings (proxy) • Registration in public/private employment agency

22. METHODOLOGY Variables on Accepting Job Offer Reservation Wage (proxy) • Minimum Wage Schooling Status • Attending School Household Composition • Dependents • Non-dependents • Informal Worker Unemployment Income • Assistance from Abroad • Assistance from Local • Loans from Other Households • Withdrawal from Savings

23. METHODOLOGY Duration Model: Single-Risk Discrete-time Proportional Hazards Model with Flexible Baseline Hazard Specification where θij is the probability that individual i has left unemployment during interval j, Dij is a vector of functions of the cumulative duration by interval j with coefficients α, and xij is a vector of covariates with coefficients β. References: Prentice and Gloeckler (1978) and Jenkins (2005)

24. METHODOLOGY Piece-wise constant specification of the baseline hazard The baseline hazard αDij , is specified to be a step function, where D1,…D4 are dummies for time intervals j=1,…4 which are as follows: 1-27 weeks, 28-54 weeks, 55-81 weeks, and 82 weeks and over.

25. METHODOLOGY Estimation Procedure - For this study, the complementary log-log model was selected as the estimation procedure due to the following reasons: (1) at low hazard values, the logistic and complementary log-log functions are virtually identical; and (2) it builds in a proportional hazards assumption similar to the Cox regression model where the estimated parameters (i.e., exponentiated coefficients) can be interpreted as hazard ratios. - In order to estimate the grouped data hazards model, the person data was transformed to person-period data which increases the final sample size to 4,658 obs with 890 failures (i.e., total no. of exit-to-employment events).

26. RESULTS What individual, household, and community characteristics lead to longer unemployment spells? Holding other personal characteristics constant… Age • The hazard of exiting unemployment initially increases as job-seekers become older but begins to decline at about the age of 35-36. Sex • Females, in general, were estimated to face 0.867 of the hazard of males or they have 13.3% smaller hazard than males. Note that a hazard ratio of less than 1 indicates that exiting from unemployment is occurring slower for females than for males.

27. RESULTS Holding other personal characteristics constant… Marital Status • Ever married job-seekers, in general, were estimated to face 1.205 of the hazard of never-married unemployed (or they have 20.5% higher hazard than the never-married). Sex and Marital Status (Interaction) • Married women were estimated to face 0.866 of the hazard of married men (or they have 13.4% smaller hazard than married men). Education • College undergrads and college grads face 0.710 and 0.647 of the hazard of primary grads or 29% and 35.3% smaller hazard than the reference group, respectively. • Graduates of engineering and services programs face 0.535 and 0.342 of the hazard of primary grads or 46.5% and 65.8% smaller hazard than the reference group, respectively.

28. RESULTS Controlling for personal characteristics and other factors… Previous Work Experience • New entrants to the labor force were estimated to face 0.674 of the hazard of experienced job-seekers (or they have 32.6% smaller hazard compared to the reference group). Local labor demand • For every 1% increase in unemployment rate, the hazard to employment decreases by 2.7%. Trainings (proxy) • Job-seekers who registered in public employment agency were estimated to face 1.329 of the hazard of job-seekers who either approached employer directly, friends or relatives, placed or answered advertisements, or did some other methods of finding work (or they have 32.9% higher hazard than the reference group).

29. RESULTS Controlling for personal characteristics and other factors… Reservation wage (proxy) • For every 10-peso increase in minimum wage, the hazard to employment decreases by about 2%. Household composition • For every additional employed member in the household, the hazard to employment falls by 9.9%. • Jobseekers living with an informal worker in the household have 13.4% higher hazard to employment than that of jobseekers in households with no informal worker Unemployment income • As the amount of assistance received from abroad and domestic sources increases by 10%, the hazard to employment falls by 35% and 20%, respectively. • As the amount of loans from other families increases by 10%, the hazard to employment rises by 26%.

30. RESULTS Baseline Hazard Source: Author’s computation

31. RESULTS Does unemployment beget unemployment? • Yes! There is evidence indicating negative duration dependence after 28-54 weeks. The hazard to employment falls monotonically thereafter. • The initial positive duration dependence indicates that it is difficult to find and start a new job which is common among those individuals who are first-time job-seekers and have no previous work experience.

32. REMARKS Conclusions • Several personal, household, and community attributes were identified as influential factors to unemployment duration. • In the medium- and long-term, unemployment begets unemployment.

33. REMARKS Policy Implications • Preparing our youth for their entry to the labor force is desirable. • Giving employment opportunities to married women may improve the labor force participation of women in general. • It is beneficial to match the skills of the workforce with the demands of the labor market. • The disincentive albeit unintentional effect of inter-household transfers on labor supply decisions of left-behind families of migrant workers is a cause for concern. • A review of the LFS current design and questionnaire should be seriously considered by the PSA.