An Overview of the Lurking Economy 1

An Overview of the Lurking Economy:

The Underground Economy and the National Accounts of the Philippines

May Ann Toyoken

October 22, 2012

An Overview of the Lurking Economy 2

ABSTRACT

Being a permanent part of the nation's economy, the underground economy poses a lot of

economic potentials and benefits when properly enriched and supported and/or improved by the

government. These potentials include the fact that it somehow contributes to the annual GDP and GNP

of the Philippines and that it also plays a significant role in the economy by absorbing the surplus labor

that cannot be taken in by the formal sector and thus serves as a safeguard and/or safety net during

economic crisis. Overall, this paper provides an in depth exploration of the Philippine underground

economy--how it affects the annual summation of GDP and GNP, the roles it play in the economic growth

of the country, and the laws, regulations, policies, and programs imposed and made by the government

and NGOs upon it all the while challenging the system and its economic planning bodies with regards to

the Philippine underground economy.

An Overview of the Lurking Economy 3

An Overview of the Lurking Economy:

The Underground Economy and the National Accounts of the Philippines

The informal economy has long been a permanent fixture of a nation's economy

since the ILO (International Labor Organization) has identified its concept in 1972 despite the

consequences and disadvantages that the sector offers. In an attempt to explore possible

ways of quantifying it and to identify the roles it plays particularly in the Philippine economy,

this paper aims to identify the effects of the increasing population growth rate of the

informal economy to the country's total yearly national output and to provide an overview

of the Philippine shadow economy---its characteristics, roles it play in the economic growth

rate, legislations and programs imposed by the government, including concerned NGOs,

upon it. Exploring on published articles, books, journal entries, and reports from reseraches

gathered online (via the Internet) and offline (library reseraches), this paper suggests that

the informal economy has a lot of economic potentials when properly supported by the

government.

Review of Literature

The term “ informal sector” was used first in 1972 to refer to activities that are

unrecorded, unrecognized, unprotected and unregulated by the governing bodies (ILO,2002).

Basing on the first definition, many researchers and authors attempted to provide their own

definition of the term. For instance, Chen, Jhabvala and Lund (2002) have presented three

views of the informal sector prior to the formal economy and the governing bodies

responsible to it. To add, Becker(2004) proposed eight ways to define the informal sector in a

more specific way at the same time characterising it and identifying reasons for its existince.

Furthermore, Bolivar (2006), has also tried to provide a definition and sample magnitudes of

it as a percent of the GDP (Gross Domestic Product) on different countries all the while

pointing out that the major factors for the existince of the informal economy is the presence

An Overview of the Lurking Economy 4

of “high taxes, complicated regulations, bureaucratic hurdles, and corruption (p.5)” as

Edwards, Jones, and Ram (2006) have also claimed when they cited Schneider in the

literature, Shades of Grey in the Informal Economy remarking that the high rates of direct

and indirect taxes plus social security burdens drive people to informality.

Some researchers have also focused on sizing up the magnitude of the informal

economy as a percentage of the national economy. A handbook published by the OECD in

2002 on how to measure the non-observed economy has identified and promoted best

practices in dealing with it statistically. Furthermore, Schneider (2002) has also made an

effort to size up the informal economy in 110 countries worldwide using different proposed

methods. In relation to this, the journal entry, Counting the Invisible Workforce: the Case of

the Home-based Workers, pointed out that though home-based workers are a part of the

informal economy, they should still be included in the official statistics of labor since what

they practice are vital sources of employment.

In the Philippine context, there have been also attempts to define, quantify, and

study the concept of the parallel economy. For example, Alonzo and Mangahas (1990)

presented summaries and discussions of various surveys conducted about the informal

sector in Metro Manila with the latter as the main setting of the surveys. Gatchalian et al.

(1986) also conducted earlier researches and surveys about the unrecorded employment

focused on the four major cities of Metro Manila. Basing from the gathered results, they were

able to establish the nature, consequences, and prospects of underground employment in

the Philippines. While Sibal (2007) sought to quantify the informal economy in the

Philippines, the Congressional Planning and Budget Department of the House of

Representatives presented a profile of the sector in 2008 and Kuang-Jung (1997) focused on

the subject of Filipino retailing as a major economic activity conducted by poor Filipinos as a

buffer to economic crisis.

Further studies conducted by Filipino researchers and authors also focused on

challenging the government to improve the sector. For instance, Dorotan et al. (2010)

An Overview of the Lurking Economy 5

presented a budgetary analysis on government budgets towards programs it implements for

the purposes of improving the informal economy. Moreover, Lanzona's Transforming the

Informal Sector sought to provide a justification for substantial government intervention to

further develop the sector while Farolan (1998) has discussed the need for social protection

and social legislation for workers in the informal sector all the while listing some labor

policies on social legislation imposed on it. In addition, Macaranas, Sibal, And Tolentino

(2001) classified laws affecting the informal sector and provided assesments to the extent of

empowerment of the sector based on the conditions of the imposed laws. Lastly, Yu (1994)

provided a list of NGOs that made programs for the it.

An Attempt to Define the Informal Economy

Otherwise known as the informal economy or parallel economy, the underground

economy can be defined in a broad sense as the group of business activities conducted

either legally, illegally or extra-legally for the mere purposes of subsistence. Accounts

earned in these activities are not recorded by the BIR (Bureau of Internal Revenue).

In attempt to define the informal economy in a more specific way, the sector can be

defined using either any of the following eight proposed ways on defining it. First, it can be

specified using the three views—dualism, structuralism, and legalism-- on it prior to the

formal sector (Becker, 2004). According to Chen, M.A., Jhabvala, R. and F. Lund (2001) who

proposed these three views in their working paper for the ILO (International Labor

Organization), Workers in the Informal Economy: a Policy Framework, dualists tend to see

the informal sector as a separate and insignificant subsistence economy for the

disadvantaged relative to the formal economy. In addition, structuralists see the informal

economy as a dependent economy to the formal sector while the legalists give justification

why there are informal economies. According to this view, informal economies are the

natural and logical response of the micro enterprises to the bureaucracy and the red tape in

the government (Chen, Jhabvala, and Lund, 2001).

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A second way to define the informal sector more specifically is through its general

characteristics (Becker, 2004). This sector is generally characterized by its insufficient

requirements capital-wise and professional qualifications-wise. Moreover, the sector is

known for being made up of small-scale operations that are usually for the mere purposes of

survival. What is more, the skills that it requires are usually acquired informally and it also

uses adapted or adjusted technology. The last but not the least defining characteristic of the

informal sector as enumerated by Becker is it being labor-intensive, meaning, it requires a

large expenditure of labor, but not much capital.

A third way to describe the informal economy is to divide it into three categories---the

self-employed, the wage workers, and the employers (Becker, 2004). The self-employed

workers are those who do independent jobs needing insignificant capital and training

(Lanzona, 1998). The wage workers are those who do not have enough capital to spearhead

a business so they resort to working for those who have the capital. Becker has included

those informal enterprises employees, freelancers, and home-based workers, paid domestic

workers, temporary and part-time workers in this category. Corresponding to what Becker

has discussed in her work, Fact finding study: The informal economy, the last category is

composed of employers who are able to own and run informal businesses.

The fourth way to distinguish the informal economy according to Becker (2004) is by

categorizing it to four---home-based workers, street trader and street vendors, itinerants,

and those work in between the streets and the home--- prior to the location where the

informal activities are conducted. Becker classified the home-based workers into two---the

dependent home-based workers and the independent home-based workers. On the one

hand, dependent home-based workers are those who are “in-between” the formal and the

informal economy. Chen, M., O’Connell, L., and Sebstad, J. (1999) also termed these

dependent home-based workers as “subcontract workers or outworkers for formal firms” (p.

605). Subcontract workers or the outworkers for formal firms make up the group who provide

their services for some establishments, but do their services at home. Formal agreements

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between them and their employers are documented and these dependent workers are

compensated for what their products and services are worth. Chen, M. et al.(1999) affirmed

that this group is not usually included among the employees of the formal firms that they

work for. Of equal importance, they are also not encompassed in the surveys of informal

workers. On the other hand, independent home-based workers are those who deliver and

provide products and services to potential buyers. Classic examples for this group in the

Philippine context cover those women who go door-to-door and offer nail polishing services,

small-scale farmers who sell their own harvests to the community and those who sell goods

and services through social networking sites like Facebook. The second group apart from

the home-based are those who do vending and trading on the streets as Becker asserts. In

the Philippine scenario, it goes without saying that fishball vendors are among those who

can be classified members of the group. The third group comprises of seasonal workers or

the “itinerants” (Becker, 2004, p. 13). Examples of itinerants include those who work for

building constructions or road works. They can also be those hired helps for bigger farms

during harvest seasons. Last of all, those who work in between the street and the home

comprise the last group. Examples of informal actor for this category provided by Becker

include waste-pickers (those who collect plastics, bottles, and old papers and cartons).

Another way to provide the informal economy a definition is to delimit it to its

potential to enhance employment and income and the factors that push them to go

underground (Becker, 2004). That way, the sector can be divided to three groups. The first

group would cover those enterprises having the biggest chances on becoming one of the

major contributors in the country’s economic development due to their potential to spawn

development and wealth. These enterprises choose to operate underground because of the

reality that the informal sector is not subject to any rule or regulation and is mainly tax-free.

The sector being not subject to any laws and regulation offers autonomy in the conduct of

business and it being mainly tax-free means large pool of profit. The second group would

include those individuals or household workers who participate in the informal economy for

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subsistence purposes. In addition, they also engage informally because it is where they can

only “maximize their only asset: labor”( Becker, 2004, p. 14) plus the fact that the process

of formalisation is too costly and that red tape and bureaucracies in the registration

processes are too time consuming. The third in this segmentation according to Becker are

those who have formal works, but still take time to participate in the informal economy to

augment the meagre income they are receiving.

Segmenting the informal sector into two based on production units. This definition

would include family enterprises and micro-enterprises (Becker, 2004). Family enterprises

are family owned businesses and micro-enterprises are business units employing five to ten

employees and are unregistered.

To add to the definitions proposed by Becker, Sibal (2007) also presented a definition

from the Social Reform and Poverty Alleviation Act. The definition states that informal

activities pertain to the small-scale businesses operated by poor entrepreneurs or

individuals and of which are unregistered to any government agency. These small-scale

operators sell their services in exchange for very meager wages any other kind of

compensation worthy of the services they have provided.

Finally, the ILO (International Labor Organization) provides its own definition of the

sector as-

[The informal sector] consists of small sector self-employed activities with or

without hired workers, typically operating with a low level of organization and

technology with the primary objective of generating employment and incomes for

their participants; to the extent that these activities are carried out without formal

approval from the authorities and escape administrative machinery responsible for

enforcing legislation and other similar instruments concerning fiscal and

administrative matters and conditions of work; they are concealed (Lanzona, 1998,

pp.4).

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THE INFORMAL SECTOR AS A PERMANENT PART OF THE INFORMAL ECONOMY:

During the 90th International Labor Conference in 2002, a report entitled, Decent work

and the informal economy emphasized that contrary to prior estimations, the informal

economy has incurred a rapid growth in almost every economy worldwide even in

industrialized countries. Furthermore the report also asserted that in the past recent years,

large portions of the labor force are in the informal economy, particularly in the developing

and transition countries (ILO, 2002). In support of the assertion that the informal economy is

no longer a fleeting phenomenon, but rather a permanent part of the nation’s economy,

Lanzona (1998) affirmed that so long as there is surplus labor unabsorbed by the formal

economy and as long as the economy would not industrialize to create more job

opportunities, the informal sector would stay undissolved and the informal workers would

remain and stay as a compliment to the formal workers. Becker (2004) also pointed out that

the absence of government support and the income and asset inequity—meaning, the

economic growth is not supported by advancements in employment levels and distribution

of income—would mean that the informal economy would stay.

Being a permanent part of the nation’s economy, coming side to side with the formal

economy, the nature of the informal sector varies greatly from the nature of the formal

sector. The two sectors are obviously poles apart.Kuang-Jung C. (1997) argued that the

customary way of operation in the developing countries, the Philippines being one, has led

to the division of the total labor force into two. On the one hand, the first part works in the

formal and structured economy which is characterized by amiable wages, secured working

terms and conditions, work security and stability, and potential for advancements. On the

other hand, the other part of the labor force works in the informal sector which is very

opposite to the formal sector with it having low wages, poor working conditions, uneven and

not uniformed employment, and limited chances for development (Kuang-Jung C.,1997).

InThe Nature, Consequences, and the Prospects of the Underground Economy in the

Four Major Cities of Metro Manila, Gatchalian, J.C., Gatchalian, M.M., Barranco, N.O., and

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Almeda, C.J. (1986) have also enumerated four characteristics of the informal sector

deviating it from the formal sector. These natures include the following: (1.) workers in the

informal economy tend to work long hours to make both ends meet since they are receiving

very low earnings (2.) the works done and the earnings and compensations received by the

participants are very unstable---irregular or seasonal (3.) there is no formal contract drawn

between the employers and the employees making the employees highly at risk for

exploitation, and lastly (4.) the terms and the conditions the job requires are flexible

symbolizing the existence of no fixed working hours or wages. Basing on the four

enumeration and on the allegation that the informal economy and the formal economy are

very opposite, the researcher concludes that workers from the formal economy in

comparison to the informal economy actors have fixed hours of working time, receive

considerable and stable benefits and salaries from their formal employees unless they are

dismissed, and have formal contracts about the terms and conditions that is required in the

job.

Gatchalian et al. (1986) also added that the informal economy can be distinguished

from the formal economy through its members who are chiefly living in sub-standard

conditions and through the activities done which in the case of the informal economy,

usually are vending activities. It goes without saying that the living conditions of workers

from the formal economy are at least bars higher than those in the informal economy since

they receive stable benefits, compensations, and salaries from their formal employees,

though this is not likely always the case. In the Philippine context, some employees may

have formal works, but the minimum wage they are receiving is not enough to provide for a

person’s daily needs. The minimum wage rate as of June 2008 ranges from 187.00 pesos to

345.00 pesos. This amount of wage is hardly enough to sustain a daily living with the

inflation and the crisis that challenges the economy.

In retrospect, Lanzona (1998) provided characteristics of the formal economy that

distinguishes it from the informal economy. The following characteristics are: (1.) formal

An Overview of the Lurking Economy 11

enterprises have access to credit (2.) formal economies have access to advanced technology

(3.) formal economies have access to large markets (4.) the contracts and the rights

enforcement between employees and the employers are secured and everything is in black

and white (5.) formal economies have the leastt chances of becoming a liability and they

also have the smallest chances of being risky, and (6.) formal economies have business

information. In compliment to the features of the informal economy provided by Gatchalian

et al., Lanzona’s features of the formal economy shows how big the difference is between

the two. As compared to informal enterprises, formal activities have the edge of having the

greater access to larger and more profitable markets, more advanced and updated

technology, and credit. Furthermore, the formal economy is secured in terms of working

hours and conditions as stated in an earlier part in the paper. What is more, since they are

registered and are known, they enjoy the opportunity of having knowledge and being

updated about the present workplace.

REASONS WHY PEOPLE GO UNDERGROUND:

There are considerable factors that drive people to the underground and why the

informal economy exists. The most main and basic reason is to provide income to their

families and to create employment for themselves (Alonzo R., & Mangahas, Ma. A.,1990).

Furthermore, Bolivar (2006) stated that, “High taxes, complicated regulations, bureaucratic

hurdles and corruption seem to be the most important factorsthat drive an activity to go

underground” (p. 5). Bolivar was supported by Schneider (as cited in Edwards, P., Jones, T., &

Ram, M., 2006) when he noted that the high rates of direct and indirect taxes plus the social

security burdens drive people and micro-enterprises underground. Moreover, the lack of

attention paid by the government to the development of the agricultural sector as Alonzo

and Mangahas (1990) claimed proves these. In support to this contention, the ILO

(2002)stated that some developing countries tend to focus on reinforcing laws and

regulations that concentrate on foreign investments, large companies, and manufacturing

industries disregarding the agricultural sector even though the majority of the country’s

An Overview of the Lurking Economy 12

population are located in the rural areas and are highly dependent on agricultural

subsistence. Alonzo and Manghas’ and the ILO’s claim prove to be true in the Philippine

setting. Considering the fact that the Philippines is an agricultural country, the government’s

focus should be more on the development of the agricultural sector, however, it proved to

be the other way around. As Alonzo and Mangahas (1990) put it, the agricultural sector is

being burdened by many “public and private monopolies” (pp.89).

Other factors driving entrepreneurs and micro-enterprises to go underground can be

accounted to the inadequate absorption of extra labor. Lanzona (1998) argued that since the

formal sector cannot absorb all the labor force, the extra labor or the surplus labor serves as

a buffer or an absorber.

THE INFORMAL ECONOMY’S CONTRIBUTION TO THE NATIONAL OUTPUT

The underground economy is related to the country’s total national output in terms of

country’s Gross Domestic Product and Gross National Product. In order to know how they

are related, a step to be considered is to know the different ways proposed to size it up. In

his attempt to measure and estimate the size of the informal economy in 110 countries

worldwide, Schneider (2002) proposed three ways to measure the informal economy. The

three ways include the following:

1. Direct approaches—include the conduct of surveys that are voluntarily replied and

tax audits. In the tax audits, the discrepancy between the incomes declared tax

by the population and those taxes that are measured by selective checks or the

so-called tax compliance data.

2. Indirect approaches—are approaches that are mostly applicable for

macroeconomic activities. At present, there are five methods comprising this

approach.

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a. Discrepancy between National Expenditure and Income Statistics—in the

national accounting, the disparity between the expenditure measure and the

income measure is used as an indicator of the extent of the informal economy.

b. Discrepancy Between the Official and Actual Labor force—this approach shows

that a the gradual decrease in participation of the labor force in the formal

sector can be used to show the increase in growth of the informal economy

assuming that the total labor force is unvarying, all other things being equal.

c. Transactions approach—this approach was developed by Edgar L. Fiege, an

economics professor at the University of Wisconsin-Madison. In this approach,

the total nominal GNP is related to the total transactions whereby the GNP of

the informal economy is derived by subtracting the official GNP from the

nominal GNP.

d. Currency Demand Approach—this approach assumes that all transactions in

the underground are all conducted using direct cash payments for the mere

purposes of not leaving traces for the authorities, therefore, a gradual growth

of currency demand symbolizes growth of the informal sector.

e. Physical Input or Electricity Consumption Approach—there are two methods in

this approach namely:

i. Kaufmann-Kaliberda Method—according to this method, the difference

between the gross rate of the official GDP and the cross rate of total

electricity consumption can be used to show the growth of the informal

sector.

ii. Lacko Method—this method concludes that in every nation, a portion of

the household consumption of electricity is utilized for activities in the

informal economy.

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3. The Model Approach (Dynamic Multiple-Indicators Multiple-Causes)—this

approach takes into account the leading causes of the existence of the informal

sector as well as the many effects of the informal economy (Schneider, 2002).

Contributions to the GDP and GNP and to the Labor Employment

The informal economy’s share to the yearly summation of the country’s Gross

Domestic Product and Gross National Product and its share in the absorption of labor prove

to be very substantial. The Congressional Planning and Budget Department of the House of

Representative presented in the literature, “Profile of the Informal Sector”,dated November

2008, that the share of the informal sector to the yearly national economic output stayed

the same since 1995 at 20-30 percent. What is more, the informal sector is also responsible

for one-third of non-agricultural GDP. The table below shows the share of the informal sector

in the GDP of some Asian countries.

Table 1.

INFORMAL SECTOR SHARE IN GDP IN SELECTED ASIAN COUNTRIES (IN PERCENT)

COUNTRIES(YEAR) PERCENT OF TOTAL GDP PERCENT OF NON-

AGRICULTURALGDP

Philippines (1995) 25.4 32.5

Philippines(2001-2006) 20-30 _

Korea(1995) 15.9 16.9

Indonesia(1998) 25.2 31.4

Pakistan(1997) 21.2 28.7

India(1990-91) 32.4 48.1

Source: Charmes 2000, BLES, 2007

Note: adapted from http://www.congress.gov.ph/download/cpdb/fnf_112008_profsector.pdf.

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In addition to this, the NTRC (National Tax and Research Center estimated for the

period of 1965-1970 that the informal sector produced an output equivalent of 26 percent of

the GNP as reflected on the individual and corporate tax discrepancies. For the period of

1971-1981, the output rose to 9 percent. For the succeeding years up to 1984, this amount

rose to 6.5 percent higher on the bars making it to a total of 41.5 percent of the GNP. In

1988, the percent contribution went up to 48 percent of the total GNP (Lanzona, 1998).

Aside from its substantial share to the GDP ad GNP accounts, the informal economy

also plays a positive role in the labor employment, it being all around every sector in the

Philippine economy. Pursuant to a 2008 survey done by the Labor Force, presented in the

literature, “Profile of the Informal Sector,”dated November 2008 by the Congressional

Planning and Budget Department of the House of Representative, 44.6 percent of the total

Philippine labor force are can be found in the informal sector for the years, 2002 to 2007.

This total population of the Philippine labor force working in the informal sector continued to

increase over the years at a population growth rate of 2.3 percent, marking its highest

growth rate in 2004 at 6.9 percent. Below shows a table of all working group and the percent

distribution of the informal workers that are associated with them.

Table 2.

PERCENT DISTRIBUTION OF INFORMAL SECTOR WORKERS, 2002-2007(IN PERCENT)

GROUP 2002 2003 2004 2005 2006 2007

All Occupations 100 100 100 100 100 100

Corporate

Executives,

Managers,

Proprietors and

Supervisors

15.2 16.2 18.7 17.5 17.9 18.4

Professionals 0.5 0.4 0.3 0.4 0.3 0.3

An Overview of the Lurking Economy 16

Technicians &

Associate

Professionals

1.5 1.3 1.1 1.0 0.9 1.0

Clerks 1.2 1.1 0.4 0.4 0.5 0.6

Service

Workers &

Shop & Market

Sales

Workers

6.5 5.8 5.5 5.5 5.8 5.9

Farmers,

Forestry

Workers &

Fishermen

35.1 35.7 34.5 34.3 34.4

34.0

Trades &

Related

Workers

5.9 5.6 5.3 5.2 4.9 4.6

Plant &

Machine

Operators &

Assemblers

5.2 5.3 4.9 5.2 5.5 5.5

Laborers&

Unskilled

28.9 28.5 29.3 30.3 29.7 29.5

An Overview of the Lurking Economy 17

Workers

Special

Occupations

0.1 0.1 0.1 0.1 0.1 0.1

Source:LabStat Updates, May 2008, BLES

Note: adapted from http://www.congress.gov.ph/download/cpdb/fnf_112008_profsector.pdf.

THE UPS AND DOWNS OF THE INFORMAL SECTOR:

Aside from its substantial contribution to the country’s GDP and GNP and to the labor

employment of many a Filipino, the informal economy has also other benefits. One benefit

can be seen when the informal sector buys its capital from the formal sector (Lanzona,

1998). The informal sector has no other place to buy its capital or its non-labor inputs, but

from the formal sector. Compared to the formal sector, these capitals and non-labor inputs

are manufactured and sold by the informal sector at a relatively cheaper price. The process

alone, having the informal sector purchase its capital from the formal sector makes a huge

contribution to the formal economy by giving rise to the demand of goods in the formal

sector.

Likewise, it also provides livelihood for those who belong to the poorest of the poor in

the country and it serves as a safeguard for those who are employed but still need additional

income to support their families, laid-off employees, and underemployed workers.

Gatchalian et al. (1986) stated that these “potential wage laborers” (p. 7) need to have an

employment in order to support themselves, hence, finding alternative and temporary

means of subsistence. Gatchalian et al. further pointed out that the informal sector gives a

background for the enrichment of enterprising skills. To add, employment underground

serves as a buffer in times of economic crisis. As Edwards, Jones, & Ram (2006) asserted,

the sustained reproduction in the informal sector is a “part of logic of unequal exchange”

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(p.359) where the reason for their continuation is to provide simple and cost-effective goods

and services to micro-enterprises and household units in the formal sector.

The very nature of the underground economy offers a lot of disadvantages and

consequences, as well. For instance, the benefits that the underground workers acquire are

nearly existent with the very meager wages they are receiving. Moreover, employees in the

informal sector do not receive benefits that the formal sector employees receive such as

health benefits and other compensations that workers ought to receive in the span of their

labor life. Gatchalian et al. (1986) further discussed other disadvantages of the informal

sector including its encouragement of child labor and lack of formal work contracts among

employers and employees making the latter easy targets for exploitation. In addition,

underground employments do not necessarily mean permanent jobs. As was discussed in

the earlier part of this paper, Becker (2004) has highlighted the itinerants who have

seasonal jobs. Lastly, on the government’s point of view, the frequency of the underground

activities signify losses in incomes as Abola(2008) puts it in the literature, “Profile of the

Informal Sector,”dated November 2008 by the Congressional Planning and Budget

Department of the House of Representative.

GOVERNMENT LEGISLATIONS AND NGO PROGRAMS

In the Philippine context, there are government legislations and programs that affect

the informal economies in a positive way. Pursuant to this, Dorotan, F.G.C., Cabanilla, P.,

Montemayor, Ma. A., & Tan, Ma. C. (2010) listed certain government agencies that are

“championing pro-poor programmes and targeting workers in the informal economy” (p.11).

Some of these government line agencies include the DSWD (Department of Social Welfare

and Development), DOLE (Department of Labor and Employment), TESDA (Technical

Education and Skills Development Authority), and the DTI (Department of Trade and

Industry). Programs by the DSWD listed by Dorotan et al. (2010) encompass the following:

An Overview of the Lurking Economy 19

1. 4 Ps or the PantawidPamilyang Pilipino Program---according to the DSWD, the

Pantawid Pamilyang Pilipino Program is a human development program by the

national government that is based on the CCT or Conditional Cash Transfer. This

programs aims to provide social assistance and social development.

2. National Household Targeting System for Poverty Reduction—spearheaded by the

DSWD, this program is a statistics management system that recognizes who and

where the poor are in the country. In the DSWD website, www. dswd.gov.ph, it is

stated that this program is undertaken to identify potential recipients of social

protection programs.

3. KALAHI-CIDSS—standing for Kapit_bisig Laban saKAhirapan-Comprehensive and

Integrated Delivery of Social Services, this is defined by the DSWD as the Philippine

government’s poverty-alleviation project having the World Bank to aid.

4. SLP—Sustainable Livelihood Program is a community-based ability building program

that pursues to develop the participants’ socio-economic position.

5. TindahanNatin Program—a national government program by the national government

ran by the DSWD which good quality and low priced rice noodles to families who have

low incomes. These products are sold at stores co-operatively ran by the LGUs and

the provincial and municipal social welfare and development officers.

6. FSP—the Food for School Programme is a”conditional food transfer program”

(Cuenca, J.S., & Manasan, R.G., 2008, p.2) distributing NFA rice to elementary pupils.

Furthermore, the TESDA, DOLE, and the DTI provide programs that mainly focus on

the enrichment of hidden skills by the participants and thus giving them the chances of

getting employed in the formal sector having been provided with proper and adequate

skills development and trainings.

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To aid these pro-poor programs enacted by government line agencies, the Philippines

has also laws approved by the government that supports the disadvantaged sector.

Macaranas, Sibal, &Tolentino (2001) enumerated some republic acts, presidential

decrees and executive orders imposed by the government towards the informal workers

on the agricultural sector, small and medium enterprises, special groups of employees.

Moreover, there are also cooperative sector laws that aim to improve the informal sector.

Macaranas et al. (2001) provided three republic acts and a presidential decree

enacted to elevate the conditions of the small-scale farmers and fisher folks. These

legislations as stated are the following:

1. RA 8435—Agriculture and Fisheries Modernization Act

2. RA 7607—Magna Carta for Small Farmers

3. RA 6982—Social Amelioration Program in the Sugar Industry

4. PD 717--Agrarian Reform Credit and Financing System

Likewise, small and medium enterprises are also supported by the government

through RA 6977 otherwise known as the Magna Carta for Small Enterprises. Enacted in

1991, this law aims to promote entrepreneurial activities and enhance self-reliance (Farolan,

Ma. M.,1998).

Special groups of employees are also being favoured by certain legislations.

Macaranas et al. included “industrial homeworkers, househelpers, child workers and women”

(p. 118) in the list of the special groups of employees. For the industrial homeworkers,

Chapter IV, Articles 153-155 of the Labor Code of the Philippines protects these workers and

their employers. Similarly, house helpers are also protected under Chapter III Articles 141-

152 of the Labor Code of the Philippines. In the same way, child workers are also under the

care of the government through Section 12 of RA 7600, Articles 139-140 of the Labor Code,

HB 07233, and HB 07167 (Macaranas, et al., 2001). Also, women in the informal sector are

An Overview of the Lurking Economy 21

being empowered and protected through Articles 130-140 of the Labor Code, especially

Articles 135-137.

Other laws are concerned with the cooperative sector. In compliance to Article XII,

Section 15 of the Philippine Constitution, RA 6938 and RA 6939, also known as the Philippine

Cooperative Code and Cooperative Development Act, these two were imposed to endorse

the development and the feasibility of cooperatives as aids to the informal sector members

(Farolan, Ma. M., 1998).

On the same token, other related laws include Proclamation no. 548, E.O. 452, RA

8425, EO 369 and RA 7160 (Macaranas, et al., 2001).

To aid the government policies and programs, the non-government organizations

more famously known as NGOs also have programs directed to the informal sector. Some of

this includes the following:

1. Payatas Scavengers’ Association—supported by the Vincentian Missionaries

Soacial Development Foundation and the Local Government Unit of Quezon City,

30, 000 men, women and children who scavenged in Payatas formed this

association in 1993 aiming to create joint solutions to problems they face and to

build better, safer and secured communities, lives and jobs for their development

(Dorotan et al., 2010).

2. PATAMABA--PambansangTagapag-ugnayngmgaManggagawasaBahay is a social

protection program for home-based workers, especially women (Dorotan et al.,

2010).

3. Sangsikap Foundation—is among the programs of the NGOs that is organized to

provide loans to small-scale enterprises (Yu, S.O., 1994).

4. PEDF—the Philippine Enterprise Foundation is among the NGO programs that

provides business consultancies for micro-enterprises.

An Overview of the Lurking Economy 22

5. SIDCC—the San Dionisio Credit Cooperative famous for being the biggest and

successful community-based NGO program for self-reliance.

CONCLUSIONS AND RECOMMENDATIONS:

The informal sector as distinguished in this research paper, when properly supported

and enriched by the government has a lot of economic potentials. For one, it helps to put

into equilibrium both the input and output markets, meaning, it contributes a significant

amount to the Gross National Product and the Gross Domestic Product and it also has a lot of

advantages to the employment of the surplus labor that cannot be taken in by the formal

economy. These contributions made by the informal economy can be more taken to a higher

level if the government and its economic planning bodies focus more on its enrichment and

development especially the agricultural sector since majority of the Filipinos are located in

agricultural places.

In order to unravel the wide expanse of the potential of the informal economy, the

researcher recommends the following courses of action:

1. Continue providing more skills development and trainings for the disadvantaged.

2. Create a market place environment that does not disregard the informal

economy, rather accepts it.

3. Minimize the neglect of country side development and stop private and public

monopolies on the agricultural sector.

4. Minimize overregulation and bureaucracies in the government.

5. Promote social protection and provide loan and credit banks for the informal

actors.

An Overview of the Lurking Economy 23

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Grade: INC/82.5