Philippines: Treatment of Remittances in NTA

Rachel H. RacelisJ.M. Ian S. Salas

SKKU, Seoul, Korea

5 Nov 2007

Introduction

• NTA aggregate control for labor income:YL = (2/3)*household operating surplus

+ compensation of employees

But,

Compensation = compensation from residents

+ compensation from ROW

- compensation to ROW

• Age profile of compensation from/to ROW may be different from those of residents.

YL components, 1980-2004

0

200

400

600

800

1,000

1,200

1,400

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

20042/3 of householdoperating surplus

Compensation,residents

Net compensationfrom ROW (overseasworkers)

Billion pesos

Share of YL components, 1980-2004

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

20042/3 of householdoperating surplus

Compensation,residents

Net compensationfrom ROW (overseasworkers)

% share of YL

Net compensation from/to ROW

• We try to construct age profiles for net compensation from ROW, but remember that this has inflow and outflow components.

• Since 1997, however, Philippine NIA indicates zero compensation to the ROW.

• If compensation to ROW is significant, how do we construct age profiles for it?

Methodology assumptions

• While NIA has compensation of non-resident employees (overseas worker), what we can get from survey at this time is compensation net of consumption, assuming that the overseas worker:– did not receive transfers (public and private),– did not acquire nor sold assets,– did not borrow or dis-save, and – sent remittances to only one household at home.

• The constructed age profile would be valid if the proportion of consumption to income is the same for all overseas workers.

Available surveys

• Labor Force Survey (LFS), quarterly– Jan, Apr, Jul, Oct; past-week activity– Individual-level

• Annual Poverty Indicators Survey (APIS), every Oct of non-FIES year (triennial)– rider to Oct round of LFS, 6-month coverage– Household- and individual-level

• Survery of Overseas Filipinos (SOF), annual– rider to Oct round of LFS, 6-month coverage– Individual-level; respondent is reporting household

member

Survey details

• APIS excludes overseas Filipinos in its household roster.

• SOF coverage:– overseas Filipinos who went abroad within the past

five years (if >5 years, considered “immigrant”)– asks if overseas Filipino worked abroad– asks the reason for leaving of overseas Filipino and

date of return or expected return– n:1 but not 1:n relationship between overseas

Filipinos attached to households

Some notes on 1999 estimation

• 97% of contract workers left five times or less during the previous five years.– Indicates that most contract workers may have yearly

renewable contracts.

• APIS: 37,454 households; 188,671 individuals• SOF: 1,897 households; 2,174 individuals

• In the following, suffixes _h and _m refer to household-level or individual-level data, respectively.

Data items used: APIS_h

• giftin_abroad_h: “cash receipts, gifts, support, relief and other forms from abroad for past six months, in cash”– may include remittances received from

overseas Filipinos which are not attached to the household (immigrant relatives, friends, etc.)

• No usable item in APIS_m

Data items used: SOF_m

• remittance_m: “cash remittance received” + “cash brought home”

Data items used: SOF_m

• “reason for leaving the country”– Encoded answers:1. Contract worker2. Work with Phil. Consulate/Embassy abroad3. Worker other than contractual4. Tourist5. Student6. Immigrant7. Official missions8. Others– Different treatment relative to survey definition of

overseas worker (arrows + employed).

Data items used: SOF_m

• “had work/job last stay abroad”

Reintegration of overseas Filipinos

• Merge household-file and member-file of APIS, then merge this with SOF_m.

• Use individual weights from both surveys (each calibrated to correspond to census numbers).– Weights of members of household may be

different from overseas Filipino/s attached to it (true for 1999 but not for 2002).

Overseas worker definition

• Overseas Filipino must satisfy both of the following for remittance to be considered as net compensation from ROW:1.be away from his/her household temporarily (to

establish continuing ties as member of the household)

2.be employed (for remittance to be considered as labor income)

• Otherwise, remittance will be classified as inter-household transfer from ROW.

• remittance_h = comp_ROW_h + inter_ROW_h

Adjustments

• Ideally, remittance_h (SOF) == giftin_abroad_h (APIS)

• If >, scale remittance_h to giftin_abroad_h and apply to comp_ROW_m and inter_ROW_m accordingly.

• If <, residual is treated as additional inter_ROW_h.

• Is residual attributable to households receiving remittances from “immigrant” overseas Filipinos (not covered by the SOF survey), or is it due to reporting error?

Remaining issues

• Aggregate control to use for inter-household transfers from ROW (in practice, does net compensation from ROW in NIA exclude remittances unrelated to labor income?)

• Survey representativeness: Only 1,897 households have overseas Filipinos, as defined in the survey (some of which were not employed abroad), while 4,682 households receive cash gifts from abroad, so that inter-HH transfers much bigger than labor income of overseas workers.

Some notes

• Overseas household member sometimes designated as household head, so that resident household head may only be a “substitute” head– we still used “substitute” as head in those cases

• Intra-household inflows of overseas workers are zero but outflows are positive as they directly contribute to disposable income (since labor income is already net of consumption).

Preliminary age profiles of labor income, 1999

Jan 2007

Age distribution of overseas and locally employed workers, 1999

Figure 5.Age Distribution of OFW and Locally Employed Workers: Philippines, 1999

0.0

5.0

10.0

15.0

20.0

25.0

1519 2024 2529 3034 3539 4044 4549 5054 5559 6064 6599

Year

Perc

en

t

OFW LocalSelfEmp LocalWageEarner

Normalized age profile of per worker compensation, 1999

Figure 6.Standardized Age Profile of Per Worker Local Labor Earning and

OFW Remittance: Philippines, 1999 (Reference Group=35 to 39)

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0.2

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0.8

1

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1524 2529 3034 3539 4044 4549 5054 5599

Age Group

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p M

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OFW remittance Local self-emp Local wages

Per capita consumption and labor income with and without net compensation from ROW, 1999

Figure 9.Per Capita Consumption, Labor Income (With and Without OFW remittance), and Lifecycle Deficit (With

and Without OFW Remittance): Philippines, 1999

-60000

-40000

-20000

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100000

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+

Year

Peso

s

Consumption LaborY-w/OFW LaborY-w/oOFW Deficitw/OFW Deficitw/oOFW