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A research done on the Philippine Underground economy
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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).
An Overview of the Lurking Economy 6
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
An Overview of the Lurking Economy 7
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
An Overview of the Lurking Economy 8
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).
An Overview of the Lurking Economy 9
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
An Overview of the Lurking Economy 10
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.
An Overview of the Lurking Economy 13
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.
An Overview of the Lurking Economy 14
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.
An Overview of the Lurking Economy 15
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”
An Overview of the Lurking Economy 18
(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.
An Overview of the Lurking Economy 20
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