Toledo, Rose Desirei

AB Political Science (PSC31)

Political Economy (C-PSCE314)

Mr. Jumel G. Estrañero

De La Salle University - Dasmariñas

PHILIPPINE ECONOMIC INEQUALITY: WILL OVERCOMING IT HELP THE

PHILIPPINES CLIMB UP THE SOCIAL LADDER?

I. INTRODUCTION
Despite the current interest in administrative transparency and corruption, the
literature on existing policy development does not sufficiently incorporate existing
economic theory (Nye, 2011). In the Philippines, inequality starts at conception and
continues throughout the lifecycle. Inequality of opportunity and low mobility among
generations diminish human potential and constrain innovation, which is essential for
establishing a competitive and complex economy. (Ndiamé Diop, 2022). The extent of
support that adult Filipinos can give to their children to help them reach their full
potential is profoundly affected by inequality. As inequality has an impact on later-life
outcomes, including employment prospects and income (Belghith, 2022). Rising
inequality is a significant economic matter of concern. Inequality has increased in most
advanced and emerging markets and developing countries (EMDCs), a phenomenon
that has gotten a lot of attention—President Obama called widening income inequality
the "defining challenge of our time," and a recent Pew Research Center (PRC 2014)
survey found that the gap between the rich and the poor is considered a major challenge
by more than 60% of respondents worldwide, and Pope Francis has spoken out against
the "economy of scarcity." The specific purpose of the current study is to scrutinize if
 overcoming the economic inequality in the Philippines would help the country climb the
social ladder. This study is specifically focused on the current issues and efforts that the
country has taken to address economic inequality in the country.

II. BODY
Rising inequality became cause for concern, because high and prolonged levels
of inequality, particularly inequality of opportunity, can impose significant societal
costs. Inequality in results can have a considerable impact on people' educational and
vocational choices. Furthermore, if it is based on rents, inequality of outcomes does not
provide the "correct" incentives (Stiglitz 2012). Individuals have an incentive to focus
their efforts toward obtaining preferential treatment and protection in that case, resulting
in resource misallocation, corruption, and nepotism, with attendant negative social and
economic repercussions. Citizens, in particular, may lose faith in institutions, weakening
social cohesiveness and optimism for the future.
However, throughout much of this time, growth was accompanied by growing
inequality; while some gaps have narrowed since 2000, inequality remains significant. It
soared during the Asian financial crisis of 1997/98, stayed high in the early 2000s as
economic development surged, and then began a slow decrease. The income Gini
coefficient from the Family Income and Expenditure Survey (FIES) grew from 42.4
percent in 1988 to 47.5 percent in 1997, then remained stable at around 47 percent until
2006, when it began to shrink significantly, reaching 42.3 percent in 2018. Based on
World Inequality Database (WID) pre-tax income statistics, the Gini coefficient climbed
from 60.5 percent in 1980 to 65.3 percent in 1997, then maintained steady at around 63
percent until 2001, before falling progressively to 57.5 percent in 2018. This tendency
contrasts with that of many other East Asian developing countries, where widening
income gaps have accompanied structural upheaval. According to WID pre-tax income
statistics, the Gini coefficient climbed in China from 38.2 to 55.5 percent between 1980
and 2018, in Indonesia from 54 to 60.3 percent, and in Lao PDR from 58.2 to 60.6
percent. Pre-tax income Gini grew in Malaysia and Thailand between 1980 and 2008,
but then consistently declined.
 Factors Driving Inequality Reduction In 2000-18, inclusive growth was driven
by enhanced communication assets, access to basic services and education, and greater
employment in services. The breakdown of gains in household per capita income from
1985 to 2000 reveals a pro-rich pattern of development during the first period, driven by
improvements in returns to better-off households—most notably, returns to wage labor
and employment in high-end services (Figure 1).

Figure 1. Aggregate Endowments and Return Effects

In the 2010s, the narrowing of the wage gap between college-educated
employees and those with less education contributed to the reduction of inequality. As
will be discussed further in the following section, that gap has changed three times:
between 2002 and 2008, the gap narrowed as wages for college-educated workers fell
by 11 percent while wages for less-educated workers fell by only 8 percent; and
between 2008 and 2013, the gap widened as wages for highly educated workers
rebounded while those for the less educated fell further and indeed the gap narrowed
again between 2013 and 20 as wages for less educated employees increased by 39
percent while those for college-educated workers increased by only 2 percent. However,
while the pay disparity has narrowed in the last decade, modestly decreasing income
inequality, it remains high and appears to have escalated with the pandemic.
The share of more educated workers generally also went up: between 1998 and
2020 the share of workers having at least graduated from high school jumped from 36 to
63 percent. Access to basic services improved notably between 2000 and 2018: access
to electricity from 75 to 93 percent, the proportion of households with their own source
of safe drinking water from 44 to 57 percent, and use of unimproved sanitation fell from
17 to 9 percent (Figure 2). The proportion of households that own at least one, and often
many, communication assets (e.g., cell phone, TV, personal computer) went up from 61
percent in 2000 to 94 percent in 2018, and those who own mobility assets (e.g., car,
motorcycle) rose from 9 to 39 percent.

Figure 2. Access to Basic Services 2000 and 2018, present

The public's perception of overwhelming inequality is escalating, as is its
support for redistribution. In 2009, about half of respondents felt that the income
disparity is too great, and a comparable number stated that it is the government's
obligation to eliminate economic disparities across groups. By 2019, the number of
those who agreed had risen to about 70%, indicating a rising understanding of the
importance of inequality in the country and the necessity for the government to address
it.
Inequality between the world's poorest and richest individuals has decreased
considerably in recent decades. According to the World Bank, trade has been a
significant driver of this development, lowering the number of people living in severe
poverty (those earning less than $1.25 per day) in half since 2000. Since 2010, total
commerce as a proportion of GDP in developing nations has more than doubled. Trade
 liberalization strengthens a country's economy, resulting in fresh investment and job
possibilities that promote long-term growth.

III. ANALYSIS
Although technology and commerce are important, policies ultimately decide the
outcome. Automation and trade liberalization have dramatically reshaped labor markets
throughout industrialized countries, offering highly trained and educated individuals
disproportionate benefits, and research demonstrates that these dynamics have played a
role in growing inequality. However, it is critical to highlight the role of governments in
reducing these consequences. Despite similar degrees of technical advancement and
trade liberalization, diverse policies among countries must have affected their
inequalities in the rise of inequality, logically.
Higher inequality reduces growth by limiting lower-income families' capacity to
stay healthy and acquire physical and human capital (Galor and Moav 2004; Aghion,
Caroli, and Garcia-Penalosa 1999). For instance, it can lead to education
underinvestment since disadvantaged students end up in lower-quality schools and are
less likely to go on to college. As a result, labor productivity might be lower than in a
more equitable society (Stiglitz 2012). Similarly, Corak (2013) discovers that nations
with higher levels of income inequality have lower levels of intergenerational mobility,
with parental incomes being a more important driver of children's earnings. Due to the
fact that the rich spend a smaller percentage of their incomes than middle- and lower-
income groups, increasing income concentration may potentially weaken aggregate
demand and condemn growth.
Extreme inequality can impair trust and social cohesiveness, and is consequently
linked to disputes, which inhibit investment. Conflicts are especially common in the
administration of shared resources, where inequality, for example, makes settling
disagreements more difficult; see, for example, Bardhan (2005). Inequality has a
broader impact on conflict economics because it might amplify particular groups'
complaints or lessen the opportunity costs of launching and joining a violent conflict
(Lichbach 2000).
 Inequality can lead to policies that are detrimental to growth. In addition to
influencing growth drivers, inequality may lead to bad public policy decisions. For
example, it can feed protectionist sentiments against globalization and lead to a backlash
against growth-enhancing economic liberalization. Market-based changes (Claessens
and Perotti 2007). On the same hand, increased elite control may result in a more
limited distribution of public goods that raise productivity and growth and benefit the
poor disproportionately (Putnam 2000; Bourguignon and Dessus 2009).
Income disparity influences the rate at which growth that allows poverty to be
reduced (Ravallion 2004). Economic growth is less effective in reducing poverty in
nations with high beginning levels of inequality or when the growth distribution benefits
the nonpoor. Furthermore, because economies are regularly prone to various types of
shocks that impair growth, increased inequality puts a higher proportion of the
population vulnerable to poverty.

IV. RECOMMENDATION
1. In order to support the social mobility agenda, it is crucial to have policies that deal
with wealth concentration and rebalance the taxation sources.
2. Improving access to low- and no-cost community colleges, as well as vocational and
apprenticeship programs, will assist young people prepare for new careers in
technology, health care, and other rapidly developing industries that demand learned
skills.
3. Improve access to high-quality higher education. One key strategy to increase
income is to make excellent public higher education more accessible to more people.
Many policies have been proposed to address this, including tax credits to offset
college costs, expanding grants and providing reduced or free tuition for low-income
students (i.e. Pell grants), a national service program to allow students to earn
money that can be used toward education, canceling outstanding loans based on
income, time passed, or amount repaid, providing grants to colleges and universities
to provide more scholarships, and even canceling tuition entirely. The dispute over
whether any of these regulations should apply to community colleges and other 2-
 year degree programs, all public institutions, all 2- and 4-year programs, private
schools, and so on continues.
4. Support for R&D in the form of investment or tax credits would drive job growth
and enhance salaries through higher productivity. There will be additional training
possibilities when new fields arise. Federal R&D might be shifted away from
military applications and toward economic growth. Climate change has been
acknowledged as a national security problem and the defense budget might be spent
on research and development to combat and adapt to climate change, creating
employment in the process.

V. CONCLUSION AND WAY AHEAD

Despite commendable improvements, inequality in the Philippines remains
significant, and extensive investigation is required to understand its origins. This study
has investigated why growing inequality trends began to reverse in the early 2000s,
although inequality remained high. Further, focus on understanding the causes of
inequality and why it persists. It investigates the prevalence of inequality in the
Philippines and peer nations, as well as the perception of inequality and social mobility,
as well as how education, the labor market, gender, and geography disparities impact
income inequality.
VI. REFERENCES
Bhatt, Anjali, et al. (2020) How to Fix Economic Inequality? Retrieved from
https://www.piie.com/microsites/how-fix-economic-inequality#group-Credits-
and-sources-1dC0QznHGP
Gonzales, E. (2022). A ddressing inequality in the Philippines. Retrieved from
https://opinion.inquirer.net/159445/addressing-inequality-in-the-philippines
Norris, Era, et. al. (2015) Causes and Consequences of Income Inequality: A Global
Perspective. Retrieved from
https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf
Nye, John V. (2011). Taking Institutions Seriously: Rethinking the Political Economy of
Development in the Philippines. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1869437
Peterson E. (2017) Is Economic Inequality Really a Problem? A Review of the
Arguments. Retrieved from https://www.mdpi.com/2076-0760/6/4/147

Salting, E. (2022). Inequality remains high in PH. Retrieved from

https://www.manilatimes.net/2022/11/25/business/top-business/inequality-
remains-high-in-ph/1867688
The World Bank (2022) KEY FINDINGS Overcoming Poverty and Inequality in the
Philippines: Past, Present, and Prospects for the Future. Retrieved from
https://www.worldbank.org/en/country/philippines/publication/key-findings-
overcoming-poverty-and-inequality-in-ph-past-present-and-prospects-for-the-
future
A message to Sir Jumel
As the semester nears its end, I am glad we were able to meet and be with one of the
considerate, remarkable, and knowledgeable professors, Sir Stranger/Jumel. At our first
meeting, I thought Sir Jumel was strict, but with synchronous classes and meeting him face-to-
face, I noticed that he was not what I thought of him during our first meeting.
Sir Stranger, I am grateful that you were our professor. Thank you for being
understanding and calm; thank you for the opportunity to be your student; and thank you for
teaching us not only academically but also life lessons that I will carry with me throughout my
life's journey. Sir Stranger, I hope you continue to impart your knowledge and wisdom to your
student.
It was a wonderful semester to be with the kind of professor that you are. I admire how
faithful, strong, and dedicated you are, Sir. Continue spreading the word of the Lord because it
is as helpful as your encouraging words are. Again, thank you because I had the chance to learn
from you. See you when I see you, Sir Stranger. Padayon!