OFW money fails to bridge income inequality

INQUIRER.net
First Posted 12:50:00 03/28/2008

MAKATI CITY – EXTREME reliance on money from Filipinos overseas hasn’t helped the country get out of the poverty rut and may even hobble the poor’s income capability, says an economist.

Using government’s triennial Family Income and Expenditures Survey (FIES), University of the Philippines economist Ernesto Pernia said in a research that remittances from overseas Filipino workers may even be contributing to the persistence of high inequality in the country.

The 2003 and 2006 datasets of the FIES saw the total measure of inequality of wealth called ‘Gini coefficient’ hardly changing: 0.4605 Gini coefficient in 2003 and 0.4580 in 2006.

As overseas employment and permanent settlement continue to persist, Pernia said remittances “could result to a further worsening of income inequality…”

“Such inequality tends to dampen the poverty reduction effect of remittances—FIES reveals that poverty incidence rose to 32.9 percent in 2006 from 30 percent in 2003.” The poverty incidence figure reflects that percentage of the population that is considered poor.

The recently-released 2006 FIES showed there were 27.6 million poor Filipinos, some 3.6 million more than the survey’s last conduct in 2003. This means the number of Filipinos who said they were poor increased to 700,000 or a total of 4.7 million poor families in 2006.

In a press conference early March, socio-economic planning secretary Augusto Santos declined to link remittances and income gap between the “haves” and have-nots.” He said he wants to the 2009 FIES done first before citing effects of remittances to poverty and inequality.

But Pernia, using data on the FIES covering the years 1994, 1997, 2000, and 2003, noted that while remittances expanded household incomes, the gain is smaller for the lower quintile groups (21.5 percent) compared to the upper quintile group (46.3 percent).

“Despite their beneficial effects, remittances cannot be relied on as a principal instrument for reducing poverty or fostering the country’s long-run development,” he said in his paper titled “Migration, Remittances, Poverty, and Inequality.”

Benefits

Of course, Pernia said, benefits of OFW remittances to purses of Filipinos cannot be discounted. His data analyses reveal that remittances have positive and significant effects on the well-being of poor households, particularly the two lowest income quintiles of the poor.

If the first poorest income quintile group increases remittance receipts by P1,000 per capita, it leads to P1,789 additional annual family spending per person.

Meanwhile, for the second poorest income quintile group, the household expenditure per capita rises to P2,177 for every P1,000 additional per capita remittance.

Pernia says, the positive effect on remittances on all these households’ well-being rises to the point that remittances “become insignificant for the next higher quintiles,” and these “probably matter less to richer families.”

“The positive effect of remittances on household incomes rises monotonically from 1 percent for the lowest quintile, 4.8 percent for middle quintile, and 16 percent for the top quintile,” Pernia said.

Without remittances, the Philippines would have more than 26.5 million poor. Thanks to remittances, the poverty headcount is lower at 24 million, Pernia’s data found.

Having remittances as a share in a household’s income “raises the likelihood (that a) household will get out of poverty,” Pernia said.

“Poverty incidence for the bottom quintile was slightly reduced by 0.1 percent, and by 13 percent for the second quintile, while that in all three upper quintiles were completely wiped out,” he added.

Aside from the FIES data, Pernia also processed information from the annual Survey on Overseas Filipinos, and the quarterly Labor Force Survey of the National Statistics Office. He also used gross regional domestic product data from the national income accounts to see the regional development impact of remittances.

A Gap

Regions that have more overseas workers benefit more from remittances compared to other regions that have fewer OFWs, Pernia said.

Remittances have brought positive and significant effects on poverty reduction in the regions – to the point that a 10 percent increase in the ratio of remittance per capita to gross regional domestic product (GRDP) per capita sees a 2.6-percent increase of households lifted out of poverty, Pernia said.

Ironically, these benefits of remittances to regional development “do not matter to the worst-off as much as the better-off.” Pernia found that regional development does not benefit low-income household as much as it does higher income families.

Six of the country’s ten poorest provinces are in the Mindanao island group, while provinces with the lowest poverty incidence rates were in Luzon, FIES data showed. Data also showed that poverty rates in the regions increased, and that provincial poverty measures also highlighted regional income disparities.

Pernia conjectured that had Filipinos stayed to work within the country’s borders, domestic remittances appeared to be “more welfare-enhancing for the poor than are international remittances.” Remittances are good for the poor, “but even better for the less poor and better-off,” he reiterated.

But socio-economic planning secretary Augusto Santos emphasized during the press briefing that at least the 32.9-percent poverty incidence rate in 2006 is lower than 33 percent rate in the year 2000.

The number of individual Filipinos who are poor may be lower in 2006 (26.9 million) compared to year 2000 figures (27.5 million). Still, FIES data showed that the number of Filipino families who are poor rose to 4.7 million in 2006 from 4.2 million in 2000.

The increase is glaring because the country posted consistent higher GDP rates, fueled by consumption in turn powered by remittances.

Santos said the country’s GDP growth and improved fiscal condition “provided us enough breathing space to spend more on social services in the years ahead.”

He added that the rise of poverty incidence is “an income distribution issue,” even while the Philippines continues to receive billion-dollar remittances from OFWs.