Three pairs of numbers, one message

The government recently presented three pairs of numbers that provide some perspective on the current state of the Philippine economy.

The first pair is 2.3 percent gross domestic product growth in the second quarter of 2026 alongside a 4.9 percent unemployment rate in June, up from 3.7 percent a year earlier.

The second is an 8.3-percent increase in government consumption against a 32.4-percent decline in government construction.

Article continues after this advertisement

The third is a 94.4-percent rise in Philippine Economic Zone Authority investment approvals to P140.7 billion, even as employment is projected decline by 29.8 percent from the January to May approvals.

Taken together, these numbers point to a common problem. Capital, public spending and labor are not being combined in a way that generates stronger and more resilient growth.

Growth and labor

The first pair is particularly revealing. Unemployment increased even as employment rose because the labor force expanded faster than job creation.

The economy was unable to absorb enough of the additional people entering or returning to the labor market. Underemployment also rose from 11.4 percent to 12.1 percent, suggesting that workers are being pushed to lower quality jobs.

A structural problem emerges as technology advancements have been seen to polarize labor into higher and lower valued tasks.

Article continues after this advertisement

These issues matter because the Philippines is still passing through a demographic transition in which a larger share of the population is of working age.

In principle, this should create a demographic dividend. More workers relative to dependents can raise output, income, savings and investment.

Article continues after this advertisement

But the dividend is not automatic. It depends on whether workers have the capabilities needed by a changing economy and whether productive jobs exist to absorb them.

Rising unemployment and underemployment suggest the country is falling short on both fronts.

Government spending and construction

The second pair of numbers shows that government consumption rose, but public construction fell sharply, indicating a shift toward current expenditures rather than capital formation.

Current spending supports public services, but it does not expand productive capacity in the same way as infrastructure, education and skills development.

To initiate growth, the government frontloaded the budget but chose the wrong investment.

Focused spending on productive infrastructure and human capital would have better supported labor capabilities and the economy’s capacity to absorb workers, thus decreasing unemployment.

This could also have been more consistent with the demographic transition narrative.

Investment prospects rising, but not employment

The third pair presents a similar challenge.

While these are just approvals and not fulfilled investments yet, the surge in Philippine Economic Zone Authority approvals is encouraging because it signals investor interest and future capacity expansion.

But declining projected employment alongside rising investment values exhibits a movement towards more capital-intensive projects.

This is not inherently undesirable because Philippines needs technologically advanced investment.

The dilemma however is whether these investments are sufficiently connected to the rest of the economy.

Making capital complement labor

The main argument is that capital and labor need not be substitutes. Better machinery and digital systems can make workers more productive, while skilled workers allow firms to use advanced technologies effectively.

The same complementarity can occur through domestic supply chains. A semiconductor or electronics plant may employ relatively few workers directly but can generate jobs through logistics, maintenance, construction, business services and local suppliers.

These wider effects depend on the quality of domestic linkages.

Strong linkages transfer technology, develop suppliers, improve standards and create opportunities fowr workers and micro, small and medium enterprises to move into more productive activities.

Change in investment policy

Investment incentives should not be based mainly on the amount of capital committed.

They should also recognize employment, worker training, domestic sourcing, supplier development and technology transfer where these can be measured and enforced.

The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy, or CREATE MORE, and the Strategic Investment Priority Plan provide mechanisms for this approach.

The objective is not to force investors to become more labor intensive. It is to ensure that technologically advanced investments are connected to domestic firms and workers strongly enough to generate wider productivity and employment gains.

Sliver of hope

The three pairs of numbers therefore tell one story.

Slow growth and weak labor absorption show that the Philippines is not fully using its demographic advantage.

As such, higher government consumption without corresponding capital formation limits productive capacity.

Rising investment without stronger employment linkages risks creating islands of productivity that do not spread sufficiently across the economy.

The Philippines still has a potentially powerful combination of a large working age population and rising investor interest.

But the demographic window will not remain open indefinitely.

The challenge is not to choose between labor and capital. It is to connect them.

The Philippines can recover from slowing growth by turning its large working-age population into a productive engine through stronger human capital, better infrastructure, and investment that creates jobs and integrates labor into economic transformation.—Contributed INQ

Leonardo A. Lanzona, Jr., is a professor of Economics at the Ateneo de Manila University.