Improving productivity in labor-absorbing services should be a top priority for achieving sustained and inclusive economic growth in the Philippines, as the sector continues to drive both output expansion and job creation, according to a study by the Philippine Institute for Development Studies (PIDS).
In a discussion paper, PIDS Senior Research Fellow Ramonette Serafica, Research Specialist Queen Cel Oren, Distinguished Visiting Research Fellow Emmanuel Esguerra, and Emeritus Research Fellow Aniceto Orbeta Jr. noted that while services dominate employment growth, much of the expansion has been concentrated in subsectors with low labor productivity and relatively low wages.
The authors identified wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food service activities, and other services as low-productivity subsectors that collectively account for 73.56 percent of total services employment. These industries primarily employ low- to medium-skilled workers, underscoring the sector’s role as a major absorber of labor—but also its productivity challenge.
The study also highlighted the gender dimension of the issue, noting that 68 percent of employed women in the Philippines work in the services sector, particularly in lower-productivity industries such as retail trade, hospitality, and personal services.
“Improving productivity in these sectors while ensuring that women benefit from, rather than are disadvantaged by, productivity gains is essential to closing the gender gap,” the authors said.
Beyond labor-intensive services, the paper pointed to the importance of supporting high-linkage services—those that may not be large employers but have strong connections to manufacturing and other productive sectors. Productivity gains in these areas, the authors said, can generate positive spillover effects across the broader economy.
To address persistent productivity gaps, the study emphasized the need for a coordinated mix of firm-level and structural reforms, including improvements in management practices, business innovation, workforce skills, and technology adoption. Broader reforms that create a more enabling business environment were also seen as critical.
While various government agencies already provide assistance to workers and micro, small, and medium enterprises (MSMEs), the authors stressed the need for a more integrated policy framework.
“A strategic framework that brings together labor market policies, enterprise and industry development, technology and innovation, and structural reforms can help maximize the impact of public interventions aimed at raising productivity in services,” they said.
The paper proposed the use of a high-level Theory of Change (ToC) by national government agencies and local government units to better design programs and align them with productivity objectives. Such an approach, the authors said, would help policymakers focus resources on service subsectors with the greatest potential for productivity gains.
The ToC framework can also be customized for specific industries, worker groups, or regions, with industry experts playing a key role in identifying appropriate digital technologies and setting productivity improvement standards tailored to each service subsector.