New data from the Philippine Institute for Development Studies (PIDS), the pre-eminent economic research think-tank in the Philippines (even though it’s funded by the government), does a great job of defining the middle-class in a developing world society like the Philippines. As Rethink’s mission is to use a BPO job to get people into the middle class, this was a landmark study for Rethink, to help us benchmark our progress against our goals.
A core conclusion we reached from the study was to understand how much we may have underestimated the secondary benefit of a middle-class, BPO Job. The December 2018 study does two key things that I think really help quantify how powerful an “anchor” job can be to a family unit living in poverty or low income (defined as a family of 5 living on less than $380/month) — still 59% of all Filipino”s in 2015 numbers.
First, it’s able to classify the types of jobs in the Philippines that are stable and plentiful enough to be considered “anchors.” Second, it does a great job of classifying what it means to be middle class — not just in income relative to the rest of society — but also in what it “feels like.”
At Rethink, we’re about to embark on our first comprehensive household income survey of our Agents, and I’m really excited to see what the data will show, now that we have this benchmark data in hand. There’s one conclusion I think I already know from the data — that a BPO job is one of the key “anchor” jobs that Filipinos can and have relied upon, ever since they began to be available in the late 1990's.
Let’s look at some of the key findings from the report:
- 16% of middle-class households have one member with a government job
- 17% are engaged in transport, communication & storage
- 25% works in retail or wholesale trade
The two largest industries in the Philippines based on revenue growth are 1) remittances from Overseas Foreign Workers (“OFW” — Filipinos who work abroad and send money back home) and 2) the BPO industry. The authors had great data about which family units in specific income levels have a member that is an OFW:
Here it’s clear that the authors’ characterization actually got it wrong. Looking at the title of the chart, they make the assertion that it’s actually middle-income households that most benefit from OFW remittances. Nope, not true. Looking at the national data, OFWs are a key driver of anti-poverty in the Philippines, with 71% of “lower income” and “lower middle income” families counting OFWs as a major part of their household income. No wonder so many domestics in Singapore and the Middle East are Filipinos.
Where they got it wrong is that these brackets of income earners are the ones most susceptible to mobility both in the right and wrong direction. Right — up to the middle class because of the OFW’s earnings; wrong — back down to poverty because of debt and the loss of OFW work.
We see this even in our call centers. I’ve been in many focus group sessions with our Agents, mostly between the ages of 20 and 25, where they talk about a mother working in Singapore as a domestic, or a father in the Middle East as a construction worker. In those cases, whatever they earn from their job in our BPO center is a useful addition to their family’s income — that is, when they have the work. But, if the OFW loses their employment, the young person with that BPO job quickly becomes the anchor job that keeps that family out of poverty.
But the report ignores the key driver the BPO industry in the Philippines has become to building a Filipino middle class, measuring only OFWs. This seems short-sighted given the macro-trends, as the BPO industry and the OFW industry compete to be the biggest industry, by revenue growth, in the Philippines.
Statistics from the PSA show that from 2016 to 2018, the export of “Miscellaneous services” (which includes the BPO/IT-BPO industry — the exporting of miscellaneous services) grew from PHP1.37 trillion (worth $65.14 trillion) in 2016 to PHP1.74 trillion (worth $91.72 trillion in 2018), an increase of more than 21% in just two years. In 2018, the miscellaneous services export sector was 74% of all Filipino exports.
When we directionally investigate the BPO industry’s impact on the Filipino economy from the employment perspective, we see a similar trend of the economic power of the industry. While estimates are rough, BPO industry employment has grown from 101,000 people in 2004 to 1.3m people in 2017–2018.
This dovetails with our own cursory research, where after 9 months and 3 separate surveys, we know that the average Agent in our call centers is providing some sort of financial support to an average 6 members of their families. This includes direct and indirect support. Here, we define “direct support” as someone living within the Agent’s household, and “indirect support” as money given to relatives that live without. We expected this number to move over time as our survey questions have gotten more specific, but to our surprise, it hasn’t.
This idea is further supported by my own experiences in talking and working with Filipinos in our industry, and asking polite questions about what they choose to do with their earnings. The uses vary and are as creative as humans can be. Just the other day, I was interviewing a candidate for a senior level role, asking if he could move from Manila to Iloilo, and he talked about how he was providing a lot of “support” locally to family members.
Upon probing deeper, I learned that he had loaned a sibling a significant amount of money to start a business, and felt better about the likelihood of getting his money back if he stayed in Manila to watch over things. I didn’t ask how much, but I had a feeling it was significant.
In the coming months, we’ll go deeper into our research to make an attempt at proving, in our micro-economic case, how much a BPO job (when structured correctly) can be a middle-class anchor for low-income families in the developing world.
What It Means to be Middle Class
While income definitions of the various classes of socio-economic status within a society are clearly the place to start, going one level deeper into what our target economic status “feels” like for the people living within it can really help us give people the type of life they’re craving. While we are socially minded, we are not wholly altruistic. Middle-class people working for us are simply better Agents that help us produce those outstanding results from outsourcing that we like to promote on Rethink’s website.
Here’s how PIDS classifies the various lives at different income level, by surveying for the following household characteristics:
Keep in mind that these characteristics of how people live are simply that — characteristics. The PIDS has done extensive surveying to understand the correlation of these characteristics within income levels. Broadly speaking, they find that the following characteristics apply:
When we look at these characteristics, for a private business like Rethink to start thinking about let alone caring about whether or not its agents’ households are exhibiting these characteristics, we see that Rethink is already making significant progress toward achieving its goals of moving its agents into the middle class. BUT, this framework also reveals some gaps — like in our support for education and in the acquisition of household consumables — as well as the lack of any sort of policy to promote or help agents sustainably acquire housing.
However, our Agents are proving to themselves and the world what has been known by economists for centuries — if you give people the opportunity and ability to earn suitable income within their society (middle class) — they’ll get themselves there without much intervention. According to our 3rd impact report, considering how many have appropriate housing, and are able to pay for medical bills and education of their dependents, we know that if you aim for the right income within a society, much can take care of itself.
Most of this simply highlights what is true and what I have felt for the 3.5 years I’ve now been a BPO supplier instead of a BPO buyer. The power of the firm, versus the power of the individual, in the BPO industry is significant. Management of BPO firms have much they can do to equalize that power, all while accruing value to the bottom line. This is Rethink’s vision for the BPO industry, in a nutshell, and I hope to convince many more BPO industry managers that leveraging this power creates a win-win for the three major stakeholders in our industry — the Agent, the BPO Buyer, and the BPO Supplier.
So the think-tanks know and have proven what business leaders in the BPO industry — those who actually employ people and control their compensation — are either ignoring or are ignorant about: that the middle class jobs they create could be the largest single reliable “puller” of people out of poverty.
This report also highlights, negatively, how some of the major Filipino economic and measuring institutions (namely, the PSA, Central Bank, PIDS, and Department of Trade and Industry), are ignoring the power of the BPO industry when they conduct their surveys and measurements. I’ll be addressing that later, but as possibly the largest source of private employment in the Philippines now, the BPO industry should be front-and-center for all Filipino economists and policy makers.
But the BPO industry must do its part to reduce poverty. Certainly first and foremost, is properly benchmarking wages to put people in the middle class (which Rethink proves the BPO industry can afford), but secondly by using the power of the firm to create good middle-class jobs, which will, in itself, pull many Agents’ families out of poverty, as well as provide a line of defense against the shocks which can so often put a family back into poverty, once they’ve been able to escape it.