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Personal Networks and Non-agriculturalEmployment: The case of a Farming

village in the Philippines

Data from International Rice Research Institute(IRRI) and Foundation ofAdvanced Studies on International Development (FASID), Tokyo


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Introduction

Personal networks play important roles ineconomic transactions, especially in developingcountries.

Some of the examples are agricultural marketing,capital mobilization for factory establishment,prevention of tenant farmers shirking etc.

This paper is the study, based on an intensivesurvey of one village in the Philippines, analyzes

the effects of personal networks on rural villagersaccess to nonagricultural occupations and theterms of employment given to them.


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The existing literature argues that the use of personalnetworks facilitates a reduction in transaction costs inlabor markets by reducing two kinds of asymmetric

information problems. The difficulty for employers to detect job seekers true

abilities at the time of their application.

Monitoring workers effort after employment.

Other issues like search costs can also be reduced by

well established personal networks. In this study a methodology is used which quantifies

personal networks for the statistical estimation of theirimpacts.

The study focuses on one village in the Philippines,

using data collected on agricultural workers in thisvillage and nonfarm employees who came from thisvillage.

In the study residents and the emigrants of the villageare interviewed.


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The study village and occupations

The study village is located about 70 kilometerssoutheast of Manila capital city of Philippines.

This village was first settled in the 1880s, and ithas continued its history as a rain-fed ricemonoculture village.

Until the early 1980s, rice farming continued to bethe dominant production activity in this village.


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Table 1 shows the number of households by type from 1966 to 2001.It indicates that until 1987 few households engaged solely in nonfarm activities(only seven households or 4%).


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In the late 1970s, major improvements in the countrys

highway systems, connecting the village to Manila and othermajor cities.

The villagers were able to access nonagricultural jobopportunities available at the new industrial areas.

Urban industrial activities began to spill over to local towns,encouraging their commerce, construction, transportation,and small-scale manufacturing activities.

In the late 1980s, a number of small and medium

enterprises, such as garment factories, increased sharply inthe vicinity of this village.

In the 1990s, following the rapid growth in neighboring

ASEAN countries, relatively cheap but high-quality labor inthe Philippines attracted foreign direct investment in labor-intensive manufacturing.


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The initial beneficiaries in the study village of the risingnonagricultural employment opportunities were the educatedchildren of affluent farmers, but later landless laborers also

began to take advantage of the emerging opportunities. Conventional employment opportunities for villagers can be

classified into four categories:-

1. The first category is self-employed farming.

2.The second is employment as agricultural laborers byfarmers within the village. To serve as agricultural laborers,

for which sophisticated skills are not needed.

3. The third category is overseas work, which is common inthis village, similar to other parts of the Philippines.

4. The fourth category, self-employment, covers a varietyof occupations, such as tricycle drivers, buy-and-sell, andmetal craft manufacturing done in the backyards ofhouseholds.


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Besides the occupations of these four categories, the

occupations that have been becoming more common in thisvillage in the last decade are nonfarm wage employment

other than overseas work. In this article they are classified into:-

I. Unskilled work at small enterprises.

II. Unskilled work at large enterprises,

III. Skilled/Technical work regardless of enterprise size. Nonagricultural wage work is the new path for landless

laborers in the village to increase their income levels andliving standards.

The only to way to attain the new jobs was to invest ineducation.


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Figure 2 shows the distribution of years of schooling by occupation in 2001.Note that the completion years of primary, secondary, and tertiary levels ofeducation are 6, 10, and 14, respectively.


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It is obvious from the figure that most of the tertiary schoolgraduates are found only in technical/skilled workers.

It is interesting to observe that, although we see that the

secondary school graduates are most common in unskilled-labor positions in both small and large enterprises, we can stillobserve a significant proportion of people having the same levelof education in the agricultural laborer group.

Existing studies on the labor market in the Philippines show

that, in addition to education, the use of personal networks isanother important condition to access nonagricultural wageemployment.

Pinches (1989) shows that most workers are employed at anelevator industry in Manila through family networks.

A labor market report in 1993 shows that 40% of therespondents obtained their current jobs through relatives orfriends, while only 10% did so from public employmentagencies.


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The major questions that are addressed in this

article are these:i. What kind of personal networks haveinfluenced rural villagers access to different

kinds of nonagricultural employment?

ii. What mechanisms may have underlain theirinfluences?


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Data Collection

This survey by IRRI covered all the households inthe village. With the help of past records, theygenerated a list of households and their memberswho were

1. Residing in the village2. Living outside of the village but still considered tobe members of village households

3. Those who left the village and became self-

supporting. A method is used to calculate the strength of

personal network.


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Measurement of PersonalNetworks

It uses a list of positions salient in the context of research andasks if a respondent knows anybody at each position. If therespondent knows somebody at a certain position, she or heselects the most important person and we ask about therespondents closeness to that person. The closeness is

measured by whether the respondent can ask a favor fromthat person. The respondents relationship is identified, with

that person from the three types of relationships:family/relative, friend, or acquaintance.

Therefore, the interview reveals, of the positions listed in the

questionnaire, to which positions a respondent hasconnections through which type of relationships.


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There are four broad categories of positions that

people can be classified into:-1) Politicians/Bureaucrats

2) Manager-level positions

3) Professional positions

4) Regular employee positions Using these four categories together with the

information about the three types of relationship, weconstruct 12 variables that measure the size of

personal networks in the nonagricultural sector . Each of these 12 variables can take a value from 0 to

4.


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Descriptive Statistics

Table 3 in the following slide shows that agricultural

laborers are the least (or the second least in a few cases)equipped individuals in terms not only of human capital(years of schooling) and physical capital (asset values)

but also of the sizes of the personal networks over thenonagriculture sector.

The table also shows that the levels of average years ofschooling are not so different across occupations, except

for technical/skilled work, implying that some other factorscould affect occupational choice.


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Regression

OLS regressions are done by keeping thefour employment categories as dependantvariables against the 12 personal network

variables . In each of these models, the paper includes

some residuals, and no significant

coefficients of the residuals at anyconventional levels are found.


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In order to start in a self-employment occupation, having

networks of all kinds of relationships (i.e., family/relative,friend, and acquaintance) is important.

In addition to education, having a family/relative network,particularly with those in regular employee positions, isimportant in increasing the chance to move to unskillednonfarm work at small enterprises, and having a friendnetwork with those in regular employee positions helpsto obtain unskilled work at large enterprises.

Third, having a tertiary-level education is crucial for

acquiring technical/skilled work.

Results


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Personal Networks and theTerms of Employment

Hypothesis 1. In hiring unskilled workers at small

enterprises, network premiums are realized most stronglyamong workers who obtained their jobs throughfamily/relative networks, while network premiums are not

realized in hiring unskilled workers at large enterprises. Hypothesis 2. Among workers from our study village who

are employed in unskilled positions at small enterprises,those who are employed by the enterprises located near

the village receive no significant difference in networkpremiums for the use of the family/relative network,whereas, among villagers working in distant enterprises,family/relative network users receive the premiums.


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Descriptive Statistics

Table 5 reports the descriptive statistics by occupationand by channel to the current job.

For the hypothesis testing, the study classifies thechannels into four categories:

I. Family/RelativeII. Friend

III. Acquaintance

IV. Advertisements (ads)/Employment agencies.

Note that there is no individual who has entered intounskilled jobs at small enterprises through ads oremployment agencies, while at large enterprises thefour channels are used almost equally.


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The terms of employment look consistent with

hypothesis 1 at small enterprises, where those whoentered through the family/relative channel receive

higher starting wage rates, stay longer in thatoccupation, and experience lower wage growth than

those who entered through the other channels.

At large enterprises, starting wages become higherwhen ads/agencies are used, which may imply that

the magnitude of Bentolila et al.s (2004) discountedstarting wage effect is larger than that of the networkpremiums at large enterprises. However, thedifferences are small.


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The descriptive statistics for hypothesis 2 are shownin table 6. The locations are classified into fourcategories:

1. Local Community

2. Vicinity3. Distant Major cities.

4. Metro Manila.

Although the network premiums of family/relative

channel users can also be detected in the localcommunity, the differences between family/relativenetwork and acquaintance channel users are notas large as in the vicinity.


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Regression

For testing hypothesis 1 by means ofregression analysis, the dependentvariables we use are

Log of starting daily wage rate Years in current job

Wage growth rate (annual)

Log of current daily wage rate.

To control for different starting years,starting wage rate is converted into the realterm with the wholesale price index.


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Regression Results A key finding is that those who used the friend or

acquaintance channel started their work with significantlylower wage rates than those who used the family/relativechannel.

As hypothesized before, the gap in current wage between thefriend network users and the family/relative network users

becomes insignificant as the worker keeps working for moreyears.

The gap in the wage rates between the family/relative andthe acquaintance network also keeps decreasing.

Another key finding is that years of schooling does notsignificantly determine the labor market outcomes, implyingthat, once one enters into this category of occupation, what isappreciated is not ability but the trustworthiness of theapplicant that is assured through the family/relative network.


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In regard with Table 8 where the sample is ofunskilled workers at large enterprises

First, the job channel dummies have no significantimpact on any dependent variables.

Second, in wage functions, years of schooling andits squared term become highly significant, with aconventional sign to each.

Summarizing the results in tables 7 and 8, weconclude that hypothesis 1 holds.


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Summary and Implications

Our regression results show that having the family/relative network,especially in regular employee positions in nonagricultural sectors,appreciably increases the probability of obtaining unskilled positionsat small enterprises.

We also find that, among those who participate in that occupation, theones actually using the family/relative network channel arecharacterized by a higher starting wage.

These findings imply that, especially in regular employee positions,the family/relative network has a referral function and thus its useresults in the realization of network premiums in return for theresolution of asymmetric information problems.


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Our regression results also imply that, even ifthe friend or the acquaintance network usersstart with lower wage rates, the disadvantagesmay not be so large in the long run because,

among such users, workers who can prove to betrustworthy and thus who stay a long time withthe enterprise can catch up to the wage level ofthe family/relative channel users.

Our results also show that the probability of obtainingunskilled positions at large enterprises increasesslightly with the size of the friend network in regularemployee positions reason being that the wagedynamics are determined by the number of yearsspent in school and experience.

we conclude that labor market imperfections areresolved at large enterprises not mainly by personalnetworks but rather by other institutional and non-institutional devices.


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Our regression results show that the completion oftertiary-level education is crucial for the acquisition

of skilled/technical jobs, whereas personalnetworks have little impact.

Our analysis shows that the role of personalnetworks is changing along with economic and social

modernization. The recent development of large-scale enterprises in

the Philippines is widening the path for rural peopleto ascend to upper-income strata by improving theiracquired attributes such as education.

Such development is preparing a condition forachievement of more equal occupationalopportunities.

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