The Impact of Entrepreneurship and Unemployment to Income Inequality in the Philippines

Abstract

The Philippines has one of the highest income inequality rates in Southeast Asia. Empirical studies suggest that entrepreneurial activity and high unemployment produce income inequality. 26.14 million Filipinos whose per capita income is inadequate to cover their basic food and non-food needs live below the poverty line. This study examines whether entrepreneurship will help decrease income inequality and whether unemployment is related to income inequality. Time-series multiple regression model using the Ordinary Least Square is used to determine the significance of the independent variables to the dependent variable. The results indicate that entrepreneurship positively affects income inequality, yet the unemployment rate was found insignificant to the dependent variable. Changes in the unemployment rates do not affect income inequality in the Philippines. However, entrepreneurial activities can aggravate income dispersion within the income distribution. In the Philippines, income is concentrated on entrepreneurs with capital, while the low-skilled and entrepreneurs without capital experience failure. Their business endeavors may not generate the expected return on investment and earn less than salary/wage workers. Despite this, the Philippines should still pursue entrepreneurship-enhancing policies because of its potential to create employment, its contribution of value to the economy, and its engagement prominently in export trade. The Philippine Government should keep supporting entrepreneurial activities and mitigate income inequality by bolstering low-skilled entrepreneurs by giving them access to credit, education, information, and training and easing the business process.