The Welfare Impact of the COVID-19 Pandemic: An Analysis of the Philippine Labor Market Using the CGE-Microsimulation Approach

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Global exogenous shocks, such as the COVID-19 pandemic, challenge the capacities of economies to cushion their welfare impacts. Such shocks translate to macroeconomic slowdowns, labor market contraction, and decreases in income in many economies around the world. We take the case of the Philippines and assess the pandemic’s labor market and welfare effects at its onset, and ask whether cash assistance would have reversed the welfare decline. Using a CGE-microsimulation strategy, the pandemic would have increased poverty rate from 16.85% in 2018 to 24.66% in 2020 in the absence of cash transfers to affected households and workers. However, while broader coverage of transfers may have tempered the reduction in welfare, trade-offs in the form of leakages may ensue with wider support given to the population. Thus, in future similar circumstances, policymakers may face a trade-off between implementing a cost-efficient policy and a broad coverage of assistance for affected households.