Labor Market in 2026 forecast

The De La Salle University (DLSU) Report on the Philippine Economy for the second half of 2025 offers a measured but revealing view of the Philippine labor market conditions heading into 2026. Economic growth is expected to remain below potential, constrained by weak investment and ongoing governance concerns, even as services, agriculture, and a gradually recovering external sector provide some support. For both workers and employers, 2026 is shaping up to be a period of adjustment rather than rapid expansion, with labor outcomes closely linked to sectoral shifts and the pace of public spending.

Unemployment is projected to average around 4 percent in 2025, suggesting relative stability at the aggregate level. However, this headline figure obscures persistent structural frictions that are likely to carry into 2026. Job creation remains uneven across sectors: services account for most employment gains, while agriculture and industry experience intermittent growth and contraction. With GDP growth in 2026 expected to remain in the mid-5 percent range, labor demand is likely to expand only gradually, limiting the scope for meaningful reductions in unemployment and underemployment.

One of the clearest expectations for 2026 is the continued reallocation of labor toward services. With services-sector growth projected at 5.6–6.7%, outpacing both agriculture and industry, employment will remain concentrated in tourism, retail, transport, IT-BPO, and related activities. However, the sector’s uneven performance in 2025 suggests that job expansion in 2026 will be marked by volatility, with many new opportunities taking informal, flexible, or skill-specific forms rather than stable, long-term wage employment.

Agriculture offers a contrasting dynamic. Despite its smaller GDP share, output growth in 2026 is projected to exceed 6 percent in some estimates, creating scope for employment in rural areas, particularly in agribusiness and supply chains. Yet the sector’s persistent seasonality and low productivity suggest that employment gains will not automatically translate into higher incomes unless supported by sustained investment and value-adding activities.

Industrial employment prospects in 2026 remain constrained by weak gross fixed capital formation. The report consistently points to stagnant or contracting investment extending into 2026, limiting the creation of higher-quality jobs in manufacturing and construction. While an acceleration in public infrastructure spending could provide some relief, persistent private sector hesitation suggests that industry will not become a significant source of employment growth. As a result, workers in industrial occupations are likely to face more intense competition for jobs and slower wage growth.

From a wage perspective, the outlook for 2026 is cautiously favorable but constrained. With inflation projected to remain within or below the BSP’s target of around 1.7–2 percent, real wages are likely to be preserved despite modest nominal increases. However, weak productivity growth—particularly in services and agriculture—will limit firms’ capacity to raise wages, implying stability in purchasing power rather than significant real income gains.

An underlying theme in the report is a growing skills mismatch. Employment losses in some service segments alongside persistent demand for skilled labor in others suggest that adjustment pressures will intensify in 2026. Employers are expected to prioritize adaptable, digitally capable, and multi-skilled workers, especially in services and export-oriented activities. Consequently, employability will depend less on sectoral attachment and more on workers’ ability to acquire skills and move across jobs.

Public expenditure growth, projected to accelerate into double digits in 2026, emerges as a potential stabilizer for the labor market. A timely resumption of infrastructure projects could generate direct employment and broader spillover effects through increased local demand. Yet the report also warns that governance issues have previously delayed spending, underscoring that employment gains will depend on implementation, not fiscal plans alone.

Overall, the labor sector in 2026 is poised for neither a crisis nor a boom, but for continued, uneven adjustment. Employment is likely to expand modestly, led by services and supported by agriculture, while industry remains constrained by weak investment. Real wages should hold steady, though income growth will be limited. For workers, adaptability and skills upgrading will be essential; for policymakers, effective execution of public spending will determine whether 2026 becomes a holding pattern or a platform for more inclusive employment growth.