‘The Bangsamoro’s labor market policies: How to promote more employment and eradicate poverty

Provinces in the Bangsamoro region are among the poorest areas in the country. There, poverty is severe and unemployment(including underemployment) is a big problem.

“Labor market, jobs and development.” Long periods of tensions, civil strife, and uncertainty have contributed to the making of the region poor. With the prospects of peace and regional autonomy, the era of economic development, growth, and renaissance could be at the doorstep.

Labor market policies are essential to the attainment of a successful economic and social development. Philippine policies have been characterised by excessive interventions in the work place designed to protect labor and to raise its incomes. In many instances, such policies have produced the contrary effects.

Reading the draft basic law of the Bangsamoro region, it appears that the new entity will be able to develop labor policies on its own. Autonomy on this account implies that it can plan the development of sectors of the economy and of the institutions with greater latitude. My advice is to follow sound economic principles in dealing with the pricing of resources.

“Advanced labor policies hold back rapid employment creation.” One basic error in the formulation of our labor policies is the premature adoption of “international” welfare standards over “community” standards in the adoption of many labor policies.

This is an important reason that helps to explain the continuous presence of unemployment and high underemployment in the economy. Since the Bangsamoro has control over labor laws, it can learn from lessons of our national experience.

Though many of these policies need to be examined closely, I list only a few very problematic policies in our current set of labor policies.

One such labor policy is the requirement that workers who have been employed for six months within an enterprise be made into “regular employees.” The regularization of employment policy has instead encouraged the cyclical termination of employment of large groups of workers before six months of continuous employment has been reached.

Originally designed to extend the benefits of protected employment to any worker, it has instead caused periodic unemployment of many workers. The worst effects of this law are on young entrants in the labor force. It has become difficult for them to develop intense and productive work experience within a job. This policy has also discouraged companies from benefiting from higher productivity that workers can achieve while on the job continuously.

Another side effect of this requirement is to encourage labor-subcontracting as a business. New companies specialized in hiring new workers subcontract the labor supply. Thus, no major enterprise need to employ workers directly.

Another labor policy that was originally designed to protect labor from undue and unexpected termination of employment is the difficulty for firms to dismiss unwanted workers.

An adverse outcome of this regulation is that it requires companies to build up its defences by retaining lawyers to protect the enterprise in prolonged labor litigations. This helps to employ lawyers but it discourages companies from hiring as many workers.

A further cost of this regulation to us, as far as it affects foreign direct investments, is that they can vote with their feet: they could locate factories to other countries. This explains partly why our record in attracting foreign direct investments is lackluster compared to our Asean neighbors.

There are, of course, many good labor laws in the national experience. I nominate in this list the pension fund schemes, especially the social security system; the workmen’s compensation system, and housing contributions under Pag-Ibig. Though these are often in the form of labor taxes, they benefit workers far more, and directly also. Child labor laws have a reason for being.

The minimum wage should not be the problematic law that it has become for us. When we set it up, the standards used were divorced from the going “community” or market-determined wage. And that was the beginning of the problem. When high welfare metrics are used that are unrelated to the local conditions in the economy, the outcome could lead to unexpected consequences.

When other countries in the East Asian region adopted their minimum wage as a labor policy initially, they set the “minimum” wage so that it was close to the prevalent “community or market wage”. Thus, their minimum wage level did not discourage the greater hiring of workers.

One reason why regularization of employment became costly for firms is that, aside from the minimum wage (already considered “high”), the firm had to calculate other costs that are calibrated with the prevailing minimum wage as basis. This includes holiday pay and other hazard pay.

“Industrial employment zones.” I have proposed the adoption of the industrial employment zone as a mechanism to create employment in impoverished regions where some degree of relatively good transport, utility and other infrastructure facilities already exist.

Some areas of the Bangsamoro region are highly qualified to adopt this concept. The labor employment zones are similar to industrial estates and PEZAs (export processing zones) that already exist. If the Bangsamoro adopts flexible and less protective labor policies, the labor employment zones approach the features of EPZAs that have been successful in our country.

The main features of this proposal are described in my book, Weighing In On the Philippine Economy and Social Progress (Anvil, 2013, pp. 163-168).

The special features of these zones are the following: (1) They are designed to attract labor-intensive industries, especially foreign direct investment enterprises and domestic firms and investors. (2) The enterprises are exempted from the regional minimum wage setting process but are required to integrate the features of social security systems for workers, worker’s compensation (in case of work-related injuries), and are allowed greater flexibility in hiring and in removing workers.

The labor employment zones are mechanisms that help to facilitate effective attraction of enterprises in specific areas of operations. They could be useful in overcoming labor policy impediments, but create large opportunities for new employment creation.

In spite of this, they have to be hand in hand with development policies that are well-conceived to promote of industries and of agricultural ventures in the region.

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/