Labor market – more employment or more rigidity?

The issue of endo is still with us. Today it is in the form of a bill in Congress that is awaiting passage. The Department of Labor and Employment (DOLE) endorses its passage.

The bill seeks to outlaw labor contracting. It is the so-called security of tenure (SOT) bill.

Business chambers want SOT to be vetoed. A large group of business establishments and confederations have written a joint letter asking President Duterte to veto the bill.

In effect, they seek to stop the passage of this law because it adds more rigidity to the country’s labor market. The country wants to encourage more good jobs to be created in the modern sector of the economy.

To do so, an important condition should be that the labor market be subject to greater flexibility.

The business groups seeking to quash the proposed law are: the Employers Confederation of the Philippines, Philippine Chamber of Commerce and Industry, Philippine Exporters Confederation, Makati Business Club, Federation of Filipino-Chinese Chambers of Commerce and Industry, Philippine Association of Legitimate Service Contractors, and Management Association of the Philippines.

It is further backed up by the Information Technology and Business Process Association of the Philippines, Philippine Association of Colleges and Universities, Philippine Society of Management Services, Philippine Hotel Owners Association and Philippine Association of Multinational Companies Regional Headquarters. All the major foreign investor chambers – American, Australian-New Zealand, Canadian, European, Japanese and Korean – have also joined in the petition.

The business chambers speak together. Seldom is there such unanimity in a petition. Most of them already recognize the harm that some endo practices might do to labor’s demand for improved terms.

The business groups think that certain actions of the government are sufficient to police the endo problem. They fear that blocking endo totally could lead to the exclusion of new forms of employment contracts that are innovative. Therefore, they could lead to the country missing out on new opportunities for creating jobs in the economy.

The arguments of the business groups may be summarized as follows: (1) The SOT bill is superfluous because Executive Order 51 and DOLE’s corresponding Order 174 already abolishes endo. (2) Passing SOT has a cost in reducing the country’s international competitiveness.(3) Rapid technological changes are affecting the labor market situation that require flexible policy responses in labor arrangement. And (4) In the practical world of business, security of tenure is never absolute, since businesses could fail for many and different reasons.

A consequence of this bill is to raise the unit cost of labor which will be borne by the employers. This could lead to cost escalation that would make it difficult to compete with lower-cost country competitors.

This certainly harms the position of existing companies operating under the old system of labor hiring. This is not the only cost. New investment prospects might find that their cost positions would be jeopardized enough to make them withdraw from their plans.

A country seeking new foreign direct investments into the economy, must take this into account. It could harm prospects for new foreign direct investments that are calculated on the attractiveness of labor costs. 

In this way, raising the amount of good jobs in the modern sector of the economy could be affected. (One side-effect, therefore, is that instead of creating more employment at home, more of our workers will not find them at home. So they will seek work abroad. This perpetuates the condition of economic dependence on worker remittances from earnings abroad.)

The guarantors of job security: sustained economic growth, continued investments and rising labor productivity. The best way labor union groups and the Department of Labor and Employment can promote job security in the country is to support the government’s efforts to create sustained economic growth.

Sustained high growth can only be guaranteed by continued efforts to raise the level of investments to attain higher industrialization, services growth, and commerce.

In the realm of creating industries, the efforts to attract higher levels of investments will assure more good jobs in the economy. When laborers participate in productive jobs, their own productivity rises, thereby assuring that they can expect improving wage incomes.

Unfortunately, much of labor union group activities in the country are confined toward demanding that the government keep raising the benefits for workers. We seldom hear of the labor sector cheering behind the government’s efforts to raise investments and to improve the country’s attraction of foreign direct investments. In fact, sometimes, they are on the opposite side of these efforts.

The biases in the advocacy of labor groups, therefore, seem mainly to be on the side of improving the welfare of employed workers. Labor union groups should be the natural supporters of measures to raise employment in the economy. They often forget that their advocacies create contradictions because they tend to limit the creation of new employment.

A word on social security. The idea of job security is not the same as social security, but the two concepts are very much related.

In a truly realistic world of markets, no job can be guaranteed security of tenure. Employers operate in an uncertain world. They can suffer from economic adversity. Companies can die from failure and bankruptcy. Investments can close shop.

But the well-being of workers can be provided support and assistance in times of adversity through a strong social security system.

In the traditional system, social security is a cushion against economic misfortune, such as unemployment or temporary need for income due to personal contingencies. It is, moreover, a fund that builds a pension system for the members.

In other countries, the funds from social security could also help in providing for such needs as housing finance for the members. In those countries, it has helped to build the supply of housing for workers in the economy, a truly welfare enhancing benefit for workers.

A strong social security system is one way of ameliorating economic condition in times of adversity. But it is also a means of providing for social insurance through the buildup of a pension system for the worker to enjoy in old age.

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