Veto of the SOT: Promoting good jobs in the modern sector

President Duterte vetoed the “security of tenure” (SOT) bill, bravely and for good reasons last week.

It made good sense for the President to heed the pleas of the business sector simply by focusing on the country’s labor market situation.

Reasons for the veto. The veto message explains that the “the sweeping expansion of the definition of labor only contracting destroys [a] delicate balance and will place capital and management at an impossibly difficult predicament with adverse consequences to the Filipino workers in the long term.”

Further, “our goal … has always been to target the abuse, while leaving businesses free to engage in those practices beneficial to both management and the workforce,” the statement said.

The hidden message behind the rejection of the SOT bill, which outlaws contractualization in sweeping terms, is the fear that jobs would be adversely affected.

Definitely, in the adjustments that would result from such a law, job losses would come about, penalizing  workers who already have jobs.

Companies at the margin of operational existence could close, while others could lose their competitive position. More important is the impact on companies that may have expansion plans, either to set up future operations or to expand market positions.

Included too are potential foreign direct investments that would never come even if they had earlier plans before.

In a competitive world, these could move elsewhere, to countries and regions where their costs could be managed better. In fact, many Philippine companies have moved some of their operations to our Southeast Asian neighbors to reduce labor costs and they import our needs from those offshore plants.

Relative to other countries in the Southeast Asian regions that are seen as competing with us, Philippine unit labor costs are already high.

Expected labor practices that could be undertaken in more competitive countries could put the country out of the competition.

High standards of our labor laws. The country’s approach to labor regulations has been to emulate the high standards of labor protection that are found in industrial countries.

During the 1970s one of the issues that often marked the interaction of NEDA with the labor officialdom was the latter’s penchant to raise labor standards closer to the standards found in the US and Europe. The Philippine is abundant labor was far different from regions where labor was scarce. When then labor minister Blas Ople proposed that the Department of Labor (DOL) be renamed by adding two words, “and Employment”, to make it what it is now, DOLE, it was a welcome move.

However, that was in name only. DOLE introduced quite a lot of advanced regulations that made it difficult to promote greater employment. The idea of regularizing all employees after six months of employment was introduced into the labor code. This provision precipitated the practice of contractualization to avoid regularization of the employee

Inadequate job opportunities in the modern sector.Today, the economy needs to generate employment especially in the organized economic sectors.  Our employment statistics do not tell all our problems.

The modern sector has to grow in employment. This is where people are hired at mandated wages, with good benefits from labor protection laws. But such a sector has to grow until most of our unemployed and underemployed get employed in the modern sector.

As it is, our modern sector is small. The informal or unorganized sector is large. That is where many find employment, where incomes are low, working hours are long, and security of job and incomes are very uncertain.

Of the 43.5 million labor force in 2018, 94.7 percent was employed. Unemployment was 5.3 percent. Some 16.4 percent among the employed was actually underemployed.

In 2018, our statistics authority says that 38.4 percent of the labor force was participating in government pension funds. This simply means that more than 60 percent of the labor force is outside the social security pension network.

A more telling analysis of the labor market situation was provided some three years ago by a World Bank study of poverty and employment, which is relevant to this discussion.

The total number of workers receiving wages and salaries consists of 60 percent of the total employment in the economy. Self-employed and unpaid family members account for the remaining 40 percent. 

Among hired workers, six out of 10 are hired “informally.” About one-half of these workers are “informal” wage workers, 40 percent are self-employed, and 10 percent are unpaid family workers. These workers receive significantly lower, non-agricultural jobs.

The study defined “formal” and “informal” employment as follows:  Formal workers are those who (a) have written employment contracts; (b) receive social insurance from their employers; and (c) are protected from arbitrary dismissal. The last two conditions are provided by the application of laws and regulations affecting workers, derived from government policy.

Some degree of balancing is needed if we are also to take care of the welfare of the poor and give them a chance in being included within the formal framework of employment. In short, if the objective of labor laws is also to see to it that those who seek employment are able to find them, the state must find the proper balance so that its policies do not prevent those who seek employment from getting excluded in the market.

My email is: [email protected]. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.p h/gpsicat/