Crossroads (Toward Philippine economic and social progress)
Philippine Star, 19 October 2016


Removal of “endo,” or contractualization, is not as simple as proponents want it to be. It has major implications on the employment situation and, hence, on poverty.

Some workers who are normally working under the current labor contractual arrangements could end up on a path toward poverty.

“Beyond labor policies.”  Balancing against such undesirable outcomes requires government action on the policy front.

Let me just mention three such essential policy counter-measures: (1) cheaper food available to workers, especially rice; (2) more private investments at home, including foreign direct investments; (3) acceleration of infrastructure investment.

To achieve (1), we have to revamp NFA policies concerning the import and sale of rice in the domestic economy. We have to rely on ASEAN as our food security basket while attempting to improve domestic agriculture.

To get to (2), we need to revamp BOI policies on incentives on investments and amend the constitutional provision to remove the restrictions on FDIs. (These have taken us decades to discuss without much progress!)

Of course, (3), to accelerate infrastructure investments is the current marching order of government today. Constructing infrastructure projects will take focus, time, and more time, while under implementation.  While construction jobs will help multiply employment, the final impact on making the economy more internally efficient is not instant.

Deeper analysis of ‘endo.’  I am glad to report that an important study on contractualization [“Does ending endo contribute to inclusive economic growth?”] has been undertaken at the Philippine Institute for Development Studies. Authored by Drs. Vicente Paqueo and Aniceto Orbeta, the topic is analyzed from several angles.

(Both writers are recognized scholars who have devoted pragmatic research on human resources issues. Paqueo, in particular was formerly my colleague at the UP School of Economics, spent his more mature years as a development economist at the World Bank from where he has retired. Orbeta has been with the PIDS throughout his career.)

The Paqueo-Orbeta paper on contractualization has three major objectives: (1) to explain the role that “temporary employment contracts” and job outsourcing – variants of what we know as contractualization – play in enabling the proper functioning of labor markets; to discuss the “anti-contractualization” advocacy in the country in the context of unintended consequences, which lead not to inclusive growth but toward more unemployment; and (3) to explain why contractualization has become widely used contractual arrangement in practice.

Space limitation prevents me from undertaking an extensive commentary. However, I pick a few points to add further understanding to the problem of contractualization.

Contractualization in Europe: escape from rigid labor markets. I would be suspicious in citing studies in labor markets of highly developed countries and compare them with the Philippines.

However, the labor surplus in the Philippines and the phenomenon of high unemployment and underemployment can be likened partly to the problems of labor in Europe, where relative economic stagnation and high unemployment had persisted over decades.

In Europe, labor market rigidities and highly generous labor laws have created high unemployment rates and economic stagnation. Citing a study of R. Faccini [“Reassessing labor market reforms,” Economic Journal (2014)], Paqueo and Orbeta point out that labor policies that allowed temporary employment contracts and labor outsourcing helped to produce an increase in employment.

Without reforms in labor contracting, the economic stagnation and the high unemployment rates would have been far worse.

Are laborers in contractualized arrangements unhappy? Paqueo-Orbeta cite a study undertaken in the Institute of Labor Studies [I. C. Villena, “Examining 5-5-5 Arrangement in Contractualization,” Monograph series 2014-07] concerning a survey of Endo workers, contractors and principals in four regions, the National Capital Region, Calabarzon, Northern Mindanao and Davao.

The survey revealed that most workers are satisfied with their jobs (90 percent); their social security, Pag-Ibig and Philhealth benefits are included and 93 percent receive the minimum wage, their holiday premiums, and their 13th month pay (pro-rated?). They scored less in terms of benefits enjoyed by regular workers enjoy.

It may be that the idea of gross injustice about “endo” is not fully shared by many workers. The fact that they have jobs would be sufficiently satisfying even though there is no job security.

Temporary jobs as a transition to regular work. Contractualization has been a useful path toward the regularization of employment. Based on information gathered from the Philippine labor force survey, Paqueo-Orbeta find that half of all temporary workers experiencing endo takes between four to eight quarters (or one year to two years) to find regular employment.

This is not a high figure given the length of time it takes to transition toward a regular job. But if endo is abolished, will it take an even longer time before frustration sets in and destroys the hope for the job seeker?

I read this information a reason not to discard elements of endo, even if the government were to seek ways to tighten labor regulations surrounding endo. There is danger that should endo be ended, the number of unemployables will find themselves mired in poverty.

Incidentally, those who suffer this fate are mostly the less skilled and less educated. Workers with higher educational attainment have a faster route toward more steady, regular jobs.

Exclusivistic, not inclusive, policies of labor insiders. The main proponents of ending contractualization are leaders of organized labor. They are employment insiders, those who have jobs.

In addition, they seek to raise the minimum wage by P125 per day across the board. This and the abolition of endo are likely to cause more unemployment.

In a labor surplus economy like what we have, such demands reflect mainly a demand by “insiders” to improve their welfare even if it means that “outsiders”, or those seeking jobs, will further be excluded from jobs.

The openly unemployed who comprise seven percent of the labor force and a great segment of the underemployed (representing 25 percent of the labor force) are the ultimate “outsiders.” These are Filipinos who suffer the ultimate consequences of poverty and low level lifetime incomes.

Organized labor needs to come around from this “exclusivistic” posturing and seek job promotion and support the government in opening the economy, increasing investments, including foreign investments, and in loosening part of the labor laws so that employment and the well-being of all can be achieved.