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Taking the high road to labor flexibility

from August 27, 2019 01:00 am to August 27, 2019 01:00 am

 

https://businessmirror.com.ph/2019/08/15/taking-the-high-road-to-labor-flexibility/

The “endo” issue is not unique to the Philippines.  Short-term, malleable and unprotected jobs are common in underdeveloped countries.  It is also a growing phenomenon in a number of developed countries, especially in countries that have embraced the mantra of labor policy deregulation as part of the Washington Consensus counter-revolution initiated by Ronald Reagan and Margaret Thatcher in the 1980s.  

 

Endo” jobs are given many names.  “Irregular” in South Korea, “non-standard” in Japan, “temps” in many countries, and so on.  Some officials of the ILO simply refer to them as “vulnerable” jobs, meaning vulnerable to all kinds of risks because these jobs enjoy limited or no protection, and no social security.  Above all, there is no security of tenure.

A term that is widely used by trade unions everywhere is “precarious”.  In The Precariat: The New Dangerous Class (2011), Guy Standing, a political economist and a former ILO official, described the precariat as follows:

“…multitude of insecure people, living bits-and-pieces lives, in and out of short-term jobs, without a narrative of occupational development, including millions of frustrated educated youth who do not like what they see before them, millions of women abused in oppressive labor”.

For employers, the hiring of “endos” is a source of flexibility in the hiring, deployment and management of a firm’s work force.  In labor economic parlance, this flexibility is labelled as  “external labor market flexibility” or ELMF.  Flexibility comes in the ability of management to reduce or increase employment or wage levels with ease, increase mobility, make more elastic use of skills or knowledge, and introduce non-conventional forms of work arrangements.  The most basic, however, is the ease to hire and fire as needed by the perceived requirements of business.  There is an added gain: no or limited threat of unionism.  After all, these workers are not considered part of the company; they are, in many ways, “external” labor.

In the Philippines, existing labor laws have allowed employers to develop practices that help them avoid managing and keeping a regular work force, which means avoiding the prospect of having to deal with a union and paying the regulars with the various entitlements due to the regulars.  These practices include the hiring of workers as casuals, temporaries, probationaries and project workers.  Some firms even keep large number of  probationaries and apprentices on a sustained basis through a system of rotation and repeated project hiring.

In the 1980s, the Supreme Court upheld the right of companies like San Miguel Corporation to reorganize and outsource different phases of work to outside contractors as part of “management prerogative”.  This was taken by big companies as a green light to break down work structures  and outsource fragments of work to smaller outfits such as goods delivery to transports movers and processing of certain products to toll manufacturers (for example, drug manufacturers outsourcing tablet encapsulation to Interphil Laboratories).

In the 1990s, as economic globalization intensified, companies have learned to outsource jobs not only to “outside” third-party contractors but also to third-party manpower agencies who do work right “inside” the work premises of the principal or contractee. In three decades, this outsourcing modality has become a big industry involving millions of “endo”  workers, workers who are in a limbo because they do not know if they are really workers of the principal (for they are doing the products or services marketed in the name of the principal) or the third-party manpower agency, which mobilizes and deploys these workers. 

This explains why the provisions of the Labor Code on permissible job contracting and prohibited labor-only contracting or LOC have become the object of anger and scrutiny by organized labor groups. They seek strict restriction, if not outright prohibition, of outsourcing of work to any manpower agency that does not have the capital or equipment to do business, and does not manage or have no control over the work process.  Additionally, the trade unions want work directly related to the business of the principal be outrightly covered by the prohibition.

This blanket prohibition proposed by the trade unions is being opposed by the economic advisers of the government, especially those who are schooled in the neo-liberal economic paradigm.  They warn that the Philippines is bound to lose out in the global competition for foreign direct investments should such a blanket prohibition prevail.  They argue that the “endo” system and the temporary employment contracts (TECs) given to the workers, mostly young workers, keep the economy efficient and competitive.  They even claim that the system is “inclusive”.

Obviously, these economists assume that the labor market, like other markets in a liberalized economy, works best when it is freed from restrictive regulations such as the laws on minimum wage, unionism and so on.  Studies by the ILO and other scholars indicate that such framework is narrow and does not really work.  In Asia, for example, workers who are most secure in their jobs are in the most developed countries — Japan, Australia and Singapore.  Today, China has been upgrading its labor governance system by instituting a series of wage increases and enacting stronger social and labor protection measures for the express purpose of building up a modern and progressive country.

The point is that if there is a concept called external labor market flexibility, there is also the opposite concept, internal labor market flexibility (ILMF).  Under the ILMF concept, firms consider their workers as assets, not as disposable commodities.  They realize higher productivity and, yes, flexibility in the work processes, from a work force that is versatile, skilled and committed to the mission of the enterprise.  But for this to happen, they need to treat workers as partners and the expenses they incur in upgrading the skills and welfare of the workers as investments.  Where will Japan be had industry, in the post-war decades, not invested on labor-management cooperation, on partnership with the unions on zero-defect program, on win-win productivity gain-sharing program and on commitments to business/job security in the long term?  Same with Singapore under the guidance of Lee Kuan Yew.

The problem is that some economists are simply looking at the supply side of the labor market and are treating the labor surplus problem (unemployment) as an indicator that labor in the Philippines is expensive due to the minimum wage, unionism and other protective labor laws.  This framework has been in place in the last five decades or so, and yet the surplus problem has persisted to the present.  Why not look at the demand side too and why put the burden of growing the economy on how labor can be disciplined to tame its demand for better protection?   

Meantime, there are developments in the economy and the labor market, here and overseas, that need to be monitored.  One key area is the issue of work force readiness to the complex challenges of the Fourth Industrial Revolution, which is rolling over Asia and across the globe. A study by Alfred Kleinknecht (“How ‘structural reforms’ of labor markets harm innovation”, Delft University of Technology, 2015) applies to the Philippines.  The study says that “easier hire and fire and higher labor turnover will, in various ways, damage learning and knowledge management in the ‘creative accumulation’ innovation model.”  Is this not one of the reasons why manufacturing has been stagnant in the last few decades? 

Is it not time then to overhaul the old but still existing development paradigm of a labor-intensive export-oriented industrialization based on cheap and unprotected labor?