Win-win solution to end the contractualization of labor


The contractualization of labor bears the mark of a nation in sorrow. It is not so much that we failed in our obligation in providing employment, but of the truth that the government has become fait accompli to the slave-like treatment of our workers. As contractual laborers, they know that before the end of six months they will be terminated to evade the cut off date of becoming permanent employees of employer-beneficiaries hiring their services.

Aside from the uncertainty of being rehired, they would receive up to the time they reach their retirement age a minimum-wage salary. If there would be an increase in their take home pay that would come in the form of general wage increase.

To begin with, our current unemployment rate of 6.1 percent is misleading because we have a very high underemployment rate of 19.7 percent. That means more of our people who are eligible for employment work less than eight hours and correspondingly earn below the minimum wage. Survey also shows that a family where there is only one bread winner has two to three members who are unemployed or underemployed.

Employers must earn P492.57 a day just to pay the salary of his employee. However, on the average ordinary people buy goods that will not cost them more than P200 per item. On other hand, employers must compel their employees to sell an average of P650 per day per to meet their obligations to continue their business.

If the daily wage of P492.57 is deducted of his withholding tax, SSS and Pag-Ibig Home Development Fund, PhilHealth, insurance, etc., his net wage earnings could be reduced to around P435 daily. If he is a contractual employee, and his agency deducts from him the premium and placement fees of P50 per day, his income could be reduced further to around P385 daily.

If the minimum wage is deregulated, and is reduced by an average of 25 percent, the wage earner is likely to receive an average of P385 daily. Deduct that further of his withholding tax and the mandatory contributions by about P50, his net income could be reduced to around P335.00 daily. He will no longer be deducted of the placement and premium fees because we assume he is directly hired. Since the average cost in labor is 22 percent on the cost of production, amount is considerable to help boost our comparative advantage.

Thus, if one unemployed member of the family is hired, say three months after the minimum wage was deregulated, and given a starting wage of P350 daily and is deducted P40 for his withholding tax and incremental and accumulated benefit contributions, his net earnings could be reduced to P310 daily. The average family income then would be around P645 daily, and that is already above the P492.57, much higher compared to his net income of P385 per day.

If the second unemployed member of the family finds a job to earn a starting salary of P325 daily and deducted P30 daily for his withholding tax and incremental and accumulated contributions, he would have net earnings of P295 daily. That would have increased the total family income to about P940 daily.

If the third unemployed is hired and given a daily wage of P300 daily, and is deducted P20 daily for his withholding and incremental and accumulated contributions, for him to earn a net income of P280, the average family income would reached P1,220 daily. This is far above the amount the breadwinner originally earns before the wage was deregulated.

Even if we assume that the three were earning as underemployed vendor or part-time helper, which somehow earn for them an average of P700 to P800 daily, the aggregate income of the family would still be short by around P520 daily. What is more, the income of most underemployed is uncertain that often they earn nothing.

Besides, we should focus on the standard of living and not on the income of the individual because the aim of deregulating wage is to promote employment by decreasing the cost of production. We should measure the collective income of the family, which is based on the standard of living much that it refers to “the level of wealth, material goods and necessities available to a certain socio-economic class or a certain geographic area, and is closely related to the quality of life.” By then we would have considerably reduced the poverty level in our country.

Of course, it will take some time for our people to feel the effect in the lowering of prices consequent to wage deregulation. For one, there are factors that make the prices of some goods and services inflexible such as the prices of imported fuel and raw materials. This explains why vital or strategic industries need to be regulated or controlled by the State. Moreover, since it is the market that now dictates the cost of wage, there would be no room for labor-only contractors to make profit by via the indirect selling of labor. It is the margin in the cost of regulated wage from the cost of production that created the evil of indirect hiring.

Note that the imposition of wage deregulation should not preclude the government from re-imposing wage regulation once the level of wage dips below the 25-percent anticipated level. That means employers are now taking advantage to pay their workers starvation pay. Wage deregulation is merely meant to narrow the gap between the net costs of production from the cost of wage. If employers can be assured of profit by direct hiring, the cost of wage will naturally subside, much that the market that will now dictate the cost of labor. 

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Topics: Rod Kapunan , contractualization of labor , unemployment rate
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