"The proposed amendment to the labor code and the Trabaho bill can bring more harm than good in the medium and short term."
Among the many major issues that the Duterte campaign carried—and which brought the long-time Davao City mayor to the highest office in the land—was the end to contractualization or “ENDO”, short for “End of Contract” of contractual workers. Job security and wages consistently figured in opinion polls as among Filipinos’ topmost concerns, and it is little wonder that the clamor for the president to deliver on his promise persists to this day.
Two years hence, it has become clear that there is no magic wand that can make the practice of contractualization vanish with a single executive flick, although there were some attempts toward that end. The Department of Labor and Employment released Department Order No. 175 that set more stringent parameters for employers who contract out their services, and Duterte himself issued Executive Order No. 51, which sought to protect the right to security of tenure for all workers as laid out in the constitution.
DOLE said thousands have been regularized since, but labor groups are adamant with what they see as the president reneging on an important campaign promise. Feeling like anything less than a complete ban on all forms of contractualization is unacceptable, these groups clearly feel betrayed.
But the labor issue is more complex than that. This appears to be the consensus at the recently held roundtable discussion on the subject organized by independent think tank Stratbase ADR Institute (ADRI), where labor experts, industry, and an employers group warned that further tightening labor regulations, while the intention sounds good, can have dire consequences on the economy and the labor market.
Proposed amendments to the Labor Code, which are currently pending in Congress, are likely to “make labor markets more inflexible, uncertain, and inefficient,” said Dr. Vicente Pacqueo, Philippine Institute for Development Studies fellow and ADRI non-resident fellow.
In its attempt to strengthen job security for employees, the proposed measure might not bode well for industry and in fact “reduce employment and production levels in the short run to remain competitive and profitable.”
The bill, Pacqueo said, will “further restrict the ability of enterprises to opportunely and efficiently adjust the level and composition of their work force in accordance with changing market conditions.” This will make them prone to volatility in market, which in turn endangers the plight of their employers.
As it stands, the regulatory environment in the Philippines is already among the most “restrictive and costly” in the region, Pacqueo said, compared to countries like Singapore, China, and even Vietnam. Any major disruptions could make the country even less attractive to foreign investors, he said, which can have far-reaching consequences.
“This negative impact on employment would be magnified in the long run as employers substitute relatively cheaper (and easier to manage) machines and labor-saving technology, such as automation, robots, and artificial intelligence, for labor inputs,” he said.
In particular, the most severe impact would be felt by “poor Filipinos with low human capital and perceived to be less productive due to poor credentials.”
Instead of any rash and widespread changes, Pacqueo said the government and policymakers should focus on securing the well-being of these workers and, more importantly, capacitate them so they may be better equipped in dealing with emerging trends and disruptive labor-replacing technologies and innovations.
Pacqueo also noted that “bureaucratic management of the labor markets” and the imposition of “one-size-fits-all rules” is susceptible to abuse and corruption as it bestows broad discretionary powers upon one person and agency.
“The Philippine and international history of bureaucratic failures arising from excessive government intrusion into the organization and management of enterprises should teach us a lesson to be wary of government micromanagement of labor markets,” he said.
It does not help that the second package of the government’s banner tax reform program, the so-called Trabaho Bill, is seen to further aggravate industry. While it seeks to lower corporate income tax from 30 to 20 percent, it also rationalizes the current set of tax incentives given by various investment promotion industries. This sends a wrong signal to prospective investors and can well jeopardize existing expansion plans by some companies.
As it is, investment approvals by the Philippine Economic Zone Authority (PEZA) already declined by 44.9 percent year-on-year in the first half of 2018. Any major disruptions in the tax incentive regimes for PEZA-registered firms will definitely hit the viability of their operations putting to risk thousands of quality jobs.
This can have serious consequences not only to the 1.39 million Filipinos who benefit from such investments but to the potential others who might find work inside export-processing zones in the future, according to both the Japanese Chamber of Commerce and Industry and the European Chamber of Commerce in the Philippines.
Combined, the proposed amendment to the labor code and the Trabaho bill can bring more harm than good in the medium and short term, despite the noble intentions, by compromising the country’s competitiveness in attracting much-needed capital.
In the broader context of an economy long pronounced to be on the verge of take-off, any similar legislation would be seen as essentially anti-growth and anti-poor—despite, for the Duterte administration, the appeal of fulfilling an important campaign promise.
Managing the economy is not an either-or proposition; industry’s interests need not be misaligned with that of labor. The major challenge for the Duterte administration now is how it can meet its growth targets while at the same time ensure that this growth will lead to the creation of more sustainable jobs.
