More on raising the employment of the poor in industrial zones

The quickest way to get the poor out of their condition is to give them more sustained employment. The special employment zones as discussed earlier present a big solution. These zones will be in industry and agriculture that bring in large scale labor using enterprises.

The special labor zones would not be needed if the country’s labor market policies had not been made to guide industrial wage policy at high standards. The minimum wage setting process has tended to exclude the poor from getting jobs that they would probably be happy to work for if only sustained for prolonged periods.

We are in the world of “second-best” solutions. When the ideal framework is not possible, we look for acceptable but workable alternatives. In the past, we have made many exceptions to the existing policy. Thus, cottage industries, very small enterprises and even the wages of domestic helpers were freed from the coverage of the wage setting policy.

But once the government dealt with foreign investments and large enterprises through industrial incentives programs, the labor wage setting policies became the regulatory framework. As a result and despite the government rhetoric about promoting employment, industrialization policies failed to employ the large labor surplus. The mismatch of wage-setting policies with the nation’s labor surplus just continued.

This was far different from the more realistic labor policies that had fueled the early growth of many East Asian countries like Japan, South Korea, Taiwan, Hong Kong, and now – our neighbors in ASEAN – and of course China. In these countries, the natural labor using industries were encouraged to grow with the industrial policies in place. As a result, labor policies did not force enterprises to pay wages that were out of line with other competing countries with similar labor situations. Even when they began adopting minimum wage policies, their decision-making processes did not misalign wage rates from what might have been market standards.

There is a tendency in our country to pamper the labor unions. Politicians play to “populist” causes even when proposals tend to ruin the partial success of the policies that they themselves wish to have successful outcomes. Thus, the employment outcomes of export processing zones, customs duty free zones, and other techniques of industrial promotions have been less than successful.

Probably the Department of Labor and Employment had been partly to blame. It has become “the department for labor regulation” rather than “the department for the creation of new employment.” When it began to act like a department for the creation of employment, it is mainly to encourage programs for placement of laborers as OFWs for abroad. Hence, it is more like a department for the exile of Philippine labor.

This was far from the enthusiastic vision that Blas Ople had when, as Minister of Labor, he insisted that the Department of Labor be renamed the Department of Labor and Employment. His inspiration was the program of employment patterned after a suggestion of the so-called Ranis Report that he and I asked the government and the international community to propose way back in the 1970s. Bureaucracies often are short on historical memories.

Time and again, the many upgrades of minimum wage and other labor issues with these populist causes have led to major investments in garments, textiles, footwear, and other industries – even the more labor intensive of the semiconductor industries assembly industries – to move to foreign shores rather than continue their investments with us.

The special labor employment solution corrects for the failure to focus on the employment of the poor who need jobs badly. And for those workers who could get employment only at the margin of the minimum wage as proclaimed by the government authorities and those who would rather lose their wage upgrades if only to keep hanging on to their jobs as income earners.

By placing the new employment zones in areas that are specifically far from the current urbanized centers covered by the minimum wage labor market settings, the idea that the labor employment zones are there to provide new employment would be kept. The zones are to form an independent category for enterprises in the industrial and commercial sectors that are guaranteed by state policy to be outside of the minimum wage setting process and other restrictive labor regulations. (See paper Spotlighting on…., UP School of Economics website.)

My prediction is that when such zones become established, their wage rates would be decent wage rates for those employed. They would provide stable sources of incomes for families in the poorer regions of the country. That would be far superior to their present status of very low and unpredictable incomes that they suffer from today. Their wages would also in general approach those that we find in the more established export processing zones, although lower.

The case of Nike locating in rural towns in Indonesia to take advantage of the low wages available there is a celebrated case. It has incited the enmity of do-gooders in the industrial world for giving jobs to people at wages that they consider so low compared to those in the developed countries.

But examine the problem from the viewpoint of the poor communities where Nike had located. Before that time, most of the workers earned incomes at very low fractions of the going wage that Nike began to pay the industrial workers when it set up shop. Those wages also rose through the years. At those wages, more workers from the same families were employed and total family incomes among the poor villagers rose in multiples.

In short, new employments rose and brought quite a few of lucky unemployed villagers into the modern world of productive industrial work. Otherwise, most of these people would become simple agricultural workers mainly with seasonal employment as their mainstay. Or they would become part of the hopeful rural workers who troop to the urban centers to look for jobs. They are candidates for swamping to urban blights – squatter hovels of poverty.

These Nike factories could employ as many as 5.000 workers in the factory plants. The employment creation of a single job arising from new investments is a well-known concept in economics. There is an income multiplier that translates one income into multiples of new incomes (mostly indirect employment through the inducement of new industries and new consumption patterns among those whose incomes are uplifted.)

Imagine then that one Nike employee could lead to conservatively just two new jobs in the community. If across the country there were close to 50,000 new factory workers over time, then at least another 100,000 of new jobs would have actually resulted. This is the relevant calculus of large scale labor using enterprises.

This transfer of labor using industries to many low cost countries of manufacture is repeated in many countries. The success of the industrial growth of China is based on inexpensive labor costs in large part. Vietnam’s growth has been propelled by its attraction of a lot of foreign investments that went to it rather than to the Philippines. In fact, there have been flows of investments from the Philippines to Vietnam primarily because of the labor cost issue. Needless to say, in the past, this was also the explanation for the growth of labor intensive factories in Thailand. It is not too late for the Philippines to use its labor surplus advantage! –Gerardo P. Sicat (The Philippine Star)

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