Productivity-driven policy to end the ‘endo’ problem

By Rene E. Ofreneo, Business Mirror, Aug 8, 2019

The “endo” debate is not likely to end soon. The re-filing of the security of tenure (SOT) bill in the Senate is an invitation for the renewal of the heated debates between organized labor and the employers’ associations.

According to Malacanang, the reason for the veto of the SOT bill is the “all-encompassing definition” of labor-only contracting (LOC), which weakens an employer’s flexibility to outsource work as needed based on the exigencies of business. The veto got the enthusiastic support of Neda and sympathetic economists, who argue that the proposed SOT measure will reduce the country’s capacity to compete with our Asian neighbors in attracting foreign direct investments.

On the other hand, the trade unions are livid. The SOT bill tightens the rules on permissible outsourcing and prohibited LOC. It does not stop outsourcing per se. Nor does it ban various forms of short-term hiring arrangements such as casual hiring, project hiring, probationary hiring and so on. This is why they consider the proposed SOT bill relatively tame, and yet, the President vetoed it without even hearing their side.

Now what is the way forward? Are there policy alternatives that are worth pursuing beyond the proposed “TWEAKING” of Articles 106-109 of the Labor Code, the existing laws governing permissible job contracting and the prohibited LOC. Are there reform proposals that should be able to get the support of industry and workers together?

In the opinion of this column, there is one: Transformation of the culture (so common among industry and HR managers) of reducing the cost of labor to the maximum possible into a culture of productivity-driven industrial development based on worker-indusry cooperation. In short, transformation of the Race to the Bottom (R2B) into a Race to the Top (R2T).

Some explanations are in order.

First, the “endo” phenomenon is rooted in the effort of investors and businesses to reduce the cost of labor as much as possible by resorting to short-term hiring arrangement. In labor economics, this is called “external labor market flexibility”. The idea is to minimize employers’ short- and long-term obligations to workers such as payment of higher wages, social security contributions and so on. In addition, employers are able to prevent the rise of a union, which is usually an organization of regular workers, and the signing of a collective bargaining agreement, which generally provides wages and benefits that are higher than what is mandated by the existing laws. Moreover, workers with short-term contracts are easier to discipline and to fire or terminate compared to the regulars.

In the 1970s-1990s, most of the external labor market flexibility measures consisted of direct hiring of short-term hires, often implemented through the adoption of the 5-5 method, meaning the hiring of workers as probationaries and terminating them before they become regulars at the end of the sixth month as provided by law. Another practice, widespread in the garments and other labor-intensive industries, is the outsourcing or subcontracting of work to smaller firms, which used short-term hires and unorganized informal workers.

At the turn of the millenium, proponents of external labor market flexibility began favoring the utilization of third-party manpower agencies, which often utilize the services of their own short-term hires. This trend has elicited so much resentment among unions and regular workers not only because they are losing jobs to the manpower agencies but also beccause the agencies are deploying agency workers, mostly short-term hires, to do work right within the premises of the factory or shop owned by the principal contractee. Thus in the garments line production or packaging business, agency workers can be seen working side by side with the regulars.

The problem for the Philippine trade union movement is that this Race to the Bottom, the race to keep labor cost to the minimum by resorting to short-term and agency hiring practices, has also become a global phenomenon, fueled by the competition among the multinationals in their search for cheap, malleable and non-unionized workers in different investment areas across the globe. One outcome of the global Race to the Bottom is the tendency of some MNCs to “fly away” from host countries where labor has become expensive because of unionism or the enactment of protective labor laws, including higher wages. Capital has become footloose, especially capital engaged in labor-intensive phases of the MNCs’ global value chains.

Another complicating factor for the Philippine trade union movement is the reality that the existing industrial policy at home — the labor-intensive export-oriented industrial policy — is based on the assumption that given the abundance of excess or unemployed labor, foreign investors are likely to be attracted to invest in labor-intensive undertakings such as garments sewing or toy assembly so long as labor cost is kept at what the technocrats keep saying as “competitive” rates because the country is competing with other low-cost producers in Asia. This development framework has been in place since the 1970s. It can be debated that this framework is good for the country, for the reality is that it has not delivered the jobs it promised in the 1970s, 1980s, 1990s, 2000s and 2010s. But this requires another piece.

Now, can the Race to the Bottom trend among Philippine industries, deepened or accentuated by certain realities under globalization and the existing industrial development framework in the country, be transformed into a Race to the Top?

The answer of the Fair Trade Alliance, headed by former Senator Wigberto Tanada and Bishop-Businessman Conference co-chair Meneleo Carlos and Labor Leader Jose Umali, is that this can be done. As a backgrounder, the Fair Trade Alliance was formed by unions and employers in industries affected by the one-sided program of trade liberalization that the government embraced after joining the WTO. This is a unique alliance involving employers, unions, farmer organizations and civil society organizations.

Roughly, the collective idea of the Alliance is that industries can compete in the globalized market at home and overseas if industry’s productivity and modernization can be increased on a sustained basis. On the other hand, such productivity and modernization programs require the support of skilled workers who are treated as production partners. However, workers and their unions are not prepared to participate in this productivity-driven social experiment if their rights are not recognized, if their jobs are not secure, and if they are not treated as true or equal partners. In brief, this is Social Accord.

This Social Accord was formulated by the Alliance a decade ago. It will help the Duterte administration find a solution to the endo problem if it looks into this laudable initiative and consults with the organizers of the Alliance and the above Accord.