Repeal the Kasambahay law, remove the minimum wage, and others

by Jemy Gatdula, Businessworld, 4 Feb 2021

Unfortunately, 2021 doesn’t seem to be making it any easier. And the President’s confirmation that the Philippines is losing P2 billion a day in lost income just drives the point home.

Or make that P2.8 billion a day, according to Acting Socioeconomic Planning Secretary Karl Kendrick Chua.

The trope normally is to point to the pandemic as the cause of the losses and unemployment. Which is not true. Lockdowns are causing the economic bleeding. People are simply unable to earn money, forcibly or by being terrorized to stay at home. The Philippines’ 8.7% unemployment rate, equivalent to 3.8 million jobless Filipinos, is a grim testament to that. To top it off, despite the diminished earning capacity of those who still can, higher taxes are being considered thrown into the mix.

Incidentally, an SWS (Social Weather Stations) survey found average adult joblessness last year reaching a record high of 37.4% (2019 was at 19.8%). Currently, that’s 12.7 million jobless Filipinos. Adult joblessness refers to those 18 years old and above that voluntarily left their jobs, or are seeking jobs for the first time, or lost jobs due to circumstances beyond their control. SWS also said that about four million families went hungry at least once from October to December 2020.

And speaking of those seeking jobs for the first time, watch out for the graduation season in a few months, likely to churn out 800,000 fresh college graduates. Add to that the possible 15,000 or so law graduates looking for work after they take this November’s bar exams.

Government has promised to confront the foregoing by several means: subsidies (i.e., cash support), insurance and other compensation schemes, fiscal measures, and employment generation. Which are all good.

But all the foregoing must be taken within the context of this basic truth: government never generates income. It doesn’t. It takes its operating expenses by borrowing from other institutions or, as is ordinarily done, by taxing ordinary citizens.

When it gives out cash subsidies or other welfare benefits, takes out loans (which need to be repaid), and so on, all of that can only be done by getting the money from the remaining Filipinos that are still working.

But if SWS is correct, then only around 34 million Filipinos are employed. Of that, subtract the around 1.7 million employed by the government (i.e., civil service). Deduct further the elected officials (around 21,500). Their salaries are all taken from tax funds. This means that roughly only 32 million are employed by the private sector, which generates the income from whom taxes are culled. Effectively, this means our country of 110 million is now being propped up by only 29% of our population. Or to put it another way, only 29% of our population is putting food on the table for the entire country.

There are various economic arguments as to why the use of tax funds could be used as a stimulus to encourage economic growth. But perhaps another manner with which the government can help the country is to simply get out of the way of the said 29%: lessen taxes, cut local government red tape, cut burdensome government regulations.

There is, also, commonsensically the simple cutting of government expenses. This could be done by lessening services or by getting rid of government agencies whose functions are better off being performed by either the private sector or local government agencies. (See “Reform taxation, cut spending, get rid of some government agencies,” BusinessWorld, March 3, 2017.)

Another is by repealing certain laws that hinder employment. One such law, ironically, is the so-called “Domestic Workers Act” or “Batas Kasambahay” (Republic Act No. 10361), which took effect around eight years ago. It was a bad idea then and it certainly is pernicious even now.

Household work is said to constitute 11% of female employment in the Philippines, with a 2011 Philippine Commission on Women report saying that there could be as many as 2.5 million women domestic workers. That the Kasambahay Law failed to condition the benefits contained therein to professional development, skills training, and personal accountability merely led many employers across the country to forego employment of kasambahays, leaving many unskilled women without any viable employment alternative.

Repealing the Kasambahay Law could help provide additional employment opportunities for the young and unskilled female working demographic, which — incidentally — are said to be among the hardest hit unemployment-wise by this ongoing lockdown.

The protections needed for Kasambahays remain because it has always been there anyway. RA 10361 was just a burdensome superfluity: Aside from the Constitution and the preliminary provisions of the Civil Code, the latter also contains at least 11 articles specifically addressing household help (see Articles 1689–1699).

Removing the minimum wage is also here suggested, at least for new hires and for a temporary period of say two years. This would definitely encourage employers to at least consider new hires.

A recent study from the US National Bureau of Economic Research (“Myth or Measurement: What Does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States?,” David Neumark and Peter Shirley, January 2021) again confirms that “minimum wages reduce low-skilled employment.” In fact, the “body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected to reveal these negative employment effects most clearly.”

A previous study emphasized the job-killing aspect of the minimum wage, especially for the “less educated and inexperienced workers. In the long run, this group of workers faces substantially longer periods of unemployment or delays in hiring, thus bearing more of the cost from minimum wages. This phenomenon is particularly important given the evidence that minimum wage jobs often result in relatively rapid transitions to higher-paying jobs.” (“Effects of the Minimum Wage on Employment Dynamics,” Jonathan Meet and Jeremy West, Journal of Human Resources, 2016).

Another suggestion is for the government to strengthening marriages and encourage the proper upbringing of children. Study after study (e.g., “For richer, for poorer,” W. B. Wilcox and R. I. Lerman, American Enterprise Institute Report, 2014) has demonstrated the economic growth driving potential of the marriage institution.

Henry Potrykus and Patrick Fagan (“The Divorce Revolution Perpetually Reduces U.S. Economic Growth,” Marriage & Religion Research Institute, 2012) emphasized that: “Marriage is a causal agent of economic growth. It constitutes one-third to one-fourth of the human capital contribution of household heads to macroeconomic growth. The total contribution of human capital to growth of domestic product in turn is large, being of equal proportion to the other two contributing factors: size of the labor pool and physical capital. Divorce removes this agent of economic growth.”

Accordingly, reviving tax benefits for married couples and for married couples with children, on top of the across-the-board exemptions currently provided, will definitely help the country move forward. The administration would also do well to reconsider its support for legislative proposals that will only weaken the family, e.g., those relating to divorce or same-sex unions.

Recalibrating the conditional cash transfer or Pantawid Pamilyang Pilipino Program (4Ps) to condition the grant of benefits to providing work for the national or local government, whether it be for construction, sanitation, clerical, or any appropriate form of employment should also be considered.

Finally, it is suggested that underground businesses (defined here as those engaged in otherwise legal commerce whose earnings are below P80,000 per month but do not pay taxes and are unregistered with government) be given legal recognition — at least in the short term — for the sole purpose of providing protection for such businesses from bureaucratic regulation or harassment. A 2010 World Bank study estimated that the Philippine underground economy constituted an average of 41.9% of our Gross Domestic Product from 1999 to 2006, so one can imagine the size of that economy in today’s hard pandemic days and how it can be helpful in spurring economic growth.

Anyway. As that popular meme goes: modern problems require modern solutions.