Inflexible labor regulations have negative consequences

Dindo Manhit, President of the Stratbase ADR Institute

After more than two years in office, the Duterte administration has not fulfilled its promise to end contractualization. Reports indicate that there are an estimated 1.3 million Filipinos who are contractually employed in the country. The efforts of the Office of the President and the Department of Labor and Employment had not been able to resolve the perennial problem of job insecurity. The President himself admitted that the Executive Order he issued last year was not enough and it’s Congress that should pass a legislation to ensure security of tenure for laborers.

As we await the passage of the Security of Tenure bill in the Senate, a Social Weather Stations (SWS) poll put the number of jobless Filipinos at 9.8 million as of September this year. This marks an increase of 1.2 million since June. Out of the estimated 9.8 million who are said to be jobless, 9.2 percent, or some 4.1 million, were retrenched; 8.4 percent, or about 3.7 million, voluntarily left their jobs; and 4.4%, or 2 million, are first time job seekers.

What this means is that while the Philippine economy continues to sustain an upbeat growth momentum for some years now, translating that growth into jobs still remains to be a major challenge.

Unfortunately, the slower economic expansion in the second and third quarter, driven by record-high inflation, has made more Filipinos less optimistic about getting a job within the next year. The same SWS survey revealed that net optimism on job availability declined by 8 points from 47 percent in June to 39 percent in September.

Clearly, the major challenge for the Duterte administration now is how it can meet its economic growth targets and at the same time ensure that the economic growth will create more sustainable jobs.

In a recent roundtable discussion organized by the independent think tank Stratbase ADR Institute (ADRi), some members of the business sector, labor experts, and employers group expressed concerns about the negative consequences of further tightening labor regulations on economic growth and the labor market.

Dr. Vicente Pacqueo, Philippine Institute for Development Studies fellow and ADRi non-resident fellow, said the current proposed amendments to the Labor Code in the pending bills are likely to “make labor markets more inflexible, uncertain, and inefficient.” He warned that the version of the consolidated bill will likely make employers “reduce employment and production levels in the short runs to remain competitive and profitable.”

Dr. Pacqueo said the “restrictive and costly regulatory environment” in the Philippines makes it less attractive to foreign investors compared to, say, Singapore, China and even Vietnam. He urged policy makers to focus more on securing the well-being of the workers and enabling them to adapt to the emerging trends and disrupting labor-replacing technology and innovations.

It’s important to note that amidst such fears related to job insecurity and declining public optimism to find stable jobs, the government is pushing for the second package of its tax reforms package, or the “Trabaho Bill.” The bill seeks to lower corporate income tax rate from 30 percent to 20 percent but intends to rationalize the current set of tax incentives given by various investment promotion agencies.

For prospective investors, this has no doubt brought a strong feeling of uncertainty over tax perks. Some manufacturing firms recently announced postponing their expansion plan until they know the fate of the Trabaho Bill.

As of May this year, at least 1.39 million people are directly employed in Philippine Economic Zone Authority (PEZA)-registered firms. But investment approvals in the agency dropped by 55.9 percent in the first semester of 2018 compared to the same period last year.

The Japanese Chamber of Commerce and Industry and the European Chamber of Commerce in the Philippines (ECCP) also warned that the removal of incentives could send wrong signals to existing companies and prospective investors.

The proposed amendment to the labor code and the second tranche of tax reform package need to be reexamined to ensure that these measures can be a potent tool to create sustainable jobs and inclusive growth. The era of globalization calls for reforms in regulations and institutions to enhance the country’s competitiveness, promote flexibility in our labor regulations, and ease the burdens of investors in doing business in the Philippines in the long term.



This article was originally published in BusinessWorld.

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