Ending the contractualization of labor

posted October 22, 2016 at 12:01 am by  Rod Kapunan

Part I

Many policymakers believe that mere legislation to abolish labor-only contracting would be
enough to eradicate the slave-like practice of selling labor to the end-users known as employer-
beneficiaries. This stems from the belief that legislation increasing the minimum wage would
ease the perennial shortage of income received by our workers. Rather, this has become the
worst joke for all of us.

It has resulted in the rapid increase in the hiring of workers supplied by labor-only contractors
who systematically violate the minimum wage law, fail to remit their withholding tax and
SSS/Philhealth contributions, and short-circuited their constitutional rights to security of tenure
and to form labor unions to collectively bargain for their common welfare. The
contractualization of labor virtually eliminated the system of direct hiring which capitalists
continue to bluff as their partners in progress.

Our suggested approach to solve the problem of contractualization is to adopt a win-win solution
by deregulating wage, except for the accumulated and incremental benefits such as the
mandatory joint contribution to the SSS and to Pag-Ibig Home Fund, PhilHealth, employees’
compensation, etc. but imposing stricter penalty to employers who resort to the hiring of
contracted-our workers to prevent their regularization even after six months of service.

The habit of increasing wage through legislation may initially satisfy those who are able to retain
their employment, but definitely not to those who will suffer the consequence of the high cost of
labor. Some workers will be retrenched just as some business will eventually close shop due to
financial constraints. Those fortunate to retain their employment will nonetheless suffer from a
diminished purchasing power due to inflation that ensues in every wage increase. The new
minimum wage is often violated than observed.

As this column has long been advocating, we cannot have a car with a capitalist engine while
using socialist spare parts to make it run. When we opted to deregulate the cost of essential
goods and services, we should have equally deregulated the cost of wage by allowing the market
to dictate its value. Rather, we stick to the socialist system of controlling wage through
legislation, ignoring that labor is the only commodity which the workers could sell as their
means for survival.

As a result, we created a monstrously wide gap in income between the wage earners and those
making profit in business. We practically amended the economic law of supply and demand by
deregulating the prices of essential goods and services while ignoring the fact that all is the result
of production carried out by workers, which price is indelibly affected by the cost of labor.
Since legislated wage is characterized as inflexible, usually based on the inflation index and
other factors that warranted the increase, once the factors that necessitated the hike subsides, the
added wage could no longer be rolled back, not to say that it would amount to a political suicide.
It is impractical, much that the prices of other goods and services would not automatically follow
to justify the rollback in minimum wage.

Employers then began to find ways to avoid the regularization of their workers. This is
necessitated by the ups and downs in the demand for labor that invariably affect the cost of wage.
Contracting out labor effectively gave employers their need for manpower that is adjustable as
required.

As a result, employers are no longer burdened by the constitutional guarantee of security of

tenure that effectively led to the withering of labor unions. That then finally got rid of adjusting
wages and other benefits through collective bargaining negotiations. This explains why the
country is one of the highest in minimum wage in Southeast Asia, yet experiencing the highest in
unemployment rate. Worst, we cannot explain why we continue to suffer low productivity per
man-hour compared to the workforce of our neighbors in Southeast Asia. The best indicator to
this is we rank the lowest in investment destination in the region.

Maybe wage deregulation is not acceptable to both the employers and employees, but this is the
only way we could resolve the impasse in the upward increase in wage and a spirally descending
economy. Wage deregulation is a win-win solution for while it may result in the employee’s
diminution of income, there is, more or less, an assurance they will not lose his employment by
the circumvention of the law.

It is a win-win solution for the employers because they will be given a leeway to adjust the cost
of wage according to their financial capacity, and the required workforce to meet production
quota. In other words, the illegal termination done through a system of two-tier contracting will
become a thing of the past. This formula may not be the ideal, but it is the nearest thing we could
do to put our economy back on track.

(This columnist is the author of the bestselling book on the subject titled, “Labor-Only
Contracting in a ‘Cabo’ Economy.”)

rpkapunan@gmail.com