Endo is Bad for the Economy

How Temporary Employment Contracts create an unsophisticated, inefficient, and unequal Philippine economy

Photo by Adam Ang/Bulatlat

President Rodrigo Duterte’s veto of the Security of Tenure (SOT) bill, without doubt, is a direct result of intensive business lobby. Backing out on an important electoral promise is always costly for any politician, even for a President with historically high approval rating. Thus, the business sector would have had exerted a lot of effort and resources to convince the Palace to junk the SOT bill.

Extremely weak as it was[1], an SOT law would have been a symbolic victory for the working class. And unlike the political class which is ok with throwing tokens for opponents, the business class doesn’t give a quarter even for symbols, knowing that it can be converted to even bigger wins. Any move to reverse labor contractualization, for instance, could spell the reversal of all their other victories in post-EDSA free market era, including liberalization, deregulation, and privatization of public utilities.

It is already obvious at this point that endo is a devious business “strategy” to evade benefits to regular employees and discourage their collective bargaining by hiring and re-hiring them in cycles. There is no more doubt left in the public mind on this, which is why the President found it fit to include ending endo in his platform in the first place. There is no more controversy — just an unconcealed contest of interests between capital and labor.

But still, all in good faith, union leaders, progressive economists, and labor rights advocates painstakingly rebutted all arguments presented by endo practitioners and mainstream economists. For instance, Bukluran ng Manggagawang Pilipino (BMP) President Atty. Luke Espiritu already substantially debunked legal and economic arguments justifying trilateral work arrangements (TWA). TWA is proven to be unnecessary in firms’ drive to specialize and become more efficient. The “middle man” — the agency — only gains ridiculous undeserved profits from the difference of retail price of labor and its actual value.

To this, one might add that the proliferation of manpower agencies adds a layer of inefficiency in labor markets. Manpower agencies lock labor into oligopolistic structures, instead of allowing competitive pressure from declining unemployment rate to raise wages and unleash the labor force needed by an expanding industrial sector.

Former Dean of UP School of Labor and Industrial Relations (SOLAIR) Dr. Rene Ofreneo, on the other hand, attacks the “flexibilization” of job hiring arrangements leading to the “informalization” of the previously formal labor market — a race to the bottom wherein the dominant employment modality is slowly becoming short term contracts with substitutable labor, if it isn’t yet. The ultimate result is “uneven development in the economy and its weak capacity to create stable jobs for a growing population”.

Photo by Macky Lim/Sunstar

Temporary Employment Contracts

In this essay, we consider another face of endo — its nature as a temporary employment contract (TEC). Going against TEC is a controversial position given its widely perceived necessity in some contexts, hence the claim that “not all jobs can be regularized”. But if we wish to get to the heart of endo, it is necessary to confront TECs — and to interrogate the economic soundness of this fairly recent post-Fordist invention.

So critical is the TEC to the endo argument, that it is the core concept defended by economic institutions in the country, rather than TWA. In fact, it appears that they are willing to concede with labor on TWA, but not on TEC. It pays to read the excellent paper by Dr. Vicente Paqueo and Dr. Aniceto Orbeta, Jr. of the Philippine Institute for Development Studies (PIDS) justifying TECs. Never mind the puff pieces in weekly columns; this paper is the strongest and most nuanced defense of endo so far.

Responding to each and every claim of the paper, however, is an exercise for a different day. For now, we go on the offensive.

Our main argument is this: even if we assume (without conceding) that TEC is an effective strategy for firms, it is damaging for the economy. The TEC as employment modality creates and sustains market inefficiencies and locks the entire market in a suboptimal equilibrium. It retards our transition to a high value-added, high employment economy. In the end, it is not just the worker but also the consumer that suffers.

The primary economic argument used by the business community and economic managers to justify TECs, and therefore endo, is that it is a valid firm strategy to mitigate the risk of “being locked in a possibly unprofitable situation when the business environment changes”, using the words of Paqueo and Orbeta. It is also a way to overcome regularization rules of the government, which are deemed “inflexible” and “inefficient”, as if fulfillment of labor rights are subject to financial considerations.

TEC, as we know, allows a firm to adjust downward its labor hires simply by not renewing short-term labor contracts when they expire. Under what exact circumstances a competitive firm might want to do so, excluding of the oft-mentioned “seasonal demand” and of course the brazen intent to keep labor costs low (because regular workers have regular benefits and can bargain), is often not elaborated by proponents of TEC.

For a good reason — it is difficult to think of one. But we will indulge TEC proponents and explore possible reasons why a truly competitive firm might want the flexibility to reduce its demand for labor — outside of the usual excuse of seasonality and the open secret of ripping off workers.

We can think of at least two. First is the risk of a general drop in the firm’s sales, prompting a drop in production. Second is the possibility that alternative capital-intensive techniques will become relatively cheaper than labor, so the firm wants to ability to switch. We will respond to both, and show that allowing TECs because of these two reasons is ultimately bad for the economy.

Before we proceed on that, however, let us first rebut the “seasonal demand” claim. This, so at the end of the day, we would have exposed the true nature of TEC as nothing but pure labor exploitation.

On Seasonal Demand

“Seasonal demand” is an easy excuse. Firms promoting TECs — especially in retail and manufacturing — want to exploit periodic blips in demand, but they don’t want to commit to production growth by ensuring that periodic windfalls translate to investments for expansion. They would just hire temporary labor to augment production capacity during the season (usually the holiday months), labor that they will later retrench after demand wanes.

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A truly competitive firm with stable profits will want to maintain their production level even after the seasonal spike, and therefore will likely retain if not augment its labor force after the period. Firms who yearn for the option to produce less are likely the ones which will be selected out due to random (negative) shocks.

All firms have finite life, though some may survive a bit longer than others. Firm survival largely depends on inherent competitiveness — on dimensions of cost leadership, differentiation, and focus — given a certain market environment. Based on relative competitiveness of firms, some of them thrive and some of them die, to be replaced by better ones.

Seasonal spikes and drops in demand, together with other random shocks, accelerate this process. Spikes present an opportunity to scale production and eat market share, while drops weed out weaker firms. The market shares of the failing firms are consequently absorbed by stronger ones, facilitating horizontal integration in the market and even greater efficiencies and increasing returns to scale. Market fluctuations force industry to be innovative and efficient.

Viewed this way, TEC for “seasonal demand” is simply rent-seeking behavior that keeps the market fragmented. What TEC does is to prolong the life of inefficient firms at the expense of workers they exploit and at the expense of consumers who could have been served by more efficient firms. TECs short-circuit the natural evolutionary process in the economy, and ultimately prevents Schumpeterian* creative destruction*.

The government’s main justification to maintain TECs — that we should also consider “security of capital” when asserting for “security of labor”, has thus no basis in reality. Contrary to labor which has to be secure in order to be productive[2], capital has to be insecure in order to be competitive.[3]

How about agriculture?

But how about sectors which truly are of seasonal nature, which really needs to shut down production during specific months of the year? Note that whenever this argument is invoked, “seasonal” usually pertains to agriculture, particularly crops. Can we justify endo in the case of crop production?

First of all, of the 20 companies identified by the Department of Labor and Employment (DOLE) as the top companies which engage in labor-only contracting, only 5 — Dole Philippines, Inc. (2nd), Franklin Baker, Inc. (7th), Sumifru Philippines, Corp. (12th), Dolefil Upper Valley Operations (19th), and Dole Stanfilco (20th) — can claim to be possibly affected by crop seasonality. The last two are, in fact, affiliates of Dole.

Even if these companies are affected by crop seasonality, they (especially Dole and affiliates) are big enough to engage in multiple cropping — interspersing different crops across seasons. Of course, they have to invest in the processing and marketing side, but in the end, multi-cropping will smooth revenues, diversify risk, and make them more stable companies.

In a sense, Dole is already doing it, but it does so in a guileful manner, via spin-offs and divisions. This way, it keeps labor across Mindanao (where it operates) fragmented, lowering pressure for wage hike.

Photo by Jo Teruel / bulatlat.com

As an aside, the “contractual” practices of these companies extend beyond endo and include “contract growing/farming arrangements” with farmers, which, while having a some positive effect, can really be exploitative. This is evident in the Philippine Banana industry, to which Dole Stanfilco belongs (cavendish). Contract growing even leads to outright land grabbing. One can say that these big firms externalize all risks to small players — farmers and laborers — while reaping most of the profits to themselves. For this, they have to be held accountable.

Second, for the rest of crop producing enterprises which doesn’t have enough scale and can’t engage in multi-cropping — particularly rural Medium, Small, and Micro Enterprises (MSMEs)— the government can simply make exceptions based on size of firm, crop produced, and months of the year. After all, the Philippine Council for Agriculture, Aquatic, and Natural Resources Research and Development (PCAARRD) has already conducted research on harvest cycles of major crops. Department of Agriculture’s (DA) Value Chain Analysis (VCA) has an even more detailed process mapping. The Department of Trade and Industry (DTI) is supposed to have a registry of MSMEs.

If this is too “heavy-handed” for economists, then the government — via DA and DOLE — can set up its own crop-based “manpower planning system” to organize farm workers (starting with rice, corn, and sugarcane) and assure decent employment for each of them across seasons by facilitating their transport and lodging in areas of work and monitoring their work conditions. This is feasible considering that the government already has a list of farmers, farm workers, and even fisherfolks thanks to the Registry System for Basic Services in Agriculture (RSBSA), which can be further improved.

In any case, there are better forms of firm organization that will ensure that seasonal profits tide agricultural workers during lean seasons — the cooperative. Cooperatives, wherein the workers themselves are the owners of the firm, ensure organized financial management of crop proceeds such that each member will need minimal additional employment in between harvests. Cooperatives, with government support, can replace agricultural firms which engage in TECs.

Third, and most importantly, this is slowly becoming a non-issue. Even with the proliferation of short-term contracts, agriculture is actually bleeding jobs. From January 2018 to 2019 alone, we lost almost 400,000 workers in the sector. Labor is transitioning out of agriculture as it continues its drive towards capital-intensiveness — especially as mechanization technologies become cheaper and easier to procure from the global market. This is just a consequence of all our interventions to increase agricultural productivity.

Is it necessary for competitive firms to have TECs?

So “seasonal demand” is a weak argument for maintaining TECs, whether for manufacturing, retail, or agriculture. What else? Let us elaborate on the two more reasons we mentioned earlier on why a firm wants the option to reduce its workforce, hence the need for TECs.

The first is that the firm might observe a drop in demand (decrease in average sales) for its commodities[4], in which case it will have to reduce production and therefore its labor demand. Second, a reduction in relative prices of an alternative capital-intensive production techniques is always in the horizon, so if it happens, the firm might want to switch from labor-intensive to capital-intensive techniques.

In the first case, a reduction in demand is a signal that the (consumer) market finds the price of the commodity too high. The cause is usually not the level of supply; otherwise, the demand wouldn’t have fallen to begin with. The issue, rather, is the average profit rate imposed by producers of said commodity derived from its current price (given that capital and labor cost to produce a commodity is supposed to be fixed).

The profit rate might be too high, which means firms must decrease it, or that no acceptable profit rate (however low) can increase demand any more. In this case, there already occurred a fundamental change in market preferences and the appropriate response is just to shut down production. Simply reducing production, which will translate to non-renewal of TECs, does not address this problem at its core. At best, it can only serve to reduce the risk of unsold commodities.

In competitive markets, in which firms have no price-setting powers[5], a business facing demand reduction has only two valid responses: it can either decrease profit rate, or if the firm has appetite for risk, it can increase production. The first will make the firm’s commodities more attractive than competitors’, increasing its market share and earning it positive net revenues amid declining demand. If all firms decide to reduce profit rates, it is possible that the general decline in demand might stop. The second, which is uncommon, may have the same effect as the first, assuming increasing returns to scale and right timing.

It behooves people who insists on TECs to cite specific cases of firms which survived a general decrease in market demand only by temporarily decreasing production, and not by simply reducing prices or shutting down. TECs in this case only serve to sustain firms which are already made inefficient by new relative prices. They need TECs as crutch. Our critique earlier that TECs only retard natural selection in the market also applies here.

Consider the fact that even if TECs are rampant in the garments and textile sector, they aren’t enough to arrest a general decline[6]. Garments and textiles is a sunset industry for structural reasons, and no amount of protracted retrenchment can save it[7]. On the other hand, known primary users of TECs in service industries like food and retail (e.g. Jollibee and SM) continuously expand. And they would have expanded nonetheless without TECs. Using the possibility of demand decline as reason for the engaging in TECs would either be laughable or infuriating.

Divergent Paths

In the second case, TECs are supposed to allow firms to exploit decreasing marginal cost of capital-intensive techniques, instead of being tied to labor-intensive ones. They can just wait for the 5-month TECs to expire and then proceed to switch production methods. This, supposedly, accelerates transition to more productive methods and would benefit the whole economy.

Note that if one subscribes to this claim, then he is effectively proscribed from arguing that temporary labor contracts mitigate unemployment. TECs in this case, in fact, worsen the unemployment problem because they make it easy for firms to simply drop their labor force instead of retooling them. This may be a very real scenario in the age of automation and smart factories in the fourth industrial revolution.

This is not an argument against transition to a capital-intensive economy. Such a transition should not be opposed but rather encouraged. But what champions of TEC-facilitated automation forget is that there two divergent paths in such a scenario:

1) Capital-intensive Economy A: Characterized by high unemployment, high (time-related) underemployment, high inequality, and long working hours, with firms focusing on low value-added tradables[8] because low wages gutted the domestic market and short term labor contracts encouraged the growth of a low-skilled labor force; or

2) Capital-intensive Economy B: Characterized by low unemployment, low underemployment, low inequality, and short working hours, with firms focusing on good mix of complex tradable and non-tradable commodities because of easily accessible domestic market with high purchasing power and the availability of high-skilled labor.

TECs pave the way to Economy A, and it is easy to see how. TEC ensures that firms do not need to invest in skills development of their employees. And given perpetual uncertainty on future income, the employees themselves will find it difficult to invest on developing their human capital. This ensures a stunted labor force. Skilled labor will be hard to find, so there will be bias towards firms which doesn’t need skilled labor to expand. This ensures that low-value added services are the ones mostly produced in the market.

TECs also depress wage income because it tethers the modal wage to the minimum wage. Employees don’t get to see their incomes rise as they are just hired and rehired, so their wages remain fixed to the highest wage a firm wants to give to low skill labor — the minimum wage. Unfortunately, in the Philippines, minimum wage is really just poverty wage[9]. This translates to high time-related underemployment, increased work hours (due to multiple shifts and/or occupation), and lack of purchasing power. This means a weak local consumer base, pushing firms to focus on tradables.

Since firms can’t also find high skilled labor (for reasons just mentioned), they will concentrate on highly import-dependent (and thus low value added or low complexity added) tradables. Eventually, given that low-skill labor is technologically substitutable, unemployment will skyrocket as firms invest on capital-intensive production — driving up social inequality.

In fact, this is what has happened in the past two decades of Philippine economy under the labor flexibility regime. While labor productivity increase, real wages stagnated[10]. While factor productivity has improved, development seems to have benefited the rich more than the poor. The working is class is largely excluded from economic growth.

While we pride ourselves with exporting highly complex integrated circuits (32% of our exports), it turns out we import a lot of ICs too (11% of our imports). We are just a small pit stop in a humongous global value chain, and our contribution to the processing is not that large. So in effect, the relative sophistication of our exports hides our unsophisticated internal economy.[11]

Utility of Inflexible Labor Contracts

Inflexible labor contracts have positive externalities. We’ve implied earlier that since firms cannot easily fire employees, they will have more incentive to retool them — increasing the available skilled labor in the economy. A more formal explanation of this comes with understanding inflexible labor contract as a market rigidity.

TECs “decompress” the wage structure — unskilled workers, which are substitutable and in short-term contracts, tend to earn so much less than skilled workers. Removing TECs will then introduce a rigidity and lead to a more “compressed” wage structure — regularized employees, through bargaining, reduce the variance of their salaries regardless of differences of skill. The effect? Daron Acemoglu and Jörn-Steffen Pischke showed in a 1999 paper that it may encourage human capital development, as wage compression forces firms to invest in workers training.

We also implied earlier that since firms are compelled to give higher wages and benefits to regularized workers, those workers will have more purchasing power — forming the base of a robust domestic market. The simultaneous combination of skilled labor and strong market cannot but generate investments and therefore additional employment.

Another confirmation of our main argument (that TECs maybe better for firms but possibly bad for the economy) is from an interesting result from a study by Enisse Kharroubi, Senior Economist at the Bank of International Settlements (BIS). Kharroubi showed that “labor market flexibility is shown to be on the one hand positively associated with higher total factor input (TFI) growth but on the other hand negatively associated with total factor productivity (TFP) growth”.

Kharroubi also demonstrated the existence of two equilibria under imperfect capital markets (which is the case in the Philippines), 1) one with inflexible labor contracts — low savings and low investment but high productivity and high interest rate, and 2) one with flexible labor contracts — high savings and high investment but low productivity and low interest rate. Given that the negative effect on TFP can offset the positive effect on TFI, the high flexibility equilibrium is “dominated in terms of both welfare and growth”.

Models by Kharroubi and Acemoglu & Pischke fit nicely with our “divergent paths” discussion earlier. Indeed, labor flexibility leads to a low-skilled labor pool, and ultimately, a low productivity economy. The conclusion is clear: Labor flexibility is suboptimal.

Specter of Unemployment

What we have shown so far is that inflexible labor contracts is probably better for the Philippine economy. Still, the specter of unemployment is always there, threatening labor to submit to endo or else, lose the jobs they have. Investors, supposedly, can just vote with their feet (or they won’t come at all), and local firms might just close shop.

This claim is unrealistic. Investors in the Philippines have even greater concerns in the country than labor prices. Electricity price, for one, is a big turn off. But an even bigger issue is that there is simply a lack of skilled labor in the country, especially in infrastructure and manufacturing.

Ironically, as we’ve explained earlier, this is partially an effect of TECs to begin with, which dis-incentivize firms to invest in skills development and put a bias towards substitutable, low-skilled labor. As availability of capital-intensive production alternatives become more accessible, the more TECs exacerbate the unemployment problem. This may be what is happening in Philippine agriculture.

The specter of unemployment, we argue, is mostly due to ideological assumptions of economists. Consider an argument made by Dr. Raul Fabella — a staunch defender of endo — trying to make us imagine contractualization as some sort of “labor sharing”:

“…scarce employment opportunities are being shared by more workers; permanent work force are paid less than they would be without labor sharing; contractual work force realize some income, however sporadic, instead of none at all.”

This reasoning assumes that jobs generation is largely a static process — there is just a number of jobs at any given time, and workers compete for it. This, of course, is just an offshoot of the obsolete wage-fund doctrine, which posits that capital can only generate so much wage at a given period. Thus, in this Jurassic outlook, there is always a trade-off between increasing labor income — the primary consequence of ending TECs — and increasing employment.

It is interesting to note that economists still hold to this claim this so-called trade-off even though David Card and Alan Krueger debunked this as early as 1993. What is even more interesting is that the “labor scarcity” argument was earlier rebutted a century before in 1892, by American economist J. Schoenhof.

In a review of his work in 1893, Schoenhof was reported to have established:

“…high wages mean high productiveness, low cost of production and low prices… laborers and capitalists would not then be fighting each other for the largest share of an imaginary wage-fund, as Ricardo maintained, but each would be deriving a just remuneration from his legitimate share in the product itself.”

Furthermore, Schoenhof was also able to show, “by convincing tables of comparison” that despite United States’ high wage rate, the cost of production in all important industries is equal to, if not actually lower, than Europe.

But even if the trade-off between high wage/labor regularization and employment is true, and that business will indeed deliver on its threat of leaving once a strong SOT bill is passed, it may not be a bad thing after all. If they can be profitable only by depressing labor income and compromising the local consumer market, then maybe they are not the firms we need in our bid to become a developed economy.

In fact, the presence of incumbents that are just competitive due to TECs are actually discouraging entry of firms which are perhaps more adjusted to the new business environment. They lock capital that could have been used to invest in new firms that can create more gainful jobs.

In any case, we still have to contend with the small possibility of an unemployment spike if TECs are made illegal. And for this, there is a simple solution: expand the government sector and implement a national employment guarantee towards full employment.

Employment Guarantee

We are in an ironic situation where tasks are abundant — reforestation, public infrastructure, maintenance of public utilities, education, etc. — and yet jobs are hard to find. A national employment guarantee, wherein the government identifies these societal tasks that need to be done and provide jobs aligned with these tasks for the unemployed for a certain length of time, will solve the unemployment and underemployment problem.

Major economies are no stranger to the concept. The United States Congress, for instance, passed the Humphrey-Hawkins Full Employment Act of 1978 authorizing the government to create a “reservoir of public employment” in case private enterprise does not provide sufficient jobs. More recently, South Africa has set up the Expanded Public Works Program (EPWP) in 2003 for a similar reason.

But perhaps the largest job guarantee program was established in India in 2005, called the “Mahatma Gandhi National Rural Employment Guarantee Act” (MGNREGA). MGNERA secures employment in rural areas by providing at least 100 days of wage employment to every household adult willing to do unskilled manual work. Some proposed to extend this 200 days, with benefits given to those who demanded to have a job but didn’t get it within 15 days.

Villagers at an MGNREGA worksite. Photo from here.

MGNREGA can be our model of a similar urban/rural employment guarantee towards a full employment policy, but we can refine it so that it develops workers instead of just requiring them to do unskilled work. For instance, we can require those provided with jobs to undergo first a free Technical Vocational Education (TVE) from Technical Education and Skills Development Authority (TESDA) relevant to the job at hand.

The government can also decide to simply subsidize the labor costs of supported MSMEs and cooperatives as long as they fulfill job quotas — a number of jobs they are required to generated in their respective communities. This may be a better option that emergency employment program by DOLE, which is infrastructure-biased and does little to help boost local economic activity.

Consider the sheer volume of tasks devolved to Local Government Units (LGU) under the local government code (LGC), or the list of unfunded mandates by the national government. These can all be provided for if we mobilize our underemployed and underpaid workforce. In the end, we would have built public goods necessary for creating a better business environment, which will generate even more jobs.

An employment guarantee will make sure that workers have options, and since they have options, the less they will put up with the blatant exploitation of firms under a TEC arrangement. Reducing employment and underemployment will then put upward pressure to wages, and higher wages will allow workers to invest in their own human capital development — or at least the human capital development of household dependents.

Cover for Wage Repression

With no good economic reason left, it is clear that TECs serve only one goal — to deny workers of decent wages, regular benefits, and capacity to bargain. The macroeconomic function of the TECs is to repress labor income. The political function of the TEC is to fragment the working class by keeping employees on a short leash, the horizon of their planning and organizing truncated by the uncertainty of their cash flow.

TEC is not for firm agility, nor for productivity, not even for job generation. It is simply to extract super-profits that don’t benefit society because they aren’t converted into technological investments. Pacqueo and Orbeta are correct: TEC is a loophole meant to overcome regulatory measures of the State to protect labor rights.

So what will we have in the end? Inefficient, capital-intensive, but low-value added firms that focus on tradables because the domestic market is shot. Growth with little job generation. Inequality amid plenty. Local companies earning enough surplus to go global but generating little prosperity back home.

Consider that giants like SM, Jollibee, Dole Philippines, PLDT, and General Tuna did not grow to be behemoths by the sheer entrepreneurial will and ingenuity of their owners. They overcame their initial inefficiencies by skimping on workers, by denying them of decent, livable salaries. While they would have expanded nonetheless in our OFW-pumped retail-oriented domestic market, there was no guarantee that they would have done so at their current rate had they not been as exploitative as they had been.

Jollibee Foods Corporations (JFC) would not have been able to buy global coffee chain Coffee Bean & Tea Leaf (CBTL) if it had not reaped super-profits from endo.[12] SM would not have made Henry Sy the 53rd richest person in the world if it did not engage in TEC. PLDT would not have survived telco liberalization and agile competitors without its thousands of contractual workers. In effect, endo is a government subsidy for these firms, paid for by the working class.

And of course, the usual spiel of business is that investors like low wages. They also like a strong market, however, and no strong market will exist in an economy where workers are struggling with poverty wages. This is also why even decades after decades of allowing TECs, foreign investments of the Philippines are minute compared to those received by our ASEAN neighbors.[13] This is also why Filipino companies are going global instead of investing in substitution of imports.

The business community remains to be enamored with the idea that lower labor costs enable us to create a robust market with lots of investments. TEC is a product of that idea. Unfortunately, we’ve had cheap labor policy for years and the economy did not improve its standing relative to our ASEAN neighbors. Meanwhile, Asian powerhouse China has been increasing wages so it can transition to a more sophisticated economy.

Business, occupied with short-run gains, is simply either incapable of determining or unwilling to champion the long-run social optimum. Its calculations and spiel are based on the objective of, and therefore promotes, survival and near-term expansion, so it would be too much for us to expect anything more. We cannot trust them on the issue of TECs.

TEC is not an inevitability but a policy choice, and a defective one at that. The sooner our administration realizes this, and the sooner it can develop the political spine to ignore the lobby of incumbents, the faster it can implement programs that will truly make for a developed economy, a robust and complex market with diverse, competitive firms.

Business will later thank the government for it.-30-

[1] Workers and pro-worker politicians are not too enthusiastic of the SOT bill to begin with.

[2] Several empirical studies have already noted the general case that individual labor productivity is maintained via security of tenure, although only up to a certain period. After this, other productivity-inducing incentives have to be provided.

[3] The irony is clear considering that the point of other “reforms” such as trade liberalization and deregulation is to increase pressure on local capital to be more competitive — we are making capitalists insecure so they will innovate and become more efficient.

[4] Note that this case refers to firms with a single product. For firms with multiple products, the best response would be to reallocate labor from stagnant products to moving ones.

[5] Anyway, that they have no say in consumer prices is also a justification by users of TEC.

[6] There is a plethora of reasons why this may be so — ranging from trade agreements to incentives regime. Check out this article and this series by Dr. Ofreneo (article 1, article 2).

[7] It may be saved through other means, however.

[8] National Scientist on Economics Dr. Raul Fabella recommends shifting our attention from manufactures to tradables, as a better way to see the development problem.

[9] Consider that minimum wage for National Capital Region (NCR) is PhP 500, which translates to P11,000 a month given 22 working days a month. Poverty threshold is at PhP 10,481 for a family of five. This means that a worker with a family of five, if she or he is just the sole bread winner, will have her or his family at the brink of poverty. If he reduces his working days to 20 (just weekdays), then they’ll certainly be poor.

[10] See another paper by Paqueo and Orbeta, this time with Dr. Leonardo Lanzona and Dean Dulay, pages 15–20, which notes that “aggregate data reveal that Philippine labor productivity has been rising over time on average, while the daily wage rate seems to be declining”.

[11] This is a good reason why TECs are partially to blame what National Scientist Dr. Raul Fabella calls as “development progeria”.

[12] An interesting phenomenon happened wherein after Jollibee stock fell in light of CBTL purchase, it rebounded a bit after the SOT bill was vetoed.

[13] But of course, it’s always easy for economists to find another factor or variable in their model pointing to the cause of low investments. They are now pointing to the minimum wage as culprit.