The incoming Duterte administration’s plan to put an end to contractualization of labor will have a positive impact on the economy, but it could threaten the viability of small and medium enterprises (SMEs) that comprise the backbone of the Philippine economy.
According to the acting dean of the University of the Philippines’s School of Labor and Industrial Relations (UP Solair), the plan to end labor contractualization will result to an increase in the expenses of SMEs within the range of P200 to P300 per employee per month.
“We think that it’s a small price to pay [for companies] in exchange for the overall beneficial effect that will redound to the economy as a result of the job security of workers,” Prof. Ma. Catalina Tolentino told the BusinessMirror.
Contractualization in the Philippine context refers to the practice of some companies to hire labor from labor suppliers.
Tolentino said the additional expenses for companies will be in the form of employer contributions to government-administered funds that give out benefits to their employees, such as the Social Security System, the Philippine Health Insurance Corp. and the Home Development Mutual Fund.
Other benefits due to regularized workers include the mandated service incentive leaves of at least five working days convertible to cash for employees who have rendered at least one year of service, and the mandatory 13th-month pay.
Contractualization statistics
The Philippine Statistics Authority’s biennial survey on employment indicated that more than a quarter of the total establishments in the country employ nonregular workers.
In the latest survey conducted in 2014 among establishments with at least 20 workers, some 1.336 million workers, or 29.9 percent, of the total work force of 4.472 million are nonregular employees.
This represents a big jump of 16.3 percent in terms of the actual number of nonregular workers existing in 2012.
Half of the 1.336 million non-regular workers in 2014 are contractual or project-based workers.
In terms of industry share in employing nonregular workers, the construction industry recorded the biggest share, with 59.2 percent of the total employees in the construction industry being non-regular workers.
Need for amendments
Incoming Labor Secretary Silvestre H. Bello III has vowed to end the practice of labor contractualization in the Philippines, which has been one of Duterte’s campaign promises.
Bello said earlier he would move to repeal the laws allowing contractualization of labor.
Tolentino, however, cited the Department of Labor and Employment’s (DOLE) Department Order 18-A that defines the process by which labor contracting and subcontracting may be done by corporations.
Under the law, labor-only contracting is not allowed, but she said the department order allows contracting and subcontracting by agencies that have sufficient capital to do so. The sufficient capital required is merely a minimum investment of P3 million in facilities, equipment and cash, allowing many agencies to act as contractors and subcontractors.
“Unless they repeal that department order, I don’t think they can end the practice of contractualization of labor. Maybe they can revise it, improve on it, or repeal it,” Tolentino said.
Benefit or threat?
Tolentino said the position of UP SOLAIR is to promote the job security of workers and provide them with security of tenure as mandated by the Constitution.
“If there is security of tenure, then the job satisfaction of employees will go up. There would be lesser strikes and work stoppages, thus, there would be more productivity,” Tolentino said.
Albay Gov. and incoming Albay Rep. Joey S. Salceda agrees with this view that the job security of workers will redound to economic development, since job security will give workers strong motivation to work for what will benefit them in the future, giving them a chance to plan ahead.
However, a prominent labor lawyer said any increase in wages and benefits to the employees must be studied carefully, because even a small increase would have repercussions on the expenses and operations of a corporation.
“Even just a P1 increase in daily wages approved in the collective bargaining agreement could translate to millions of pesos in additional expenses to the corporation, especially if it employs hundreds of employees,” Purisimo S. Buyco said, a named partner in the Picazo Buyco Tan Fider & Santos Law Offices.
Buyco handles the labor cases of his law office, and is also a member of the Employers Confederation of the Philippines.