The real pro-labor approach

Today is Labor Day. As the rest of us honor the day of the working man and woman, unions use the opportunity to press for more stringent regulations on the labor market. At least two come to mind: first is the demand for an across the board minimum wage increase. Second is the demand for elimination of the contractual labor category and provision for security of tenure.

Bulatlat.com provides a good summary of these demands from the labor perspective (Bulatlat article):

Citing government data from 1990-94, a research by the Asia-Pacific Research Network (APRN) in 2000 revealed that the combined share of casual, contractual and part-time workers in total enterprise-based employment was between 14-15 percent. It went up to 18.1 percent from 1994 to 1995. By 1997, the figure has reached 21.1 percent, meaning that for every five workers one is a casual, contractual or part-timer worker.

For example:

In the more than 20 branches of Shoe Mart (SM), one of the biggest chain of shopping malls in the country, in 2002, nine out of ten workers are contractuals, hired either through an agency or by a concessionaire, said Maristel Garcia, spokesperson of the Sandigan ng mga Manggagawa sa Shoemart, the union of SM employees.

Contractuals abound in export zones and industrial parks around the country, such as those in Baguio City, Cavite, and Laguna. A survey of APRN covering 14 unions under the Kilusang Mayo Uno (KMU or May 1st Movement) in the National Capital Region revealed that contractual workers comprise 67 percent of the workforce at the time. This is despite KMU’s efforts at protecting job security and benefits.

“It is true that contractual labor is now really extensive. Easily seven in every 10 companies practice contractualization,” Donald Dee, president of the Employers Confederation of the Philippines, told Manila Times in 2003. “We know for a fact that contractualization is meant to avoid regularization,” admitted Dee.

Today the share of contractuals in the total workforce may even be bigger. For example, after SM management practically crushed the union by terminating all striking union workers in 2003, Garcia said, it stopped regularizing workers and was able to employ more contractuals.

In other large firms, threats of retrenchment complemented by early retirement schemes resulted in a stripped-to-the-core number of regular workers. The Philippine Long Distance Company (PLDT), the country’s largest telecom company, was able to reduce its workforce from 14,000 to 10,000. Its rank and file union membership has dwindled from 7,000 to 4,100. It was also able to reduce the 3,000-member supervisory union to just about 2,000. The rest of PLDT’s required manpower comes from contractual workers who are paid piece meal, per phone installation or telecom services sold.

In Japanese-owned Asahi Glass Corporation, the ranks of regular workers have been decimated after a wave of forcible retirements. Retired workers were subsequently rehired as contractuals. At present, there are five contractual employees for every regular worker.

The benefits of higher minimum wages and greater worker security are clear. However, are there any negative consequences we should know about? (That is the problem with such ideologically slanted analysis. We are told of all the benefits of this or that anti-market imposition, but any attempt at analyzing cost is slammed. So much for critical thinking.)

Okay the negative effects are:

1. Higher minimum wage means more expensive workers. More expensive workers means, within a market economy, capitalists will higher fewer workers. (The alternative is to go the planned economy route and eliminate capitalists altogether; all productive capital would be owned by the state. Then the government becomes one big employment agency. It can pay all the higher wages it wants. Heck it can even print money if there's no budget for it. Worker's utopia indeed!)

2. Enforced security of tenure means firms have less flexibility to deal with economic change. If the market for their product sours, they are forced to produce less. In the absence of worker security, they can cut costs, in part by laying off workers. However with worker security this is difficult. Enforced security of tenure also means that removal of individual workers because of poor abilities, mismatched skills, low productivity, and so forth requires a lengthy adjudication process (i.e. the termination "for cause" provision in the Labor Code.) Finally with security of tenure comes a long list of costly but compulsory worker benefits. Because of this, firms either decide to higher fewer workers, or hire workers who can easily be removed - i.e. the casuals.

3. The "casualization of labor" cited in the Bulatlat article is therefore a consequence of regulations enforcing security of tenure, particularly on workers hired for a year (Labor Code provision) or more than six months (a guideline that is being increasingly used as a cut-off to determine which worker is becoming "regularized."). However this is going to create a lot of "churning" in the labor market. Ever wondered why some salespersons in SM are rather inept? It is likely that by the time they became familiarized with their duties their six months is up. To be replaced by someone who has to learn the ropes all over again. This is probably going on also in many factories. Once you learn the skills on the shop floor, you have to be removed. This is not the best way to develop a quality labor force!

Note finally that the benefits of higher minimum wages and enforced worker security are ultimately enjoyed by those who are currently regular workers. No wonder they have a strong interest to fight for them. Even if this would cause misery among the ranks of those who are outside this group - mainly the unemployed, or casual workers.

(More detailed arguments for reforming labor markets are found in this paper by Gerry Sicat. It's a great read.)

That is, the real pro-labor approach would be: fewer regulations, rather than more. Not only that: it would be pro-growth as well.

Seeing those demonstrations and strikes and pro-labor legislators and bureacrats in the Department of Labor and Employment, I wonder: who will protect us workers from our protectors?