Reforming the Philippine Labor Market

PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Vol. XXIV No. 6

Editor's Notes Labor and commerce: two related issues that bring both opportunities and concerns especially during these times of growing urbanization and globalization. Our features for this Development Research News (DRN) issue deal with these topics as they raise thought-provoking questions on current situations.

The first story by Dr. Gerardo Sicat, a professor emeritus at the University of the Philippines School of Economics, talks about the Philippine labor market and the reforms needed to overhaul the market. It is a condensed version of his paper with similar title.

The second story is an overview of Lipa City as it is today, flourishing and thriving with the presence of a first-rate administration and numerous activities meant to upgrade and develop the city through commerce. But to sustain this development feat, the city needs to look beyond the present and consider measures that will ensure that Lipa's resources and development success may likewise be enjoyed by future generations.

In both cases, the will and capacity to develop, review, and reform policies and programs that will ensure that every Filipino—in whatever sector, location or era—will maximize the benefits of the country's resources, be they human, physical or economic, becomes the key to success. DRN

Inside the DRN 4

Lipa City from agriculture to commerce: a question of sustainability

DEVEL O PMENT RESEARCH NEWS November - December 2004

ISSN 0115-9097

Reforming the Philippine labor market

W

hich comes first, the chicken or the egg? The same thing may be applied when asked which is important, the business profit or the employees' rights to a decent life? While employers reason that the economy may not be good and wages are already high, employees complain that wages are not enough to sustain a decent living. To find the right balance between the workers and employers is thus a tough challenge.

In the Philippines, one major problem is the continuous rise of unemployment in the country. In 2002, out of the 33.6 million workers in the labor force, 3.4 million (10.2%) were unemployed and 4.8 million (15.3%) considered themselves underemployed.

What makes the problem severe is the unchecked population growth. In fact, the number of young and dependent Filipinos under 15 years of age in 2002 (15 years old is defined as the cutoff for membership in the labor force) stood at 29. 3 million. In the next 14 years, this number will be joining the labor force. In addition to today’s average labor force participation of the adult population, around 18 million workers should be ready within the next 14 years to replace the senior workers. In effect, there is an annual need of 1.5 million jobs as the number of entrants to the labor force will be heavier in the coming years.

Compared to Singapore, the Philippines' unemployment rate is even higher than the former's population of five million.

Moreover, the population of young Filipinos of 29.3 million is about 50 percent more than that of Australia's nearly 20 million and almost 90 percent of Canada’s young population of 32 million.

Indeed, the government’s target of providing one million jobs per year to Filipinos provides no insurance that there will be enough jobs available in the coming years. Worse, even if there may be jobs generated, most—if not all—will probably not be quality jobs but jobs that would still leave many underemployed.

The Philippines' fragmented labor market In a roundtable discussion sponsored by the Philippine Institute for Development Studies (PIDS), Dr. Gerardo Sicat presented the key findings of his paper titled Reforming the Philippine labor market where he noted that generating the required jobs is just the beginning. What is more important is the formulation of policies that would not just create jobs but ensure that they are good, quality and sustainable jobs that can support the Filipino families.

Unfortunately, the country’s economy has failed to create the number of needed quality jobs for the people, thus resulting in more unemployed and poor Filipinos.

This failure has also further segmented the labor sector into mainstream labor

DEVELOPMENT RESEARCH NEWS

The past years had seen the establishment of call centers that served as “backroom operations” of high-income countries. Information technology and outsourcing jobs offered flexible working arrangements and higher starting salary that appeal to Filipino workers.

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market; low income and informal labor market; and the “great escape” labor market.

Mainstream labor is affected by laws on minimum wage legislation and mandatory wage supplements as well as regulations on holidays, rules on hiring and regularization of employees, and other government interventions. These greatly affect not only workers and companies but foreign direct investments in the country as well. Next to tariffs under a liberalized regime, it is the labor regulations that make labor in the Philippines more expensive compared to other countries.

On the other hand, the low income and informal labor market is highly dependent on the underground economy and the lowpaying services and retail sector. This dependence has resulted in the growth in size of this sector.

The third sector of the labor market, labeled as the “great escape,” pertains to the overseas Filipino workers (OFWs) who left the country for better jobs and opportunities abroad so as to provide for their families. Through the years, young professionals—and lately, with their families in tow—seek for better lives abroad. To some extent, they brave the life of a TNT (tago ng tago, or continually hiding, in the vernacular) in exchange for high-paying jobs overseas.

Areas of successes in the Philippine labor market Despite the poor record in employment generation domestically, there have been areas where Filipinos have been able to gain some ground.

For instance, the export assembly and light manufacturing sectors provided employment in private industrial sites in Baguio, Cavite, Subic and Mactan, alongside those in existing government export processing zones. The Philippines' comparative advantage in semiskilled export manufacturing and assembly ushered the growth of electronics and other related industries in the country.

Multinational corporations, both in and out of the country, have also been the

November - December 2004

source of employment for Filipino professionals. Opportunities in these corporations, however, are very few and top positions require high-end education and long solid years of experience.

Growth of information technology and outsourcing in the domestic labor market also influenced the opening of employment opportunities in the country. The past years had seen the establishment of call centers that served as “backroom operations” of high-income countries.

Information technology and outsourcing jobs offered flexible working arrangements and higher starting salary that appeal to Filipino workers.

These successes in the labor market emphasized the role of foreign capital that allowed the generation of jobs and infusion of foreign direct investments in export processing zones and information centers. Unfortunately, these successes are still not enough to provide jobs to the majority of the working population and to spur the growth of the economy because of the country's unattractive labor policies.

Because of this, we have seen the migration of millions of Filipino workers abroad where they saw better opportunities and landed goodpaying jobs. The Filipinos' hardworking quality also made both landbased and seabased Filipino workers in demand abroad. However, while overseas Filipino workers earn more than the usual amount they earn in the Philippines, they face the risk of being exploited in foreign lands.

The problem with Philippine labor policies Capital is an essential part in job creation.

But the restrictive economic provisions on foreign capital and foreign ownership of companies as stipulated in the 1934 Philippine Constitution continue to stifle the flow of foreign direct investments in the Philippines. Indeed, the exodus of Filipinos to foreign countries to look for work simply describes the long way of following where capital is found and where work is located.

The government’s interference in the course of the business process has also negatively affected the country’s image as a

DEVELOPMENT RESEARCH NEWS

potentially good place for investment in both the international and domestic fronts.

While the Department of Labor and Employment (DOLE) has become a powerful regulatory department designed to protect the rights of labor, the other equal clientele before the law—the private business sector—had tended to get the short end in dispute settlements in most cases. In comparison, governments in other countries do not interfere in the creation of rules and regulations for bonuses and regularization of employees nor intervene in the determination of the nature of fair wage and termination of workers. The problems are handled by the business sector as part of their labor and management collective bargain agreements.

For example, there is a provision in the Philippine law that requires companies to regularize their workers after six months.

This practice may be considered counterproductive to business because private sectors cannot be forced to guarantee jobs when they themselves cannot guarantee their own survival within a competitive business enviroment. This regularization law, in addition to that of setting a minimum wage floor, had inhibited the growth of small- and mediumscale enterprises.

The termination of employees also undergoes a long process of requesting permission from the DOLE. The minimum wage law implemented in 1952 that imposed a high level of minimum wage for workers also posted problems to the country’s employment sector because of the then overvalued peso.

While the Philippines set a high minimum wage, other competing countries in the region did not. In effect, the country experienced episodes of investment departures as well as capital channelling into other economies in Asia that have set their minimum wage in accordance with their respective labor supply and demand levels.

In the 1980s, a regional wage-setting policy reform was passed in the Philippines to address the negative effect of a high minimum wage. The reform helped put demands for minimum wage increases on a more reasonable level )8

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November - December 2004

The other side of the coin Deputy Director Gigette Imperial of the Institute of Labor Studies meanwhile shared her views on job security and termination, minimum wage setting and dispute settlement during the same PIDS roundtable discussion.

Imperial explained that job security was not an issue until the era of globalization ushered in business uncertainties. Today’s employers have already maximized the external flexibility provided by law in the context of fixed-term employment, seasonality and job contracting, flexiwage and flexitime. In response, the DOLE issued administrative guidelines aimed at deregulating wages and hours of work. Legislative amendments, however, have to be introduced.

The law specifies two legal grounds for termination: just cause and authorized cause. Reasons for just cause include: @ serious misconduct or willful disobedience; @ gross and habitual neglect; @ fraud or willful breach of trust given to the employee; @ commission of crime or offense by the employee against his employer or family members; and @ other analogous reasons to the foregoing.

Authorized cause, on the other hand, includes the following as grounds for termination: @ closure of establishment and reduction of personnel; and @ disease of the employee.

In a case of authorized cause involving business survival, the DOLE requires employers to serve a one-month notice to the employee. Imperial said that the DOLE approval in terminating employees is not necessary. However, the rationale behind serving notice to DOLE is for the agency to assist would-be-displaced workers to find another job or source of livelihood.

She added that the claim regarding the discouraging effect of minimum wage on the business environment seems to suggest that labor cost is the sole business item to be considered. There are other costs as well, she noted, such as transport, power, taxes, interest rates, red tape and corruption. In addition, weight is given by investors on a country's peace and order situation, political stability, quality of governance, cost of power, and level of competition with China and other Asian economies.

On the other hand, she noted that dispute settlements in the country should shift from being adversarial and legalistic to having a more strategic partnership to avoid the long years of waiting for a final decision. The shift may anchor on the Filipino values of bayanihan, pakikipagtulungan, pakikipagkapwa, and damayan. A need for cooperation-based labor management relations will also prove beneficial to both parties.

Imperial added that “employees have a right to a just share in the fruits of production in the same manner that employers are entitled to reasonable returns on their investments, expansion and growth." As such, Republic Act 6727 (or the 1989 Wage Rationalization Act) and Republic Act 6971 (or the Productivity Incentives Act of 1990) encourage both employees and employers to develop ways to improve efficiency, competitiveness, and productivity. These laws pave the way for increased incomes for the workers and long-term sustainability for the business sector.

Indeed, the country’s labor policy is a social policy and is therefore expected to be inherently protective of workers' rights and welfare. If the government is always seen as intervening in the market, it is for the purpose of balancing the cold and “invisible hand” of the market, she added. DRN

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DEVELOPMENT RESEARCH NEWS

November - December 2004

Lipa City from agriculture to commerce: a question of sustainability

C

ommerce is replacing agriculture as a way of life in Lipa City. Lately, trade and industries have replaced farming and portions of once vast agricultural lands have been converted into business areas, among other things.

In the past, Lipa City used to produce world quality coffee beans that made the city well-known as a top coffee producer.

Out of the 12,285 hectares of agricultural land in 1987, 44 percent were planted to said crop. Locally known as kapeng barako, the crop not only generated good income but also earned honor for the city. Unfortunately, coffee production was not sustained and was overtaken by coconut production.

By 1998, a significant 32 percent of agricultural lands was planted to coconut and only 18 percent was planted to coffee.

The dawning of commercialization in the 1980s slowly signaled the importance of business and trade in the city, with many establishments mushrooming in the succeeding years (Table 1). From trade to service sectors, industries such as real estate, feedmills, agribusiness, garment manufacturing, jewelry making, handicrafts, metal craft and woodcraft continued to flourish.

Janet Cuenca and Ma. Libertad Dometita point this out in their paper Lipa City… emerging city for all seasons??? where they note that the people of Lipa today are not

Table 1.

much into agricultural activities as business ventures become more economically advantageous and profitable. The shift is evident in the shrinking size of agricultural lands from 16,557 hectares in 1995 to 15,133 hectares in 1999 (Table 2) as portions of agricultural land are converted for urban purposes such as residential, commercial, and industrial areas.

The slowdown of agricultural production was also attributed to the high cost of production inputs, inefficient marketing system, the farmers’ attitude toward modern farming practices, insufficient water supply or irrigation, unstable prices of agricultural products, and prevalence of calamities, pests and diseases affecting agriculture crops. Agri-industrial businesses, namely poultry and livestock, on the other hand, have helped the economy of Lipa City.

The poblacion is the central business district (CBD) of Lipa where the public market and other commercial areas are located. Commercial establishments are concentrated in 12 urban barangays out of the 72 barangays in the city. For instance, the major shopping centers in Lipa are located in the Poblacion and its peripheral areas. These centers include the FiestaWorld Mall, South Supermarket, MS Supermart and the Southern Twin Supermart. A more popular mall chain such as Robinsons has also invaded the

Summary of business establishments in Lipa City, 1989-2003

KIND OF TRADE

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

New Renewal

435 1676

422 1773

426 1237

432 1329

542 1386

618 1658

525 1898

730 3144

716 3404

731 2972

925 3447

822 3468

784 3524

698 3561

1271 4005

GRAND TOTAL

2111

2195

1663

1761

1928

2276 2423 3

874

4120

3703

4372

4290

4308

4259

5276

* Total number of business establishments registered in the period of 1989 to 1990, and 1994 to 2003 includes business at public market.

Source: Permits and License Division, Mayor’s Office.

DEVELOPMENT RESEARCH NEWS

city. Fastfood chains like Jollibee, McDonalds, Chowking, RACK’s, Kenny Rogers, Pizza Hut, Shakey's, Greenwich, Max Restaurant, and Goldilocks have also mushroomed in Lipa.

The city’s strategic location gave a boost to its economic undertakings because of the spillover effects of development in Metro Manila and Batangas City. In addition, Lipa is also considered the financial center of the region due to the growing number of banks, pawnshops, credit cooperatives and lending investors in the area. Such financial institutions are crucial to the growth of businesses, specifically small- and mediumscale industries.

Moreover, the presence of the Lima Industrial Estate (an economic zone), Pilipinas Kyohritsu Inc., Nestle Philippines, and other multinational companies (MNCs) in the city fuelled its economic development. The establishment of MNCs in the city also made Lipa an exportoriented area in the field of garments, coffee processing, semiconductors, and other high value crafts. The Lima industrial estate houses companies engaged in the manufacturing of computer printers, computer parts, wires and cables, auto spare parts and chemicals. The rise of said establishments attracted many people from both nearby and faraway provinces who were looking for jobs.

As a consequence, the Lipa City government is exerting efforts to attract more investors by giving incentives provided in its Investment Incentive Code. The administration also ensured that various communication support facilities such as a local broadcast station, postal services, telecommunication companies, telegraph offices, courier services, internet providers, and cable TV companies were available to establish a city that is favorable for investments. Recognized companies, namely Crown Asia and Active Group of Companies, have also developed many residential subdivisions in Lipa in the past few years.

Aside from a burgeoning economy, Lipa also boasts of various educational institutions in all levels, private medical and dental clinics, diagnostic laboratories, and well-equipped hospitals.

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Health priorities Table 2. Existing land use, Lipa City (in hectares) Because of the Land Area Percentage Share presence of a 1995 1999 1995 1999 number of health care establishments Built-up Area 2,263 3,355 10.81 16.02 and services, Lipa Residential 1,807 2,634 8.63 12.58 Institutional 68 94 0.32 0.45 has been dubbed Commercial 30 105 0.14 0.50 the “medical center Functional Open Space 359 521 1.71 2.49 of the province.”

Parks and Recreation 9 182 0.04 0.87 These establishCemetery/Memorial Parks 20 25 0.10 0.12 ments have modern Dumpsite 7 2 0.03 0.01 equipment and Utilities facilities. As of 2002, (Power, Water, etc) 2 0 0.01 0.00 Quarry 23 23 0.11 0.11 there were 10 Military 298 289 1.42 1.38 hospitals, of which Agricultural 16,557 15,133 79.07 72.27 two—Lipa City Forest 1,275 1,275 6.09 6.09 District Hospital and Industrial 57 335 0.27 1.60 Fernando Air Base Agro-Industrial 277 268 1.32 1.28 Hospital—are Infrastructure government-run. (roads and bridges) 224 287 1.07 1.37 Based on the 2003 Creeks 287 287 1.37 1.37 Total 20,940 20,940 100 100 population, a sufficient number of Sources: Lipa City 1996 Comprehensive Land Use Plan health personnel at Lipa City 2000 Facts and Figures 579 is also employed by the city government in order to provide various health services to its almost 220,000 constituents (Table 3).

The Magna Carta for health workers is also fully applied to all city health personnel in Lipa. The city government also allotted P25 million to the city's Health Insurance Table 3. Ratio of health personnel Program for the Indigents with to total population, 2003 the cooperation of the PhilipHealth Number Ratio of personnel pine Health Insurance Corporation under the personnel to total population PhilHealth para sa masa program.

A campaign to reduce mortality rate in the city was also waged through the Healthy and productive individuals and families program. As a consequence, average mortality rate went down from 7.5 in 19831987 to 6.8 in 2000 (Table 4).

Education goals Education tops the 10-point agenda of the Lipa City government (LCG), being its mantra in its fight against poverty. Elementary and

Doctor

8

27,306

Nurses

13

16,804

Nutritionist

1

218,447

Medical technologist

2

109,224

Dentist

5

43,689

Dental aide

2

109,224

Midwife

55

3,972

Sanitary inspector

11

19,859

BHW

302

723

TBA

81

2,697

BNS

88

2,482

Nontechnical

11

19,859

579

377

Total

DEVELOPMENT RESEARCH NEWS Table 4. Mortality rate, 1983-2000, Lipa City Year

Mortality Rate

1983

7.59

1984

7.99

1985

7.02

1986

7.05

1987

7.84

1996

6.3

1997

6.89

1998

6.52

1999

6.95

2000

6.82

2002

6.12

Source: City Planning and Development Office (CPDO) and City Health Office (CHO)

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secondary education are provided through 67 and 15 public schools, respectively.

College education to deserving and less privileged students, on the other hand, is provided at no cost at the Lipa City Public College (LCPC).

College graduates are also assisted by LCPC in finding employment, particularly in LIMA and other major business establishments in Lipa.

This arrangement is made possible by a dual technical agreement between the city government and the industrial estates. The success of the program called "Lipa City Public College: The City’s Gift of Free Tertiary Education for All" is evident in Lipa City's bagging of second place in the first League of Cities of the Philippines Best Practice Award.

In 1999, the city government also started to offer college scholarship grants to less privileged students with high academic performance by allocating P50,000 a year to every scholar.

To further improve the delivery of basic education services in Lipa, the city government collaborated in 2002 with Synergeia Foundation, De La Salle Univesity - Lipa and the Department of Education through the City Schools Division in a project called “Project K” or “Karunungan Para sa Kinabukasan ng mga Kabataan” and funded by Ford Foundation. The project focused on improving the quality of primary education specifically in the reading proficiency of pupils in Grades I to IV. Project K aimed to determine areas for strategic interventions, implement reforms in teacher preparation, teaching methods, curriculum, and instructional materials.

Institutional capacity-building In 2001, VILMA’S MBN (or the Vibrant and Innovative Local Manager’s Action Toward Mobilizing Barangays in Nation Building) was launched in support of the poverty alleviation program of the city government. The project aimed to mobilize the barangays and turn them into strong and self-reliant communities by starting with the family, the society's

November - December 2004

smallest unit. The city conducted a series of barangay orientation, consultations and capability-building trainings for community volunteers in connection with VILMA’S MBN. Participants from the private sector, academe and nongovernment organizations actively cooperated in this project.

One participant is the Lipa City Colleges (LCC), a private educational institution, which volunteered its services for community development work. Its curriculum required students to undergo a Community Immersion Program where students render two months of community organization, and building and mobilization, particularly of out-of-school youths (OSY).

Under the guidance of LCC students, seven OSY groups were organized and involved in antidrug campaign activities, practical skills trainings, operation linis activities, sportsfests, and fundraising projects.

Another regular activity in the city is Project VSR (Voices, Songs and Rhythms), a collaboration between the city government and the private sector that seeks to discover the inherent singing talent of people from Lipa City.

Issues While urbanization highlights economic growth and modernization, this may also spawn issues crucial in maintaining the development of the city. Solid waste management, pollution, traffic congestion, and informal settlement are just some of the issues that the city government needs to address in order to reap the full benefit and rewards of urbanization.

Traf fic management The presence of many commercial establishments that brought about an increase in the economic activities also resulted in traffic congestion in the late 1990s in Lipa.

Thus, the city government formed the Traffic Management Department (TMD) in 1996 to effectively implement efficient traffic management in the city. The TMD’s "Comprehensive Traffic Plan on Road Safety and Development" included the conversion of idle lots into terminals, widening of roads and highways, and improvement and rehabilitation of access roads.

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DEVELOPMENT RESEARCH NEWS

Environmental concerns Never has the importance of keeping a balance between achieving growth and protecting the environment been highlighted in Lipa City as today, with the presence of numerous establishments and industries in the city.

The city's Comprehensive Solid Waste Management Program involving street sweeping, market clearing, garbage collection and waste treatment and disposal are but a few of the programs implemented by the city government to protect its environment. However, the 2003 data on garbage collection showed that 67.2 tons a day or 24 truckloads of garbage are collected from the city everyday. Lipa is indeed facing serious garbage disposal problem with these figures.

Nonetheless, the city government is exerting effort to lessen the incidence of hazards from waste. The dumpsite is chemically treated and organic concentrate is regularly applied for sanitation purposes as well as to minimize foul odor from the waste.

Urban poor housing Owning a house goes beyond the simple idea of having shelter and becomes a form of personal security in the way that it can be both a saving and investment. Data from the 1987 socioeconomic profile of Lipa showed that 586 households were categorized as squatters; the number has continued to rise through the years. In 1988, they have already occupied 44,700 square meters of land, revealing a huge demand for tenured housing.

Land is an important resource factor in urban housing and its availability is crucial in the relocation of the urban poor. Lipa City’s shelter plan (1998-2000) revealed that out of 10,917 household beneficiaries, only 55 percent will be accommodated and given a 64.23 square meter unit. The remaining 45 percent will either remain illegal occupants or be displaced to other places in the city.

These squatters often live along creeks and thus contribute to water pollution and congestion of railroad tracks that are

November - December 2004

accident-prone areas in the first place. In this regard, the city government's pro-poor housing program may not be comprehensive enough and still needs to be dependent on national shelter agencies.

This may pose a greater problem because as Lipa continues to become more urbanized, it will attract a huge number of people—many of whom may be landless and poor—looking for work.

Socioeconomic concerns Local migration is now a trend, especially in Lipa which receives migrant workers from nearby provinces. As such, workers from Lipa City face steep competition from the migrant workers and will have to better equip themselves in order not to be crowded out by competent workers coming into the city from outside.

Conversion of vast agricultural lands into residential, commercial and residential areas pose a risk to the food security situation of the city. A proper regulation of land conversion is thus necessary. For a well-managed urbanization program, the city government must be able to provide solutions to the issues compounding Lipa’s economic growth. It also needs to generate its own source of revenue to ensure that the people of Lipa will continue to receive quality education, health, housing and other social welfare services.

DRN

Local migration is now a trend, especially in Lipa which receives migrant workers from nearby provinces. As such, workers from Lipa City face steep competition from the migrant workers and will have to better equip themselves in order not to be crowded out by competent workers coming from outside.

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DEVELOPMENT RESEARCH NEWS

STAFF BOX Editorial Board: Dr. Mario B. Lamberte, President; Dr. Gilberto M. Llanto, Vice-President; Mr. Mario C. Feranil, Director for Project Services and Development; Ms. Jennifer P.T. Liguton, Director for Research Information; Ms. Andrea S. Agcaoili, Director for Operations and Finance; Atty. Roque A. Sorioso, Legal Consultant.

Staff: Jennifer P.T. Liguton, Editorin-Chief; Genna J. Estrabon, Issue Editor; Sheila V. Siar, Claudette G. Santos, Jane C. Alcantara, Ma. Gizelle G. Manuel, and Edwin S. Martin, Contributing Editors; Valentina V. Tolentino and Rossana P. Cleofas, Exchange; Delia S. Romero, Galicano A. Godes, Necita Z. Aquino and Alejandro P. Manalili, Circulation and Subscription; Genna J. Estrabon, Layout and Design.

November - December 2004

DEVELOPMENT RESEARCH NEWS is a bimonthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars.

PIDS is a nonstock, nonprofit government research institution engaged in long-term, policy-oriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute.

Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: DEVELOPMENT RESEARCH NEWS Vol. XXII No. 6 November - December 2004 ISSN 0115 - 9097

Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Bldg., 106 Amorsolo Street, Legaspi Village 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705 Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Reentered as second class mail at the Business Mail Service Office under Permit No. PS-570-04 NCR. Valid until December 31, 2006. Annual subscription rates are: P200.00 for local subscribers and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice. ○

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and promoted competition among regions.

As such, industrial development took place in regions where wage costs were cheaper.

Another labor issue is the logic of the 13th month pay. Sicat argued that the 13th month pay narrowed the difference between skills and performance in work.

According to him, the pay is either a bonus for performance or a wage in the normal course of employment. As a performance bonus, the said amount is an entitlement not equivalent to a twelfth of a year’s salary.

On the other hand, as a productivity bonus, it should be graduated according to the contribution of the worker to the total profit of the company. In effect, if the 13th month pay “is a simple emolument for work, it should be integrated as part of the wage" and giving it at the end of the year is not right because it becomes a postponed wage in effect whereas wages are supposed to be currently paid.

Sicat also pointed out that the country’s current policies are suited to nations that have relative labor shortages. He said that

appropriate economic policy must promote good, sustained, quality employment in the modern sectors of industry, agriculture, and services so as to help in generating sustainable jobs for Filipinos.

Indeed the country needs a major reform in its labor policies in order to come up with more work and erase the growing rate of unemployment in the country. The new employment opportunities should not only be good in numbers but also in quality and sustainability.

Reforming the labor market Reforming the labor market is inevitable with the advent of globalization and the many changes it has introduced. Specifically, globalization has emphasized competition and free borders while encouraging trade liberalization among and between nations.

The overall picture of a labor market that is overregulated and dominated by welfare-oriented labor policies cannot help the Philippines cope with the way globalization is changing the world. Thus, positive issues that lead to investment attraction, strengthening the country’s competitive advantage and industrial reform will be crucial to achieving social peace and economic prosperity. DRN