Ending ‘endo’ and the logic of collective action
There’s no such thing as a permanent job anymore. Government, employers, and workers should come up with mechanisms to mitigate job-destroying disruptive change.
The late political economist Mancur Olson taught us that concentrated interests lord it over dispersed interests, i.e. the noisy organized few can prevail over the unorganized, silent many. Why is this so?
If the benefit to an organized few is large but the costs to the unorganized many is small on an individual basis or dispersed, the latter will not engage in a collective action to counter the former. Free riding becomes a problem as groups become larger.
This is the logic of collective action in a democracy. Whereas democracy means the rule of the majority, in reality, in a democracy, the minority, because of the logic of collective action, trumps the majority.
We see Olson’s logic, for example, in the Feed-in-Tariff (FiT) for renewable energy, where consumers are taxed a few centavos per kilowatt-hour to subsidize the few rich renewable energy developers who get a guaranteed return of 16% of their investment for 20 years.
From the billions they make, these renewable energy developers can afford to pay politicians, bureaucrats, judges, and mass media and cloak their depredation of millions of electricity consumers under the halo of environmentalism. On the other hand, for the many consumers, a few centavos per kilowatt-hour is just too small to fight against and the cost of organizing and protesting is too high.
I bring up Olson because we see his logic in action again in the campaign against “endo” or temporary employment contracts. Who are the noisy few?
The labor unions, primarily leftist- oriented ones, which constitute not more than 3.3% of the total labor force and 6.7% of all wage workers. These are the noisiest groups demanding that President Duterte fulfill his promise to end “endo” or temporary employment contracts. They are hoping to expand their paltry membership base so they can extract more dues and so they can bask in the populist aura of “fighting for labor permanency.”
Who are the silent majority which will suffer from the end “endo” policy? The unemployed and underemployed who represent about a quarter of the labor force.
In the Paderanga-Valera Memorial Lecture on the topic, “Will Ending ENDO Contribute to Inclusive Economic Growth?” during the Foundation for Economic Freedom’s 20th anniversary, Dr. Vicente Paqueo, a former World Bank economist and professor at the University of the Philippines warned the government about an anti-contractualization policy. He said:
• “The need for immediately
ending ‘endo’ is overblown; comparatively, more numerous informal low productivity workers’ have more urgent needs requiring government support.
• ‘Endo’ and other TECs (temporary
employment contracts) play valuable roles in keeping the Philippine economy efficient, competitive and inclusive.
Ending ‘ endo’ would adversely
affect inclusive economic growth, depending on the aggressiveness and nature of government response to the anti-contractualization demands.
• This adverse impact would be
intensified by the imposition of more restrictions on other forms of TECS and by other policies being pushed by President Duterte’s militant allies, e.g. hefty increases in legal minimum wages and other more aggressive actions of militants.”
In fact, he says that surveys of temporary contractual employees, though limited, show that the majority are satisfied with their jobs and see temporary contractual employment as a stepping stone to more permanent employment. A high 40% to 55% transition to permanent jobs after a few quarters. Ending “endo” would raise the costs to employers, lead to less overall employment, and work against those who are seeking temporary employment even just as a means to gain skills or get the attention of employers.
Dr. Paqueo describes the Philippine labor market as inefficient, citing World Bank research showing the Philippines 91 out of 144 countries in terms of labor efficiency. The low Philippine ranking is due to high labor cost (minimum wages relative to value added per worker is high; .69 compared to Malaysia at .28), inflexible wage determination, and high costs of hiring and firing.
Instead, Dr. Paqueo called for lengthening the period of probationary status to permanency to be
determined by regional authorities. He suggested targeting labor market liberalization for certain enterprises and groups (small- and medium-sized firms and disadvantaged workers such as the uneducated and the youth). He also proposed the reform of the dispute resolution process to reduce the costs, hassles, and uncertainty connected with dismissal of workers. A reactor later pointed out that in one case, the Supreme Court decided on an illegal dismissal case after more than a decade and dunned the stunned employer with millions in illegal dismissal costs.
Another reactor, former Labor Secretary Nieves Confesor, said that there had been attempts to modernize the labor code since it was passed way back in 1974 under former President Marcos, but to no avail.
She warned, like Dr. Paqueo, that the new normal is globalization and disruptive, technological change. There’s no such thing as a permanent job anymore. The dialogue should not be one of forcing employers to hire workers on a permanent basis, but one of risksharing. Government, employers, and workers should come up with mechanisms to mitigate job-destroying disruptive change.
In my view, these would include portability of pensions, unemployment insurance, reskilling and lifelong education.
Therefore, the Duterte administraton’s campaign against “endo” is misguided. In fact, it’s a war against employment.
It will lead to perverse consequences of employers less willing to hire and more likely to substitute machinery for workers. Investors will shy away from investing in the labor-intensive industries the country badly needs. It will further close the opportunities for the uneducated and the inexperienced from getting a job.
No doubt, the noisy, organized labor unions are behind the agenda against ending “endo.” True to Olson’s observations, the vast majority — the unemployed and underemployed — have no voice while the organized, noisy few have the ears of politicians.
Ironically, Big Business is complicit with the labor unions in maintaining high labor costs and inflexible labor rules. Monopolists can afford to share part of their monopoly profits to the organized labor sector. The high cost of labor also acts as a deterrent to any insurgent competitor challenging the monopoly incumbents with low costs. Therefore, the existing situation benefits them. It’s the smalland medium- sized companies which suffer from the high minimum wages and will suffer from a campaign against “endo.”
The way forward is not to end “endo,” but to modernize the Labor Code. However, with Olson’s logic at work, will the few continue to triumph over the many?