"We REAP what we sow."
Last Saturday the country observed Labor Day, while the Church celebrated the Feast of St. Joseph the Worker. Today, as we get down to the post-festivity brass tacks of how to restore all those jobs lost during the lockdown, let me share some ground-breaking ideas from the Foundation for Economic Freedom (FEF), the well-known free market and good governance advocacy group.
One of those ideas is funding re-employment assistance benefits to employees who’ve been terminated by their employers. The other is relaxing labor regulations and simplifying dispute resolution procedures. This strategy can be sustainably funded from expected productivity increases.
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Under a new tripartite social contract, a RE-employment Assistance Program (REAP) would be funded through sharing of costs among employers, workers and government.
All registered enterprises would be obliged to contribute a certain amount per worker (“premium”) to finance the delivery of cash benefits to eligible workers terminated by the company.
For its part, government would agree to institutional changes that reduce the cost of doing business and give company management greater flexibility in hiring, deploying, terminating, remunerating, and training workers. Examples of such changes:
1. To speed up resolution of disputes, institute a process analogous to the Supreme Court judicial reform establishing Rules of Procedure for Small Claims;
2. Empower the President to reduce legal minimum wages (LMWs) during times of economic distress;
3. Amend pertinent laws to enable the young, less educated, and inexperienced (first time) job applicants to work in the formal sector for lower LMWs;
4. Revise regulations to extend the period of probationary employment to two years for technical and one year for non-technical occupations; and
5. Pass bill(s) to extend duration of apprenticeship and learnership training to two years for technical and one year for non-technical occupations, as well as provide incentives to companies to create continuous learning opportunities for workers (e.g. via a percent tax deduction).
To become eligible, a worker would be required to contribute an amount to a separate account of the REAP Fund. The accumulated amount will be returned (with interest) to the contributing member upon separation, in effect becoming a “forced savings” for rainy days when the worker is in-between jobs.
Participating workers and companies will have to agree in writing not to appeal a decision made by a lower court on matters involving company-initiated termination. A REAP member who reneges on that agreement would be made to pay back benefits received plus interest and penalties.
REAP is designed to be portable by employees from one employer to another, in order to maintain continuity and integrity. For that matter, portability of benefits is a broader idea that also bears consideration for the entire package of SSS and GSIS benefits enjoyed today by employees.
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Compared to other countries, businesses in the Philippines have been shown to have less flexibility in hiring, deploying, and terminating workers. Coupled with high minimum wages relative to workers’ productivity, this situation makes the Philippines less competitive with its peers (e.g. Vietnam).
REAP aims to close this competitive gap by enabling company management to make timely adjustments in the composition and deployment of its workforce, to be competitive and take full advantage of changing technologies and market conditions. Thus it will promote ease of doing business, reduce the cost and hassle of employing labor, and decrease investors’ concern about costly exit from losing ventures (“lock-in effects”). It would make the Philippines a more attractive and competitive place to invest in.
Increased investment in turn means greater and more gainful job opportunities. This employment effect will be enhanced by more appropriate choices of technology. On this point, the REAP scheme would defer premature use of highly labor displacing processes that firms are having to adopt today because of difficulties, costly regulations, and elevated risks associated with hiring, terminating and managing workers.
The scheme would facilitate the transition of workers from one job to the next, as business models and jobs are continuously being disrupted. As the Fourth Industrial Revolution unfolds, the new normal would require workers to undergo more frequent changes of jobs in order to prosper. REAP is expected to result in better and easier matching of workers and jobs, increasing the productivity of labor and the efficiency of the economy.
This proposal provides as well a way of addressing the heightened risk of economic, technological and pandemic disruptions, by easing up on complicated, strict and costly regulations on termination of employment and related processes. Those regulations are impeding our ability to increase more rapidly the number of more productive and higher wage jobs.
Assuming that the waiver approach is legally feasible, the proposed program still needs to be tested, involving voluntary participants (companies and their workers). DOLE and DTI from government, together with the various employers’ associations and labor federations, might consider piloting a prototype to generate information for debugging and baseline data for prospective impact evaluation analysis.
Readers can write me at firstname.lastname@example.org.