Low Salary & Contractualization

Trisha Marie O. Pillena

I. Introduction
A salary is a form of payment from an employer to an employee, which may be specified
in an employment contract. It is contrasted with piece wages, where each job, hour, or other
unit is paid separately, rather than on a periodic basis. From the point of view of running a
business, salary can also be viewed as the cost of acquiring and retaining human
resources for running operations, and is then termed personnel expense or salary expense. In
accounting, salaries are recorded on payroll accounts. Millions of Filipinos remained poor not
because they are jobless, but because they have low incomes, according to the World Bank.
More than 4 in 10 Filipinos who are poor actually have jobs. They continue to struggle with
poverty because they are employed in poor-quality jobs that pay less than what their
counterparts in manufacturing industries get.
The qualifications of most employees are simply too basic to be paid more than what the
law allows. It is not enough to be college level or graduate these days because many of the
younger generation is simply not equipped about learning. Just went to school for attendance
and never bothered to learn something more than what is offered. Supply and demand, there is
simply too many people chasing lesser number of jobs postings. That is why over population is
more of a curse than a blessing. Employers can afford to have several people in a small shop
simply because there is so much people available. Productiveness. A lot of the population
prefers to just to offer manual labor and does not offer any more added value. That is why
wages is low. Quality of the workforce in general is simply horrid and still going downhill. People
think employment is a right but it real life it is a privilege.
WHAT IS THE IMPACT OF THIS?
This policy note presents the results of a study that explores the effects of labor policies
on the industry. In particular, it examines the minimum wage policy by disentangling and
controlling various factors that may confound the effects of minimum wages on employment.
Using various econometric methods, the study finds that the minimum wage policy reduces
employment in small firms. It causes small firms to reduce their production workers. The
negative impact of minimum wages emanates from scale effects. Because of greater marginal
costs, it is difficult for small firms to mature into larger-scale firms. In the process, the production
and the demand for production workers decline. With the decline of small-scale firms, larger
firms are able to acquire more production workers, presumably at starting wages lower than
what experienced workers would have received in smaller firms. These firms are not able to
rehire all the laid-off workers, and the poorer workers who may need cash in the short term may
find these arrangements inferior to their previous jobs. Furthermore, because of the minimum
wages, firms are reluctant to hire younger, less educated, and female production workers. To
minimize costs, increasing training for these younger and less educated production workers
may no longer be an option as minimum wages rise. These findings may have serious
consequences in the way the Labor Code affects production efficiency, as well as social
protection. There is thus a need to coordinate these policy areas in a way that reinforces one
another.

Contractualization

Of all types of employment, Casual Employment is the most abused. On the part of the
employers , this is very convenient for them especially in terms of finances and decision
making. On finances, employers are able to save because of having a casual employee even
though the length of service is more than of what it is provided by the law. What employers do
is to “re-hire” them under another contract so that they can continue their service. On decision
making, whenever an employer is dissatisfied with your service, they can just easily fire you.
Technically, they already pass the requirements of a regular employee because of their length
of service but are not giving full term benefits.

As expected, business groups such as the Employers Confederation of the Philippines

and individual business leaders are claiming that the epidemic of contractualization plaguing
the country is actually good for workers and for Filipinos.

They suggest that contractualization – or the practice of hiring workers as “contractuals”

rather than as “regular” workers so as to avoid giving them the benefits that they are legally
mandated to receive – allows capitalists to increase their profits, hire more workers, contribute
to economic growth and therefore benefit all Filipinos.
II. Related Readings

According to the latest survey of Bureau of Labor and Employment Statistics (BLES)
(2012), there are 6, 734, 000 workers categorized as the short-term or seasonal and unpaid
family work (Philippine Statistics Authority, 2015). On a larger scale, this is called the
informalization or flexibilization of the economy where flexible hiring arrangements are replacing
the former types of work (Ofreneo,2013). The incidence of the precarious employment is
increasing, not only in the country, however, but also in the ASEAN. Marasigan of UP SOLAIR in
Payos (2016) reported the ASEAN neighbors status in contractualization as follows: Indonesia
has 65% (over 1 in 2), Malaysia has 1 in 4 in informal employment, Thailand has 63% (over 1 in
2), and Vietnam (over 1 in 3). These figures are not very far from the Philippines with 1 in 3
informal enterprises. A number of researches ventured on the roots of the contractual or
temporary employment. Most of the researches have tried to determine the factors to explain the
contractualization. However, there is but a limited literature on job satisfaction and
contractualization of work. This research will move beyond the intrinsic and extrinsic factors of
job satisfaction by using a group of variables as predictors of job satisfaction and offer a
sociological explanation on the issue. This study, can guide them to provision of institutional
policies in improving the welfare of contractual employees not only for the institution under the
study but also for every institution which hires contractual employees.

According to Cainglet F. et al. (2012), in her Social Representations Study of

Contractualization she said that with the Philippine membership to world Trade Organisation
contractualization as used to attract the investor in the form of a huge army of cheap docile labor
This was accepted and even regarded as the solution to the ever increasing unemployment rate
in the past however, this has been an opportunity for abuse.

It is disappointing to know that Contractualization or Contractual Employment becomes

a remedy for most of the business to save on their cost especially on the human resources. For
business, keeping an employment will no only let them spend on the daily wage but on benefits
as well such as government mandated benefits. As much as possible, they avoid regularizing
employees as this entails additional expenses because of the benefits an employeer must give.
As mentioned by Cainglet “Contractualization is very practical as it, in a way, evades them from
payinga large amount of tax. Contractualization becomes a business, not only of money but of
as people as well.”

According to Velasquez, Manuel G. (2012), business may seem to get a relief from
maximizing their resources. However, these business won’t be complete without the people that
makes it up. These people are also affected specially in their pursuit of noneconomic goods.
Because of contractual Employement, workers have percieved so much on their job insecurity
and have developed learned helplessness. Contractual mployees are worried about here to find
a job after their current stint. This insecurity affects how they work. They think too much about it
because their daily survival depends on it eventually these people will have to face another
process of applying a new job.

There are two fundamental reasons why workers want to be regular employees. First,
regular workers are entitled to certain benefits that temporary employees are not. Second,
regular workers can be dismissed only for lawful or authorized cause and with observance of
due process. This means in practice, that it is very difficult and costly for firms to dismiss regular
workers (security of tenure). Workers' own assessment. A 2014 survey data11 (Table 5) suggest
that 95 percent of workers employed by “endo” contractors appear satisfied with their current
jobs. Additional information reveals that the workers covered by Social Security System (SSS),
Pagibig and PhilHealth are quite high at 95.7, 92.8 and 94.8 percent respectively. A high
proportion also enjoy minimum wages, overtime pay/holiday premiums and 13th month pay.

We also find, using the Philippine Labor Force Survey (LFS) data that the transition rate
of workers from temporary to permanent employment is substantial. In the Philippines, 40-55
percent of temporary workers during the 2003-2010 period transitioned to permanent
employment status after a few quarters (Panel LFS data). To compare, temps in Europe (year
1996) who were transitioning to permanent jobs one year later ranges from 56.1 percent in UK to
20.8 percent in France. It appears that the Philippine transition rate is at the higher end of the
European experience.

The current study determined the level of job satisfaction and relative deprivation of
UPLB non-government workers. The UPLB NGWs, in general, are moderately not satisfied with
their jobs. Female non-government workers have lower job satisfaction as compared with male
nongovernment workers. The researcher contended that it was due to the perceived inequality of
women in their workplaces. Laborers and utility workers have the highest job satisfaction rating,
while the research assistants have the lowest job satisfaction ratings. This has several
implications, for one, financial rewards does not necessarily affect job satisfaction. Only one
variable was found out to have predictive factors in job satisfaction namely: sex. Regarding the
relative deprivation of the NGWs, it is found out that the UPLB NGWs are moderately deprived
when they compare themselves with their co-workers (cognitively), while highly relatively
deprived when they compare themselves with the regular workers (cognitively). It means that
although they are relatively deprived when they compare themselves with their co-workers, they
still perceive higher inequality when they compare themselves with their co-workers.

According to Seligman (1975), given these realities it is impossible to veto the decision to
pursue the abolishment of Contractual employment. Human labor empowers the person to
exercise his skills and to achieve his dreams. It also affirms that a person is avaluable asset and
not a liability. At some point it is seen in this research that workers are a burden because of the
constant reference to expenses. At the same time, to evade from spending much on manpower
the eventual pursuit of the person for a simple good life is also sacrificed.

On another perspective it is understandable on the part of the business since its main
goal is for profit than taking care of their people otherwise they should have become a charitable
institution however these people are the ones who made up the business at large, the very
people who will eventually help out attaining the business goal. A human being must not be
seen as a resource but rather as aperson with emotions, talents, skills and characteristics. There
must be an avenue for these things to be exercised and that is work. Quantifying and
objectifying a human person has not only lessened its worth but also gave it a limitation to fully
develop.

In order to balance things out, there is a way to make it a win-win situation for both the
worker and the business. Training and developing the person is the surest way in helping both
the business and the worker. It doesn’t only augment the business operations but targets the
skills upgrade of the person.
 Moreover, businesses need not to worry about the eventual abolishment of contractual
employment. This may be a birthing pain at first but will most likely become a great help for the
business. The government must also take a look into this as this may also have different effects
on the part of the worker towards society.

According to Vincent (2002), It is commonly believed that mandating higher legal

minimum wages (LMWs) is needed to help the poor earn a level of income that would allow
them healthy and dignified lives. It is also seen as a tool to protect the weak against exploitation.
This popular belief motivates and justifiesthe recurrent demands for hefty increases in LMW. But
what is the empirical evidence behind this? This article seeks to address this question. It finds
that in the Philippines, higher LMWs: (i) are likely to reduce the work hours of average workers;
(ii) can be disadvantageous against the very groups that LMWs are intended to protect; (iii)
decrease the employment probability of the young, inexperienced, less educated and women
laborers; and (iv) tends to ironically reduce average income and raise household poverty rate.
These results illustrate how rapid rises in LMWs can be counter-productive and can go against
the spirit of equal protection principle of the Constitution. If the goal is to help the poor and
protect the weak, then these findings warrant the need to think more deeply and prudently about
the use of LMWs and to consider other tools for achieving decent wages.

To get themselves out of poverty, they need to increase their work hours and
productivity, a key factor for higher wages. The problem, however, is that the Philippine labor
population is not fully employed. This means that a certain percentage of the "working-age"
Filipinos either belongs to the categories of open unemployment or underemployment. Open
unemployment rate hovers at around 13.9 percent to 5.6 percent over 2002-20151 . For workers
who are underemployed they only work, on average, less than 40 hours a week2 . Further, their
wage rate is low due to productivity issues.

Warlito (2018), wages are low because there are many job seekers and few job creators. It is
a matter of supply and demand. By limiting the job creators to majority Filipino owned
businesses only, the ability of the foreign majority owned businesses are left untapped. This
allows Filipino businesses to keep wages low since there is no competitive pressure from
foreign majority owned businesses for the job seekers. It is quite ironic that foreign majority
owned businesses are prevented from providing jobs to Filipinos at home and instead Filipinos
are sent overseas to work for foreign owned businesses. To add insult to injury, the Philippine
state which has kept job creators out, nickels and dimes Filipino workers who seek greener
pastures overseas. The Philippine state taxes remittances of Filipino workers, collects fees
through its different agencies - POEA, NAIA, OWWA, BIR, DFA. This is akin to a thug breaking
your knees and then charging you fees to fix your broken leg.

In other words, wages in the Philippines are low because the Philippine government has
prevented the job market from operating optimally to allow the free flow of job creators who can
provide the best wages to job seekers - and have sacrificed the welfare of Filipino workers to
the altar of Filipino ultra-nationalists. Nationalism does not provide jobs, nor food on the table,
the market does. Money, regardless of national origin, domestic or foreign, provides food on the
table, clothes on one’s back, a roof over the head.

The Philippines lack an broad nd deep industrial base. It is an agricultural economy - and its
agricultural workers are not paid rgular dily wages, but shares in the harvesst. We begin with
that. Second, the economy of the Phils is limited by the exploitation of its natural resources -
which needs technology and capital, two elements that have to come from abroad. But the Phil
constitution limits foreign investments by it’s provision of a “60–40” sharing of investments:
Filipinos 60%, foreigners 40%. This must be amended, and it is in the process of constitutional
amendment now. Third, the educational curriculum of the Phils is not science-oriented, although
science is offered. But not in great doses to be able to create technology. Most technology is
borrowed from other countries, and the Phils has to pay copyright fees, etc. for these. Because
of lack of science education, most industries in the Phils are “assembly lines” - very shallow
industrial base. Lastly, the national government is not that efficient, and in many instances, is
corrupt. Corruption siphons valuable money into personal consumption, instead of taxes that
could develop the economy (Emmanuel 2018).

Because keeping it low is competitive and attractive to Foreign Investors and Companies.
This forces some Filipinos to work abroad and an opportunity to our new graduates.If the
Philippines start to accelerate increase of wages foreign companies will start to fly into another
country where wages is low and OFW will go back to our country and that would create chaos
in Philippines Economy because we do not create or produce anything aside from natural
resources and few agriculture products. Basically the Philippines are set to produce workers
because that’s how our educational institution program students. While it look like negative to
others it’s good to entire economy for the meantime (George 2018).

Paqueo & Orbeta (2016), Many economists question the realism of the above textbook
analysis. They argue that in the real world, a firm has some control over the wage rate it pays
its workers. There are several hypotheses on this score. One idea is that by giving a higher
wage rate, a firm can increase workers’ morale and, therefore, work effort and productivity. The
firm can also reduce turnover rates, which can be costly. Another idea, especially relevant in
poor communities, is that by giving higher wages, a firm can improve workers’ health and
nutrition and, consequently, their level of energy and work effort. In both cases, a profit
maximizing employer determines not just the level of labor inputs but also the wage rate of its
workers (fixed in the standard competitive model). In this alternative model, an employer limits
the number of workers to a point where hiring more laborers would no longer contribute any
additional profit to the firm. As in the standard textbook analysis, their additional contribution to
the firm’s total revenue at equilibrium is just equal to the additional cost of employing them. The
Philippines has learned to grow its aggregate output faster and more sustainably in recent
years. But It still has to learn how to achieve sustained reduction in the incidence rate of
poverty. Equally important is the need to study empirically the impact of tightening the design
and implementation of the current six-month regularization law and “labor contractualization”.15
During the recent presidential election season, many influential politicians promised to adopt
more stringent measures to ensure that those regulations are effectively implemented and
enforced. What is concerning in this regard is the lack of studies on the impact of those
regulations. Such studies, using Philippine data, are needed in view of recent findings about the
potentially detrimental effects of those regulatory measures on employment opportunities,
particularly of disadvantaged workers. A recent study16 of the experience of developed
countries suggests that banning temporary employment or mandating firms to “regularize” or
fire workers after only a few months of work can potentially exacerbate the unfavorable
employment effects on LMWs.17 It would be useful to validate the above-mentioned studies to
inform public decisions about those issues and avoid unintended consequences.

This structure is a result of the unconventional development path that the Philippines has
followed in seeking to modernize its old agriculture-based economy by leapfrogging to services
without first establishing a steady foothold in manufacturing that could have turned out more
higher-value products from farm output.

As a result, the economy is now led by a services sector that provides largely low-end, low-
paying work to the nation’s jobseekers. Other countries around the Philippines followed the
traditional growth pattern, building labor-intensive, export-oriented manufacturing industries that
absorbed workers shifting out of agriculture before expanding to services.

The challenge now for Philippine economic managers, according to the latest Philippine
Economic Update (PEU) report, "Investing in the Future," produced by the World Bank Manila
Office, is to attract more investments into manufacturing industries that not only create more
jobs but also tend to have longer-lasting operations that contribute to stability.

To be sure, steady economic growth for more than three decades now appears to have
reduced poverty in the Philippines. But because it still is among the highest in Asia, poverty
continues to be a major challenge.

These days, an accelerating pace of inflation, triggered in large part by the government’s
imposition of new taxes on a myriad of products and services, can only be expected to hit the
poor most. “Since less than 10 percent of the population has a per capita income above the
global middle-income level, the [Philippines] is still a long way from achieving its goal of
becoming a middle-class society,” says the PEU report released this week.

While more jobs may have been created during the recent period of sustained economic
growth, mean wage rates have “remained stagnant and people are getting poor-quality and
low-paying jobs” mainly in the agriculture and service sectors.

The manufacturing sector continues to account for the lowest share—18.1 percent—of the
nation’s employed population as of January this year. The services sector is the top employer
with 55.9 percent of the nation’s workers while agriculture has 26 percent, according to the
Philippine Statistics Authority. Of particular concern to analysts at the World Bank is the high
incidence of poverty even among households where the head of the family has a job. The
poverty rate in these households hovers close to the national average of 21.6 percent,
according to World Bank calculations.
III. Insights

By providing contracts employer has better or more control over the person, there’s no
competition since basically you’re promising someone a short term job with certain benefits to
help out on some projects. There is little security because they’re not tied to a certain policies.
Contracts can be promising but only as a short term goal. – Mark Paul Tabalin, College
Student in Indiana University, USA.

Whereas according to Christy Pillena, an HR practitioner for over 5 years working in a various
industries – Construction & Engineering, Hospitality and Tourism, Medical, Business Process
Outsourcing, Manufacturing and Logistics, Education, Recruitment Firm, contractualization
and low salary varies among diverse job levels and status per industry.
IV. Writer’s Response

For me as a student Low Salary and Contractualization. The Philippines has one of
the lower pay rates around Asia but not necessarily the lowest, it simply because of supply
and demand. So many people needing jobs and still not enough jobs available. In the
Philippines, many Filipinos remain poor not because they are jobless, but because they have
low incomes. For many Filipinos, it has always been a struggle/challenge for them to have
jobs that can lift them out certain issues (such as poverty). It was mentioned by Jan
Rutkoswki that ever since the implementation of the k-12 curriculum, it was considered to be
beneficial in improving the situation.

One of the root cause of the problem is the underemployment, underemployed

Filipinos consist of those in the informal sector, those who have no contracts or those looking
for additional sources of income. Visible underemployment includes employees who are
working fewer hours than is typical in their field. They are willing and able to work more hours
but cannot get full-time employment. They often work two part-time jobs just to make ends
meet. Another cause of the problem is Informal jobs usually pay less than formal
jobs. an informal job is one where you get paid for a product or service but you have no
benefits and you don't pay any taxes. One primary difference between formal
work and informal work is that formal work is far more stable than informal work. As a
result, formal workers typically earn higher salaries and wages than informal workers. Formal
and informal work is also different when it comes to taxes.

But how does lack of jobs caused poverty? Poverty is caused by a number of issues,
primary among them unemployment or low-wage employment not laziness or lack of personal
responsibility but because of their income, or lack of it, the poor cannot afford health care,
making them more susceptible to disease and less likely to work full or part-time.

Our country today still continues to suffer from the twin problems of jobless growth and
chronic poverty. the rate of unemployment and underemployment has remained almost
constant at about 20 percent. For those who have obtained college-level education, about a
million are unemployed at any given time. Lack of proper training and skills competencies
attuned to the needs of the job market is a major factor. However, addressing this mismatch
of the educated unemployed is much more manageable than that of the unemployed with
insufficient education.

According to the ADB, the failure of the Philippines to boost industry is the key reason
why economic growth has not been inclusive. To provide employment for the growing mass of
skilled and unskilled, working-age and young population, the Philippines cannot dispense with
developing a stronger and more diversified industrial base coupled with the promotion of
intensified skills training in the areas needed by the market. Attracting foreign investments in
these areas requires providing adequate infrastructure and reforming our antiquated labor
code. This is the best way to ensure that the benefits of growth are fairly shared by all.

Contractualization refers to the practice of hiring employees within a specific time or for
several months only. It is a system that is being practiced by private companies and public
offices. The word “contractualization” does not have its formal definition in the

dictionaries. End of contract because a number of Filipino workers experience a constant lay-

off every five to six months and keep on transferring to different companies. Many political
scientists would argue that contractualization and endo should not be equated. The former
refers to hiring workers for a specific time because the work needed is also for limited time
while the latter’s context is more of a deceptive contractorship. Endo workers would usually
have asked to sign an ordinary contract that keeps on the rules set forth by the government.
Little did they know that employers already plan to terminate their employment on the fifth
month to avoid regularization. Although contractualization is beneficial to an economy, it paves
way for employers to abuse the laborers. There are various narratives on how
contractualization was institutionalized or systematized by the government.
V. Writer Commitment
References