Ending Endo

One of the promises of El Jefe was that he would end the practice of "contractualization" and/or "endo". Contractualization and endo are two different things although they're used interchangeably.

Contractualization refers to the practice of contracting out work to independent contracting agencies. Let's say you run a department store. You could hire the sales clerks yourself or you could make a contract with an independent manpower agency for them. The purpose of availing of the latter option is that the clerks wont be considered your employees but the employees of the agency. Therefore, since they're technically not your employees, you don't have to give them the benefits an "employee" would be legally entitled to.

"Endo" on the other hand, refers to the practice of hiring people for the legal probationary period of six months as temporary employees. The purpose of the six month period is to determine whether they meet the company standards of the employer. If they do, they may become regular employees. Regular employees are entitled to the full benefits while temporary employees are not. What usually happens is that the employers don't follow through with this and just let the contract end or otherwise simply terminate it in the fifth month. The employer thus prevents the the workers from becoming regular employees. Furthermore, the employer will typically avoid  hiring the same employees for another six months or so because working for an employer for a year will make them regular employees.

What's common between both are that they're schemes to avoid having regular employees and all the legal obligations that entails.

Harsh Reality

To understand how all of this came about, know that the problem with employment in the Philippines is that the labor market heavily favors the employer. There are way more potential employees than there are employers. What this means is that labor is cheap and the employers can be picky. For every job that's open for you, some schmo who's more desperate than you will offer to work for less just to get it.  The problem that would arise is that price of labor would become so cheap as to become abusive. Smaller wages means an even smaller chance at a decent standard of living.

To remedy this issue, the government passes labor laws, specifically, labor standards laws. These laws set the minimum benefits employers must provide to their employees. The minimum wage is the best example although the law may provide other benefits such as overtime rates and leave benefits or credits. The purpose of all of this is to prevent the terms of employment from being too crippling for employee.

What labor laws do, however, is that they artificially increase the cost of labor above its real cost in a free market. Don't mistake this as an assault on labor laws. This is just what it does.

The natural inclination of employers is to maximize profit and growth. To do so, it must keep its labor costs down and so it must hire the least amount of workers it can. This is also a problem since well, you need workers! 

What contractualization and endo does is that it allows employers to hire employees for cheaper. Since they aren't "regular" employees, they're not entitled to the full benefits due to regular employees. The advantages for the employer are obvious. For employees there are both advantages and disadvantages. The disadvantage is that you will not and probably will never get the benefits of being a regular employee. The advantage is that the employer will now be able to hire more employees since it's cheaper so at least you'll have a job. Plus, you'd still be entitled to some minimum labor standards such as the minimum wage in addition to any extra benefits you may have (though unlikely) negotiated with the employer as part of the employment contract.

Consequences

Let's say we end both practices. What then? It's easy to fight for the little guy but put yourself in the shoes of an employer. No, not the obscenely wealthy tycoons of the Makati Business Club but rather one of the many small to medium businesses (SMEs) struggling in the marketplace of today. It is important to point out that most businesses in the Philippines fall under the SME category. Not all business owners are titans-of-industry fat cats on the level of Henry Sy or Ayala.

Let's say you need ten workers in your appliance store. All of them have to be regular employees so you have to give them everything they're entitled to. Of course, not all business are rolling in dough, yours certainly isn't. Labor isn't the only thing a business has to pay for. So your realistic option would be to downsize. Instead of ten, maybe seven would be enough to have enough profit and hopefully expand and make another store in some other part of town. 

You better hope that they're good employees too. Did you know that regular employees cannot be terminated without a just or authorized cause? If your employees suck, which they probably will if you know anything about Filipino work ethic, then be prepared to spend legal fees if your trouble employee wants to take you for a ride.

Simply put, most businesses simply cannot afford to have a sizable group of regular employees in addition to the regular costs of business such as rent, utilities, overhead, business permits, taxes etc. If one area of business costs had to be reduced, the easiest would be employees so they're the first to go. 

Contractualization and endo were the inevitable outcomes of the conflict between the need to find work, the need to hire workers and the need to keep the costs of labor low. Not to sympathize with either employer or employee, but it's unrealistic to think that if you were to end these two practices, everything will stay exactly the same except that employers will now begrudgingly give their workers full benefits from their hidden swimming pools of money and that there will be no costs that will bite everyone in the ass in the long run.

It's easy for politicians to come out in defense of the many votes  perpetually abused worker. The poor hardworking mule of a man and the evil greedy capitalist are favorite tropes in our neverending story. Of course, Filipinos are too stupid to think for themselves, much more execute contracts. Therefore the geniuses in Manila, who know what's best for everybody, have to pass these laws for our benefit. Law and policy has always bent towards worker's rights; from reasonable measures to leftist claptrap. Yet no amount of legislation can alter harsh economic reality. 

How exactly would the government end contractualization and endo, anyway? Like many things the government promises to do, it's all frustratingly vague. Will they make it so that all employment contracts must be for a year? It's a lot to ask employers of businesses to commit to employing people for a year, especially for ones just starting out, don't you think? What about jobs that only last for a short time? What if they make it so that all employees will be considered regular? You'd be paying a lot for someone who only works on a project for three months.

Regardless, if the government were to somehow finally kill contractualization and endo, the most likely outcome would be that businesses will employ less people and the people they do employ will be strictly screened. If labor is to become more expensive, then that extra cost must be justified by higher hiring standards. Contractualization and endo may be morally reprehensible to many, and it's easy to see why, but outlawing the practice without coming up with a new solution to address the underlying problem may be disastrous to everyone; employer and employee alike. Ironically, the ones that would suffer the most are the SMEs. The rising cost of business will  encourage them to stay small. The big shots at the top, who already have the wealth and means to absorb the occasional bouts of government idiocy, will suffer the least. As a bonus, there would be less competition rising up against them. 

But there will be consequences.