Rigid

When Nicolas Sarkozy was president of France, among his major problems was a very high youth unemployment rate. He tried to solve this by relaxing his nation’s rigid labor laws. Riots broke out in the streets.

Sarkozy was forced to backtrack. The stringent labor laws that made hiring very difficult remained. Youth unemployment remained high.

Many years of socialist government produced those rigid labor laws. While they protected those already employed, they also discouraged hiring. It was easier to get a divorce than to fire an employee.

The socialist Utopia consists of lesser working hours, longer holidays and guaranteed employment. But that Utopia also produces economies that are inflexible and enterprises that are less nimble. These economies are not attractive to startups and venture capital. At a time when rapid technological change demands a high degree of adaptability, they lose competitiveness.

The rigid labor laws also caused enterprises to be less flexible. It is not easy for French firms to revamp and reorganize production compared to, say, their American counterparts. 

There is much we might learn from Sarkozy’s failed attempt to make his country’s labor laws more flexible. Entitlements, once granted, will be very difficult to take away. Economies, once they are encrusted with inflexible policies, will be difficult to reform.

Endo

Our labor unions, or what remains of them, have been applying political pressure to make hiring more rigid.

In the guise of providing our workers greater security of tenure, they are pushing for more rigidity in our labor policies. They are seeking to ban “endo” (slang for end of contract) as employer practice. That will certainly cut deeply into the viability of many enterprises.

The Employers Confederation of the Philippines (ECOP) and the foreign chambers of commerce are doing their best to inform our public about the economic perils of more rigid employment policies. Unfortunately, it is easy to caricature them as greedy capitalists preying upon vulnerable workers.

Caricatures do not capture the complexities that accompany business and economic decisions. We should not make policies according to these caricatures.

Ideally, wage and tenure should be subjects of private negotiations between employers and those they employ. Market forces should be allowed to freely determine wage levels and hiring conditions. Economies with the least state interference in the relationship between capital and labor tend to have lower unemployment and more competitive economies.

However, we must concede, markets work imperfectly. Specific laws have to be enacted to protect women and minors. The state must step in to prevent human trafficking. Minimum wages, provided they are not politically set, help protect the most vulnerable.

It is far better to have more workers employed albeit at lower wage levels and uncertain tenure than to have more workers unemployed. If we grant all that the labor unions demand, we will have high wages for a few and no wages for the many. This is hardly an ideal outcome.

Labor aristocrats, those who make a living out of collecting union dues, have their vested interest in making employment more difficult. They want wages to be determined by threats of strikes rather than by market forces. That makes it easier for them to collect rent from the very workers they claim to represent.

In the ideal world of the labor aristocracy, all workers are regularized and therefore dues-paying members of trade unions. It will be unions that will dictate the terms of employment rather than the actual employers. Employees will be completely free of market risks and employers will be made to shoulder all of the risks.

In that ideal world, however, there will be no incentives to invest. Therefore, no incentives to hire. The few who are employed will be protected and pay their union dues. The many who are left unemployed are left to their miseries.

No one will speak for the unemployed because they pay no union dues.

Hollow

The latest economic numbers show we now have the lowest unemployment numbers in decades. This means real gains are being made to bring down poverty incidence.

Most of the employment was generated by micro- and small-enterprises. Therefore, they are not dues-paying members of unions.

Membership in trade unions is limited to only one percent of our labor force. Yet these unions, professing to speak for all workers, want to shape our labor policy.

There was a time when unions loomed large in our economy. The unions flaunted their power by calling for strikes, such as the infamous “Welgang Bayan” on entirely political premises. 

Union power backfired once before. Nearly overnight, because of the whimsical strikes and unreasonable union demands, we lost our entire garments exports industries. That cost us over a million jobs.

Also, our economy became unattractive for labor-intensive manufacturing investments. That brought about the episode of high unemployment, intensive poverty and poor economic performance. Many labor-intensive industries simply migrated to friendlier economies nearby.

As a result, our manufacturing base hollowed out. The domestic economy was dominated by the service sector. The liveliest enterprises were micro- and small-scale – those immune to unions.

The trade unions also paid a price for disfiguring our economic development. Because we did not have a large industrial proletariat, union membership suffered.

But the labor aristocracy would not give up inflicting themselves on our economic development. First they killed our labor-intensive manufacturing sector. Now they are demanding the most rigid labor policies that will forcibly produce a proletariat out of our otherwise nimble and adaptive small enterprises.

It is the trade unions, in the last analysis, that are truly anti-poor.