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Precarious Philippines: Expanding Informal Sector, "Flexibilizing" Labor Market Rene E Ofreneo

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ABS46623 7 ABS57410.1177/0002764212466237American Behavioral ScientistOfreneo © 2011 SAGE Publications Reprints and permission: http://www. sagepub.com/journalsPermissions.nav

Article

Precarious Philippines: Expanding Informal Sector, “Flexibilizing” Labor Market

American Behavioral Scientist 57(4) 420–443 © 2013 SAGE Publications Reprints and permission: http://www. sagepub.com/journalsPermissions.nav DOI: 10.1177/0002764212466237 http://abs.sagepub.com

Rene E. Ofreneo1

Abstract This article outlines two realities about the Philippine labor market: the continuing expansion of the large informal economy and the continuing “flexibilization” of work in the narrow organized sector of the economy. The first is a consequence of the uneven development of the economy and its weak capacity to create stable jobs for a growing population. This expansion is reflected in the chain of urban and rural poor colonies mushrooming all over the archipelago. On the other hand, the flexibilization phenomenon in the formal labor market is manifested in various forms of flexible hiring arrangements, primarily through the service contracting modality. Flexibilization has generated fierce legal debates, especially regarding the so-called management prerogative of firms to outsource jobs held by regular workers. The article contends that social protection for the “precariat” in both the formal and informal sectors requires not only the passage of protective labor laws but also, and more importantly, an overhaul of the neoliberal and crisis-ridden economic policy regime that has been in place for nearly four decades. Keywords informal economy, social protection, flexibilization, neoliberalism, precarious work

Workers in the Philippines are experiencing an expansion in precarious work. Many of these precarious jobs are in the large and expanding informal economy, while workers in the narrow formal labor market hold jobs that are increasingly being subjected to 1

University of the Philippines, Quezon City, Philippines

Corresponding Author: Rene E. Ofreneo, School of Labor and Industrial Relations, University of the Philippines, Diliman, Quezon City 1101, Philippines Email: [email protected], [email protected]

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varying forms of “informalization” or “casualization.” This article seeks to explain how these twin labor market phenomena have developed and how weaknesses in the agro-industrial policy regime have contributed to them. The article also outlines the various policies, existing and proposed, in support of social protection for precarious workers in both sectors of the economy. It is argued that a “rights-based” approach to social protection, via the passage of protective labor laws for the vulnerable, is insufficient to secure such protection, given the weaknesses of the economy. The article has two major parts. The first discusses the growth of the informal economy, and the second is an inquiry of the informalization processes in the formal sector.

Informal Economy and Underdevelopment Definitions and Nuance The large informal sector is a catchment for workers who cannot find jobs in the limited and underdeveloped organized sector of the economy. Informal-sector work involves coping with the requirements of daily living, no matter how minimal the income is from an informal economic undertaking, which include hawking, homebased production, unregistered repair services, and so on. The term informal sector was embraced by the Department of Labor and Employment (DOLE) in employment planning in the 1980s, courtesy of the Manila office of the International Labor Organization (ILO).1 The informal sector was then generally understood as including any economic activity not registered formally with the government and, therefore, not liable for taxes (see Ofreneo, 1994). However, in 2002, the National Statistical Coordination Board (NSCB) adopted a more nuanced definition of the informal sector: The IS [informal sector] consists of “units” engaged in the production of goods and services with the primary objective of generating employment and incomes to the persons concerned in order to earn a living. These units typically operate at a low level of organization with little or no division between labor and capital as factors of production. It consists of household unincorporated enterprises that are market and non-market producers of goods as well as market producer of services. This means these are owned or operated by households engaged in the production of goods and/or services that are not constituted as legal entities independent of the households or household members that own them. Labor relations, where they exist, are based on casual employment, kinship or personal and social relations rather than formal or contractual arrangements. (NSCB, 2008, pp. 1-2) The NSCB classified “household unincorporated enterprises” into two categories: “informal own-account enterprises” and “enterprises of informal employers.” For the Bureau of Labor and Employment Statistics (BLES) of DOLE, this means the

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informal sector includes self-employed or own-account workers without any paid employees as well as unpaid family workers. In a way, the informal sector is similar to another ILO concept of “vulnerable employment,” which includes unpaid family workers and nonemployer own-account workers. Meanwhile, the ILO published a report titled Decent Work and the Informal Economy, which adopted the broader term informal economy to cover all economic activities by workers and economic units that are—in law or in practice—not covered or insufficiently covered by formal arrangements (ILO, 2002, p. 3). Today, the terms informal sector and informal economy are used interchangeably by advocates of social protection for the informal workers. In the proposed House Bill (HB) 768, providing for a “Magna Carta of Workers in Informal Employment,”2 the bill’s proponents cited both the ILO and NSCB definitions of informal sector and the informal economy (Angara, Fernandez, & Tanada, 2011). HB 768 included a remarkably long list of workers considered to be in informal employment: • Small farmers owning not more than 3 hectares, and rural and agricultural workers serving as tenants, sharecroppers, or laborers; • Small fisherfolk or operators owning boats of 3 tons or less, and fisherfolk who have no fishing equipment; • Home-based workers who are independent producers of goods or services, industrial home workers doing subcontracting work, and the self-employed engaged by other contractors to do subcontracting work; • Vendors, ambulant or not, with not more than a million peso capitalization [roughly US$23,000]; • Transport drivers, including “barkers,” fare collectors, dispatchers, and other workers, who share income with self-employed or unincorporated operators and transport operators [of jeepneys, pedicabs, tricycles, taxis, etc.] whose capitalization is not more than a million pesos; • Household domestic workers; • Noncorporate construction workers, referring to those hired informally or through subcontractors; • Small-scale miners doing their own processing, including those with capitalization of not more than a million pesos, • Workers of Barangay Micro Business Enterprises;3 • Noncorporate cargo handlers and allied workers; • Waste pickers and recyclers; • Workers engaged in producing seasonal products; • Own-account workers doing repair and maintenance of equipment, appliances, and so on, including beauticians, barbers, and masseuses; • “On-call” workers in the entertainment, movie, and media industries, such as bit players, stuntpeople, makeup artists, and so on; • Volunteer workers in government receiving only allowances or honoraria, such as the barangay health workers and volunteers in nongovernment or people’s organizations; and

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Table 1. Population Growth, 1960-2010 Year

Population

1960 1970 1980 1990 2000 2005a 2010a

27,087,685 36,684,486 48,098,460 60,703,206 76,504,077 84,241,375 91,868,309

Source: National Statistics Office (2005, pp. 207-208). a Projections.

• Unpaid family members, workers receiving allowances, and seasonal workers in microenterprises and unincorporated household enterprises. Interestingly, even this long list was appended with a statement that also included “Other similar economic activities that are ‘not illegal, criminal or life threatening in nature.’”

Population Growth, Urbanization, and Economic Change Whatever the definition that is used, the informal sector has grown exponentially. One source for this is high population growth (see Table 1), with the population more than tripling in 50 years, from 27 million in 1960 to 92 million in 2010. With the exhaustion of extensive agriculture in the 1960s (see Hicks & McNicoll, 1968), more and more of the growing population has since been absorbed by cities and urbanized towns. A good indicator of rapid urbanization is the expansion of Manila into a giant metropolis called Metro Manila, now home to 11.5 million residents. There also has been a proliferation of cities, more than 120, in the 17 administrative regions of the country. In 2005, the urban population was estimated at 53 million, or more than 60% of the country’s total population (Housing and Urban Development Coordinating Council & Philippine Institute for Development Studies, 2009, p. 13). Another contributor to the rapid expansion of the informal sector is the failure of agro-industrial development, which is reflected in the declining share of agriculture and industry in overall employment. The share of agriculture in overall employment shrank from more than half of the total in 1970 to only a third in 2010, whereas that of services rose from 28% to more than half in the same period (see Table 2). The share of industry in employment declined slightly, from 16.5% to 15% from 1970 to 2010; however, the share of the manufacturing subsector dropped dramatically from 11.9% to 8.4%. Given an economy with a stagnant industrial sector and a declining

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Table 2. Share of Employment by Sector, 1970-2010 Sector

1970

1975

1980

1985

1990

1995

2000

2005

2010

Agriculture Industry Where manufacturinga Services

53.7 16.5 11.9 28.2

53.5 15.2 11.4 31.8

51.8 15.4 10.6 32.8

49.6 13.8 9.7 36.5

45.2 15.0 9.7 39.7

44.1 15.6 10.2 40.3

37.1 16.2 10.0 46.7

26.0 15.6 9.5 48.5

33.2 15.0 8.4 51.8

Sources: Philippine Statistical Yearbook (1981, 1991, 2001, 2011). Manufacturing is subsector of industry.

a

agricultural sector, it does not take much imagination to conclude that many of the jobs generated in the country are in the informal sector, and mainly in the services.

Assessing the Informal Sector Estimates on the size of the informal sector vary because there is no informal subsector category in the country’s labor statistical system. Although the National Statistics Office (NSO) carries out quarterly samplings of the labor force based on the usual classification of the labor force—by employment (employed, unemployed, and underemployed), by class (paid, unpaid, and own account), by hours of work, and by sector and subsector—there is no surveying of informal employment. In fact, informal economic activities can be found in all sectors, with the highest concentration in services and agriculture. The lack of survey data has been filled by estimates. For example, BLES-DOLE gives an informal sector estimate of about 41% of the total employed population of 36 million for 2010 (see Table 3). Interestingly, this is also the BLESDOLE figure for the ILO’s vulnerable-employment category. Another estimate is from the Employers’ Confederation of the Philippines (ECOP). The ECOP’s estimate is much higher—a whopping 77% of the employed, or 25 million out of the 36 million employed in 2006 (see Table 4). The higher ECOP estimate is attributable to the inclusion of the “underemployed” in the informal sector total. Underemployed workers are assumed to be in the huge galaxy of micro, small, and medium enterprises. As shown in Table 5, microenterprises with 1 to 10 employees account for 91.3% of establishments, according to an NSO survey in 2005, and employ roughly 2 million workers. It is also important to note that the data shown in Table 5 are limited to registered enterprises; there are also hundreds of thousands of unregistered microenterprises in the country. Overall, the BLES-DOLE estimate is an underestimate, whereas the ECOP’s figure is an overestimate. However, the ECOP estimate, meant to dissuade government from raising the minimum wage standard frequently because the informal-sector workers are left behind, is closer to the reality, given the large number of unregistered microenterprises in the country.

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Table 3. BLES-DOLE Count of Formal and Informal Sector in the Total Employed, 19802010 (in percentages) Formal Sector

Informal Sector

Year

Wage and Salary Workers

Own-Account Workers

Unpaid Family Workers

Total Informal Sector

1980 1985 1990 1995 2000 2005 2010

42.4 43.8 45.5 46.2 50.7 50.4 51.8

36.9 39.7 38.8 39.0 37.1 36.9 29.8

20.7 16.5 15.7 14.8 12.2 12.7 11.7

57.6 56.2 54.5 53.8 49.3 49.6 41.5

Source: Bureau of Labor and Employment Statistics (2010b). Note: BLES-DOLE = Bureau of Labor and Employment Statistics–Department of Labor and Employment.

Table 4. ECOP’s Estimation of the Number of Informal Sector Workers, 2006 Indicator Underemployed Underemployment rate Own-account workers Employer Self-employed % of employed Unpaid family workers % of employed Total As % of employed

2006a 7,467,000 22.7 12,134,000 1,467,000 10,667,000 32.3 4,038,000 12.3 25,151,000 77

Source: Ortiz-Luis (2008, p. 14). Note: ECOP = Employers’ Confederation of the Philippines. a Annualized average of labor force surveys.

Informal Sector, Poverty, and Inequality The growth of informal-sector employment in the Philippines is reflected in the massive and chronic poverty in the country. Officially, in 2009, one out of every five Filipinos and one of every four families was considered poor (see Table 6). Under its commitment to the UN Millennium Development Goals, the Philippines government seeks to reduce the poverty rate recorded in 1990 by half by the year 2015. This has proved unachievable as poverty incidence has increased from 20% in 2003 to

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Table 5. List of Establishments, 2005 Establishments Size Micro Small Medium Large Total

No. of Employees

Capitalization (in million Php)

1-9 10-99 100-199 ≥200...