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Gov’t urged to relax labor market regulations affecting small businesses

A government think tank has urged policymakers to relax labor market regulations while providing smaller firms financial incentives to enable them to create more jobs in the country.

“Labor market regulations intended to provide worker security, but in reality, it created conditions that make it difficult for smaller firms to acquire more labor and provide employment,” said the Philippine Institute for Development Studies (PIDS).

Researchers Leonardo A. Lanzona Jr. and Vicente B. Paqueo pointed out that without the burden created by labor market regulations, investments can be required, among others, to complement labor requirements and create employment.

“Investment can embody technologies, knowledge, and know-how, which the MSMEs (micro, small and medium enterprises) would not have access to otherwise. These new technologies and skills have the potential to spill over to domestic firms, spurring innovation and furthering technological advancement,” they noted.

Likewise, the PIDS paper said investments have the potential in enhancing competition among domestic firms as they compete with multinational corporations for resources and in the markets for final goods and services.

“Clearly, investment incentives can be a useful fiscal policy instrument that can be used to spur growth,” Lanzona and Paqueo added.

The PIDS further said the smaller firms could compete for the more productive workers over the long term, as their operations experience scale economies.

“In this process, financial incentives are intended to bring about greater returns for society, instead of simply a means of countering labor marker regulations,” it said.

Meanwhile, the PIDS proposed that the current set of labor market regulations would be implemented on the larger firms.

Product market deregulation or policies that protect the large firms should also be pursued, it said.

“This policy can result in some form of dualism—as the smaller firms will be operating in a different set of rules, including the market wage which is expected to be lower than the prescribed minimum wage. In this case, the larger firms may end up getting the more productive workers,” the authors said.

The PIDS said it was thus necessary for the government to support workers of the smaller firms by providing more social protection.

Large firms, however, should either provide worker security on their own or opt to obtain the social security programs provided by the government.

“If they choose the latter, however, they will have to lower their wages below the prescribed minimum and offer more jobs to less-experienced and less-schooled workers. In the process, the prescribed minimum wage represents a skill premium to those workers who choose to work for firms that comply with the minimum wage,” it added.

Leslie D. Venzon/PNA