ECONOMIC IMPACT OF CONTRACTUALIZATION IN THE PHILIPPINES

(2000-2018)

A Thesis proposal submitted in partial fulfilment of the requirements for the degree of
Bachelor of Science in Business Administration
Major in Business Economics
Of the Mindanao State University-Main Campus

DEPARTMENT OF ECONOMICS
COLLEGE OF BUSINESS ADMINISTRATION
AND ACCOUNTANCY
MINDANAO STATE UNIVERSITY-MAIN CAMPUS
MARAWI CITY, MARCH 2019

By
NAPOLEON V. BORJA
 TABLE OF CONTENTS

Title Page
Approval Sheet
Researcher’s Profile
Declaration
Acknowledgement
Dedication
Table of Contents

Chapter I. The Problem and its Scope

Introduction
Rationale of the Study
Theoretical Framework
Conceptual Framework
Schematic Diagram
Statement of the Problem
Objective of the Study
Significance of the Study
Scope and Limitation
Definition of Terms

Chapter II. Review of the Related Literature and Studies

Chapter III. Research Methodology

Research Design
Research Locale
Geography
People
Religion
Natural Resources
Economy
Data Gathering Procedure
Statistical Tool
Multiple Regression Model
 CHAPTER 1

PROBLEM AND ITS SCOPE

Introduction

As what the Trade Union Congress of the Philippines Katipunang Manggagawang Pilipino

defines, contractual employment arrangement is a devious scheme where the employment of

workers is terminated after rendering five or less than six months of service, effectively depriving

them the chance of regular employment and robbing them of the opportunity to enjoy mandatory

fringe and company-initiated benefits. It is also popularly called “endo” or end-of-contract or 5-5-

5 pertaining to the cycle of five months of employment, five months or more of job hunting, and

if lucky, another five months of contractual employment. According to V. Paqueo and A. Orbeta,

Jr. that, in the aftermath of the 2016 election, labor leaders and their political allies pushed for an

immediate end to so-called employment “contractualization”, a policy proposal currently popular

with voters and politicians. The idea is for the government to tighten and reduce, if not prohibit,

the use of temporary employment contracts (TECs) and job outsourcing. What this

contractualization bring to our country? This is a big question that must not be taken for granted.

The Philippines, now one of Asia's brightest investment spots, has finally learned to grow

its GDP with diversified income sources from remarkable Business Process Outsourcing (BPO)

growth and Overseas Filipino Workers (OFWs) remittances. Such accomplishments are founded

on sound macroeconomic policies, efficiency-enhancing trade and institutional reforms, and the

rise of national productivity (World Bank 2016 and 2014). However, the country’s poverty rate

remains stubbornly high with high income inequality. Moreover, inclusive growth remains a dream

due to lack of decent jobs where there is high youth open unemployment rate (15.30 percent among
21-29 year olds). This poses a challenge for the government to create an enabling environment for

the youth to find the right job match before it evolves into costly social problems of political unrest,

even criminality, and drugs. They argue that TEC curtailment with aggressive push for higher

minimum wages and costly worker dismissals could hurt young workers.

This study aims to analyze a successful assessment of the economic impact of ending

contractualization in the Philippines so that this would be a mean to assist the interested individuals

to decide optional, managerial and an efficient economic development in the place.

Theoretical Framework

Conceptual Framework

The conceptual framework covers conceptual text and figurative explanation of the

economic impact of ending contractualization.

Number of Contractual Workers

Number of Regular Workers

Employment Rate

Labor Force
Poverty Rate
 SCHEMATIC DIAGRAM

Independent Variables Dependent Variables

NUMBER OF
TEMPORARY
WORKERS
NUMBER OF REGULAR
WORKERS GROSS
EMPLOYMENT RATE DOMESTIC
PRODUCT (GDP)
LABOR FORCE

POVERTY RATE
STATEMENT OF THE PROBLEM

In order to understand the economic impact of contractualization in the Philippines, this

study seeks to answer the following questions:

1. What is the level of the Gross Domestic Product (GDP) in the Philippines having

contractualization from year 1998-2018?

2. What is the level of the following variables from year 1998-2018?

a. Number of temporary workers

b. Number of regular workers

c. Employment Rate

d. Labor Force

e. Poverty Rate

3. How contractualization affects the following variables from year 1998-2018?

a. Number of temporary workers

b. Number of regular workers

c. Employment Rate

d. Labor Force

e. Poverty Rate

4. How contractualization affects the economy of the Philippines?

OBJECTIVES OF THE STUDY

This study aims to achieve the following objectives:

1. To be able assess the Gross Domestic Product (GDP) of the Philippines from year 1998-

2018.
 2. To be able to know the level of the following variables from year 1998-2018:

a. Number of temporary workers

b. Number of regular workers

c. Employment Rate

d. Labor Force

e. Poverty Rate

3. To be able to examine the effects of contractualization to the following variables from

year 1998-2018:

a. Number of temporary workers

b. Number of regular workers

c. Employment Rate

d. Labor Force

e. Poverty Rate

4. To identify the impact of contractualization to the Philippine economy.

SIGNIFICANCE OF THE STUDY

Since this study is about economic impact of contractualization in the Philippines from

year 1998-2018. This study may provide information on the problems encountered by growers in

Philippines for possible solutions and extend its importance to the following:

Philippine Government. This study maybe an avenue in assessing and solving the ever growing

issue of contractualization.
Stakeholders. This will be an avenue for them to manage the contractualization happening in the

society.

Labor Groups.

Workers.

Researchers. This study could serve as their reference material for related studies and a guide in

giving additional information which is of great help for studies on tourism.

SCOPE AND LIMITATIONS OF THE STUDY

This paper would cover the study of contractualization in the Philippines. It is concerned with the

impact of the contractualization given the following variables namely: number of temporary

workers, number of regular workers, employment rate, labor force, and poverty rate. This study is

subject to some scope and limitation in accordance with the availability of data to the researcher’s

resources. The researcher wants to seek information regarding the economic impact of

contractualization in the Philippines. The researcher focuses only on the aforementioned factors

although there are other factors that can be used.

 The researcher relied on the secondary sources or data obtained. The researcher collected

based on the authorized data from government agencies like World Bank, Philippine Statistics

Authority, Department of Labor and Employment and the International Monetary Fund. The

researcher also gathered information from books, e-journals and from the internet.

Definition of Terms

For the better understanding of this paper and to avoid misinterpretations in the usage of

words for this research, the researcher used both the theoretical and operational type of definition

to the following terms.

Endo contractualization refers to a short-term employment practice in the Philippines. It is a

form of contractualization which involves companies giving

workers temporary employment that last them less than six months

and then terminating their employment just short of being

regularized in order to skirt on the fees which come with

regularization.

Contractualization

Contractor independent entity that agrees to furnish certain number or quantity

of goods, material, equipment, personnel, and/or services that meet

or exceed stated requirements or specifications, at a mutually agreed

upon price and within a specified timeframe to another independent

entity called contractee, principal or project owner.

Employment Rate a measure of the extent to which available labour resources (people

available to work) are being used. They are calculated as the ratio of

the employed to the working age population. Employment rates are

 sensitive to the economic cycle, but in the longer term they are

significantly affected by governments' higher education and income

support policies and by policies that facilitate employment of

women and disadvantaged groups.

Gross Domestic Product Gross domestic product (GDP) is the monetary value of all the

finished goods and services produced within a country's borders in

a specific time period. Though GDP is usually calculated on an

annual basis, it can be calculated on a quarterly basis

Labor Force The labor force is the number of people who are employed plus

the unemployed who are looking for work. The labor pool does not

include the jobless who aren't looking for work.

Poverty Rate ratio of the number of people (in a given age group) whose income

falls below the poverty line; taken as half the median household

income of the total population. It is also available by broad age

group: child poverty (0-17 years old), working-age poverty and

elderly poverty (66 year-olds or more).

Regular Workers Regular or Permanent Employment is when an employee performs

activities that are usually necessary or desirable in the usual

business or trade of the employer. They enjoy the benefit of

security of tenure provided by the Philippine Constitution and

cannot be terminated for causes other than those provided by law

and only after due process is given to them.

Temporary Workers Clients require a member of staff to work with them on a flexible

basis. Typically, these assignments will be for a fixed term and

cover increases in workload, illness cover or maternity/paternity

cover. You will have a contract of services (through Change) for

an agreed hourly or daily rate, which will cover the time you work

and you will be entitled to holidays of up to 28 days per annum,

based on the amount of time that you work.

Unemployment occurs when a person who is actively searching for employment is

unable to find work. Unemployment is often used as a measure of

the health of the economy. The most frequent measure of

unemployment is the unemployment rate, which is the number of

unemployed people divided by the number of people in the labor

force.

CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter includes the review of related literature and studies which the researcher

have perused to shed light on the topic under study.

Ending Jobs Vs. Ending Contractualization

More than a year before President Duterte issued Executive Order 52 prohibiting illegal

contracting and subcontracting on May 1, Labor Day, this paper had featured a study released by

the Philippine Institute for Development Studies (PIDS) in December 2016, which said the

government’s plan to end contractualization could lead to layoffs and greater inequality in the

country.

In the study, titled “Beware of the End Contractualization! Battle Cry,” PIDS research

fellows Vicente B. Paqueo and Aniceto C. Orbeta Jr. said ending contractualization would be more

expensive for companies than the government estimated. Hiring more permanent employees would

increase the cost of firms by about 30 percent to 40 percent, higher than the government’s estimate

of around 10 percent.

“The dilemma is that, on the one hand, limiting government action to tightening

enforcement might not be enough to eliminate endo practice, as promised by President Duterte.

On the other hand, aggressive threats of government harassment, huge penalties, business closures,

as well as prohibition of all forms of TECs [temporary employment contracts] to close ‘loopholes’

could lead to unintended adverse consequences like reduction in job opportunities and inclusive

growth,” Paqueo and Orbeta said.

Now, just a little over two months after the President banned contractualization, Rep. Ariel

Casilao of Anakpawis party-list claims at least 200,000 workers have already been fired, based on

data gathered by the labor group Kilusang Mayo Uno (KMU). He said several of the country’s

biggest companies have chosen to terminate their contractual workers instead of regularize them
in accordance with the President’s EO and the labor law provision that those whose jobs are

directly related to the business of a company cannot serve as a contractual employee for more than

six months.

One of those cited is the case of telecommunications giant Philippine Long Distance

Telephone (PLDT) Inc., which recently shed some 7,000 contract workers.

The Department of Labor and Employment (DOLE) insists PLDT must regularize these

7,000 contractuals, but PLDT counters that the onus is on the DOLE, while denying it terminated

the employment of its workers.

“The DOLE has ordered 38 service contract providers of PLDT, including our call center

and business-process service, to cease and desist from providing services to PLDT,” the telco said

in a statement. “PLDT did not terminate these service contracts.”

 CHAPTER III

RESEARCH METHODOLOGY

This chapter displays the methodology applied by the researcher in order to have an

organized and systematized flow of research information. It contains the research design, research

locale, data gathering procedure and the statistical tools that made this study reliable and precise.

Research Design

To be able to know the economic impact of contractualization, the researcher used

quantitative method that was designed to gather data and information about the present existing

results and afterwards is the interpretation of the results. This method is characterized by its system

which allows the estimation of the relationship of every variables with the used of the statistical

measures of multiple regression. This will determine the relationship of every variables and will

also evaluate the variation caused by another variables. The researcher used secondary data

through internet, journals, books, and the like in this study to acquire better and accurate results.

Research Locale

The research locale used in this study is Philippines. This includes all the regions in the Philippines

from 1998 to 2018. The following are the geography, people, religion, and economy.
Geography

The Philippine archipelago is composed of about 7,100 islands and lies strategically within

the arc of nations that sweeps southeastward from mainland Asia to Australia. It has a total land

area of 300,000 square kilometers, 92 percent of which is found on the 11 largest islands. The

country can be grouped geographically into the three major islands groups: Luzon, Visayas, and

Mindanao. Accounting for 47 percent of the total land area, Luzon is the largest island group and

is situated in the north. Mindanao, the second largest group is located in the south and occupies 34

percent of the total land area, while the Visayas is a group of smaller islands between Luzon and

Mindanao comprising the remaining 19 percent of land area.

Diverse topography and climate characterize the different areas in the country. While

mountain ranges traverse the major islands, adjacent valleys and plateaus provide a sharp contrast.

The climatic conditions and degree of weather disturbances differ among the provinces because of

their varied topography and geographic location. The provinces in northeastern Luzon and the

Bicol Region are generally wet and more vulnerable to typhoon than the rest of the country. The

Visayan regions have generally more rainy days than Luzon and Mindanao. Mindanao, on the

other hand, is almost free from typhoon which makes agriculture a very important industry on that

island.

People

People in the Philippines are collectively called Filipinos, with men also referred to as

Filipinos and women known as Filipinas. Philippine is used as an adjective pertaining to the

country. Filipino is used as an adjective regarding the people, in some cases in particular reference
to Christian Filipinos (Muslim are known as Moros). Around 95 percent of the population lives on

the eleven largest islands.

Most Filipinos are of Malay descent (like Malaysians and Indonesians), with a sprinkling

of Chinese, Spanish, American and Arab blood. Three hundred years of Spanish occupation left

behind the Roman Catholic religion and 75 years of American presence has left the English

language, yet Filipino culture and people have an identity that is very much its own, and the people

on each island have their own distinct character. Before it was forged into a colony and later a

nation, the Philippines was a group of islands, with different ethnic groups that lived largely

independent of one another on individual islands, groups of islands and different regions on big

islands. The ethnic breakdown of country still more or less follows the pattern set by the

archipelago's early inhabitants.

More than 100 cultural minority groups are scattered throughout the country. Filipinos are

ethnically similar to Malays but culturally they are more like the Spanish. They are generally

smaller and slenderer than Europeans and have brownish skin, dark eyes and heavy, straight black

hair. It is hard to distinguish accurately the lines between stocks. From a long history of Western

colonial rule, interspersed with the visits of merchants and traders, evolved a people of a unique

blend of east and west, both in appearance and culture. [Source: Philippines Department of

Tourism]

Many Filipinos call themselves Pinoys. Ethnic Groups: Christian Malays constitute 91.5

percent of the total population; Muslim Malays 4 percent; Chinese 1.5 percent; and others 3

percent. Ethnic groups: Tagalog 28.1 percent; Cebuano 13.1 percent; Ilocano 9 percent;

Bisaya/Binisaya 7.6 percent; Hiligaynon Ilonggo 7.5 percent; Bikol 6 percent; Waray 3.4 percent;

other 25.3 percent (2000 census). Languages: Filipino (official; based on Tagalog) and English
(official); eight major dialects — Tagalog, Cebuano, Ilocano, Hiligaynon or Ilonggo, Bicol,

Waray, Pampango, and Pangasinan; Religions: Catholic 82.9 percent (Roman Catholic 80.9

percent, Aglipayan 2 percent), Muslim 5 percent, Evangelical 2.8 percent, Iglesia ni Kristo 2.3

percent, other Christian 4.5 percent, other 1.8 percent, unspecified 0.6 percent, none 0.1 percent

(2000 census). [Source: CIA World Factbook]

Philippine Economy

In overall competitiveness, the Philippines is only better than Cambodia, Laos, and Myanmar

today. We have been overtaken by Vietnam and Indonesia in most competitive indicators in the

last two years. This is not to say that the Philippines did not improve. We did, especially between

the years 2010 to 2015. In the last two years, however, the rest of the region accelerated their

reforms while the Philippines remained static given the disruption of the national elections and

the period of adjustment of the new administration.

Having said that, let us now compare the state of the economy today versus how it was three

years ago, before President Duterte took over.

Looking through the data, my immediate assessment is that the economy remains fundamentally

strong, albeit showing cracks that could bite us in the back, if left unaddressed.

Gross Domestic Product (GDP), per se, has been growing vigorously. It expanded by 6.9% in

2016, 6.7% in 2017, and 6.8% in the first quarter of 2018. It is worth noting that this is the first

time since our post-liberation era that the Philippines has grown beyond 6.5% for ten consecutive

quarters.
On the demand side, the drivers of the economy have been government consumption, capital

formation, and consumer spending. The latter, however, has slowed down this year due to the

rising prices of commodities.