A systems-wide approach is needed to end contractualization

Most minimum wage earners get axed every six months in what is called “endo,” or end of contract, a practice that both Presidents Marcos and Duterte had promised to end but failed to do so. What gives?

Thousands of workers in the country work under illegal short-term contracts, typically lasting five or six months, which means employers can skip their legal obligation to provide benefits reserved for tenured employees. These benefits include health insurance, paid leaves, and job security. Exploiting this loophole in the Labor Code of the Philippines leaves 27 to 45 percent of Filipino workers without labor protection.

Amending our laws is the first step to addressing endo to close the loopholes that allow the practice. But we must go beyond that.

A sweeping ban rarely works without the proper stick-and-carrot approach. As seen in the unsuccessful implementation of Labor Code provisions, businesses are wont to find ways to minimize costs and maximize returns.

Research from the MIT Sloan School of Management shows that providing employees with good jobs—those with security of tenure, living wage, and benefits—can lead to optimal operations and increased profits, if implemented well. Operations suffer when employees are replaced and retrained biannually. Businesses also spend unnecessary costs from rehiring and retraining—costs that can be redirected towards employee benefits.

When businesses deny workers their duly-earned benefits, employees are left stressed and insecure, leading to poor performance. In the end, businesses lose out on the benefits of having an engaged, high-performing workforce. Businesses cannot expect new, barely trained employees to perform at the same level as tenured employees.

Breaking this vicious cycle requires upfront investment to cover increased labor costs, but it pays off in better employee performance, operational excellence, and quality customer service.

While passing amendments to the law is a necessary first step, supporting businesses through the post-endo transition is a close second. Organizational change is difficult, especially this monumental labor transformation. Businesses cannot be expected to do the work alone without the support of the Department of Labor and Employment that must engage closely with chief executives to advocate on the benefits of abandoning endo. Better yet, the agency can partner with industry coalitions and labor groups to develop programs managing the transition. To make lasting change, we need to work across sectors rather than leaving the job solely to the black-and-white hold of the law.

More than just a business issue, endo reflects a lack of safety net. While the Social Security System offers unemployment benefits, its eligibility requirements are restrictive. Beyond SSS, there are no other accessible unemployment insurance programs, so the government must step in with cash benefits, alternative upskilling, and recruiting programs for short-term workers.

To end endo, we need a systems-wide approach that closes loopholes in the law, supports organizational transition, and provides alternative safety nets for thousands of workers.

PATRICIA MATIAS,
pmatias@hks.harvard.edu