'Times New Roman',serif;">A new study by a government think tank said restrictive labor market laws prevent micro, small, and medium enterprises from flourishing despite the various fiscal incentive programs the government provides for MSME development.
The Philippine Institute for Development Studies (PIDS) underscored the good intentions of the government to promote inclusive and sustainable growth and job creation through various incentives for MSMEs.
However, the study-entitled Unintended Consequences: The Folly of Uncritical Thinking-asserted that these fiscal incentives failed to achieve their goals “given the existing labor market regulations that emphasized job security instead of worker mobility.&rdquo
Once meant to cascade economic growth and ensure workers’ security, these regulations, the study said, became restrictive for MSMEs, particularly with trade restrictions dismantled and new forms of social protection implemented.
For instance, it can be argued that high minimum wages, in conjunction with other laws, prevent firms from recouping their investments in training the young and inexperienced,& PIDS said in a report paper obtained by the Daily Tribune.
This results in firms not investing enough in on-the-job training for the youth who end up with inadequate skills formation and who are ultimately unemployable-contributing to high unemployment rate,” the report said.
The study said, Today, the Labor Code fails to accommodate the proliferation of a significant number of MSMEs, and the interactions of these regulations with the minimum wages can weaken these smaller firms-at worst, cause them to close shop.
Missed opportunities in creating better and more jobs are then observed when labor regulations are that inflexible,” it added.
As a consequence, firms have been constrained to circumvent regulations, but “only the larger firms are able to manage these.
What companies do, said the report, is to continue to avoid the huge costs involved in hiring workers by investing more in capital.
Another option is to avoid labor market regulations by hiring or subcontracting part-time workers.
In effect, firms are able to reduce their total labor costs as they would no longer pay for the additional benefits that are offered to permanent workers.&rdquo
Restrictive labor market stops MSMEs’ growth – PIDS
