Globalization and the reworking of labour market segmentation in the Philippines

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Missing Links in Labour
Geography
Edited by
ANN CECILIE BERGENE
University of Oslo, Norway
SYLVI B. ENDRESEN
University of Oslo, Norway
HEGE MERETE KNUTSEN
University of Oslo, Norway
Bergene.indb 3 31/03/2010 12:33:08

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© Ann Cecilie Bergene, Sylvi B. Endresen and Hege Merete Knutsen 2010
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without the prior permission of the publisher.
Ann Cecilie Bergene, Sylvi B. Endresen and Hege Merete Knutsen have asserted their right
under the Copyright, Designs and Patents Act, 1988, to be identied as the editors of this
work.
Published by
Ashgate Publishing Limited Ashgate Publishing Company
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British Library Cataloguing in Publication Data
Missing links in labour geography. -- (The dynamics of
economic space)
1. Labor market. 2. Labor unions. 3. Labor unions--
Political activity. 4. International labor activities.
5. Economic geography.
I. Series II. Bergene, Ann Cecilie. III. Endresen, Sylvi.
IV. Knutsen, Hege Merete.
331.1'2-dc22
Library of Congress Cataloging-in-Publication Data
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Chapter 15
Globalization and the Reworking of Labour
Market Segmentation in the Philippines
Niels Beerepoot
Introduction
In a recent editorial, The Economist was quite clear on how contemporary
globalization generates winners and losers in the labour force. ‘In the 21st
century competition between rms and industries is becoming less important than
competition between individual tasks within rms in different countries. Rather
than affecting entire industries, or whole factories, global competition will affect
individual jobs – skilled as much as unskilled’ (The Economist 2007). Competition
is no longer just felt at the level of the nation or the rm, with its effects trickling
down to the level of its labour force, but the labour force is now itself directly
susceptible to increasing competition both within its country and between
countries. Contemporary globalization makes the world more interconnected
but this interconnected world is being segmented in new ways (Krishna and
Nederveen Pieterse 2008). This raises the question how the ‘new competition’ in
the labour market will have its local outcome in various parts of the world, and
how it will lead to a reworking of labour market segmentation. The co-existence of
high wage and low wage sectors is the dening feature of labour market dualism,
the generalization of which is labour market segmentation (Fields 2007). Labour
market segmentation theory nds its origin in Western capitalist societies during
the 1960s and 1970s (see for instance Doeringer and Piore 1971, Carnoy 1980).
Since then various studies have identied how segmentation of labour takes place
at various scales, such as the international, national and local, and through the
working of concomitant processes of globalization (see for instance Peck 1996,
Castree et al. 2004, Bauder 2006, Chapter 2 of this volume).
The Philippines is a good example of a country that is currently experiencing
a number of simultaneous processes that rework labour market segmentation and
lead to a repositioning of the country within the international division of labour.
The country is experiencing a rapid decline of its labour intensive manufacturing
sector, e.g. garments, shoes and furniture, which leads to massive numbers
of displaced workers with limited formal education (see Scott 2005, Ris 2007,
Beerepoot and Hernández-Agramonte 2009). The country has difculty in
competing with lower cost locations elsewhere in Southeast Asia, particularly
China and Vietnam. At the same time, the country creates a similarly impressive
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Missing Links in Labour Geography
200
number of jobs as recipient of off-shored service sector activities like call centres
and business process outsourcing (Rodolfo 2006, Magtibay-Ramos et al. 2008).
In recent years the Philippines has experienced a rapid expansion of this sector
owing to its supply of young graduates with procient English language skills.
This chapter will provide an overview on how contemporary globalization leads to
the reworking of labour segmentation at the national scale, the local scale and with
regard to the position of the Philippines in the international division of labour. The
chapter draws on ongoing research in the Philippines into the local outcomes of the
changing international division of labour. Research reported here on the decline in
labour intensive manufacturing was carried out in 2007 through interviews with
20 key informants1, and that on the Philippine business process outsourcing (BPO)
sector is based on existing academic literature and locally collected secondary data
on the recent emergence of the offshore service sector in the country.
Section two will give an overview of labour segmentation theory. In section
three the Philippines is positioned in a changing international division of labour.
This receives further attention in section four and ve where the decline of labour
intensive manufacturing and the emergence of the call-centre industry as examples
of reworking of segmentation in this country are discussed. Section six provides
the concluding remarks.
Labour Market Segmentation Theory
A labour market often consists of various sub-markets with different sets of
knowledge, skills and competencies necessary for productivity in the different
segments (see for instance Doeringer and Piore 1971, Carnoy 1980, Droogleever
Fortuijn 2003). Segmentation is a pervasive dimension of the purchase, sale and use
of labour in capitalist societies (Castree et al. 2004). Labour market segmentation
theory challenges neoclassical economic theory and human capital theory on the
grounds that workers and jobs are not matched smoothly by a universal market
mechanism (Bauder 2001). Emphasis on the variability of labour systems over time
and between industries and places is one of the dening principles of segmentation
theory (Peck 1996).
The various labour market segmentation theories hypothesize and try to
establish that there are several types of jobs in the labour market, each with distinct
criteria for hiring and advancement, supervisory procedures, working conditions
and wage levels, and each with generally different groups who ll the jobs
(Carnoy 1980). In both objective and subjective sense the particular employment
workers nd themselves in structures their working lives. Switching between, and
sometimes even within, different segments then becomes quite difcult (Castree
2004). Doeringer and Piore (1971) distinguish two labour market segments: one
1 A detailed description can be found in Beerepoot and Hernández-Agramonte
(2009).
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Globalization and the Reworking of Labour Market Segmentation 201
characterized by better, permanent, well-paid jobs with career prospects, the
‘primary segment’, and the other having temporary, badly paid jobs without any
career prospects, the ‘secondary segment’. According to Doeringer and Piore
(1971) a secondary labour market differs from a primary market in that it has
low wages, poor additional benets, poor working conditions, little additional
training, a large number of temporary contracts, a high level of part-time work,
few career opportunities, and a high labour turnover rate. Carnoy (1980) makes
a distinction between a ‘high-education’ segment, a ‘unionized segment’ and a
‘competitive segment’ in labour markets. Similar to the secondary segment, the
competitive segment in labour markets consists of a large and poorly educated
labour force competing for jobs with low wages and unstable working conditions.
Only those workers who have no other job opportunities, but who must still work
to live, will accept employment in this segment (Carnoy 1980). These jobs have
little or no provision for upward mobility. The unionized segment comprises jobs
where unionization, or the threat of unionization, has secured for workers a set of
structures which regularize the employment relationship and restrict competition
among workers within the segment and from workers outside the segment (Carnoy
1980.). The commonality between the various segmentation theories is that
labour is required to be exible, with a core of highly skilled and dedicated staff
complemented by a secondary peripheral workforce with much poorer conditions,
lower wages and security, with poor career prospects (Atkinson and Meager cited
in Danson 2005).
The two segmentation theories outlined above were formulated in a period
when globalization was not as deeply ingrained in many countries as it is now and
when unions were often more powerful. Early segmentation theories do not pay
much attention to how segmentation changes over time in the face of increased
national and international competition and technological change. Moreover, early
segmentation analyses predate thoroughgoing consideration of globalization (Gray
and Chapman 2004), and the mechanism of segmentation theory was based on
the historical development of national labour market structures (Peck 1996). The
national scale is not the only scale where a divide between segments takes place.
Various authors have stressed how labour segmentation is also a gendered and
locally constituted process deriving from unique intersections of labour demand
and supply structures (see Peck 1996 for an overview). A local labour market
can be considered as the geographically specic institutionalization of labour
market structures, conventions and practices. Local labour markets represent
the scale at which labour markets work on a daily basis, and at which some of
the more signicant reproduction functions are sited, and are among the scales
at which labour markets must be understood (Peck 1996). Various processes of
segmentation of labour, like gender, race and class, take place at the local scale,
and the impact of processes like restructuring of production is experienced most
profound within local labour markets.
The ‘new international division of labour’ thesis by Fröbel et al. (1980) can be
interpreted as an international conceptualization of labour segmentation. Written at
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Missing Links in Labour Geography
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the time of major industrial transformations in Western Europe, the term was meant
to illustrate the increasing subdivision of manufacturing processes into a number
of partial operations at different industrial sites throughout the world. Brought
about by the development of transport and communications technology and an
increasing subdivision of labour, a world-wide industrial reserve army has come
into existence, because all these potential workers can now compete ‘successfully’
on the world market with workers from traditional industrial countries (Fröbel et al.
1980). Two key processes that currently rework international labour segmentation
are the international migration of labour and the increasing outsourcing and off-
shoring of work. The ow of migrants into the cyclical, secondary segment of the
labour market helps secure the jobs of non-migrants in the primary sector (Bauder
2006). This would sustain traditional segmentation of labour as migration stabilizes
the labour market for non-migrants. Otherwise it can be viewed as driving a wedge
between groups in the labour force with migrants and non-migrants pitted against
each other. International service off-shoring, which is sometimes even referred
to as ‘the second global shift’ (see Bryson 2007), would break up traditional
segmentations of labour as new groups of workers would be exposed to increased
international competition. Service off-shoring will not only affect routine work, but
will also affect many formerly protected highly skilled and well compensated jobs,
the large bulk of which are concentrated in developed countries (Freeman 2005).
The new economy is associated with rising economic inequality both between and
within countries (Perrons 2007). In the popular media Thomas Friedman (2006)
classies workers along lines of their vulnerability to international outsourcing.
The segmentation hypothesis proposed by Friedman involves a combination
of functional and spatial segmentation of labour. In his conceptualization, only
smaller groups of workers can, owing to their specic expertise, e.g., accountants
or brain surgeons, or their local embedding, e.g., bakers, plumbers or cleaners,
secure their long-term employment and resist immediate threats of globalization,
although the last group in particular is vulnerable to the entry of new migrant
groups into the labour market. For the majority of workers, it becomes necessary
to constantly re-invest in their knowledge and skills in order to secure their future
employability in a globally competitive labour market.
The overview of literature in this section illustrated that workers are,
simultaneously, part of labour markets that are segmented at international, national
and local scales. Labour market segmentation does not just reect human capital,
the structure of the household division of labour, or employer discrimination,
nor, on their own, the requirements of the labour process or the conguration of
welfare regimes and industrial-relations systems, but it is a conjunctural, joint
outcome of all of these (Peck 2003). Owing to the lack of unambiguous criteria
for the drawing of segmentation lines in the labour market, researchers have great
liberty in the way they construct labour market segments (Bispo 2007). Processes
of segmentation are not universal unbending laws of economics, but should be
understood as tendencies, the realization of which is particularly sensitive to
spatial and historical context (Peck 1996). This reduces a possible universality
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Globalization and the Reworking of Labour Market Segmentation 203
of labour segmentation theory as an approach to the categorizing of jobs and
structuring of labour markets. Multi-determined and historically produced social
phenomena are rarely amenable to being crammed into quantitative empirical
categories (Peck 2003). However, individual case studies within various country
contexts can contribute to broader synthetic statements on the lines along which
segmentation takes place. Critical realist accounts of the theory-empirical interface
typically anticipate an iterative research process in which case-studies help to
clarify conceptual understandings that, in turn, shape future case-study research
(Angel 2002). In this context, studies in the global south help to identify the
lines along which segmentation takes place within labour regimes where workers
experience limited formal protection and representation. Additionally, workers are
often highly vulnerable to international shifts in production, particularly in labour
intensive manufacturing, that reduce possible long-term prospects for employment
within certain labour segments.
Positioning the Philippines in the Changing International Division of
Labour
The Philippines provides a good example of the problems and dilemmas faced by
many industrial areas in less-developed parts of the world as globalization moves
forward (see Lall 2000, Mani 2002, Beerepoot 2005, Scott 2006). The country
has difculty with the competitiveness of many of its traditional labour intensive
industries while it has not been able to make the shift towards more advanced
industrial production. This leads to massive displacement of workers with limited
formal education (see Beerepoot and Hernández-Agramonte 2009). At the same
time, the country creates a similarly impressive number of jobs in service sector
activities like call centres and business process outsourcing. In recent years, the
Philippines experienced a rapid expansion of this sector due to it supply of (young)
graduates with procient English language skills (see JETRO 2008).
Job-loss is typically associated with industries relocating to lower cost countries
or closing down because they are out-competed (see e.g., Hudson 2000, 2005,
Danson 2005, Felker 2003, Scott 2006). There is a well-established story of such
job loss in Western Europe where the re-employment of displaced workers often
turned out to be difcult. New forms of job loss in Western countries involve the
outsourcing of tasks to other countries or labour replacement by recruiting from
newly available pools of workers. Outsourcing becomes a process where individual
tasks can be transferred to that part of the globe where it can be done the cheapest.
This often involves silent processes of job loss in Western countries where jobs fade
away, often through smaller reorganizations, in sectors that still thrive and in which
job loss hardly receives press-coverage (see FNV 2005, WRR 2007)
The rise of offshore service activities and the fall of labour-intensive
manufacturing is a clear illustration of traditional labour dynamics and modern
forms of task outsourcing. Modern forms of task outsourcing are determined
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Missing Links in Labour Geography
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by the educational and language abilities of service workers located in low-cost
locations (Bryson 2007). It is more constrained by language as well as cultural
nearness, or the ability of foreign producers to relate to customers located in other
countries (Bryson 2007). Both processes could sharpen the divide between the
various segments in the labour market. Business services generally employ young,
more highly educated workers, but have been criticized for providing them with
narrow task descriptions, limited training and few career opportunities within
this sector (see Carr and Chen 2004). Through their lack of education, displaced
workers from labour intensive sectors do not have access to the newly created jobs
in the offshored service sector.
Labour Intensive Manufacturing Decline in Philippines
A weak base of home-grown industries and dependence on externally controlled
and owned branch plants makes the Philippines vulnerable to international
economic cycles. A number of labour intensive sectors in the Philippines, like
garments, shoes, furniture, gifts and toys, are currently confronted with an
absolute decline in their export value (see for instance Scott 2005, 2006, Ris
2007, Beerepoot and Hernández-Agramonte 2009). In the garments sector, of the
900,000 formal garments workers registered in 1994, only 311,000 remained ten
years later (ICFTU 2006). In the cottage-based shoe industry in Marikina, a suburb
of Manila, an estimated 5,000 jobs have been lost during the same period (see
Scott 2005, Ris 2007). These industries are important employment providers for
people with limited formal education. This signicant role is often underestimated
when the decline of these industries is analysed.
Manufacturing decline in the Philippines is partly the outcome of the forces of
globalization and the relocation of production to lower cost production sites while
various local conditions are additional reasons why the country has difculty
catching up technologically with its more advanced neighbours. With sluggish
FDI and export trends, the Philippines is a prime example of a country that is
caught in what Felker (2003) calls a ‘structural squeeze’ between an ascendant
China and more advanced countries like South Korea and Taiwan. Compared to
these countries, the Philippines continues to be a far cry from a strong state that
could competently intervene in markets and guide economic development without
industrial policies being captured by rent-seekers (McKay 2006). Research has
indicated that entrepreneurial strategies to deal with the decline in labour-intensive
sectors involve strategic relocation away from Metro Manila, into the Philippine
countryside, outsourcing to the informal economy in order to benet from lower
wage levels, or relocation to other Southeast Asian countries (see Beerepoot and
Hernández-Agramonte 2009).
Employment within labour-intensive manufacturing is often based on the ‘nimble
ngers’ of female workers. Additionally, workers must have job search skills,
loyalty towards their peers and submissiveness towards employers in order to secure
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Globalization and the Reworking of Labour Market Segmentation 205
a position (Beerepoot 2005). Their skills have often not been developed in a way to
secure longer-term formal employment or access to a wider range of possible jobs.
Women, who were the early winners in the globalization process, are now beginning
to lose out. They are losing ground in factory production, in terms of both jobs and
work-related benets, and are increasingly reliant on home-based work, which pays
less, and/or on the most marginal of own account activities in the informal economy,
such as vending (Carr and Chen 2004). Only anecdotal evidence exists relating to
where displaced workers from labour intensive sectors in the Philippines ended up.
The common perception is that the ever expanding informal economy easily absorbs
most displaced workers (see Ris 2007, Beerepoot and Hernández-Agramonte
2009). Even more pressing than in Western countries, displaced workers, especially
females, who have a limited education and who are beyond a certain age, which can
be as low as 30 years old, have few opportunities for re-employment in the formal
sector. Within labour intensive manufacturing, age forms an important criterion for
access to formal employment. Older female workers are ‘stuck’ in the sector and
within their location of displacement. Despite their extensive experience they are
often forced to accept similar employment in an informal setting (see Beerepoot and
Hernández-Agramonte 2009). There are few government programmes for retraining
displaced workers and often they do not reach the neediest people (see Ris 2007).
Compared to entrepreneurs, government and unions ‘abandoning’ the sector is not
much an option for these women. The ‘spatial x’ of these workers leaves them stuck
in the location of their former employment, even when opportunities for alternative
formal employment are limited.
The Philippine Business Process Outsourcing Industry
Within traditional conceptualizations, services are considered to be produced
and consumed locally (Bryson 2007). With the digitization of information, it has
become possible, and generally cost-effective, to transfer information processing
work, both in manufacturing and in services, to ofces and work units that are
remote from main premises, within and across national boundaries (Carr and Chen
2004). The potential numbers of jobs that can be off-shored are at this moment
unknown, but are likely to be enormous (Dossani and Kenney 2007). What were
formerly non-offshoreable services may, through operational changes in business
models, consumer preferences, and/or technology, be made amenable to offshoring
(Dossani and Kenney 2007).
Call centre operations, which are the largest segment within off-shore services,
require access to a large pool of exible, low-cost labour (Belt and Richardson
2005). The labour market for call centre agents is often characterized as a ‘secondary
labour market’ of insecure, low-paid jobs with limited career opportunities (see
Dekker, De Grip and Heijke 2002).2 For developing countries with capable
2 See Glucksmann (2004) for a conguration of call centre work.
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Missing Links in Labour Geography
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workforces, services relocation offers enormous employment and entrepreneurial
opportunities (Dossani and Kenney 2007). This type of global system replicates
that of export-led manufacturing in that large numbers of young women are being
recruited by emerging institutions of the digital economy, such as call centres,
thereby providing new opportunities for inclusion, but on terms which discourage
long-term, permanent contracts or unionization (Carr and Chen 2004).
Unlike the rst global shift, the geographies of the second global shift are
partially determined by a country’s colonial heritage (Bryson 2007). Language
(especially English language) skills are a major segmentation criterion from which
developing countries can benet and this has the potential to sharpen the divide
between developing countries. The Philippines is a prime example of a country
that has beneted from the international outsourcing of service activities. In recent
years, the country’s call-centre industry has undergone rapid expansion thanks
to its pool of college graduates with a good command of English. For United
States customers, the Americanized English of the Filipino call-centre workers is
considered to make the country competitive with India. Around 300,000 people
(with nearly as many men as women) are employed in this sector (see JETRO
2008). The workforce in this sector is just a fraction of the national labour force
of 37 million workers. However, the sector is important for proling the country
as a modern service based economy. The vast majority of the BPO centres and
jobs, both nearly 80 per cent of total, are located in Metro Manila (BPAP 2008).
The concentration of the offshore-service sector in the main urban areas and the
educational requirements imply that access to these jobs is highly segmented and
(especially) the rural poor are excluded. The workers in this sector are sometimes
considered as ‘petit bourgeois’ as they are generally young and well-earning but
with limited connection with other labour segments.3 At the same time, they benet
from the presence of an informal economy that provides low wage services. The
back-ofce services that move from the developed world to emerging economies
are supported by the low-wage services of the urban poor (Krishna and Nederveen
Pieterse 2008).
Key activities in the Philippine BPO sector are customer care, legal and
medical transcription, logistics and accountancy and software development and
animation (Shameen 2006). The majority of the jobs in this sector, around 200,000
jobs, are in call centres (customer care) and mainly deliver lower value added
services (see JETRO 2008). The rapid increase of jobs in the BPO-sector raises
the question of whether this means the replication of the branch-plant syndrome
or does it provide opportunities for longer-term competitiveness. The BPO sector
is not a major stimulus in terms of economic interdependence (Magtibay-Ramos
et al. 2008). So far, employment is based on a narrow job description and the
limited acquisition of additional knowledge and skills or the knowledge and skills
replicable in other professions. The opportunities for upward mobility for workers
3 Professor Rene Ofreneo, University of the Philippines-School of Labour and
Industrial Relations, personal communication.
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Globalization and the Reworking of Labour Market Segmentation 207
within their employment are often limited in this sector although these workers
earn much more than many other people of their age and level of education.
Employment careers within the call centre industry are generally short, only a few
years, because of the pressing work schedules and necessary night shifts to serve
the predominately US clientele. The physical demands of night time work leads to
a deterioration in the individual’s health and the inverted work schedule leads to an
increasing sense of social alienation (Rodolfo 2006). Within the national division
of labour a new labour segment is created, consisting of young, high income,
earners with only selective and uncertain longer-term employment opportunities
within their sector of employment.
Conclusion
This chapter has focused on a number of simultaneous processes that are leading to
a reworking of labour market segmentation in the Philippines and a repositioning
of the country in the international division of labour. Labour segmentation theory
provides the framework to analyse the outcomes of the ‘new competition’ on the
labour market for workers by identifying their long-term prospects for employment
within particular segments and how the various segments on the labour market
are connected with each other. Segmentation of labour takes place at different
scales, such as the local, national and international, and according to different
criteria, e.g. age, education and skills. At the national scale segmentation takes
place between the urban economy of Metro Manila, which is the country’s outpost
in globalization and where most new employment is generated, and the rest of
the country. Within the urban economy of Metro Manila, the divide is created
between those people with access to the new service sector jobs and those who
are confronted by the decline of labour intensive industries, with the latter group
often ending up in informal economy activities. In this sense, a traditionally
important secondary labour market segment declines while a new segment is
created. At the international scale, the Philippines belongs to the select group of
developing countries that has foreign language skills and is able to benet from the
international offshoring of service activities.
The integration within the global economy of various labour segments in the
Philippines is uneven and often temporary, and this becomes clear when they are
seen in temporal and historic context. Labour intensive manufacturing was very
important as an employment provider in the 1980s, providing jobs for women
who were excess to the needs of the agricultural sector. The BPO-sector currently
provides employment for a large number of young college graduates for whom
there are few other jobs are available nationally. But, these jobs are part of a branch-
plant economy whose longer term prospects are unclear. Both sectors explored in
this chapter reect the ‘old’ and ‘new’ employability skills that are required of
workers for them to compete in increasingly exible international labour markets.
Labour intensive manufacturing is based on the presence of ‘nimble ngers’
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Missing Links in Labour Geography
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that are available throughout the developing world. The BPO-sector demands
language and social skills from workers as well as imposed ‘cultural nearness’.
The current shift towards non-manual knowledge work, requiring higher level
skills and qualications, leaves those without the ability to adapt to these changes
no other choice than informal, low-paid and unstable work. At local scale, this
creates a divide between those with access to newly created jobs and those whose
role is to provide them with low-paid informal economy services. This chapter has
emphasized that for the study of labour segmentation it is necessary to focus on
how segmentation at different scales has its outcomes in particular sites. Current
segmentation analyses still mainly focus on only one level of segmentation while
this chapter emphasizes the necessity to identify the interrelation between the
local, national and international scales. Socio-economic processes at the global
scale often impose fundamental limitations on seemingly local issues (Lier 2007).
Understanding the terms of hierarchical integration in the global economy of
different labour market segments, and how globalization sharpens divides within
local labour markets, demands a holistic approach to connect the different scales
at which labour segmentation exists.
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