Wages

Senate President Miguel Zubiri has proposed to increase the daily minimum wage by a uniform nationwide rate of from P100 to P150. I have always thought we should be paying our workers a living wage that will enable them to buy their necessities and have dignified living conditions.

But the cost of labor is also based on the market’s demand and supply. Unfortunately, we have a labor surplus because our economy has not really produced the kind of jobs that will absorb available labor, specially those who are trying to escape poverty in our farms. Our post-WW2 administrations miserably failed to create the industrial base that will produce those jobs, something that Vietnam did in a little over 10 years after the end of the Vietnam war.

So, is the Senate President just being populist because he is gearing up for a possible presidential run? Or does he have an economic basis for his proposal?

No, Mr. Zubiri does not have an economic basis for his proposal. I imagine he picked the number from thin air. Then he paid Pulse Asia to include a “rider” in its survey from June 19 to 23 to ask respondents whether or not they are in favor of the proposal to increase by P150 the daily minimum wage of workers in the private sector. A whopping 97 percent said they agree to the proposal.

That’s not surprising. If anyone asked me if I would like an increase in my monthly pension from SSS to make it inflation proof, I would say yes too, not even thinking of its impact on the actuarial life of the fund.

It is not surprising that the most urgent national concerns overall, increasing the pay of workers ranked second among the top issues, at 44 percent after controlling inflation, which stood at 63 percent. But is a nationwide wage increase the answer?

Any proposal to raise the minimum wage is always controversial. The workers obviously need a raise to keep body and soul together. On the other hand, with our underdeveloped mom-and-pop economy, every time a wage increase order is given, the ranks of the unemployed increase. That’s because the micro, small and medium enterprises, which account for 99 percent of business establishments, tighten their belts or close down.

A legislated nationwide wage increase will also remove a competitive advantage of regions where the cost of living is a lot lower than in the urban areas and can afford lower minimum wages. Entrepreneurs will just crowd the cities where there are better available services (e.g. electricity, water, etc) and better pools of available labor than create jobs in the countryside. That’s why our minimum wage is calibrated regionally.

Economists say that an increase in the minimum wage should be in line with increased worker productivity. This is how entrepreneurs providing the jobs are kept whole after the wage increase. Worker productivity, however, assumes well trained workers, something our educational system has found difficult to provide.

Former Finance undersecretary Karl Chua, in a paper presented before the Foundation for Economic Freedom some years ago, observed that “Real labor productivity has been increasing, yet real wages have been stagnant.” A time-chart of real output per worker and real average wage per worker over time (“real” means adjusted for inflation) shows that from 2001 to 2016 labor productivity grew by at least 50 percent, yet the real wage did not grow at all.

Aha! That’s the economic justification Zubiri should have cited.

Dr. Mahar Mangahas, a University of Chicago-trained economist and founder of the Social Weather Stations observed: “The stagnation of real wages over time, despite impressive economic growth, is something easily sensed, but rarely published. It is just too embarrassing for the government to admit that the general economic growth is not being shared with ordinary workers.

“It seems there is an unspoken conspiracy among the career government technocrats to constantly downplay, if not deliberately suppress, any unfavorable statistics, rather than exploit their value for raising a social alert and supporting needed reforms.

“Usec. Karl Chua is not a career technocrat, fortunately. He is Finance Secretary Carlos Dominguez’s recruit from the Philippine office of the World Bank.”

Dr. Mangahas thinks “that growth in the real wage should be a targeted variable, and that the target should be the growth rate in per capita real gross domestic product…

“In monitoring economic well-being realistically, it’s obvious that adjustment for inflation is needed. What matters is real value, not nominal or money value. The target growth rates of gross domestic product are always set in real terms, of say four percent per year; if six percent inflation is expected, then the target growth becomes 10 percent in money terms.

“The GDP is the sum total of all earnings within Philippine domestic territory. If the average of all types of earnings, per person in the population, grows by three percent per year, in real terms, then it is feasible for the average earnings of local workers to likewise grow at three percent, in real terms.

“A targeted wage does not mean a legislated wage. The real GDP cannot be legislated to grow – that would be folly – but the sources of its growth can be understood, and therefore its growth can be targeted. So, too, with the real wage.”

The President who understood the issue of inclusion was PNoy.

“The only real growth is inclusive growth,” explained President Aquino in 2015, pointing to the Philippines’ 6.2 per cent GDP rise over the last four years, a 40 year high, but also the need to build prosperity that is widely felt by the people.

Dr. Raul Fabella of the UP School of Economics and a National Scientist, noted a “disturbing observation” emerging halfway into Duterte’s term: the economy seemed to revert to business-as-usual, which only worsened during the pandemic in terms of poverty reduction.

The Management Association of the Philippines pointed out in its reaction to last Monday’s SONA that economic gains must redound to the benefit of the Filipino people whose lives need uplifting the most. A more equitable income distribution and redistribution should be at the front and center of our economic development.

Where to now, BBM?

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco