Wages & productivity: The widening gap

This year’s Labor Day is just a few sunrises away. So that, demand for higher wages have become so hot in this superhot summer. Truth be told, while this superhot summer is unusual, demands for salary increases are just business as usual. This year’s workers’ day is no exception.  Yes, regardless of where the economy’s trajectory point to, we will always hear demands for huge salary increases every year. Consequently, almost every year, we have a uniform across the board increase in wages.

Obviously, these are non-productivity related increases as some companies are still on the red or are still recovering from the effects of the crippling pandemic. Needless to say, non-productivity related wage will push inflation. Why?  Because when a worker who had the same output over the years will get a pay hike, his raise will only add up to the cost of the product. As companies will try to maintain their bottomline, they will raise their selling prices. Thus, will push inflation.

Notably though, some industries have been doing well even during the pandemic and are expected to do better this year.   Mercer’s annual Total Remuneration Survey (TRS) 2022 revealed that “the Shared Services and High Tech industries are not showing signs of slowing down.”  Thus, it reported that, this year, “across the industries surveyed, the shared services was projected to offer the highest salary increment at 6 percent followed by high tech (5.8%), life sciences (5.8%) and logistics (5.8%).”

Obviously, these (expected to raise wages) companies have highly skilled employees (who are already highly paid) in their fold.  Unfortunately, their existence will not address our unemployment woes among the unskilled ones.  Honestly, if we try to address unemployment, in particular, and poverty, in general, we need to boost our local economy.  How? By helping homegrown industries to flourish.

First and foremost, everyone should know that we are lagging behind in business and productivity surveys globally.  For one, in the “ease of doing business surveys”, we are always in the bottom half of the economies surveyed.  The same is true with productivity surveys.  To put it bluntly, our competitiveness efforts leave much to be desired.  Consequently, foreign direct investments (FDIs) are coming in trickles.

We must also realize that non-productivity-related wage increases had always brought about negative consequences especially to the new entrants and the unemployed in the labor market.  In fact, the constant increase in the minimum wages is the main reason the unemployment rate of the young workers is very high.   Logically, because when non-productivity related increases are imposed, the unskilled and inexperienced workers or new graduates will suffer the major blow.  With the same amount of pay, companies will definitely go for the experienced ones.

On the other hand, those constantly demanding for higher minimum pays might have considered largely the higher than usual wages of those in the business process outsourcing (BPO) industry.   True enough, the workforce in this industry are really paid way beyond the minimum wage.  Yes, these BPOs are also in need of more workers.  Unfortunately, however, these BPOs could hardly get from the labor market the quality and the skills they badly need.  Simply put, there are more mismatches than hires.  Why? This sector employs not only the well-educated but the best among them.  Thus, they don’t directly give opportunities to individuals who are among the unskilled or the inadequately educated.

If there is something we should learn, this industry (BPO) reveals that wages always boil down to supply and demand.  It simply means, when labor (with quality and skills) is scarce (as in the case of BPOs), the wages are high.  When there is oversupply of labor (especially those not highly skilled), as in the case of the other sectors, wages are low.

Therefore, there is a need for more investments in all sectors. When that happens, the demand for labor will absolutely increase.  As these companies scramble for manpower complement, wages will likely increase.

So that, the most logical thing to do is for the labor sector to help create more jobs by encouraging more local and foreign investments in all sectors (not just BPOs).  How?  By being reasonable in their demands for wage increases.

Or, at the very least, they just have to take that meaningful step of increasing their output.  This way, they will be able to help narrow the gap between their pay and productivity.  By doing it, with or without wage orders, companies may just raise their pays.