Unified minimum wage: Boost or bust?

A few days ago, the House of Representatives’ committee on labor and employment “approved the bills seeking to create a national minimum wage and effectively abolishing the current system of varying provincial wages.” This is nothing new though. About five months ago, a similar bill (House Bill 2599) was also filed by the Makabayan bloc in a “bid to pass the proposed National Minimum Wage Act” calling for a national minimum wage of P1,200.00 and the abolition of the regional wage boards. To recall, over seven (7) years ago there was a similar bill too filed by the bloc for P750.00.

Demand for exorbitant wage increase may sound absurd but it sells well to the labor unions’ members. Coupled with the proposal to set a national minimum wage, the workers in the countryside will even be more gratified. This is so as the minimum wage in Metro Manila shall be the same as that in the Province of Sulu. The House’s committee did not disclose though the proposed initial minimum wage upon implementation. However, for purposes of discussion, we may use the minimum wage proposed by the Makabayan bloc earlier this year.

Simply put, should we consider the proposed P1,200, a worker in Sulu who now receives P386 stands to receive an increase in daily pay amounting to P814 and that in Metro Manila who now receives P695 will get a pay raise of P695. Such move though encourages the “probinsyanos” in Metro Manila to go back to the rural areas.

Historically, negotiations for minimum wage increases have always been so intense.  Since demands by labor groups have been so unrealistic, their petitioned amounts, as always, were not granted. Most of us, however, are in agreement that their demands have always been clothed with so much hyperboles. They usually do these to stay relevant to their union dues-paying members. Unfortunately, these swaggers brought about negative consequences to the new entrants in the labor market and the unskilled ones.

Factually, 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 skilled and experienced ones. Therefore, as the unskilled and inexperienced workers will turn out to be expensive, the possibility that they won’t get employed is imminent. Unfortunately, they will miss the opportunity to earn while learning skills and gaining experiences.

By the same token, if the proposal for equal minimum wage nationwide pushes through, there shall be wild non-productivity related increases of wages in the countryside. Some small and medium enterprises in the countryside might even close. Thus, we can surely expect spikes in unemployment in the rural areas.

Additionally, this move is a disincentive to prospective investors in the countryside.  Why will they pour their money in the rural areas if labor cost is just the same as in Metro Manila? Remember, for manufacturers, the closer they are to a huge market the better for them.  Why? It is because if they put their factories in the rural areas and have exactly the same manufacturing cost, their products will come out to be more expensive when delivered to Metro Manila due to freight and handling expenses. Therefore, they’ll just put up their factories in Metro Manila. That’s a no brainer.

Moreover, this move discourages up-and-coming entrepreneurs and kills struggling business start-ups in Metro Manila and the countryside. Moreover, for the thriving small business owners in Metro Manila, this is just too much. More so, to those in the countryside. So, if those in Metro Manila close their shops what is there for the “probinsyanos” there to go back for in the countryside? Nothing.

The truth is, we’ve not been doing the right approaches and, now, these lawmakers (beleaguered by accusations of corruptions) are trying to save their careers and are coming up with a wrong one. Agreeably, the most tenable approach should have been through productive employment in the countryside. This can be addressed by encouraging new investments there, both foreign and domestic (including SMEs). Or, should the government must directly intervene, through productive and efficiency-oriented supports to the most vulnerable sector, the agriculture sector.

Indeed, except for the more professionally managed and people-oriented companies, wages always boil down to supply and demand. It simply means, when labor is scarce, the wages are high. When there is oversupply (of labor), wages are low.

Therefore, the most appropriate approach is to encourage new investments. Let the demand for labor rise beyond the supply. Then, when it happens, salaries will obviously increase.