Pay rates: Supply and demand driven

Amid the ongoing Trump-induced oil crisis, there is a growing clamor from the labor sector for a wage hike. Timely or not, the answer is so obvious. Yet, expect this call to get several decibels louder in the coming days. Oblivious of the fact that no one on this planet isn’t adversely affected by this crisis. 

To the businesses, these elevated energy prices have already padded their production or operating costs. Inarguably, therefore, this call (if heeded) for non-productivity related wage hike will only rub salt in the wound. Worse, this is an additional burden to struggling micro, small and medium enterprises (MSMEs) and a disincentive to promising startups that have huge job-creation potentials. 

Understandably, workers will be badly hit by this crisis. Conscientiously though, while we truly consider the plight of our workers, the same amount of consideration must also be afforded to the employers (especially the small ones). The employers’ grievances are not without basis. Yes, profit is a great motivation. However, with the Trump-induced global economic uncertainty (brought about by the devastating wars in Iran and on tariff) obtaining, they need to stay afloat to let all workers keep their jobs.  

We can’t help though but agree that any non-productivity related cost (such as pay hike) is non-value adding. Therefore, an additional burden. That we are non-productive has factual basis. For one, globally, in 2023, we only ranked 116th (Wikipedia) in labor productivity and nothing much has changed until today. In fact, that is one of the reasons that our foreign direct investments are coming in trickles.

Indeed, non-productivity related wage increases will have repercussions. Why? As businesses have to stay afloat, they pass on the pay hike to customers by way of price increases.  Thus, inflation picks up.

On the other hand, we must also realize that to some fledgling businesses, non-productivity-related wage increases, if unbearable, will cause them to fold up. Consequently, not only will some workers will be rendered jobless, new entrants will be denied of that needed experience and opportunity to help their parents and siblings.

Curiously though, whether we are in crisis or not, there seems to be a constant demand for wage increases from certain labor groups (usually backed by politicians). These groups might have considered largely the higher than usual wages of those in the business process outsourcing (BPO) industry.  True enough, the workers 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.

There couldn’t be any better example than the effects to this sector on the “Great Resignation” in the USA which started right after the pandemic. With so many Americans leaving their jobs, most of the finance and administrative tasks were outsourced to the country.  As a result, we also experienced, until today, massive resignations from local companies’ finance and administrative personnel as they opted to “work from home” for US companies. Consequently, to hire replacements (or to keep some of them), local employers have to raise their pay scale.

If there is something we should learn, this phenomenon 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. Inversely, when there is oversupply of labor (especially those not highly skilled), as in the case of the other sectors, wages are low. 

Therefore, the most appropriate approach is to encourage new investments. How?  By being reasonable in their (labor sector) pleas for non-productivity related wage increases and for politicians to stop grandstanding just to earn “pogi” points. Then let the demand for labor rise beyond the supply. As these companies scramble for manpower complement, wages will certainly increase.