On wage increases and the long game

This week will see the continued deliberations in the House about the P100 wage increase that was recently given the Senate’s approval. It was a burning topic last week as everybody weighed in on the pros and cons of raising the minimum wage by a hundred pesos.

I have made my opinion known: we should spread out the hundred-peso wage increase and not implement it in one go. Don’t get me wrong; I support the wage increase. As wages increase, so does consumption and that’s good news for businesses that rely on increased consumer spending.

But for how long will this last? While it is true that a rising tide lifts all boats, we should not let this become a tsunami that will engulf everything in its wake. The tall buildings will be left standing, but what about the low structures?

I understand where the senators are coming from. I am sure their hearts are in the right place and all of us want a better life for all Filipinos. But if you look at the past presidencies, all of the wage increases were implemented gradually over time. Not one of the past presidents, from GMA to Aquino III to Duterte, during their term approved an immediate increase of P100 in one go. PGMA increased wages a total of P154 over nine increases, Aquino III a total of P87 over six increases and Duterte a total of P79 over three increases. Since President Marcos Jr. took office, wages have been increased by P40.

Top economists are not throwing their full support behind the wage increase either, and for good reason. The past wage-increase strategies have worked. Right now, I can safely say we have industrial peace. It was not like this only a few decades ago when strikes hit some of the country’s largest companies. A wage increase might have the unintended consequence of creating wage distortion, which is what happens when established wage structures within an organization are disrupted or diminished because of mandated wage increases. This could dampen employee morale and adversely affect productivity and workplace harmony.

The truth is, not all businesses can afford the P100 wage increase. Some of these small businesses are large companies’ suppliers and distributors: the last-mile distribution companies, the subcontractors, the mini-marts, the dealers. They, too, have employees but unlike us, they have a smaller working capital.

We call these “survival entrepreneurs:” they live hand to mouth. During the pandemic, many of these MSMEs suffered because of the lockdowns. Any disruption or digression from their programmed expenses have consequences. They are not like the big companies who have a large working capital and have several credit lines to fall back on.

Put that into the context that MSMEs make up almost all of the enterprises in the country and generate more than half of the jobs. More of these businesses means more jobs for everyone. What we’d like to see happen is that, over time, there will be many companies looking for people to fill positions.

Increased labor costs will also affect foreign direct investments. These bring with them not only capital but also technologies and processes that can make our workers more competitive. That can’t happen if we raise the costs of labor too much too soon. Our workers must be prepared for future jobs and one of the ways we can do this is for multinationals to set up shop here and train them.

Then there is the matter of risking derailing the country’s economic momentum.

President Marcos Jr.’s investment pitches to foreign investors are starting to bear fruit. We can’t risk losing our momentum at this critical juncture. We are competing with other countries and right now, our labor force is quite competitive. The moment we change that drastically, our competitors will not think twice about exploiting that disadvantage.

The economy is only now recovering from the pandemic as well as the disruptions caused by the wars overseas. Commodity prices are down, and the country’s largest corporations are bullish enough to start massive investments in infrastructure.

Unemployment is at its lowest in nearly two decades, with many Filipinos finding employment in the informal sector. I would like to believe that this is because more small businesses were founded as people gained more access to the essentials of successful entrepreneurship, namely money, markets and mentoring – thanks to concerted efforts by government and private companies. A robust MSME sector is now helping ease the unemployment rate in the country. It’s not hard to imagine how an unexpected increase in costs can affect MSMEs and, down the line, the employment they generate.

If the wage increase is staggered, you have a chance to adjust it should the increase prove to have unfavorable results. But once it’s increased by a large amount all at once, you can’t take it back.

We should keep our eye on the ball by creating more jobs and upskilling the workforce. Our goal in the PSAC is to find a way to upskill employees so they get better wages. I worry about our micro and small businesses. Unlike in the past, we don’t see news headlines of strikes anymore. In our company, we have a good relationship with our workforce; our collective bargaining negotiations are peaceful and are completed. It benefits the organization to have a motivated workforce; we don’t want to lose our skilled workers to the competition and at the same time we want to see our employees move up in life.

This is the sustainable path. This is where the private sector is trying to put more focus. There are a lot of opportunities for Filipinos, and this is why I believe we should start with the senior high school students by giving them the basic education and training they need to make it in the world, either as highly skilled workers or as entrepreneurs. This won’t happen if there are not enough businesses to employ and train them, or if the costs of doing business are beyond their reach.

The long game is to upskill and reskill our people so they can move up and demand the higher wages that their higher skills deserve. The goal is for them to no longer need the mandated wage increases.