Stay the course

Is it time to abandon our decades-old regionalized tripartite wage setting mechanism, and instead legislate a uniform national minimum wage? Should the Tax Reform for Acceleration and Inclusion (TRAIN) Law be turned back to keep prices from rising too much? Should we re-regulate the oil industry to temper the domestic impact of dramatic changes in international crude oil prices? Or are recent short-term economic trends leading us to undue panic, to the point of reversing fundamentally sound policies that, with patience and persistence, should bring good to all Filipinos in the years ahead?

Once again, we hear calls for a legislated nationwide minimum wage, prompted by recent inflation trends. But a uniform nationwide minimum wage has never made sense in a country with such wide regional disparity as the Philippines, and neither has casting wage levels in stone via legislation. There’s good reason why the mandated minimum daily wage in Metro Manila is P200 more than in Muslim Mindanao; to raise the latter to the level of the former is to condemn that region to lag even farther behind. And there’s good reason why the Regional Tripartite Wages and Productivity Board (RTWPB) of Region IV-A (Calabarzon) does not mandate a uniform minimum wage even just within that region, but set it lower in that region’s lagging areas.

Wage setting has always been a complex challenge. Employers would rather have wages set according to individual firms’ needs and ability to pay. Organized labor persistently clamors for a nationwide minimum wage. Government economists would argue that supply and demand conditions would best determine wages, if we are to avoid excess demand or supply in the labor market, and ensure jobs for all workers. For decades, the RTWPBs have been our country’s sound compromise solution, providing a “second best” wage-setting mechanism that reconciles the perspectives of the three major parties of government, labor and employers. That way, they could jointly determine the wage levels to best achieve the greatest good for the greatest number in their respective regions, rather than leave that tricky and delicate decision at the hands of politicians.

Faster inflation has resulted from the confluence of high international crude oil prices, a depreciating peso, seasonally lower production of various food products, higher excise taxes on certain commodities, and exaggerated but self-fulfilling inflation expectations. Independent technical analyses by four different government agencies (namely the Bangko Sentral, Department of Finance, National Economic and Development Authority and Department of Trade and Industry) have been consistent in their findings: Of the 4.5 percent inflation posted in April, only 0.4 percentage point (ppt) could be attributed to TRAIN. The bulk (3.2 ppt) is explained by the much higher international crude oil prices and depreciation of the peso, with the rest coming from better tobacco tax compliance (0.2 ppt), and others including the expectations effect and undue profiteering (0.7 ppt).

To stop TRAIN in its tracks would only throw us off course toward our longer-term goal of broad-based development, for which rapid infrastructure buildup, free tertiary education, universal healthcare and many other costly government programs are key. Those who argue that the government now has enough money may not realize that the national government deficit as of the first quarter already reached 4.1 percent of GDP, well beyond the usual “safe” threshold of 3 percent. Thus, reversing TRAIN now could imperil even our short-term macroeconomic stability.

As for re-regulating oil prices, history has already taught us a painful lesson. Maybe our short memory makes us forget about our dark old days when oil pricing became so politicized in the hands of the government that it led to even more massive government deficits. The old Oil Price Stabilization Fund ironically became a prime destabilizer of the national economy then, and it took decades to bring stability back to government finances.

Let’s not squander all we’ve achieved, and still can achieve, by altering our ship’s course against headwinds that are bound to pass.

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