Boost productivity to reduce poverty

The connection between labor productivity and poverty reduction is brought to the fore anew by news of a supposed decline in the number of poor Filipinos in the first semester of 2018. According to the Philippine Statistics Authority, the country’s poverty incidence among Filipino individuals in the first semester of 2018 was estimated at 21 percent, lower than the 27.6 percent recorded during the same period in 2015.

It is interesting to note that the food threshold was pegged at P7,337 per month. This is supposed to be the budget needed for the daily food expenses of a family of five. Using this amount, we can estimate that the daily per capita budget is equivalent to P48. For ordinary laborers with a family of five, this amount is not only unrealistic, it is unacceptable.

In order for the official poverty data to become relevant and useful for policy decisions, it should be considered in conjunction with other data sources. The Social Weather Stations’ (SWS) self-rated poverty survey provides more somber results. Consistent with the official statistics, the SWS survey results show that poverty has generally declined during the comparable period. However, one in two Filipino families still considers itself poor, a figure markedly higher than what government data reveals.

Policymakers should consider that households whose income is in the bottom 30 percent are adversely affected by higher commodity prices, since inflation for this income group is more closely tied to food items.

For a fast-growing economy like the Philippines, the government needs to translate the country’s economic growth and productivity into actual benefits for the poor, among them ordinary workers. A recent study, “Benefits of Higher Labor Productivity and the Wage Stagnation Paradox,” by Dr. Vicente Paqueo and Dr. Michael Abrigo, highlighted opportunities for boosting productivity growth faster through technological catch-up, building complementary capabilities and instituting policy reforms.

In a 2018 report, the World Bank said that improving the link between labor productivity and real wage growth would also be critical in reducing poverty. It noted that real wages have been stagnant in the Philippines despite labor productivity improvements. Aggregate real wages remained flat in 2001-2016, with real wages falling in seven out of 15 years.

Despite sustained labor productivity increases and the acceleration of value-added per capita, our country’s compensation per worker lags behind our Asian neighbors. Paqueo and Abrigo in their study urged stakeholders to develop a mindset that gives labor productivity growth high priority, and recognizes its centrality to the sustained expansion of well-paying jobs and to poverty reduction.

The study noted that imposing high minimum wages without productivity growth appears inefficient, and has unintended adverse effects on the whole. Moreover, an increase in regional minimum wage lowers investment flow, while labor demand could decrease wage growth for workers earning above the minimum wage.

In order to raise labor productivity, the Philippines needs to improve its education and training systems and speed up infrastructure development. It also entails reforming certain laws and regulations, such as those that limit domestic market competition, impose trade costs and other barriers impeding external competition and technology transfer, and discourage greater foreign direct investment flow.

Policymakers should develop a national policy that puts labor productivity growth at its core, and that includes solutions that are mutually beneficial to workers, consumers and enterprises. The equation is clear: For the government’s poverty alleviation policies to work, real wages must increase as a result of increased labor productivity.

Dindo Manhit is president of Stratbase ADR Institute.