Let’s target real wages

In monitoring economic well-being realistically, it’s obvious that adjustment for inflation is needed. What matters is real value, not nominal or money value. The target growth rates of gross domestic product are always set in real terms, of say 4 percent per year; if 6 percent inflation is expected, then the target growth becomes 10 percent in money terms.

The administration says it wants the percentage of poor persons to be in single digits by 2028. It says it wants the Philippines to become a “middle-income” country. I think both objectives entail increases in the real value of the actual earnings of those presently poor.The legal minimum daily wage in the National Capital Region (NCR) was recently raised from P570 to P610 pesos (Wage Order No. NCR-24, 6/30/23). The 40-peso increase amounts to seven percent, which seems to be a mere adjustment.

The wage order only applies to employers with 10 or more workers, by the way. Hence there must be many workers, working for small and micro enterprises, who receive less than the legal minimum wage, with no penalty to their employers.

I don’t know if the legal minimum wage is set by some formal principles, or if it is only based on negotiation among the members of a wage board. It does seem that a one-worker family, employed in a company large enough to be covered by the law, would not be enough to sustain a family decently.

As usual, organized labor groups immediately appealed, complaining that the increase was inadequate for the needs of a family. They specifically opposed the use of the official poverty threshold as a guide for setting the minimum wage.

Instead, they cited the Ibon Foundation (ibon.org), which periodically estimates a Family Living Wage (call it FLW), that a family of five needs “to live decently.” Ibon’s FLW for NCR, as of August 2022, was P1,117 per day. Multiplying that by 30 days gives P33,510 per month that the NCR family needed for decent living at that time; by June 2023 it should be more.

Unfortunately, the appeal was rejected (“Php40 minimum wage hike in NCR to take effect despite appeal,” nwpc.dole.gov.ph, 7/12/23). The Self-Rated Poverty (SRP) Threshold is relevant, properly interpreted.

In March 2023, the median SRP Threshold for NCR was P15,000 per month, for the family’s home expenses. It excludes costs of commuting to work, cell phone load, internet, work gear, and all other expenses incurred by workers in the course of their work—on which Social Weather Stations (SWS) is also collecting data, and will make a public report in due time. Workers need to cover their cost of earnings too.

Note that a median is the mid-point of the distribution. It is what half—the poorer half, that is—of the Self-Rated Poor NCR families say they need. In March 2023, 40 percent of NCR families rated themselves as Mahirap. The median implies that half of them, 20 percent, needed P15,000 in order not to be Mahirap, while the other half needed more.

The trend in actual wages is a mystery. In 2018, I reported on a talk by then Finance Undersecretary Karl Kendrick Chua, where he presented a chart about real output per worker and the real average wage per worker over time. It showed that, in 2001-2016, labor productivity grew by at least 50 percent, yet the real wage did not grow at all (“Stagnation of real wages,” 3/3/18). Later, Mr. Chua was National Economic and Development Authority director general, and did not revisit the issue of wage stagnation.

A so-called “wage-price spiral” requires a steady real wage. Those who argue that wage growth will only worsen inflation have the burden of proof that wages grow at least as fast as prices do. What I sense, however, is that wages are just playing catch-up to prices.

The Philippine Statistics Authority has a regular Labor Force Survey (LFS), based on a national sample of households. Some time ago, I saw an LFS questionnaire, which included the earnings of the workers of the household. I sense that the government is collecting data by which a monthly real wage series could be constructed, yet is fearful of doing so. Under these circumstances, I recommend that organized labor and other organizations generate and publish their own regular series of data on actual wages.

Wages are being held back by the appalling lack of schooling. In the March 2023 Social Weather Survey, the household heads—presumably already done with school—were roughly 15 percent elementary dropouts and 30 percent junior high school dropouts. This means that, at present, two of every five of them have little hope for decent-paying jobs. This proportion should be reduced, by programs like the Pantawid Pamilyang Pilipino Program that keep the young in school, for the sake of the next generation.

The decent jobs are accessible mainly to the 45 percent who at least entered senior high school, and the 10 percent college graduates. Researchers need to get data on the progress of wages, broken down by schooling attainment.

It’s a shame that so many businessmen talk of higher wages as a handicap to development. To me, higher wages are a sign of economic success that we should all target to achieve.

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