How can wages be grown?

This piece is on the position I took at last Thursday’s public hearing of the Regional Tripartite Wages and Productivity Board for the National Capital Region (NCR), on invitation by Trade Union Congress of the Philippines (TUCP) party list Rep. Raymond Democrito C. Mendoza. The hearing was about proposed adjustments to the legal minimum wage in NCR, and started with a presentation from the National Economic and Development Authority (Neda) on the government’s statistics about economic growth, employment, and the like.

When given the floor in the time allotted for labor groups, I made it clear that I am from academe, and not a consultant of TUCP or any other labor group, nor of any employer group, nor of the government, i.e., none of the “tripartite.” As an economist working on trends in the quality of life, I am familiar with many, but not all, statistics, and definitely not with statistics inaccessible to the public.

Actual, not minimum, wages are what matter. What was markedly missing from the Neda presentation was data on the growth of actual compensation, including wages, of workers over time. Yet such data are being regularly collected by the Labor Force Survey of the Philippine Statistics Authority (PSA), judging from an LFS questionnaire I have seen. The PSA is, of course, under Neda. It’s especially frustrating to learn of the World Bank and Asian Development Bank having access to such data.

It is essential to have time-charts of actual wages to see their relationship to legal minimum wages. If the government does not provide such data, I think it is time for both labor groups and employer groups to collect their own.

New data are needed to clarify the situation. Suppose each labor group (garments workers, construction workers, domestics, teachers, etc.) does its own compensation survey. Suppose the Employers Confederation of the Philippines surveys the compensation of its own workers. Suppose associations of government workers do likewise. What would these surveys show about the real incomes of workers over time?

Economic growth is not the big challenge. The aggregate economy has a long history of real growth (except in the pandemic, which is a special story). The productivity of the factors of production, like labor, capital, natural resources, and so forth steadily grows, as a whole. The big challenge is for the earnings of the factors owned by the poorer classes, and not just those owned by the richer ones, to grow in step and not be diluted by price inflation.

The minimum wage is not a reliable proxy for the actual wage. It is essentially an entry wage into formal employment of one with no prior work experience. What needs to grow, in real terms, is the actual compensation of all workers, not just the newbies. Minimum wage setting is just a signal to adjust the pay of experienced workers as well, to maintain their morale, to give them a “loyalty increase” in pay.

Counting compensation should include bonuses, profit-sharing, benefits, and other entitlements. It should include the value of health insurance, and extra months of pay like 14th, 15th, etcetera, even if not legally required. It should include food and transportation allowances. It’s as big a job as that of constructing a consumer price index, and should be done as thoroughly.

The cost of earning should be subtracted. The actual real compensation of workers is net of costs that workers shoulder, like work-wear, commuting, and loads for their mobile phones. Social Weather Stations (SWS) has occasional items showing that P1,000 per month for commuting to work in NCR, and another thousand for mobile load are commonplace.

SWS data shows very slow reduction in poverty, and very slow improvement in basic education. It has no surveys for tracking workers’ real compensation, but I suspect it is rather stagnant. In that case, then the legal minimum wage system has failed as a means of helping workers as a whole to share in economic growth.

Stakeholder capitalism. Do employers really want stagnant real wages? Have they no wish to share economic growth? In his 2022 book, “Strategy in the new age of capitalism,” Niceto S. Poblador argues that businesses can create economic value for their workers by offering comfortable wages and other performance-based financial benefits, creating an organizational culture conducive to improving collaboration, productivity, and investment in new technology (see “Poblador’s new capitalism,” 5/28/22).

Businesses that create economic value for workers, business partners, customers, and society as a whole will also maximize profits for stockholders. It is a win-win strategy.

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