How to create jobs

I think it’s been fairly well established that free, open markets work best. The world’s successful economies show that even well-meaning diktats invariably do more harm than good, even frustrating instead the intended good.

Take minimum wage. Labor groups argue for higher wages on very reasonable grounds that P456 ($11.12) per day is not a decent, living wage. I agree. But zero, which is what close to 3 million Filipinos (or 11.7 million—a more realistic and, sadly, more believable figure, based on SWS’ latest survey) get is even less acceptable. They get zero because they have no jobs. They have no jobs because businessmen aren’t investing here. Foreign businessmen aren’t investing here because they can get cheaper labor in China, Vietnam and Cambodia. Even in Thailand and Indonesia.

Our daily minimum wage is $11; it’s $9.75 in Thailand, $8 in China, $5.30 in Indonesia, and $3.20 in Vietnam. The Philippines gives twice or thrice more than Indonesia and Vietnam, respectively.

Now look at the foreign direct investments over the past six years: China—$1,047 billion; Indonesia—$58 billion; Thailand—$51 billion; Vietnam —$41.7 billion; the Philippines—$13.6 billion.

Do you see the link? High minimum wage isn’t the only factor that is driving foreign investors away from the Philippines, although all surveys and anecdotal discussions indicate it’s a major one. Do you want a low-paying job or a no-paying no-job?

Instead of getting P456 in daily wage, around 11 million Filipinos who want a job get nothing. In the informal sector in the provinces a daily wage of P230-P280 is common, and people there somehow live on that. Now I’m not suggesting that’s an acceptable wage, it’s not. But what I am saying is that people can survive on far less than P456. But they can’t survive on nothing. And conditional cash transfers, helpful as they’ve been, are only an interim solution. Eventually—the sooner the better—people must have jobs.

Local businessmen don’t invest in new businesses because the cost of labor makes the cost of local products higher than the cost of imported ones. And consumers won’t buy out of the spirit of nationalism; they’ll buy, all things being equal, driven by price. In today’s highly interactive world you have to be competitive.

Also, high minimum wage drives small businesses to go into the informal sector where employees earn less and are less protected because of the absence of certain benefits (e.g., social security, home development, PhilHealth) that responsible companies provide. Equally important is the fact that government loses the taxes and controls it should have.

Meanwhile, the security of tenure is probably one of the worst prolabor laws you can imagine. If there’s one thing it’s not, it’s security of tenure. It deters, instead of encouraging, job creation. You think twice, three times before hiring anyone because of the huge cost and difficulty of terminating. Or you hire for five months, and then kick the employee out in the most hurtful fashion.

If a job is necessary, when you fire someone, you just hire someone in his place. There’s no reduction in the available job statistics. Someone lost, someone else gained. The “loser” works harder next time to ensure he retains the job, the “winner” works harder to ensure he keeps it. Productivity goes up, cost goes down. Demand for the product shoots up, more workers are needed.

If the job is no longer needed, why keep the worker? There’s no sense to it. It provides guaranteed passage to bankruptcy. One of my clients closed down one of his company’s departments when he outsourced its tasks. He was forced by the labor department to rehire the workers, who now just sit there daily with nothing to do. Where’s the sense in that?

It’s an example of shallow thinking, something that sounds good, until you look into it more closely. Great for campaign speeches, lousy for the unemployed. You should be able to terminate, even without cause, as long as you give notice and adequately recompense based on present salary and length of service.

Bills proposing a P125-per-day increase across-the-board and a stronger guarantee of an employee’s security of tenure have been filed in Congress. (They are currently pending in their respective committees and are not likely to be approved in any of the remaining days of the 15th Congress.) These measures were filed because they are popular, though they are not what’s actually best for employees. But if ever passed, these will result in fewer jobs. Now I know this view will be disputed given the fact that, as I said earlier, there are other factors that determine where one will invest. But do you really think an investor will choose a place where labor costs are higher and labor regulations are more rigid compared to elsewhere? You’d have to offer some other really attractive factors to get that investment. But the Philippines has nothing more attractive to offer. If there are any, most of them are worse turnoffs: higher electricity (our rates are already the second highest in Asia), a convoluted bureaucracy, inconsistent policies, more corruption, poor infrastructure, etc. These do not make the Philippines a particularly attractive place to invest in; yet it could be, if it offered lower labor cost and a more open market policy for the employment of labor. A more competitive wage and more flexible working conditions aren’t the only factors, but they are significant ones. These are the changes the law needs to facilitate.

The politicians would do better for the country and their people if they explained this to the people and put in place policies that attract, not deter, job-creating investments. It’s an area President Aquino should focus on as well. We need to create jobs.