Pro real-wage growth

The Gross Domestic Product (GDP) is very often called the economic pie available to the people.  When divided by the population, it becomes the so-called per capita GDP, which would be available if shared equally—an assumption which is only arithmetical, and not factual—among Filipinos.

When adjusted for inflation, the GDP is called “real.” It is currently touted as growing at 7 percent per year, which is much faster than the growth rate of the population, and therefore the real per capita GDP is also growing quickly.  If equally shared, or at least widely shared, then everyone would benefit.

But what is the actual sharing in the first place?  By national accounting principles, GDP is the value of production and the value of earnings at the same time.  The production is valued by (a) taking their real amounts in goods or services and (b) multiplying these by market prices (in value-added or “net” terms, not price-tag or “gross” terms).

Through surveys and other means, the government generates quarterly indices of production and of product prices for production-sectors, i.e., agriculture, manufacturing, social services, etc.  Business and government cheer with each announcement of rapid growth. The data induce analysts to focus on what is being produced, and to think of ways to produce more.

What people share, however, are not the products themselves, but their earnings from being involved in production.  Their earnings depend on (a) their respective ownership of various real resources —the so-called factors of production, such as labor, also called human capital; land and other natural resource capital; factories and other material capital; and money and other financial capital—and (b) the market prices at which the real resources are compensated—such as wages and salaries, rental rates, profit rates, and interest rates.

Thus, in principle, there could be periodic data on earnings-sectors, too, rather than only on production-sectors.  Such data would reveal the actual sharing of the economic pie by workers, landlords, capitalists and bankers, and lead analysts to understand who has benefited from the economic pie, and to think of ways of sharing the pie more fairly.

When the aggregate of real earnings grows faster than employment of resources, it makes room for growth in the share of every factor of production—including room for growth in wages per worker, aside from growth in rentals per landlord, profits per capitalist, and interest per banker.

But data on earnings are extremely scanty.  The earnings of the poor deserve more scrutiny than those of taipans. Yet the government has no regular indices of actually-paid wages—in contrast to legally-mandated wages, which are a matter of record—for various skills and in various sectors.  Perhaps the official statistical silence is preferable to the risk of discovery that wages received by very many, if not most, workers do not keep pace with the cost of living.

I think it is high time we regarded high wages as an objective of national economic development, rather than as a handicap.  To me, having lower wages than other countries is not for boasting; it is an advantage—hopefully temporary—only for capitalists.  Having higher wages than some other countries, for some activities, is an achievement worth maintaining.

I do not propose that wages be raised by means of legislation.  That would be as futile as legislating a minimum growth rate for GDP.  What is appropriate for both GDP and wages is targeting for growth, and then setting the best minds in both private and public sectors to work on how to achieve the targets.

For associations of businesses, how about prizes for companies with the highest growth in average real income of the lowest-paid decile of their own employees?  Let the private sector’s bright boys figure out how to win the prestige of being the best to help their own poor.

The government can set the example in wages for its own employees.  In the first place, it can index pay scales, since, after all, the Bangko Sentral is accountable for price stability.  Education, health and science are activities with naturally more workers in the public than in the private sectors, worldwide—our government should compete with the foreign governments seeking to hire Filipinos with the requisite qualifications.

When real wages are falling, or stagnant at best, it’s no wonder that Philippine poverty has been flat for over a decade.  In 1990-2003, poverty generally declined; but from 2004, up to the end of 2013, it did not. Whether one prefers official statistics (based on an official poverty-line; latest for the year 2012), or the somewhat larger SWS self-rated poverty figures (quarterly up to the fourth quarter of 2013), the trend over time is definitely flat.

Let us face the fact that rapid GDP growth is not a dependable way to reduce poverty.  The only thing I will concede to economic growth is that it raises the gross tax base.  Yet the government needs, not just a larger base, but also a larger proportion of it!  Our present tax effort is only 13 percent of GDP, whereas those of Indonesia, Malaysia and Thailand are all above 16 percent.  I agree that the tax effort should be at least 17 percent, to finance not only social services and targeted human-capital-oriented transfers, but also national defense and other essential governmental functions.

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