Stagnation of real wages

The most striking slide in a recent talk by Finance Undersecretary Karl Chua was the one titled “Real labor productivity has been increasing, yet real wages have been stagnant,” rather than anything specific to his advertised topic of TRAIN (Tax Reform for Acceleration and Inclusion), at the Foundation for Economic Freedom.

The slide is a time-chart of real output per worker and real average wage per worker over time; the term “real” means adjusted for inflation.  It shows that, from 2001 to 2016, labor productivity grew by at least 50 percent, yet the real wage did not grow at all.

This is a trend that deserves to be studied, understood, and acted upon with the intention of reversing it.  The stagnation of real wages over time, despite impressive economic growth, is something easily sensed but rarely published. It is just too embarrassing for the government to admit that the general economic growth is not being shared with ordinary workers.

It seems there is an unspoken conspiracy among the career government technocrats to constantly downplay, if not deliberately suppress, any unfavorable statistics, rather than exploit their value for raising a social alert, and supporting needed reforms.

Usec. Karl Chua is not a career technocrat, fortunately. He is Finance Secretary Carlos Dominguez’s recruit from the Philippine office of the World Bank.

I think that growth in the real wage should be a targeted variable, and that the target should be the growth rate in per capita real gross domestic product.

The GDP is the sum total of all earnings within Philippine domestic territory.  If the average of all types of earnings, per person in the population, grows by 3 percent per year, in real terms, then it is feasible for the average earnings of local workers to likewise grow at 3 percent, in real terms.

A targeted wage does not mean a legislated wage.   The real GDP cannot be legislated to grow—that would be folly—but the sources of its growth can be understood, and therefore its growth can be targeted. So, too, with the real wage.

In the first place, the government, as the country’s single largest employer—think of teachers, soldiers, health workers, environmental workers, and policemen—should regularly upgrade its own wage structure, and thus subject private sector employers to greater competition.

Secondly, big business groups should be encouraged to accelerate the wages of their own workers. I challenge them to hold contests as to who pays workers the most, with appropriate prizes for the winners. Big business and big labor should cooperate in statistical monitoring and publishing of wages in various sectors.

Definitely, wage statistics are essential for understanding the wage situation (see, for example, “The state of American wages 2017,” Economic Policy Institute, 3/1/2018, www.epi.org).

On Tuesday, March 6, at 2-4 p.m., I will present “Monitoring Economic Well-Being: the SWS Approach,” in a forum cosponsored by the Philippine Economic Society (PES) and Social Weather Stations, at the SWS Knowledge Center auditorium, 52 Malingap Street, Sikatuna Village, Quezon City.

Dr. Dennis Mapa, dean of the UP School of Statistics, and Dr. Kevin Chua, economist at World Bank Philippines, will be reactors. Dr. Majah-Leah Ravago, PES president, will induct new members at the program. The forum is open to the public, at no charge. To attend, contact https://bit.ly/EconWellbeingForum or (02) 929-2671 or [email protected].

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