Killings, curses and wages

I’ve heard a good number of businesspeople say it’s not extrajudicial killings or President Duterte’s colorful language that has put major investments on hold. It’s more of the prospect of a substantial mandated wage increase. The number floating around for years as the desired hike in daily wage is P125, proposed to be legislated and applied nationally and across the board. Top officials of the Department of Labor and Employment have reportedly claimed that the President now wants the salary of workers in the provinces to be at par with those in Metro Manila, and have ordered all the regional wage boards to study a general wage increase.

Wage setting has always been a national dilemma. Employers prefer that wages be determined at the firm level according to individual firms’ requirements and capacity to pay. Organized labor has long pushed for a nationwide mandated uniform wage hike. Economists argue that wages should be determined by supply and demand, so that there will be no excess demand or supply in the labor market, and all workers will be fully employed. The problem is that in a labor market with too much supply (due to a large population) and too little demand (due to too little investments), relying on the market would push wages too low to support a family relying on just one worker.

Our existing labor law provides for a “next best” mechanism that provides a good compromise among these “ideal” approaches seen from the different perspectives. Every region of the country has a regional tripartite wage board with two representatives each from labor, employers, and government, with DOLE and the National Economic and Development Authority representing the latter. The mechanism recognizes that regions have widely different labor supply and demand conditions. No surprise, then, that the current basic minimum daily wage in Metro Manila is around P230 higher than in disaster-stricken Eastern Visayas and conflict-affected Muslim Mindanao. Forcing wages in the latter two to the level of Metro Manila would be sheer folly, and would only drive those areas into greater joblessness and deeper poverty.

Far from all workers actually benefit from mandated wage hikes. Perhaps its adherents don’t realize (or don’t care) that not all who work in the country are wage workers. Latest data tell us that only over half (25.2 million, or 61.5 percent) of all employed workers are in fact wage and salary workers. The rest are either self-employed (12.7 million or 30.9 percent) or unpaid family workers (3.1 million or 7.6 percent), for whom a mandated wage hike won’t help. Of the former, there are 1.4 million listed as employers in a family-owned farm or business, who could be pushed out of financial viability. In fact, the bulk (70 percent) of total jobs, nearly 29 million, are in small and medium enterprises—the kind where labor costs are likely to be dominant, and whose financial viability would be most impacted by mandated wage hikes. Not surprisingly, the Philippine Chamber of Commerce and Industry, with membership dominated by SMEs, is most vocal in expressing concern over the wage hike proposal. On top of all that are the 2.3 million who are jobless, and whose ranks are likely to swell if wages are forced up.

Given our peculiar labor market situation, there are far better approaches to helping our workers and our poor. Government must use instruments of more universal benefit to wage workers, self-employed or unpaid family workers alike. Improved access to basic services, especially health, education and housing, would go a much longer way than a mandated wage increase that will help far from all workers. Lower prices for basic commodities especially rice, via public investments in improved farm productivity, more open trade and more efficient marketing systems, would have the same effect as raising wages, only with much wider benefit. Ultimately, the answer lies in raising the demand for workers by ramping up investments. We know what that would take. We just don’t do them.

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