The key to raising wages

Edwin Santiago, Executive Director of the Stratbase ADR Institute

A great number of our local teleserye plots invariably lead to a story of infidelity, adultery and deception. These shows rate high and sell over and over in spite of the familiar theme and the predictable outcome. There were several attempts in the past to depart from this worn-out—or tried and tested, as others may refer to it—formula by introducing novelty into their stories.

But, after all the twists and turns, once the almighty ratings frown upon the storyline, a quick rescue is to bring back the desire, the passion and the lust into the story, sometimes happening out of the blue, without so much as the benefit of foreshadowing. But, never mind the logical lapses. The viewers tend to accept the turn of events and, barring any major event or issue about the show or its cast, the series can run its intended lifetime.

One other aspect of our lives that seems to follow a predictable flow is the inevitable posturing of labor, business and the government in the days leading up to May 1.

For as long as we can remember, Labor Day has generally been marked by three things—the labor sector demanding an increase in the minimum wage, an improvement in working conditions and more jobs; the business sector challenging the demands of labor by feigning financial losses and hinting at lay-offs and shut-down; and, the government trying very hard to appear sympathetic to both sides, but paying tribute to the vote-rich labor and their contribution and vital role in nation-building. There are variations here and there, but the narrative seems to be the same every year.

Their recurrence only means that the issues have not been resolved permanently but were only given analgesic solutions—like a painkiller to an appendicitis. Rather than looking at the same things the same way year in and year out, maybe, all parties should aim to take a closer look at the variables at play. There might be a different story to tell.

This is exactly what economists Dr. Vicente Paqueo and Dr. Michael Abrigo did in their paper “The Benefits of Higher Labor Productivity and the Wage Stagnation Paradox.” Essentially, they debunked speculations that Filipino workers are being exploited despite what they called “widening divergence between the average basic daily wage and labor productivity trends.”

Simply put, they are saying that just because labor productivity levels have outrun wage levels does not mean that the workers are not getting their fair share of the wealth created or that they are being exploited. Their explanation, as similarly advanced by other economists, is that the analysis should include not only daily wage but also the so-called fringe benefits—the non-wage benefits—that employees are entitled to. True enough, based on their paper, total compensation is in step with productivity.

But why is this relevant? Filipino households have a high dependence on income derived from wages. Given this, it stands to reason that wages play a critical role in efforts to reduce poverty and its adverse consequences.

Common sense would tell what labor groups have been saying—the government has to increase wages to rescue Filipinos out of poverty. This year, they are asking about P700 to be added to the current daily minimum wage of P537 in the National Capital Region.

At the level of the absurd, why stop at P700 if we can save more Filipino households with a higher minimum wage? Obviously, it is not a simple as increasing the minimum wage. There are consequences—an application of Newton’s third law, if you will, that for every action, there is an equal and opposite reaction.

Widely-held economic wisdom would tell us that the consequences of higher wages include loss of jobs and inflation. Because of the increase in labor costs, employers will be able to afford fewer workers, forcing them to let go of some workers, increasing unemployment and decreasing aggregate demand for goods and services, both of which are not good for the economy.

On the other hand, higher wages can mean that people have more disposable income, can afford to buy more goods and services, increasing aggregate demand, causing inflation—when supply does not keep up. When this happens, the benefits derived from the increased wage may be offset by the disadvantages of inflation.

The TRAIN Law sounds as an appropriate example of this point—lesser taxes that led to higher disposable income, but with a corresponding increase in prices brought about by increased taxes on fuel, people ended up probably even worse off economically than before. Of course, there are varying opinions.

For economist Romeo de Jesus Jr., the excess labor—too many people chasing limited number of jobs—that the economy is not absorbing properly is one of the reasons for depressed wages that, in turn, drives down productivity at the national level.

But, obviously, we need to do both—generate jobs and increase income. And, clearly, the solution is that not simple. In terms of creating jobs, the task of government, among others, is to entice investments by improving the ease of doing business and increasing our competitiveness.

On the other hand, increasing income should be tied to productivity to reduce the detrimental effects on the economy. Instead of an across-the-board government-mandated increase that doeslittleto provide stimulation for productivity—and, even cuddles and rewards the unproductive—the burden on government is to enhance the policy environment to support a productivity-based compensation scheme, that is both equitable and progressive.

This can be done by safeguarding the minimum wage to ensure that it meets out-of-poverty levels. Beyond that, the government should focus on enhancing productivity of Filipino workers through training, technology, investment, effective programs and responsive policies.

For Paqueo, the name of the game is sustainability. We should not rock the boat too hard on the positive growth of the economy with uncertainties, and this includes legislation and agreements.

In the final analysis, we need to have aninnovative method and more responsive solutions to our national problems. The teleserye approach is not going to make it anymore. We have serious problems and we need serious policymakers—senators, for instance—with intellectual sophistication and not only functional literacy, a sense of humor and the capability to sing and dance.

And, while we are it, perhaps, labor can also use a different song and dance routine aside from burning the effigy of the president and marching with placards.


This article was originally published in

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