Mandated minimum wage

This post is antedated. This was my column on the date indicated above.

Labor Day happens in about a fortnight. It’s supposedly a day to celebrate the contributions of workers to the advancement of societies all over the world and commemorate gains the labor movement has won through the years. Of course it is also a day meant to put the spotlight on the fate of workers and to advance their protection and welfare.

It is a sad reflection of the times we live in that the importance of the day has been reduced significantly through the years. Today, Labor Day has become a highly politicized occasion. Worse, many people think it’s an occasion that offers relevance only for those who are part of the militant labor force. It’s practically meaningless to the rest of the members of the working class; in fact, there has been this seemingly deliberate effort to exclude from any commemoration of Labor Day anyone who has risen through the ranks of the corporate ladder as if they don’t qualify as workers anymore.

Labor Day has also become an occasion for gift giving in the sense that progressive groups tend to expect government to make announcements relating to new wage increases or benefits. There was a time when governments had to hold in abeyance any announcements of new programs for the labor sector until May 1 just to make sure there was something it could trumpet on that day that would seem indicative of its continuing concern for the plight of workers.

This year, there is the clamor for yet another round of wage increases.

Pending in both the House of Representatives and the Senate are bills that seek to provide a P125 across-the-board increase to all employees in the private sector. The Trade Union Congress of the Philippines has also officially filed a petition for an increase in the minimum wage before the wage board. There are also loud grumblings from the rest of the militant labor force and there is reason to believe that extreme pressure is being made on the President to do something that would pave the way for a new round of wage increases.

There are many things that are blatantly wrong with this scenario. We are clearly in big trouble when the issue of wage increases becomes reduced to a political game. Wage increases must never be subject to a popularity contest because the stakes involved are just too grave to be held hostage by a stampeding mob.

And let’s be clear about this: Determining wage increases is a mandate that is vested solely on the wage boards. Not even the President can order wage increases although it is a given of course that he can wield the power of his office to influence the wage boards. Congress must not interfere with the functions of the wage boards because the composition of the wage boards is already representative of the critical stakeholders on the issue, namely, government (represented by the Department of Labor, the National Economic Development Authority, and the Department of Trade and Industry), labor, and employers.

Unfortunately, the bleeding hearts in this country cannot keep their interfering hands to themselves.

Bishop Broderick Pabillo, head of the Social Action secretariat of the Catholic Bishops Conference of the Philippines, recently backed the demand for wage increases. The bishop is known for being progressive, of course; he is renowned for his involvement in various issues involving workers, farmers and other marginalized groups. He has joined hunger strikes, addressed conferences of various progressive groups, etc. Why he has not advocated that the Church distribute its vast landholdings to the poor or that bishops stop living like royalty or making money out of its various Catholic schools is of course baffling.

The good bishop premised his support on observations that “the prices of fuel, power, liquefied petroleum gas, transportation fares, and other basic commodities have been going up.” He said “everything seems to be increasing.” He called President Aquino’s move to give fuel subsidy for public transport “short-sighted.”

One cannot but help notice how aligned the bishop’s statements are with the rest of the clamor of the militant work force. There is this obvious campaign to convince everyone in this country that there is a supervening event that would justify another round of wage increases prior to the lapse of the prescribed one-year period for wage increases in July 1.

A supervening event is defined as “extraordinary increases in the prices of petroleum products and basic goods and commodities.” It is very clear that the recent increases have not been extraordinary and mainly limited to petroleum products on account of the conflict in the Middle East. The inflation rate is also nowhere near the double-digit levels—the recent forecast of the International Monetary Fund released yesterday pegged it at 4.9 percent. There is no supervening event that would merit wage increases at this point. But the wage boards should be in a better position to determine if there has been any erosion and how much.

I do take issue with the pronouncements of Bishop Pabillo that the government’s move to grant fuel subsidy is short-sighted. The current spike in the prices of oil is caused by the brewing conflict in the Middle East which may be temporary. However, a wage increase is permanent—once granted, it cannot be taken away anymore.

The impact of any wage increase is actually far more disastrous in the long run. In fact mandating wage increases, particularly minimum wages, is far more short-sighted option. The real impact of wage increases is not limited to the absolute amount of the increase as each peso has corresponding multiplier effect in terms of overtime and other benefits. Wage increases are passed on to the market and companies who cannot afford to do so are forced to lay off employees. So it becomes a matter of giving something more to a few while taking away jobs from a far larger number. There are other reasons why mandating minimum wages is a madness that is clearly untenable – we already have the highest minimum wage in the region (making us non-competitive as an investment destination compared to our neighbors), wages should be a function of productivity and most companies do offer productivity-based or profit-based increases and incentives, one-size fits all solutions are no longer applicable today, etc.

But the most compelling argument against mandated minimum wage increases is this: It only affects at most 15 percent of local labor. The 85 percent of local labor are comprised of unpaid family workers (11 percent), household workers (5 percent), employed in government-owned and -controlled corporations (8 percent), unemployed labor (8 percent), own account workers (32 percent), worked for private establishments – residual (21 percent).

We need to address the needs of the 85 percent that comprise local labor and the best way to do this is to create more employment opportunities. We certainly cannot do this if we peg minimum wages at a level that is prohibitive for start-up companies, particularly micro, small and medium enterprises. We certainly cannot hope to attract more foreign investors if we have minimum wages that are higher than the wages in the rest of Asia.

Mandating wage increases rather than leaving it to market forces and for the wage boards to deliberate is clearly short-sighted. It’s the best way to ensure that future Labor Day celebrations will be about bewailing the loss of jobs and the decline of workers who are actually part of the labor force.