‘Legislated wage hike spells job losses’

MANILA, Philippines — A bill that seeks a P100 increase in the daily minimum wage for private workers nationwide could spell job losses especially in labor-intensive sectors, economists warned.

Leonardo Lanzona, labor economist and professor at the Ateneo de Manila University, warned of two negative scenarios should the legislated salary increase be passed into law.

“For the labor-intensive sector, workers will be laid off due to higher production costs,” Lanzona told The STAR.

“For the other sectors, the prices of goods will be raised as the additional cost will reduce their profit margins. The higher prices are required to maintain their production,” he said.

Citing recent studies, Lanzona noted that a P150 hike in minimum wages would result in a 0.3 to one percentage point increase in unemployment.

However, such a study is only based on a decentralized wage setting process. The regional tripartite wages and productivity boards are mandated to determine and fix minimum wage rates in their respective regions.

“A legislated wage increase which applies to all regions will be worse since this makes it more difficult for lower income regions to attract new investments and raise employment as their wages will rise at the same rate as higher income regions,” Lanzona said.

Political analyst and University of Santo Tomas professor Dennis Coronacion, for his part, wonders whether lawmakers took into account the plight of the micro, small and medium enterprises (MSMEs).

Most MSMEs are just starting to rebound after being hit by the pandemic and are seen suffering a tremendous setback in their attempt to recover.

“This bill will certainly prop up the struggling public image of some of our lawmakers, but should this happen at the expense of the MSMEs?” Coronacion told The STAR.

Observers have noted that the midterm election is just around the corner, with many lawmakers already starting to make their names relevant anew.

“Since it is clear that our lawmakers have failed to consider the negative impact their bill will have on the MSMEs and the entire national economy, this is a clear example of bad economics,” Coronacion said.

“Everyone in this country is still suffering from the damage inflicted by the pandemic. This should be a time for inclusivity in terms of economic recovery. The survival of our workers should not be at the expense of the other economic sectors, particularly the MSMEs,” he said.

Budget Secretary Amenah Pangandaman is also not in favor of what the Senate is trying to pass.

“Not legislated perhaps. There’s an existing mechanism for this purpose,” Pangandaman told The STAR.

“It’s better to grow and expand the economy faster, and get more investments. That way, we will create more quality jobs,” she said.

Lanzona argued that the burden of improving the workers’ welfare does not lie on the private sector.

This as he emphasized that inflation is partly due to the government’s inability to increase agricultural production that could have minimized the cost of food and to raise the skills of workers to enhance labor productivity.

“The government should be held accountable for workers’ poor conditions. This should mean that the burden of creating decent work conditions should be imposed on them,” Lanzona said.

“The government should finance the necessary measures to help the workers such as social protection programs and skill development,” he said.

In the Senate, the proposed P100 Daily Minimum Wage Increase Act is expected to be approved on third reading this week.

The House of Representatives, however, is not keen on backing such a measure.

The Foundation for Economic Freedom (FEF) is also against the proposed P100 daily wage hike, noting that this would be harmful to the economy.

Instead of a nationally legislated wage increase, the group is pushing for liberalization of food imports by reducing tariffs to make prices affordable.

“We, the FEF, firmly oppose Senate Bill 2534 mandating a national wage increase of P100 daily in the private sector, because of its damaging effects on the national economy,” the group said in a statement.

FEF, which is composed of top economists, former and present Cabinet secretaries and undersecretaries, leading figures in academe, opinion-makers, and prominent members of the business and finance community, is dedicated to advancing the cause of economic and political liberty, good governance, secure and well-defined property rights, market-oriented reforms, and consumer protection.

The group said the implementation of a legislated wage hike would significantly turbocharge inflation, as the wage increase would push companies to charge higher prices.

“The subsequent wage-price spiral will trigger an erosion of the people’s purchasing power, causing widespread demands for future rounds of wage hikes,” FEF said.

As inflation increases, it said the Bangko Sentral ng Pilipinas (BSP) will be forced to hike interest rates, which will raise the cost of housing, cars, and appliances mostly bought on credit.

FEF said higher interest rates would also lead to reduced investments and employment by companies.

As the national wage increase does not take into account the different cost factors and varying situations across regions, FEF said many small and medium-sized enterprises would be forced to let go of workers or close shop.

In addition, FEF said informal workers such as seasonal workers, fishermen, gig economy workers, and market vendors would suffer more as they are not covered by the wage increase, but will face the higher inflation the proposed wage hike would bring.

“We are not against wage increases but we urge the Senate not to tamper with the existing mechanism of regional wage boards to adjust wages if needed. Regional wage boards take into account the interests of both employers and workers and the different cost and employment situations of various regions,” FEF said.

The group said the government should instead bring down the tariffs on rice to 10 percent from 35 percent, and abolish or expand the import quotas for corn, chicken, pork, and fish.

“Liberalizing food imports will see an immediate fall in the price of food, thereby increasing the purchasing power of all Filipinos, whether formally or informally employed and whether senior citizens or babies,” FEF said.

The group said more affordable food would help reduce malnutrition among children, and make workers healthier and more productive.

“If inflation falls, since food inflation has been the major factor behind recent inflation, the BSP will likely reduce interest rates, which can increase investment spending and boost employment,” FEF said further.