The bill to increase the national minimum wage

(Continued from last week.)

Our high minimum wage. The Philippine minimum wage is far higher than those of Thailand, Indonesia and Vietnam. Yet these ASEAN neighbors have done better than us economically. All these countries have surpassed us in economic performance – in terms of providing jobs, in growth of productivity, in the depth of their industrial development, in the level of integration of the supply chains within their economies, and in terms of providing a stable source of price stabilization of wage goods for their working class.

Yet, they have not relied on the state to command that minimum wages be made high to raise the level of wages in the economy. When they adjusted their minimum wages, they were clear on what minimum meant: mainly to protect the young first-time workers and also the most unskilled from abusive wage levels. They do not legislate wages to make earnings higher through state order! The rise of wages is due to sustained rise in investments and to rising labor productivity.

In the meantime, they spent most of their economic policy initiatives to push up domestic investments and improve the international competitive position of their industries.

The success of these policies led to rising employment and the elimination of underemployment. Rising labor productivity pushed the level of wages upward as more labor got employed.

A consequence of labor being employed in more modern enterprises, underemployment within the whole economy got reduced. True eradication of poverty with the rise of gainful jobs is the result.

Currently, Congress is in the midst of discussing amendments to the constitution to remove or reduce the “restrictive economic provisions.” If this move succeeds, the welfare of labor is bound to get a big boost from improvements in the inflow of more capital into the economy. The prospects for greater prosperity for our workers will happen when more investments are realized.

If Congress, however, decides to pass the hefty increase of the national minimum wage as planned in these bills and the President lets it go, the result will be to amputate the gains that we might make out of the liberalization of foreign investment laws through the constitutional reforms the government seeks.

Labor supply and the demand for labor. The size of labor supply is critical. Our supply of labor is very high because the population is big. Modern jobs in the country are inadequate in relation to the size of the labor force because there are not enough investments in productive economic activities.

This simply tells us that the demand for labor in our modernizing society is inadequate. Our policy-makers must realize that the main evidence for this is the large size of poverty in the economy, the persistent prevalence of underemployment even as we experience rising employment in the economy today. We must therefore introduce policies that are consistent with one another.

Historical evidence elsewhere should drill into us that consistent policies build and reinforce good development outcomes for the long term.

In the 1960s, Thailand’s population level was about the same as ours. The country did not waver in addressing their high population size through family planning programs. Also, Thailand’s economic development policies embraced a more open economy that welcomed foreign capital to many sectors of the economy. Through the years, such policies brought in large investments (domestic and foreign) into agriculture and industry, and in infrastructure, commerce and tourism.

This economic policy toward openness also helped to sensitize domestic Thai capital to ventures that matched and complemented the contribution of foreign direct investments.

Thailand’s population today is around 72 million while ours is 114 million. The Thai working population enjoys higher wages than ours because the Thai economy has achieved higher total labor productivity. And yet, their minimum wage rate today is lower than the current minimum wage rate in effect in our urban areas!

Part of their economic and industrial success was that the Thai government had avoided legislating high minimum wages and asserted the force of their economic policies in attracting foreign investments in many sectors of the economy. This helped create jobs by maintaining that their industries and their labor resources remained competitive in the world economic stage.

In turn, this kept the demand for labor high within the whole economy so that overall labor productivity also kept a sustained rise over time. The result: rising wages!

To some extent, the story of East and Southeast Asia is a variation of Thailand’s story. Such is the story of Indonesia’s success even if it is different in the details.

In fact, if we go deeper into economic history, the main source of inspiration or model of development that describes the success of the countries in our region can be traced to the early economic success of Japan.

Conclusion. If minimum wages have to be adjusted, carry out the changes through the current system of regional wage board reviews and Tripartite consultations.

Most importantly, accelerate the growth of investments in the economy by embracing the measures to bring in more foreign capital.

The government should push hard to make the prices of essential goods in the consumption basket of workers low and affordable. The production of such “wage goods” – rice, mostly essential food items – is a large issue in agricultural policy. Adequate supply of wage goods is achieved through a prudent combination of domestic production and imports.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/