Legislated minimum wage bad for economy

THE minimum wage is better determined by the Regional Tripartite Wages and Productivity Boards, rather than by politicians. In those boards, the minimum wage is deliberated by representatives of the government, labor sector and employers' groups for their respective regions across the country.

Some legislators want to bypass that system by introducing bills to increase the minimum wage. In the House of Representatives, the militant Makabayan bloc filed House Bill 7568 calling for an across the board increase of P750. If enacted, that would raise the minimum wage in Metro Manila to P1,161 per day from P570 per day — an increase of nearly 51 percent.

Workers are seen inside a construction site along Roxas and Macapagal Boulevards in Pasay City, on 4 June 2022. PHOTO BY MIKE ALQUINTO

Over at the Senate, its president Juan Miguel “Migz” Zubiri filed Senate Bill 2002, which calls for a P150 minimum wage adjustment. That may be more modest, a 26 percent increase in the National Capital Region (Metro Manila), compared to the House bill. But the Senate version is no less harmful to businesses, many which are yet to recover from the economic impact of the lingering Covid-19 pandemic.

First of all, legislated wage increases are unwelcome because that introduces politics into the equation. Politicians gravitate to measures that can make them more popular among voters, instead toward options that can be better for the economy.

Another terrible idea is to raise the minimum wage to blunt the impact of high inflation. Inflation, the rate of price increases, goes up and down. Wage levels tend to stick when raised, and in countries like the Philippines, they cannot be brought back down when inflation recedes. Put another way, wages lag behind inflation, because it does not fluctuate like commodity prices.

On a related point, proponents of a wage increase argue that doing so will not drive inflation even higher than what it already is these days. That does not sound right, although to be fair, economists should validate that claim. It seems more logical to think that a wage increase will be inflationary, especially in a consumer-driven economy like the Philippines. In other words, Filipinos are more likely to spend, not save, any additional pay that they receive.

As expected, employers warn of possible layoffs, especially among micro, small and medium enterprises (MSMEs), if minimum wage goes up. In fairness, that, too, should be validated, given newer economic studies that counter that argument. Still, it seems hard to dismiss the possibility that higher wages discourage firms from hiring more workers, at least according to the fundamental law of supply and demand for labor.

Legislators and others in government should be careful about harming MSMEs. They account for 99.6 percent of all registered firms in the country, and they employ between 60 percent and 70 percent of the labor force. Clearly, policies that harm them will also hurt the entire economy.

Better alternatives

Legislators and others in government should consider alternatives to helping those most affected by high inflation. The Employers Confederation of the Philippines, according to reports, recommended giving financial assistance to the poor, among other non-wage benefits.

The better idea from the employers is to push policies that would generate employment. But that seems more like a long-term solution, not an intervention that can provide immediate relief. Still, the suggestion seems promising.

Take the outsourcing sector, for instance. The typical pay there is much higher than the minimum wage, because of stiff competition among firms to hire call-center agents and other workers. Some outsourcing firms have been known to offer signing bonuses and other perks, just to attract the best applicants.

Moreover, the economic managers of the Marcos administration are working to boost public spending to create more quality jobs. Legislators, even the populists among them, would be better appreciated if they craft more bills that support the government's fiscal policies.

Meanwhile, politicians and others should just let the regional wage boards do their job. And if legislators want to be helpful, they could consider introducing more safety nets for the most vulnerable people in society, rather than measures that would harm the country's engine of growth, the private sector.