It's about time

My fearless take is that firms can increase the minimum wage at a higher amount. Last Labor Day, the President directed the regional wage boards to meet and make the necessary adjustments in wages. In the Philippines, the minimum wage is determined and fixed by a regional wage board composed of representatives from government, business and labor. And so the President is sort of hands-off.

The call for increase in minimum wage can not be announced in a better time given the rocket-speed increase in the prices of oil and the resulting rise in inflation rate. With the approval of VAT increase just around the corner, we’re sure to lose our hard-earned peso faster than we can say “whew!” at the end of the day.

NEDA (the economic planning team) released a simulation study which shows the increase in inflation and unemployment rates and decrease in GDP growth for an increase in wage of P30, P78 and P125 (these are the petitioned increases). Of course all showed inflation, unemployment and growth rates this country can not afford given the inflation, unemployment and growth rates we currently have. Per NEDA also, for as long as the increase in wage as percent of the current minimum wage is more than the inflation rate, it is not safe. Given the 8% inflation rate now, even the P30 (10% of minimum wage) is not safe.

Employers, as expected, argue that wage increase is bad for business. It will force some firms to close or retrench and it is inflationary. First, data show that only 0.2% of firms that folded cite increase in wages as reason. Most cite organizational and financial difficulty. Second, 91% of establishments are micro-enterprises with less than 10 employees making them exempted from paying minimum wage. Third, minimum wage earners is some 10% of the total number of employed persons and labor cost is just 11% of the entire production cost. That can’t be inflationary.

This point I got from my mom, what is inflationary are the eye-popping consultancy fees and managerial packages businesses give.

Hopefully, the regional wage boards will be guided by their conscience.