Use a soft touch on labor regulations

met with great fanfare when it was announced a couple of years ago. A study by the University of Washington, however, found that the measure has been disastrous. The last increment of the increase, from $13 to $15 an hour, resulted in a sharp increase in job losses, to the extent that the lost wages greatly exceeded the sum of the increases in wages for workers who kept their jobs. This was partly because employers reduced workers’ hours by an average of 9 percent to compensate for the higher payroll costs; the net effect was that workers covered by the minimum wage directive are now actually earning an average of $125 less per month than they were before the increase.

In Finland, the government announced last week it was pulling the plug on what was to be a two-year experiment with another supposedly surefire answer to poverty and income inequality, the “universal basic income.” Beginning last year, the government gave 560 euros (about $678) per month to 2,000 randomly-selected unemployed Finns, with no strings attached. The idea was conceived as an “income smoothing” measure that would encourage the recipients to enter the job market, free from the worry of having to make ends meet on a low salary. But after a strongly negative reaction from Finnish voters, along with the results of a study by the OECD that calculated a full-scale program would result in income tax increases of 30 percent and require funding equal to 4 percent of Finland’s GDP, the government decided it would not continue the pilot program beyond the end of this year.

Concepts such as the minimum wage and universal basic income are economic aspects of the larger idea of the “social contract.” Put in the simplest terms, the social contract holds that government is responsible for ensuring that the people can live in dignity, have sufficient means to meet their livelihood needs, have care for their physical and mental wellbeing, and have safe homes in which to live. There are other more political and moral aspects of the “social contract” that are attached

it, but the four basic ones listed here are universal, and history demonstrates that when these are attended to, political and moral conditions eventually adjust to suit the resulting society.

The key difference between the liberal view on the social contract and the conservative perspective toward it is that the liberal view asserts that government must provide the things necessary to meet the terms of the contract for those who do not have them, while the conservative view is that government is only responsible for ensuring that an environment exists in which everyone has the same fair opportunity to obtain those things by their own efforts and according to their own choices.

To be fair to both sides, neither has worked perfectly well in practice. Too much government intervention in terms of dictating wages or providing large-scale subsidies retards the natural function of markets and leads to unintended consequences that work at crosspurposes to the intent of the intervention. This is what Seattle and Finland discovered; excessively high minimum wages discourage employment and have the practical effect of lowering incomes, and unconditional subsidies result in a higher tax burden with no corresponding increase in economic productivity.

On the other hand, too little intervention leads to markets becoming exploitative; this is what led to the development of things like labor unions, standards for working conditions, and the

Non- intervention also leads to economic decline, because the consumer market can only expand due to volume – i.e., if wages are low, gross consumer spending can only increase by increasing the workforce – thus business growth eventually slows as well, even though it may initially grow

was a fundamental cause of the economic crisis known as the Panic of 1893 in the US, as one example.

The Philippines is in a tenuous condition with respect to the labor market. While the economy is growing at a respectable pace, it is not creating jobs – in fact, job growth has been negative for most of Duterte’s term – and thus is not making the slightest dent in the labor oversupply, which has a variety of negative implications. The ultimate solution to that is to create more jobs; any remedy that