P350 wage hike: Kiss of death for MSMEs?

After taking the flak from its clandestine effort for charter change via people’s initiative, the House of Representative is now creating an aura of concern towards the labor force through a bill that proposes a P350 wage hike. Well-thought-out or not, only the proponents or sponsors can tell. The fact, however, remains that this is a non-productivity related raise.

As expected, businessmen aired their disappointments as this increase will certainly make it difficult for them to navigate in these trying times. To them, this an additional burden to struggling micro, small and medium enterprises (MSMEs) and a disincentive to promising startups that have huge job-creation potentials.

While we truly understand the plight of our workers, the same amount of understanding must also be afforded to the employers. The employers’ grievances are not without basis. Yes, profit is a great motivation. More importantly, however, they need to stay afloat to let all workers keep their jobs.

We can’t help but agree that any non-productivity related cost (such a raise in pay) is an additional burden, non-value adding. That we are non-productive has factual basis. To those who may not be aware of it, we are lagging behind in business and productivity surveys globally. For one, in the “ease of doing business surveys”, we are always in the bottom half of the economies surveyed. The same is true with productivity surveys. To put it bluntly, our competitiveness efforts leave much to be desired. That is why even our foreign direct investments (FDIs) are coming in trickles.

We must also realize that non-productivity-related wage increases had always brought about negative consequences especially to the new entrants and the unemployed in the labor market. In fact, the constant increases in the minimum wages is the main reason the unemployment rate of the young workers is very high. Logically, because when non-productivity related increases are imposed, the unskilled and inexperienced workers or new graduates will suffer the major blow. With the same amount of pay, companies will definitely go for skilled and experienced ones.

Why? This is because the unskilled and inexperienced workers will turn out to be expensive. Therefore, the possibility they won’t get employed is imminent. As a result, some unskilled or new entrants in the labor market are not given the opportunity to work and gain experiences. These are supposed to be valuable experiences that are really necessary for them to use as bargaining chips for higher pay demands in the future.

Curiously though, those constantly demanding for higher minimum pays might have considered largely the higher than usual wages of those in the business process outsourcing (BPO) industry. True enough, the workforce in this industry are really paid way beyond the minimum wage. Yes, these BPOs are also in need of more workers.

Unfortunately, however, these BPOs could hardly get from the labor market the quality and the skills they badly need. Simply put, there are more mismatches than hires. Why? This sector employs not only the well-educated but the best among them. Thus, they don’t directly give opportunities to individuals who are among the unskilled or the inadequately educated.

There couldn’t be any better example than the effects to this sector on the “Great Resignation” in the USA which started right after the pandemic. With so many Americans leaving their jobs, most of the finance and administrative tasks are outsourced to the country. As a result, we also experience, until today, massive resignations from local companies’ finance and administrative personnel as they opted to “work from home” for US companies. As a result, to hire replacements (or to keep some of them), local employers have to raise their pay scale.

If there is something we should learn, this phenomenon reveals that wages always boil down to supply and demand. It simply means, when labor (with quality and skills) is scarce (as in the case of BPOs), the wages are high. When there is oversupply of labor (especially those not highly skilled), as in the case of the other sectors, wages are low.

Therefore, there is a need for more investments in all sectors. When that happens, the demand for labor will absolutely increase. As these companies scramble for manpower complement, wages will likely increase.

So that, the most logical thing to do is for the labor sector to help create more jobs by encouraging more local and foreign investments in all sectors (not just BPOs). How? By being reasonable in their demands for wage increases or for lawmakers to temper the unreasonable demands of their constituents. Otherwise, this proposed P350 increase may not just be a kiss of death for the MSMEs but a nail in the coffin.