13 reasons for not adjusting minimum wages in '13

Opposition

Reasons

LAST AUGUST 8, 2013, THE NCR Regional Tripartite Wages and Productivity Board (RTWPB) headed by DOLE Regional Director Alex Avila held its last public hearing on whether or not to raise minimum wage in Metro Manila. The petition earlier submitted by the Trade Union Congress of the Philippines (TUCP) was for an across-the-board wage increase for NCR workers.

The Wage Board heard arguments for or against the proposed increase. Proponents were organized labor groups. A PALEA officer gave anecdotal accounts about how workers are suffering due to low wages. He asked the Wage Board to use their hearts, not their heads, in deciding the issue.

The Employers Confederation of the Philippines (ECOP) led the opposition to the TUCP petition, Others who supported the ECOP position were PhilExport, Federation of Philippine Industries, the Joint Foreign Chambers (JFC), Compensation Management Society of the Philippines, and the People Management Association of the Philippines (PMAP). I was tasked to present the position of PMAP and the JFC.

NEDA Deputy Director General Dr. Rosemarie Edillon, who also sits in the RTWPB-NCR, made a scholarly presentation on the current economic situation in the Philippines. In gist, the peso erosion as of July 2013 is 1.8%, lower than the country's target of 3%.

I listened to the arguments of government (i.e., NEDA) and of both parties to the wage issue. It was clear to me that there is no urgent need for adjusting the minimum wages in 2013.

Here are 13 reasons why the minimum wages should not be adjusted upward in 2013.

1. Peso erosion does not warrant wage adjustment. According to the mandate of the Wage Boards, minimum wages can be adjusted on the basis of 10 criteria, including the peso erosion or the reduction of the purchasing power, as computed by NEDA. The indicator is the Consumer Price Index or CPI. NEDA's figures show the erosion at 1.8% as of July 2013. This is minimal, compared to double-digit figures during the past decades.

2. The 2012 wage adjustment is enough to cover peso erosion from 2011 to 2013. Last year, the NCR Wage Board integrated the P22 cost of living allowance (COLA) into the old minimum wage of P404. In addition, it also ordered a P30 COLA, which brings the actual minimum pay per day of workers to P456. This is the barest minimum that must be paid to entry-level or unskilled workers. The P52 increase last year is more than enough to cover inflation for the years 2011 to 2013.

3. The Wage Boards are not obligated to grant annual wage increases. The law does not contemplate an annual wage increase for unskilled workers. In fact, NEDA conducts a "bread basket" survey every three years, especially since inflation rates are at low levels in the Philippines. In the past, there was a time when Wage Boards did not grant an upward adjustment because the conditions did not warrant an adjustment. The year 2013 is one such year where conditions don't warrant an increase in the minimum wages. If an adjustment is made now, the results could be adverse, even to the Filipino workers.

If by chance the Wage Board members use their heart and not their heads and issue a Wage Order, any amount of wage adjustment at this time will prove to be disadvantageous to the country, especially to the sector that increased wages hope to benefit -- the workers. Here are a few reasons for this:

4. Wage adjustments are inflationary. Wage adjustments mandated by Wage Boards are usually passed on to the selling prices of products made in the Philippines. Wage increases tend to increase inflation. As wages are increased, so do the prices of commodities being bought by the workers with their increased wages. It is a vicious cycle, and often workers lose in the catch-up game. Even if minimum wage earners are exempt from income tax, they still pay taxes for their consumption. The higher the prices of commodities, the higher the taxes they pay.

5. Wage levels in the Philippines are higher than in most ASEAN countries. The dollar equivalent of the daily minimum wage in NCR is roughly $10.75. Myanmar has $0.52, Cambodia $2.03, Vietnam $3.15, Indonesia $7.46, China $8.08, Thailand and Malaysia $9.75. This means that when investors want to choose where to locate their businesses, high wages in the Philippines will tend to make it less competitive than countries where wages are lower.

6. Wage increases will deter foreign investments. In the past, high labor cost (in addition to a few other reasons) deterred Foreign Direct Investments (FDIs) from coming to the Philippines. High labor cost also resulted in closure of factories in the once strong footwear and garment sectors. The investors chose to relocate their factories in Bangladesh, Cambodia, China and Vietnam. Did you notice that even Filipino brands (in footwear and garments) are now made in China and other countries?

7. NCR minimum wage will be twice the poverty threshold. In concept, the minimum wage is a safety net so that entry-level and first-time workers will be guaranteed decent wages. Theoretically, the minimum wage must be above the poverty threshold, but definitely much lower than the community's average wages. If wage adjustment is made this 2013, the resulting minimum wage could be twice that of the poverty threshold. This is not theoretically sound.

8. Minimum Wage adjustments will benefit only 6% of total workforce. In Metro Manila, there are only 690,000 minimum wage earners -roughly 2.4 million all over the country. Of the total of 41 million workers, only 5.8% will benefit from an adjustment of the minimum wages. However, the inflationary consequence will adversely affect the 94% of the workforce, including their families. In essence, the general public, including the unemployed (estimated at more than 3,000,000 Filipinos) and the underemployed (roughly 12 million Pinoys) will suffer the inflationary effects of wage adjustment all over the country.

9. Micro, small and medium enterprises will be most affected. As in the past, wage adjustments hit the small businessmen most. Roughly 99.4% of businesses in the Philippines are micro, small, and medium enterprises. They employ two-thirds of all employees in the formal sector. If they cannot cope with higher labor cost, they tend to do either of these options -- they close shop and therefore fire their workers or they go underground into the informal sector. Over the last few years, more than 40,000 MSMEs have been lost to the informal sector, where workers don't benefit from safety nets and therefore have certainly lower compensation.

10. Existing minimum wages are not even implemented properly. I'm second guessing that as we write, the Department of Labor and Employment (DOLE) and the ILO (International Labour Organization) know that there are businesses that don't pay their workers the minimum wage. There's no guarantee that higher minimum wages will benefit all workers. There's a problem with implementation.

11. The Philippines is in a sweet spot today -- let's not spoil it. Recently, some factories are relocating from China, Japan and Thailand. Some investors are looking at VIP -- Vietnam, Indonesia and the Philippines -as a possible investment destination. While our English-speaking workforce offers some advantages, high wages are a deterrent. If we can only hold back this year any wage adjustments, the Philippines has a good chance of getting more investments that can create more jobs for Filipinos.

The real problem is not low wages. It seems that the easy solution for policy makers is to simply increase wages. Where I sit, I see other pressing problems.

12. The problem is not low wages but unemployment. Unemployment rate in 2012 in Philippines was 7% -- higher now at 7.3%. In Malaysia, it is 3%, Indonesia 6.5%, Vietnam 3.6% and Thailand 0.7%. As Dr. Edillon hinted, investment equals employment. Low wages encourage investors to invest and create more jobs.

13. The problem is not low wages but bad spending habits. It's not the base pay that's a problem for most workers.It's their take home pay -- that can no longer take them home. Filipinos are fond of spending beyond their means, especially through payroll deduction and credit cards. This is what needs adjusting, not the minimum wage.

For once, let's make wage fixing rational. Use facts, not emotions. Make it economics-driven, not politics-driven.

(Ernie is the current Executive Director, and the 1999 President, of the People Management Association of the Philippines; Chair of the AMCHAM Human Capital Committee; and Co-Chair of the TWG on Labor Policy and Issues of ECOP. He was recognized by PMAP as Diplomate in People Management (DPM) in 2011. He was also voted "Best Newspaper Columnist" by PMAP in 2011 and 2012. He is the President and CEO of EC Business Solutions and Career Center, a HR consulting firm. His books, "Life's Big Lessons" and "Life's Big Lies" are available at PMAP, tel. +632 726 1532 or at ernie_cecilia@yahoo.com)

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