by Elfren S. Cruz (The Philippine Star), 10 Nov 2019
The Philippines has the slowest real wage growth among the major countries in ASEAN. One reason for this is that in other countries and World Bank economists, real wage growth translates to increase in purchasing power and a more equitable and prosperous economy. Here in the Philippines many economists and businessmen believe that the route to economic prosperity lies in keeping wages low and letting the working class remain poor in order to remain “competitive.”
I think our economists are looking at the wrong problem. Most of the articles and books I read focus on so-called economic reforms that lead to economic growth. The Philippines is already one of the fastest growth economies in the world. Its average annual growth rate of 5.5 to 6.5 percent has placed us in the ranks of the fastest growing economies. In the IMF report in 2018, the Philippine GDP growth was 23rd in the world. What then is the problem that if not solved will result in social unrest? Let me quote two economic experts.
In several briefings, including the Management Association of the Philippines, World Bank senior economist Rong Qian said that there was ZERO real wage growth in the Philippines between 2000 and 2016 which she found unusual for a developing country. She said: “Actually, this phenomenon that you see, the real wage increase between 2000 and 2016, the growth rate was zero in the Philippines. And this is something that I’ve never seen in other countries, especially in developing countries. We looked not only on the average but we also looked at it per sector, by skill level, by region and the same [growth was observed].”
Last year, Mahar Mangahas wrote a column on: “Stagnation of real wages.” I will quote an excerpt from that column:
“The most striking slide in a recent talk by Finance Undersecretary Karl Chua was the one “Real labor productivity has been increasing, yet real wages have been stagnant. …labor productivity grew by at least 50 percent yet real wages did not grow at all.
This is a trend that deserves to be studied and acted upon with the intention of reversing. The stagnation of real wage over time, despite impressive economic growth is something easily sensed but rarely published. It is just too embarrassing for the government to admit that the general economic growth is not being shared with ordinary workers.
It seems that there is an unspoken conspiracy among government technocrats to constantly downplay if not deliberately suppress any unfavorable statistics, rather than exploit their value for raising a social alert and supporting needed reforms.”
Even in terms of minimum wage, labor productivity in the National Capital Region grew by 35 percent between 2009 and 2017 according to Ibon Foundation. However, during that same period the mandated minimum wage increased by only 11 percent.
The question is that if the economic wealth of a country, measured in GDP or any measurement, is growing but the real wage remains stagnant, who is benefiting from the increase in the nation’s economic growth?
According to the ASEAN Trade Union Council, the Philippines has the highest rate of economic and social inequality. A 2017 Philippine STAR report: “In terms of wealth distribution, only 0.1 percent of Philippines’ adult population have fortunes amounting to over $1 million. On the other hand, 86.6 percent of Filipino adults has wealth worth below $10,000. There are 12 adults with worth of more than $1 billion.”
“Real wages”are wages adjusted for inflation, or equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to “nominal wages” or unadjusted wages.
Another measurement of income distribution is to rank countries by average monthly net salary (after tax). Here is a list of ASEAN countries and average net salary: Singapore $3,20.57; Malaysia $832.35; Thailand $625.77; Vietnam $381.53; Philippines $294.53.
In its 2019 Korn Ferry real salary forecast, the Philippines is expected to have a real wage increase. Here are the “real salary” forecast for ASEAN countries: Vietnam 4.8 percent; Thailand 3.9 percent; Malaysia 3.6 percent; Indonesia 3.7 percent; Singapore; 3.0 percent; Philippines 1.3 percent.
The Organization for Economic Co-operation and Development (OECD) is an intergovernmental economic organization with 36 member countries founded to stimulate economic progress and world trade and committed to democracy and the market economy.
In a paper on Inclusive Growth, here are excerpts of what OECD said:
“Inclusive growth is economic growth that is distributed fairly across society and creates opportunities for all….The 2009 financial crisis was a dramatic wake up call. Growth as we know it doesn’t work for all and is putting everyone’s wellbeing at risk. We need to develop new and improved models and focus on ensuring growth actually improves lives…People would feel more motivated if the benefits of economic growth were not allowed to flow into the pockets of a rich minority.”
Two measures that should be implemented in the Philippines is to use Beyond GDP metrics that replaces GDP as the sole measurement as the policy targets for any economy. There are several metrics being developed. The other target is that policy makers should make the living wage as the economic target for all families.
Finally, even in the United States and the European Union, the bastions of capitalism, there is a growing consensus that inclusive and sustainable growth cannot be left to the market forces and what is needed is government intervention. We need a new form of capitalism. As Pope Francis said “trickle down” does not work.