The daily minimum wage — is it good or bad?

The nation’s labor force is it’s most productive assetRepublicans favor the minimum wage — the smaller the minimum wage, the better.
— Harry S. Truman, 33rd President of the United States (1943-1953)

The Regional Tripartite Wages and Productivity Board (RTWPB) for the National Capital Region (NCR) of the Department of Labor and Employment (DoLE) recently issued Wage Order No. NCR-15 which took effect last 1 July 2010.

Wage Order No. NCR-15 pegged the daily minimum wage rate for non-agricultural private sector employees in Metro Manila from P382 to P404.

The wage increase prescribed applies to all minimum wage earners in the private sector within the NCR, regardless of their position, designation or status and irrespective of the method by which their wages are paid.

The term, minimum wage earner, refers to a worker in the private sector who is paid the statutory minimum wage (SMW) or to an employee in the public sector with compensation income of not more than the SMV in the non-agricultural sector, as provided for in Section 22 (HH) of the 1997 Tax Code.

Setting a statutory minimum wage is an important government initiative intended to ensure that ordinary employees are given the opportunity to have a decent standard of living. It is all about fairness and the value of work.

As early as 1951, Republic Act No. 602 establishing the Minimum Wage Law was enacted, which pegged the daily SMW at P4.

Subsequently, in 1989, the Regional Tripartite Wages and Productivity Board or RTWPB was created by virtue of RA 6727.

From then on, various wage orders updating and increasing the daily SMW have been issued to alleviate the plight of employees in light of the prevailing economic conditions. Wage Order No. NCR 15 was the last wage order issued following Wage Order No. NCR -14 which was issued two years ago.

Over the years, an increase in the SMW has always been a contentious issue for both labor and management. While the parties may agree on the need to increase the SMW, the disagreement would always dwell on the amount of increase.

Pros and cons

Those advocating a minimum wage argue that an increase in the SMW will necessarily result in an improvement in the standard of living of the minimum wage earner. Putting more money in employees’ pockets increases their spending power, which ultimately stimulates the economy. To a certain extent, employees also become more self-reliant, thus, easing the burden on the government’s welfare programs. Employers may also benefit from an increased minimum wage because if their employees are financially motivated, their business will also flourish.

However, increase in minimum wage may also have its negative consequences, especially to small businesses. It is possible that a minimum wage hike may cause price inflation as businesses may try to compensate for their additional personnel costs and expenses by raising the prices of their goods and services.

Furthermore, an increase in minimum wage may also cause salary distortions in the wage structure within the affected business establishment. The differences in wage structure based on skills, length of service, or other logical bases of differentiation may be obliterated if the other employees already receiving more than the minimum wage will not also have a corresponding increase in their salaries.

The recent increase in the minimum wage under Wage Order NO. NCR-15 has been the subject of much controversy between representatives of labor and management, because it was approved even before we have barely recovered from the effects of the global financial crisis, which in fact was the reason why there was no SMW increase in the last two years.

The original demand of labor for a P75 a day wage hike was not acceptable to management, which after several deliberations, was eventually reduced to an acceptable amount of P22 a day.

Despite the global slump, government believes that the P22 increase in SMW will not adversely affect our economic situation, considering that the Philippines has not been as badly hit by the global financial crisis as our Asian neighbors, as economic data show.

Even the Bangko Sentral ng Pilipinasis optimistic that the P22-per-day increase on the minimum wage will not disrupt inflation rates beyond the programmed levels, despite challenging global economic and financial conditions.

Noted also is the fact that the increased SMW of P404 will still enjoy the benefit of tax exemption granted to minimum wage earners under RA 9504.

For the small businesses, Wage Order No. NCR-15 should not have much impact because it exempts from the required wage hike, duly registered Barangay Micro Business Enterprises (BMBEs) with Certificates of Authority under RA9178. BMBEs are business entities or enterprises whose total assets, including those arising from loans but exclusive of the land on which the particular business is situated, are not more than P3 million.

Neither does Wage Order No. NCR-15 apply to distressed establishments; retail/service establishments regularly employing not more than 10 workers; establishments whose total assets, including those arising from loans but exclusive of the land on which the particular business entity is situated, are not more than P3 Million; and establishments adversely affected by natural calamities.

Overall, I still believe that minimum wage is economically sensible. The more money we give to employees, the more money they will spend, which will eventually trickle down and help small businesses. Without an increase in the minimum wage, spending will become stagnant and the same will ruin the economy. This is hornbook economics.

Increasing the minimum wage is the right and fair thing to do — but not without restraint.

Recent economic surveys would show that the Philippines has surpassed other Asian countries in terms of daily minimum wage. Filipino workers in Metro Manila get a daily minimum wage of $8.70, in contrast with Thailand’s $4.66, Indonesia’s $1.62, China’s $2.49 and Vietnam’s $1.26, which is the lowest daily minimum wage.

Given these wage statistics, increasing the SMW must be properly managed to strike a balance between sociological and economic repercussions.

While alleviating the plight of our minimum wage earners is of paramount importance, of equal importance is achieving and maintaining a robust economy that would lead to betterment of the life of the ordinary Filipino worker.

(The author is a Manager at the Tax Services Department of Isla Lipana & Co., a member firm of the worldwide PricewaterhouseCoopers organization. Please call 8452728 or e-mail leonard.vinz.o.ignacio@ph.pwc.com for feedback.) –Taxwise Or Otherwise — By Leonard Vinz O. Ignacio