Wage distortion versus output distortion

Published by rudy Date posted on March 9, 2011

One of the most debilitating effects of minimum wage is that it automatically limits the right of employers to make adjustments on the wage of their employees based on the most important consideration of knowing their individual performance. This is most apparent in companies whose profit is barely marginal. Instead of using wage as an incentive to promote efficiency and productivity, adopting minimum wage now becomes a hindrance.

Employers become hesitant to give pay increases on a selective basis. At any time a new minimum wage order is issued, the increase employers selectively give becomes counter-productive because that could push labor cost beyond the threshold limit in the company’s financial viability.

So if an employer gives a selective wage increase on the basis of individual productive output and merit, and then the Labor Department issues a new minimum wage order, that now becomes a problem. That could dramatically shoot up his labor cost. Aside from complying with the new order, which is applicable to all employees, an employer will have to make another upward adjustment on the pay scale for those efficient and more productive workers to prevent wage distortion.

This is the usual case because even if the new wage order puts a ceiling on its applicability, meaning that those receiving above the daily wage of P404, say earning P425 a day, are no longer entitled to any adjustment, that could cause demoralization even to those who earlier earned their increases on the merit of their efficiency and productivity.

The noble objective now becomes their own liability. Although strictly there is no law requiring employers to give additional wage adjustments to employees already receiving above the minimum, the practice of preventing the equalization of their take-home pay has become a custom. At times it becomes embarrassing because workers whom employers seek to reward would now complain. The dilemma is not that employers refuse to give an additional increase, but on whether they could still afford to be generous just to keep high their morale and loyalty, viz. maintain industrial peace. This spasm in the cost of wage is often costly that most companies often fail to foresee.

Paradoxically, can a company with 1000 employees, of which 350 are considered exceptionally efficient, about 500 considered average performers, while about 150 fall below the average output based on time and motion study, not have the same prerogative to deal with them by reducing their take-home pay? If there is such thing as wage distortion, a phenomenon that prevails under the system of regulated or minimum wage, could we not equally recognize as a concept “output distortion” in labor?

We know that a mere allegation of inefficiency, unless considered gross and habitual, as provided in Article 282 (b) of the Labor Code, only provides for the termination of employees from the service. That becomes much difficult if there is a union for it could even develop to industrial unrest if those terminated are union members. In fact, the parameter between the right to terminate due to inefficiency from financial losses are at times intertwined, and often inefficient workers are singled out for termination due to financial losses, instead of just being singled out for plain inefficiency.

The problem of security of tenure becomes a double burden for in that case, the constitutional consideration of labor as a property right cannot just be trifled by substantial evidence, unless as stated, the inefficiency is gross and habitual to be patently detrimental to the company. This explains why it is hard to terminate inefficient employees on the basis of retrenchment because the latter can only be invoked in cases of financial losses. Somehow, labor arbiters are compelled to give separation pay or award benefits. Any mishandling of the problem in a company that is unionized could easily spur a strike or violent labor unrest.

The liberality in the giving of separation pay has been acquiesced in because the issue is not theft, pilferage or damage to company property which constitutes a criminal offense, but a plain labor issue of inefficiency which cannot be permitted to supersede the sanctified principle of security of tenure. Somehow workers who lost their job should be given a financial cushion, while in the meantime are forced to look for a new one.

But just the same, social justice should not be interpreted to restrict the right of employers to hire efficient and competent workers because the bottom line is always on the financial survival of the company, where both the capitalists earn their profit and the workers earn their decent wage.

Since wage reduction due to output distortion is not possible under the system of minimum wage, adjustment has become an upward practice. Any move to bring it down is considered illegal following that labor dictum of “no diminution of benefits” without taking into account that companies do not always experience a bountiful harvest. In fact, to reduce wage due to inefficiency would constitute unfair labor practice and even run afoul with an existing collective bargaining agreement.

This observation now brings to light the urgency to deregulate wage for that could automatically make wage adjustment both an upward and downward practice, meaning that the scaling down in the cost of wage can legally be made if the business climate is not favorable. In fact, wage reduction grounded on inefficiency is a better alternative than outright termination.

Since it is difficult to make a wage adjustment based on inefficiency, unscrupulous employers now found a way to circumvent this. They rely on the manpower supplied by labor-only contractors where they could request for a replacement. However, the request for efficient workers is more of a gamble than an assurance, and the bad thing is it will cost them same amount of fee with an added replacement cost.

So, unless and until we deregulate wage, the problem of wage distortion will linger on. In the meantime, we are compelled to sacrifice the premium value of individual competitiveness and efficiency in productivity. –Rod Kapunan, Manila Standard Today


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