Wages and market forces

Published by rudy Date posted on May 14, 2011

YEARLY in the run-up to Labor Day, various groups representing workers clamor for higher minimum wages. As we saw, the same thing happened recently, and the calls seem to resonate more with the government given the concerns about the President’s falling survey ratings and skyrocketing fuel costs. The pressure to raise wages is a perennial issue with the government and a problem of the private sector. To help address the issue in the long-term, we hope the government does more on the economic policy side to create an atmosphere where wages could go up largely because of market forces.

Take the business process outsourcing sector (BPO), for instance. Generally speaking, call centers and similar businesses are growing faster than the market can supply them with competent, English-speaking agents. The demand is reportedly higher for those who serve Spanish speaking clientele.

Naturally, the strong demand coupled with the short supply of competent labor has pushed up wages offered by call centers. It is not unusual for call centers to offer fresh graduates salaries as high as P25,000 a month. There are even companies that dangle signing bonuses to qualified workers. Those offerings are much higher than the minimum wage of P426 a day, but even with higher offers those call centers and other firms of that type cannot find enough qualified workers. The minimum wage comes to about $10 a day or about $1.25 an hour.

Look at the contrast with developed countries like the United States, where a shortage of manual labor has also boosted minimum wages. The minimum wage in California is $8 an hour, which is not the highest if compared to other US states but better than others like Wyoming. The minimum wage there is $5.15 an hour, except for those who receive tips, who receive about half of that. In the US federal system, each state determines the minimum wage rate.

We are not comparing the minimum wage of a developing country like the Philippines with that of the number one economy in the world. Rather, we are making the point that there are more ways to increase wages than mere government intervention. Besides the government mandating it, wages can also rise if there is sufficient high demand for workers, which has happened in the US and is happening in the local outsourcing sector. We hope that the government’s economic managers will pay more attention to that fact.

We recognize, though, that stimulating the economy takes time. Plus, political factors do come into play. And so it was not a surprise to hear a less popular President Benigno “Noynoy” Aquino 3rd pandering to labor groups on Labor Day, when he urged businesses to share their wealth with their workers.

Following that, the regional tripartite board in Metro Manila increased the cost of living allowance, or COLA, by $22 a day. Proponents of a wage hike were disappointed, citing rising pump prices that put inflationary pressure on basic commodities. Unfortunately, the COLA increase stands even as the world prices of oil have been subsiding lately.

Worse, some worry that raising the minimum wage might dampen economic growth that is largely being fueled by domestic business rather than foreign direct investments. In fact, foreign direct investments reportedly fell 70 percent in February compared to the same month the year before. Rising labor costs not only make the Philippines a less attractive investment destination, they also put pressure on local businesses on expansion—and job-generation—mode.

MSMEs can boost labor demand
Of course, growing the economy is no easy task, definitely easier said than done. President Aquino seems to be banking on his Public Private Partnership (PPP) program to grow the economy, but it has been too slow getting off the starting blocks. Still, he and his economic managers should push that, but with a lot more urgency.

Perhaps President Aquino should also consider other strategies, such as developing micro, small and medium enterprises, or MSMEs, as a major engine of growth. Consider the following statistics: MSMEs make up 99.6 percent or more than 777,300 of all registered companies in the Philippines, according the Department of Trade and Industry website. Large firms, which those with assets worth at least P100 million or employ at least 200 people, make up only 0.4 percent or barely more than 3,000 companies.

In 2009, MSMEs accounted for 63.2 percent of all the jobs generated, according to the Trade department. Of that figure, 30.4 percent or more than 1.7 million jobs were generated by micro enterprises, 25.5 percent or nearly 1.5 million by small enterprises, and 7.3 percent or more than 400,000 by medium enterprises.

Granted, the Trade department under Sec. Gregory Domingo is continuing programs that help MSMEs. However, we would like to see President Aquino and his economic managers pay greater attention to the development of MSMEs so that these can become an even more potent force driving job generation. With more jobs, the demand for workers should also increase. Besides that, we think Filipinos should shift their mindset from focusing on getting a job to starting a business.

The government, however, should be strategic in choosing what kinds of MSMEs to develop. Some studies in the US cast doubt on the benefits of goods-manufacturing SMEs, which struggle to be competitive because they cannot enjoy economies of scale. Instead, that study suggests that it might be more prudent to develop service SMEs.

These details are better left to the experts in economics. Our point simply is that more jobs can push up wages, which is a better option than what President Aquino’s said on Labor Day. His message sounded less like sharing the bounty and more like sharing the misery. –Manila Times

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