The Logic Behind a Legislated Wage Hike

Defending a legislated wage increase is not just merely a result of one’s bleeding heart for the impoverished but has compelling empirical data that are interpreted in a way that seriously considers the rights and welfare of workers.

BY DANILO ARAÑA ARAO
Bulatlat

Those who are against a legislated wage increase – government officials, employers and neoliberal economists – are now on a propaganda offensive as they paint a grim scenario of, among others, widespread closure of establishments and economic slowdown if workers would have their way.

Nevertheless, they are right in saying that, in finally passing House Bill No. 345 seeking a P125 ($2.55, based on an exchange rate of P49.015 per US dollar) nationwide, across-the-board wage increase for private sector workers, majority of members of the House of Representatives are just simply trying to redeem themselves from the negative publicity brought about by their attempt to railroad the changing of the 1987 Constitution.

This face-saving gesture becomes more apparent as pro-administration legislators refuse to defend the need for a substantial wage increase, choosing to remain silent and just let organized labor groups engage their detractors in a debate and, for that matter, take the issue to the streets.

Even if the P125 ($2.55) wage bill is now pending in the Senate, it is unlikely that this will be enacted into law because of the news that President Gloria Macapagal-Arroyo would use her veto power if ever it is passed by Congress. Executive Secretary Eduardo Ermita and Presidential Adviser for Political Affairs Gabriel Claudio were quoted as saying that Malacañang agrees with the arguments of the country’s economic managers and business groups regarding the P125 ($2.55) legislated wage increase.

It may be recalled that business groups like the Employers Confederation of the Philippines (ECOP) and the Makati Business Club (MBC) said that an increase in the daily wage, “especially at this time, is inflationary and would trigger mass layoffs as well as force many companies to close shop.”

For his part, National Economic and Development Authority (NEDA) Director General Romulo Neri said that a wage hike will only result in the loss of over a million jobs and a two-percentage point increase in the country’s inflation rate. He added that if the Senate had its way of giving a one-time increase of even just P100 ($2.04) in the daily minimum wage – as opposed to HB 345 that grants P125 ($2.55) in three tranches: P45 ($0.92) in 2007, P40 ($0.82) in 2008 and 2009 – the growth rate of the gross domestic product for 2007 will drop to 2.5 percent, way below the current projection of 5.7 percent.

Both the government and business groups stress that any wage hike should be determined not by Congress but by the Regional Tripartite Wages and Productivity Boards (RTWPBs). In addition, the MBC said that collective bargaining agreements (CBAs) are “the most universal and effective form of negotiating wage increases.” It dismissed a legislated wage increase as a “one-size-fits-all” option that will result in “some regions becoming uncompetitive and may result in disinvestments in areas that are most starved for investments.”

Given the stand of the government and business groups, workers should not expect any wage increase anytime soon. Given the rule that RTWPBs can only grant wage increases once a year, this means that workers will have to wait until July or August 2007 for the board’s decision.

Wages from 1999 to 2006

The workers’ demand for a P125 ($2.55) nationwide, across-the-board increase in the minimum wage of private sector workers – as well as the call for a P3,000 ($61.20) increase in the monthly salary of government employees whose bill remains pending in the House of Representatives – started in August 1999. Data from the Department of Labor and Employment (DOLE) show that in 1999, the daily minimum wage rates ranged from P140 or $2.73 (ARMM) to P223.50 or $4.36 (NCR).

Analyzing the wage increases granted by the RTWPBs from 1999 to 2006, the NCR-based workers were provided the highest cumulative wage increase of P126.50 ($2.58), of which P50 ($1.02) was in the emergency cost of living allowance (ECOLA) and not in the basic pay. In the case of workers in other regions, the RTWPB-granted cumulative wage increase ranged from P30 or $0.61 (Mimaropa) to P102.50 or $2.09 (Central Luzon). This simply means that through the years, RTWPBs have not granted wage hikes that are substantial enough to provide relief to workers.

It is therefore not surprising that wages have remained law through the years. In the non-agricultural sector, the daily minimum wage rate currently ranges from P200 or $4.08 (Autonomous Region in Muslim Mindanao or ARMM) to P350 or $7.14 (National Capital Region). This situation explains the organized labors’ continuous demand for a P125 ($2.55) wage hike despite the minuscule wage increases that have been granted by RTWPBs since 1999.

In my previous study, the daily cost of living for a family of six in August 1999 was pegged at P455.82 ($9.30) in the National Capital Region (NCR). For areas outside NCR, the daily cost of living was P353.49 or $7.21 (for agricultural areas) and P371.92 or $7.59 (for non-agricultural areas).

In August 2006, NWPC data showed that the family living wage in NCR amounted to P756 ($15.42). For families outside NCR, the family living wage was P662.93 ($13.52) on the average.

Indeed, these data quantify how low past and current wage rates are.

Debunking the Claims

Then again, those who are against a substantial wage hike could argue that massive retrenchment and closure of establishments would happen once workers’ wages are increased. Even data from the DOLE, however, would show that from 1996 to 2000, the main reasons for the permanent closure and retrenchment are reorganization/downsizing/redundancy, lack of capital, high cost of production, lack of market, peso depreciation and financial losses.

Through the years, not even one percent of establishments cited as reason the “minimum wage rate increase.” The data show that the closure and retrenchment can be rooted in the economic crisis besetting the country, and not the wage increases – little as they are – that have been granted through the years.

As regards the inflationary nature of wage hikes, studies show that wages only account for 10 percent of the cost of production on the average. Taking into account the average minimum wage amounting to P290.73 ($5.93), a P125 ($2.55) nationwide wage increase represents a 43 percent increase in nominal wages.

This means that the increase in production cost as a result of the legislated wage hike will only be 4.3 percent which will not result in inflation unless the capitalists opt not to decrease their profits a little.

Those against a legislated wage hike also lose sight of the fact that an increase in purchasing power of the workers is beneficial to the economy. A vibrant economy, after all, needs people who can buy goods and services in order to help increase the demand for such.

Clearly, defending a substantial wage increase – and a legislated one at that – is not just merely a result of one’s bleeding heart for the impoverished but has compelling empirical data that are interpreted in a way that seriously considers the rights and welfare of workers. Bulatlat

© 2006 Bulatlat ■  Alipato Media Center

Permission is granted to reprint or redistribute this article, provided its author/s and Bulatlat are properly credited and notified.