Alternatives to legislated wage fixing

DO workers need better wages? Definitely. But do we have to do legislate it? Not necessarily.

The debate vis-à-vis the wage rise proposal by Congress seems to be framed that way. But that may be peripheral to the bigger issue of whether or not the legislative wage-setting is still relevant to the economy’s need for sustained growth and development at this time. We use the term “at this time” because it is clear that minimum wage setting is a framework that was established in an era that is no longer with us. Policy makers should appreciate that before they ever make up their minds about legislating wages.

Legislative wage fixing was conceived in the era of import substitution following World War II. Thinking that the best way to nurture local industries is through protectionism, policymakers then showered factories with all sorts of goodies including blanket tariff protection for “infant industries.” Because industries are not exposed to the dynamics of foreign competition, many of our so-called local industries became monopolistic, many of them selling products and services at exorbitant prices. Today, a refrigerator or a washing machine or a color TV set is cheaper than a cellular phone; those days only the really rich families could afford those amenities. That’s how companies then made a killing. And because they enjoyed unnaturally high mark-ups then, what better way to force them to share the bounty than through a legislated minimum wage?

That’s how it was then: we had a protected manufacturing sector enjoying high state subsidy and protection and a labor aristocracy that was protected by tenure and wage levels set by Congress. The unintended effect of course was that as mandated wages rose, companies minimized the hiring of workers by buying labor-saving machines. It was cheaper to do so because government then actually encouraged such behavior by offering fiscal incentives (such as duty-free importation of machines, plant and equipment) to companies buying such machines from Japan, America, and Europe. The ranks of the jobless rose, but the inconvenient symbiosis between the protected industries and the labor aristocracy persisted until globalization hit hard—since the 90s when the government of President Corazon Aquino instituted tariff reforms that coincided with our joining the World Trade Organization.

With Congress doing the labor unions’ jobs of agitating for higher wages and better work place relations, the ranks of organized labor hardly grew as the formal sector stagnated and many entrepreneurs went underground to evade wage laws.

As import liberalization started to bite into the balance sheets in the late 80s, many companies felt that the politicized wage fixing was untenable and agitated for reforms. Companies then reasoned out that wage fixing was hurting their global competitiveness. As more wage order violations and related breaches were reported, the labor sector also became restless, particularly during the leadership of then labor secretary Augusto Sanchez. Labor unrest forced President Aquino to fire Sanchez and replace him with Franklin Drilon, who instituted the tripartite approach to wage negotiations within the context of the regional wage boards. That system, until now, works as the labor front has quieted in the last two decades. Since wage rise discussions are done in low-key manner, the process doesn’t attract politicians who tend to grandstand. Ever heard of investors complain of labor unrest as deterrents to investments? Not anymore.

The law on regional tripartite wage fixing does not prevent Congress from legislating wage increases. Nevertheless, resorting to such option right now may politicize the process once more, especially since the country is approaching an election season. But this in itself is a peripheral issue; the bigger one is that such a policy action may even hurt the working class that it purports to serve. Why? The main reason is economics.

In the last decade or two, the work place, transformed by the Information Revolution, has suddenly changed. Knowledge has become the key ingredient of growth; and along with services, it has emerged the most dominant growth drivers. This structural transformation suggests that labor demand is largely focused on those who have adequate or even specialized skills. This is clearly revealed by our Research Staff’s job ads monitoring project where the bulk of the ads for work are accounted for by managerial and administrative; professional and technical; and clerical jobs. Do we wonder why we often hear about jobless growth? That’s one major reason.

That brings us to the question whether or not the nationwide legislated wage increase across the board would ultimately serve the interest of the working class. Our own take is that yes, it will indeed benefit those who are in the formal sector, specifically those in companies that can afford the higher wages. But there are only a few of them, as more than 90 percent of companies are small and medium. But overall, the proposed legislated wage hike, especially at the P125 level, might even work against the interest of the working class, especially the unskilled ones, as the wage rise would further make labor more expensive at a time when managers and employers are largely looking for knowledge workers.

Right now, the best option really is to maintain the regional tripartite regional wage-fixing approach in place since the Edsa Revolution. Better still, those companies that can really afford to give higher wages may have to negotiate with their own workers at the plant level without attracting the intervention of politicians and bureaucrats. That of course presumes that labor unions are not lazy to organize their ranks and are doing their homework.

Of course, the drive for better bottom line suggests that many companies are not going to be generous. But policy makers could still remedy the situation by allowing the market forces to drive up wages. How? By going for growth-oriented policies (more infrastructure investments, strengthening the educational system, effective skills training program, improved job market information system, career counseling for high schools and fresh graduates, scholarship programs for the poor, lower tariff for food products like milk, greater investments in mass transit that lowers the cost of transport, among many others).

Notice how workers in cyberservices don’t have to agitate for higher wages at all, and yet companies are offering them signing bonuses ranging from P15,000 to P30,000. Companies need them so badly that they are willing to pay even before workers started working. Notice how the 400,000 workers in the electronic sector are not picketing their company gates yet companies pay them well because they know how hard it is to replace those pirated.

Of course, factors like “macroeconomic stability” do contribute a lot to preserving workers’ incomes. When the inflation rate is low and stable, purchasing power is maintained; there is no need to raise wage levels.

There are a thousand and one ways to raise workers living standards. Obsessing with the too-pat, oversimplified approach of legislated wage fixing could hurt more of them than it would benefit some.