Paseo de Coro
On what to give to labor
By Fernando Fajardo
Cebu Daily News
First Posted 09:32:00 05/16/2008
Given the rapid increase in prices these days of most of the basic goods needed by the poor, President Gloria Macapagal-Arroyo, before Labor Day, told in no uncertain terms the Regional Wage Boards to increase the minimum wage in their respective regions at the soonest possible time. To prove that she was sincere in helping the poor workers, she herself showed up in two Regional Wage Board hearings in Luzon. She may not be around on next week’s wage board hearing for the Central Visayas but in the mind of most of the members of the wage board here, I think an increase is inevitable. The only question is by how much and on what basis it will be computed.
The wage board in Region 4 or Calabarzon is the first to give a P20 increase to their minimum wage earners. This brings to P320 the highest basic wage in Calabarzon from only P300 set less than a year ago. The wage board in Central Visayas set the highest basic wage in the region at P250 last year. What could be the amount of the increase it will give to the minimum wage earners in the region? This we will know after next week’s public hearing.
In two of my recent columns, I already showed my preference for giving a wage increase to our minimum wage earners. This I do despite the fact of what my study in economics is telling me that fixing the minimum wage may not be the right thing to do. However, this precept is true only under condition of perfect competition in the labor market where both players, the buyer and the seller, are equally informed and strong enough to keep his or her position when one finds the other side unreasonable. When this is not true as in the case of the country where labor is in surplus due to rapid population growth and sluggishness of investors to put their money in business for whatever reasons, the labor group will be disadvantaged. In the market, the wage rate will be fixed at the point where supply and demand meets. When labor is weak, this meeting point may be such that the wage received by labor may not be even enough to pay for his existence and that of his family.
Social justice demands that the lowest of the worker, which is still a human being and not a machine, should receive at least the amount that is necessary for him and his family to live in dignity, free from hunger, and assured of some descent housing, medical care and education of his children. When these things are not given, a worker will be greatly disturbed at work. Hunger will tire him easily with his mind thinking only of where to find next meal for his family or rent for his house, instead of looking for ways to produce more and improve the quality of his output.
Employers may think that they save and increase their profitability by paying less in wages. By paying less they may actually be compromising the motivation of their workers to work. For the lowest of the workers, the main motivating factor for them to work and to work well is to be assured of his basic needs. Short of that you cannot expect him to be very productive. When labor is unproductive, unit labor cost will also be higher and when unit labor cost is high you cannot expect a firm to be competitive in this highly interconnected and global economy.
Think of this, for example: If one is given a 10 percent increase that satisfies his needs, it may now be easier to ask a laborer to work well and produce more than his usual output. Pay him 10 percent less than his need and this may only invite him to produce less than before. Therefore, paying less in wages is actually more costly when the lower productivity of the unmotivated worker is considered. Thus, it does not follow that paying less in wages will be good for business.
Of course, there are many objections to raising the minimum wage. Will this not lead to more inflation? Yes but only a little because the total bill for the minimum wage earners is only small fraction of the total wage bill and that the total wage bill is also only a fraction of the total cost of production of the firm. Will a wage increase not lead to higher unemployment? Not necessarily because I do not think that an employer will risk firing his workers for a little increase in his wage if that also means losing a loyal and experienced worker. As to the country’s high unemployment rate, I am also sure that this is caused not so much by the high cost of labor but by many other factors that discouraged more investments to come, like our high level of corruption in government and poor infrastructures among others.
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