The wage stagnation paradox

"There is a widening divergence between the average basic daily wage and labor productivity trends."


In addition to curbing inflation and creating jobs, consistently among the top concerns of Filipinos according to surveys is wages. The poor, in particular, often live from payday to payday, and any movement in their takehome pay can spell the difference between eating and hunger.

Unfortunately, there is a widening divergence between the average basic daily wage and labor productivity trends. On one hand, the most apparent explanation is exploitation: Why else would Filipino labor continue to increase their productivity even as their wages stagnate? On the other hand, the usual computation of wages does not include so-called other forms of compensation, such as bonuses and insurance, which are rising.

Independent think tank Stratbase Albert del Rosario (ADR) Institute held a roundtable discussion on a special study on this topic by Dr. Vicente Pacqueo, one of its non-Resident Fellows, and Dr. Michael Abrigo, a Research Fellow of the state-run think tank Philippine Institute for Development Studies.

In particular, Drs. Pacqueo and Abrigo looked at labor productivity and the so-called wage stagnation paradox, and in the discussion, they highlighted the importance of raising productivity growth and opportunities through things like technological catch up, building of complementary capabilities, and instituting policy reforms.

Wage stagnation is a misleading paradox, Dr Pacqueo said, because it does not reflect non-wage benefits. He disputed wage stagnation as an indicator of worker exploitation from a macro-level point of view “due to factors such as compensation schemes, acquisition of advanced technology, and [that] wages don’t take into consideration the labor output.”

There is a need to increase capital in order to raise compensation, he insisted, while pointing out that government should temper down on “unrealistic regulatory mandates” that would not have sustainable and positive long-term impact on the labor sector and productivity. On a micro-economic or household-level, meanwhile, he stressed the need to boost regional productivity to improve basic wages.

Jose Roland Moya, Director General of the Employer Confederation of the Philippines, agreed and said that the factors that lead to the disparity between labor productivity and real wages “do not consider business realities and capabilities,” especially in relation to technological advancement, changing consumer preferences, and the changing minimum wage.

In particular, he said, the small and medium enterprises, which comprises the majority of local businesses, bear the brunt of these factors, compromising their expansion plans, technology acquisition targets, and overall innovation strategy. These do not even include other recent regulatory developments, such as the increase in SSS premium and expanded maternity leave benefits. Instead, what must be prioritized are capital stock and equipment in increasing productivity.

Rene Almeda, Employers Confederation of the Philippines Governor, cited his company’s approach to boost labor productivity in relation to the findings of the paper. Yazaki-Torres Manufacturing Inc., he said, makes use of a two-tiered wage system: setting a minimum wage higher than the poverty threshold and setting voluntary productivity incentives and bonuses based on mutual agreements.

Their incentive scheme, he explained, provides for a performance-based incentive pay, productivity incentives, and a special bonus based on the profitability target of the year.

Toti Chikiamco, President of the Foundation on Economic Freedom, said the onus of increasing productivity is on government. He explained: “If the government really had a heart for the labor sector, they should focus on productivity. Productivity allows [businesses] to grow bigger and enable employers to share their employees the productivity gains.”

His company, he said, has a “personalized” incentive and compensation scheme. Aided by technology, it gathers data to set productivity objects according to the employee’s nature of work, capabilities, and experience.

Otherwise, he said, any mandated policies that have no productivity direction will not make the country more globally competitive. As such, he stressed the need for greater foreign investment liberalization to increase competition in the local market and at the same time facilitate technology transfer. He hopes that key legislation in this regard, such as the Public Services Act, are passed in the next session of congress.

Mr. Coco Alcuaz, Executive Director of the Makati Business Club, noted that the Philippines has a lot of catching up to do in terms of science and technology in industry. Forcing technological innovation to a labor force not trained for it might take time, some 20 to 30 years, before we see its fruits.

For now, what can be done, he said, is improving the skillset level of the labor force. Key in this regard will be improving education and training, boosting market competition, protecting job-generation investments with smart incentives, and establishing a flexible labor market by focusing on quality jobs.

To sum up, Dindo Manhit, President of Stratbase ADR Institute, pointed out for the country’s poorest and most vulnerable, employment and wages represent critical factors in poverty reduction. The challenge then is how to promote increasing incomes while at the same time generating jobs and maintaining economic growth. This will need a shifting to a more strategic mindset that focuses on long term competitiveness and sustainability instead of myopic political cycles.

Topics: Orlando Oxales , wage , payday
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