ECOP: Legislated wage hike to hurt more MSMEs

LRT passengers browse through their cellphones while commuting in Manila on March 13, 2023.
Miguel De Guzman

MANILA, Philippines — The proposed P150 legislated wage hike may result in 30 percent additional cost for employers and will hit micro, small and medium enterprises the hardest, according to an official of the Employers Confederation of the Philippines (ECOP).

“Please note that any upward adjustment of the wage automatically carries a 30 percent additional cost due to the increases in the payroll for SSS and PhilHealth contributions, the overtime pay and the retirement pay of workers,” ECOP chairman Edgardo Lacson said in a forum in Makati City.

He said that another impact of raising wages is inflation, as producers add the new round of wage hikes to their prices.

Lacson explained that informal workers who are not covered by any mandated minimum wage increase suffer as well, since the ensuing inflation only serves to drive them further down the economic ladder.

The ECOP chairman warned that a legislated P150 wage increase would inflict incalculable damage on the Philippine economy as he called for more sustainable alternatives to help workers cope with the rising cost of living.

Lacson said that if approved, Senate Bill (SB) 2002 would “deliver a fatal blow to our national economic programs, inflict shock on employers, and disincentivize investors or job generators.”

Senate Bill 2002, authored by Senate President Juan Miguel Zubiri and Senate President Pro Tempore Loren Legarda, seeks to legislate an increase of P150 in the daily minimum wage.

“Ultimately this bill will cause incalculable damage to our economy,” Lacson said, adding that it would hit the micro, small and medium enterprises (MSMEs) the hardest.

He stressed that MSMEs are the backbone of the Philippine economy, accounting for 99.5 percent of registered enterprises, 62.4 percent of the country’s total employment and 40 percent of gross national product.

Lacson explained that the failure rate of Philippine MSMEs ranges from 50 to 80 percent every 10 years because of increasing operational costs that are mostly triggered by minimum wage increases.

“With SB 2002, MSME failure will happen sooner,” he warned.

Lacson said one of the repercussions of MSME closures is higher unemployment and underemployment as MSMEs respond to the higher cost of labor by lowering their operational and manpower levels, instituting job rotations, stopping hiring activities, and automating their processes as they fight to avoid bankruptcy.

Philippine Exporters Confederation Inc. (PHILEXPORT) vice president Ma. Flordeliza Leong said wage hikes actually do not end up improving consumers’ buying power because these only intensify inflationary pressures as producers raise the prices of their goods and services to offset higher expenditures.

“The increased money in circulation would further push prices up… so it defeats the purpose. It’s a bad cycle that we are always dragged into,” she said.

Moreover, unlike the wage adjustments proposed by the regional wage boards, across-the-board increases mandated through legislation do not consider the economic situation in the local areas, according to Leong.

Instead of hefty wage hikes, both Lacson and Leong said lawmakers could better serve the people by passing bills that promote jobs and attract investments.

Leong also suggested giving a bigger budget to the Department of Trade and Industry so that it can be better positioned to extend help to MSMEs, especially those crippled by the pandemic, as well as providing drowning enterprises more opportunities to access ayuda or financial support and low-interest credit.

She also pressed for the lowering the prices of basic goods by cutting logistics costs, and passing the amendments to the Magna Carta for MSMEs, the landmark legislation that mandates government support for MSME growth and development.

Last month, business groups Philippine Chamber of Commerce and Industry (PCCI) and the Federation of Filipino Chinese Chambers of Commerce and Industry Inc. (FFCCCII) said that higher labor costs would make it difficult for the country to attract more investments.

“With this increase, we’ll price ourselves out of competitiveness,” PCCI president George Barcelon said earlier.

FFCCCII president Cecilio Pedro shared Barcelon’s sentiment, saying that the Philippines’ labor costs are one of its competitive advantages.

“How do we invite investors to come in? Focus on the advantages,” Pedro said earlier.

“At this point in time, labor is one of the advantages of our country. Let’s not remove this advantage,” he said, noting that the country is not competitive when it comes to areas such as power costs, exchange and interest rates among others.

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