Wage hikes should be productivity-based

Our legislators should explore economic rather than political options to help labor cope with inflation. Increasing the minimum wage each time, ad infinitum, is a vicious cycle which we see year in and year out and hardly satisfies anyone for long.

 In the business page of the Philippine STAR, June 1, 2018, the Bangko Sentral ng Pilipinas (BSP) said that the inflation in May 2018 could hit a five-year high of 4.6 – 5.4%! At 4.1% average inflation in the first 4 months of this year almost everyone is already reeling from the dizzying increases in fuel prices and of basic consumer goods, like rice. What more aggravation would there be with such a spike in inflation in the horizon to possibly hit 5.4%? (As of this writing it has peaked to 6.4%!)  It is no surprise then that labor would ask for increase in the minimum wage, and quite justifiably so, considering the burden of inflation on just trying to survive on hand-to-mouth family budgets. It is equally not surprising to hear the employers on the other hand also blunt any unreasonable demand for higher wages; even increasing the minimum wage by just 10%, which is a far cry from the 60% that is being demanded by labor, will hit hard the pockets of business if the same is not justified by increase in revenues, as well. It could also be the death knell to some marginal business outfits. The vicious cycle goes on…inflation…demand for wage increase…inflation, etc. Virtually, it is going to be a catch-22 and a zero-sum exercise. Everyone moves, moving nowhere.

“Nothing comes from nothing,” as the song goes. If there’s no additional business income to talk of, what is the BASIS for labor to demand that wages be increased? Businesses are also groggy with the present high corporate taxes, which the TRAIN law in all fairness seems to want to alleviate and lower to a level that would not deprive the government of much needed revenues on one hand, and encourage business activities and expansion, on the other. It seems like a Mexican stand-off for labor to expect increase in their wages when there is no source for the employers to get it from. The bottomline that matters to the worker understandably at the moment is to increase his/her take-home pay!

There could be a win-win solution. Many progressive companies here and abroad have adopted a way to avoid runaway increase in fixed labor costs which is an albatross that weigh down on continued and long-term viability. They worked out a productivity scheme for their workers, where basic wages are frozen, except for merit increases due to promotions in positions. The increase in the workers’ compensation would come in the form of higher take-home pay, tied to the company’s productivity – which is a result of the increased team effort of the workers themselves. The workers get an agreed percentage share of the company’s increased revenues. So, literally, it is “sky is the limit” to the workers’ participation in the company’s productivity. As revenues go up, so does the worker’s take-home pay. Possibilities are theoretically limitless!

The Asian Productivity Data Book 2017 shows the stark reality of the very low level of productivity in the country compared to Singapore, the highest in the region versus GDP since at least 35 years ago. Here’s the selective data on productivity versus GDP taken from the 2017 APO Data Productivity Book:

Year    Singapore*       Philippines Ranking vis-à-vis Singapore

1970:  US $32.1/GDP           $ 9.6               25.2%

1980:  US $45.40                $ 11.5              25.4%

2000:  US $99.80                $ 12.0              12.1%

2010:  US $120.6                $ 14.6              12.1%

2015:  US $127.8                $ 18.1              15.0%

*100%, highest among 28 nations.

There is a two-pronged advantage to this productivity-based compensation scheme: Firstly, the company would not be burdened unnecessarily by fixed labor costs that workers demand on account of inflation; reality is that once wage increases are given it can’t be taken back even when business is in critical seasonal doldrums, or experiences slump in business activities, and for one reason or another would need acute financial relief. Such cost problems if unresolved at times could result in labor retrenchment, or worse, the company closes shop. In short, it helps the company survive hard times when there is no burden on fixed labor costs.  Secondly, the workers in a productivity-based compensation program will get the full benefit of what is due to them with increased productivity of their company.

So, why don’t our legislators consider legislation on productivity-based compensation, encouraging both labor and management to get out of the minimum wage-inflation rut? It could be the progressive game-changer not only for labor productivity but for the economy as a whole. The APO data shows what the problem has been since Martial Law. – M. K. Tan, CRL, Diliman, Quezon City