The link between unemployment and wage increases

Jobs and wages are two faces of the same coin, two parts of the same whole. If we touch one, the other is impacted.

It is too easy for the labor sector to demand for wage increases up to P800 daily (which translates into a monthly basic rate of P20,800 for 26 working days). If you add P16,640 to cover SSS, Employees Compensation Commission, PhilHealth, Pag-IBIG, Service Incentive Leave, proportionate 13th month pay and other mandatory benefits like holiday pay and the like, that totals P37,440 a month for every worker. If you are operating a small-scale, medium-scale, or micro enterprise, would you hire more personnel to help you operate your business? Added to the labor cost are the cost of electricity, water, rent, taxes, duties, and other obligations, do you think you can survive and compete against the products of China and other low-cost producing countries? If you will just go bankrupt, and waste your hard-earned or even borrowed capital, why would you go into business?

It is postulated that among the ASEAN member-nations, the Philippines has the highest unemployment rate and the most problematic levels of total labor cost. The Philippines is among the least competitive economies in the Asian countries because of our labor cost, power cost, transport cost, and the perennial problems of too much government interventions in the hiring and firing of workers. You can hire people but you will not be allowed to fire the inept, lazy, recalcitrant, and even the dishonest workers because the government is protecting them. You cannot hire project-based, fixed-term contractuals because they call it ‘’endo’’ and ‘’5-5-5.’’ The government is doing its very best to make the business sector fail and exacerbate the unemployment and underemployment problems in the country. And so what shall we do with our economy?

The Philippines is lagging behind the perennial top performer, Singapore, a tiny city-state with less than five million in population, one half of whom are foreign workers including 300,000 Filipinos, both documented and undocumented. Singapore is smaller than Bohol in area but its economy is number two in the whole world. Singapore has all the reasons to fail (no water, no sources of food, these are all imported from Malaysia, too limited space) but it is a great success. The Philippines has all the ingredients for success but is a failure. It has a large population (second only to Indonesia among the ten ASEAN member states) and a large area but its unemployment rate and underemployment rate are the highest in the region. What then is happening to our country? We are even beaten by Malaysia, Indonesia, Thailand, and Vietnam.

If we are going to increase our wages again, every peso wage hike would mean also an additional 80 centavos in terms of benefits. What will happen to the unemployment problem if we further burden the employers with additional cost without a corresponding increase in productivity? Our products and services will most probably become the least competitive in the region and soon, in the whole world. That would also result to driving away investors and foreign employers who are doing business in the country. And if there is a continuing outward migration of capital from our country, that shall, for sure, aggravate the problems of joblessness and lack of livelihoods. Further exacerbating the problem is the runaway population rate.

Let us always be mindful that the issues of unemployment and wages are closely intertwined. One cannot be solved without an impact on the other.