May 2, 2012

Economics of Wage in the Philippines - Wage Increase can Result to Half a Million Job Loss


In a speech that President Benigno Aquino III bring out yesterday (May 1, 2012) – he warned that more than half a million Filipino could lose their jobs if daily wage were increased almost $3.

There is a basis on President Aquino's point. First, unemployment remains high – meaning there is an over supply of labor which means, labor power is weak and that labor community has less power to demand for increase in wage. If government tries to pressure the investor to increase wage, the tendency of the investors will be to relocate there investment in countries that has lower wage cost.

On the other side, one way which government can help labor sector is by providing more local and international jobs. By doing this, supply of labor will be stabilize; imagine if every one who wants a job can have a job ( because today even a high school graduate who is willing to accept a daily wage of 200 cannot get a job). When supply of labor is stabilized, that is when labor sector can demand for higher wage (even without the help of the government).    
The underlying logic behind the stabilization of labor supply to increase wage is due to the fact that when the said supply is stable, a laborer who wants to increase his wage, can bargain to the employer without fear of loosing his job (because he knows he can find one anywhere/anytime he wants). Thus, the key factor to resolving wage problem is to resolve unemployment problem (make sure there are plenty of jobs available in the market).  

Another way government can directly help the workers is by providing subsidies to minimum wage earners  – like rice subsidies and the likes (but this is for short term, but in the long run the best solution is to stabilize supply of labor).


Subscribe to Philippine Economist via Email