May 2, 2012

High Minimum Wage vs. Low Purchasing Power: Philippine Perspective

Comparing the minimum wage rate of the Philippines to Asian neighbor countries, Philippines is the highest ($10) compared with $2.20 in Vietnam, $2 in Cambodia, $2.90 - $ 3 in Indonesia, $5.20 – $5.90 in Thailand and $3.75 - $5 in China. With this figures, Philippines will have a difficulty of attracting foreign investors (especially if an investor is engage in exporting business – e.g. Apple. Inc). But if the objective the investor is to penetrate local markets by investing on a specific location, then the wage will not be a problem as long a there is a strong demand for the product. The problem will only arise if local producers will be threatened by imported low cost products. Thus, it is important to note the role of the government in protecting local businesses against imported products.

Despite Philippines having high minimum wage compared to other Asian countries it can not be said that the Philippines minimum wage has the highest value (or purchasing power) among Asian countries. It also good to examine how much percentage of the employed individuals are minimum wage earners, because it might happen that large portion of Philippines labor force are minimum wage earners while small percentage of neighbor Asian countries are minimum wage earners.

To analyze, wage cost plays a big factor in foreign investment decision – that is, the higher the minimum wage cost the less likely the investor will invest in the country. It can also point out that wage problem rooted in inflation rate (increase in prices of goods – such as sugar, coffee, rice and the likes) – thus it is good to note the role of the government in controlling price increases of basic needs people (food, shelter, clothing, and transportation) by imposing price ceiling or by subsidy; especially price of oil is currently up-trend.

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