Position Paper in Support of House Bill 375 which provides for a P125 Daily Across-the-Board Increase in the Salary Rates of Private Sector Workers

Presented during Public Hearing of Committee on Labor and Employment
Strawberry Valley Hotel, La Trinidad, Benguet
January 18, 2013
Ecumenical Institute for Labor Education and Research (EILER)

 

The workers’ demand for a substantial wage increase has been sought long enough to reach more than a decade. It has been re-filed in the lower house from the 12^th Congress to the current 15^th Congress. We have heard all the arguments against it, unsurprisingly, the Department of Labor and Employment and ECOP almost echoing each other’s positions. For those who have supported the bill, we believe that we have delivered all the salient points and have discussed the counterarguments against those raised by groups opposing the bill. The fate of the HB 375 and the demand for a substantial wage increase, lies on the hands of our good legislators here. Will they heed the call of the workers and grab the opportunity to push the P125 Across-the-Board Wage Bill into Plenary, and give the bill a chance to be deliberated? Or will they let the 15^th Congress to be perceived by history to have just shelved the bill?

For this final public hearing of the Committee on Labor and Employment, we again submit our position on why House Bill 375 should be urgently passed.

1) The government boasted the 3^rd quarter growth of the gross domestic product in year 2012, a “spectacular” 7.1% growth, together with the upgraded credit outlook and booming stock market as proofs of its good economic policies. However, the question remains, does these statistics reflect inclusive and equitable growth? If there has been really economic growth, then it is more justifiable to include our workers to benefit from this growth.

Unfortunately, the touted growth was felt more by big business. According to IBON Foundation, big business posted an increase in profits, based on data from the Philippine Stock Exchange. The combined net incomes of listed firms grew 18% to Php 377.12 billion in January to September 2012 from Php 319.97 billion in the same period the previous year.[i] Moreover, From 2010-2011, the top 1,000 corporations gained an average annual income of Php 780.02 billion compared to an average of Php 421 billion annually during the previous administration. The profitability of big business under the current administration is also higher at an average of 11.1% annually.

While on the other side, the real value of worker’s minimum wages remain stagnant for more than 2 decades and continues to be eroded with the continuous increase in prices of basic commodities and utilities. The meager wage adjustments issued by the Regional Tripartite Wages and Productivity Boards since its formation in 1989 under R.A.6727 did not suffice to deliver substantial wage increase to offset wage erosion and price increases. In IBON’s estimate for 2012, NCR’s minimum wage only covers only 44% of the estimated family living wage of 1,022 per day. In November 2012, the current nominal wage for Non-Agriculture in NCR is at P456, with real wage equivalence of P363.35, a mere 20% increase in real wage rates in 2011. The lowest current nominal minimum wage rates can still be found in the ARMM with P232, with real wage of only P162.46, while here in CAR, nominal wage rate is at P280 with real wage rate of P214.07.

 

Comparison of daily minimum wage and family living wage (National Capital Region)

 

	Daily minimum wage in NCR	Family living wage in NCR	Difference
2001	P252	P509	P257
2011	P404	P957	P553
2012	P 456	P1,022	P566

 

While recognizing that the P125 increase as provided for by HB 375 will not bridge this gap, granting the substantial wage hike will nevertheless cut the gap significantly and thus help families cope better with rising consumer prices.

Alarmingly, in May 2012, the International Labor Organization (ILO) ranked the average monthly wages in the Philippines as the third lowest among 72 countries in the world  at US $ 279 or Php 11,700, just above the average monthly wages of Tajikistan and Pakistan, and is just 19% of the world’s average monthly wages. For ILO, Asian nations should veer away from reliance on cheap labor and exports to fuel growth, instead focus on promoting higher wages and boosting economic demand. In its Global Wage Report for 2012-13, ILO warned warned developing nations that letting wage levels stagnate had contributed to such problems as the latest financial crisis.

2) A legislated wage increase is direly needed amidst the implementation of further flexibilization of wages under the current wage setting and the newly introduced 2-tiered wage system. This year, we are entering into the 24^th year of the implementation of the Wage Rationalization Act or R.A.6727. It is about time for the Philippine legislation to assess and evaluate the failure of the Regional Tripartite Wages and Productivity Boards to provide substantial and significant wage increase for workers. A study conducted by DOLE’s  Institute for Labor Studies showed how decisions during deliberations among RTWPBs are dominated mainly be employers’ representatives. This partly explains why in its more than 2 decades of implementation, the RTWPBs have been issuing meager token wage increases, and increases only in Cost of Living Allowances and not the basic minimum wage rates.

To illustrate the dismal record of the regional tripartite productivity and wages board (RTPWB), regional wage boards across the nation has granted minimum wage increases not higher than P26 since their creation in 1989 under the Wage Rationalization Act. In several instances, these regional wage boards even implemented wage hike moratoriums. In the NCR, the RTPWB implemented a wage freeze thrice since 1989 (1992, 2003 and 2009).

And while the P125 Across-the-board Wage bill has been filed and refiled, deliberated and debated upon in Congress, DOLE and RTWPB can easily issue Department Orders and Wage Orders introducing new wage setting schemes that would would lower the current minimum wage rates and further make wage setting system more flexible and in full control of employers, thru the 2-tiered wage system. The introduction of floor wage based on poverty threshold will lower and eventually replace current minimum wage rates, and productivity-based system will ensure employer’s sole determination of worker’s productivity. This can be seen in the Wage Order No. 15 for Region IV-A where the minimum wage rates of P337 were effectively frozen until year 2016 and the increase were only given to workers earning below the set floor wage which is P255. Under the 2-tiered wage system, we expect that the future wage orders will not issue any increase in the minimum wage rates to pave the way for the introduction of a much lower floor wage.

Since under the general direction further flexible wage setting, no substantial wage increase can be seen expected from the RTPWB and instead would take lowered minimum wages with the replacement of floor wages, it is more imperative that a legislated wage increase should be put in place.

3) The right to living wage and the right to security of tenure are both inherent worker’s rights that are stated in our Philippine Constitution, both are rights that should be protected by the State.

Article 8 of the Philippine Constitution states that:

LABOR

Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

It has been a usual counterargument that granting an increase in minimum wage would hurt employment. But there has been no empirical evidence on this theory. A study cited by ILO in its Global Wage Report 2009-2010, showed that this theory is only applicable under perfectly competitive market and firms always have some control over their production. In practice, higher minimum wages do not necessarily lead to reduced employment since the higher costs of minimum wages can be covered by the reduction of profits for the firms. [1] Other empirical studies show that there is insignificant employment effect from minimum wage increases.[2] Even in the released OECD Employment Outlook 2010 concluded that the relationship between minimum wage and median wage brings no significant changes to worker flows. [3]

These studies are confirmed by the latest available government data on Establishments Resorting to Permanent Closure/ Retrenchment Due to Economic Reasons[4] as shown below.

From 2008 to 2010 (January-October), the accumulated number of workers that were permanently displaced by establishments due to minimum wage increase were only 722 workers and only covers 0.5% of the total number of permanently displaced workers or 141,474 permanently displaced workers for the 3-year coverage. The top reasons for the permanent displacement of workers by establishments were mainly due to reorganization, downsizing, or redundancy (41,135 workers displaced or 29%), lack of market or slump in demand (29,027 workers displaced or 21%), and financial losses (27,457 workers displaced or 19%). Thus, in the Philippines, the minimum wage increases did not result in massive retrenchments and closures of establishments.

An increase in minimum wage should be accommodated by firms through reduction of their profits, since labor costs (wages and benefits) only constitute around 6.8% of production costs (in manufacturing as of 2005).  The direct impact of a minimum wage increase is trimming the employers profit margins.

Big business has also been using the possible negative impact of the passage of the P125 ATB Wage Bill to micro small and medium enterprises as an argument against the bill. It should be cleared however, that under the Barangay Microbusiness Enterprises Law (BMBE Law), MSME has been exempted in the implementation of minimum wage. Furthermore, distressed companies can easily file exemptions from minimum wage payments. Therefore, there are sufficient laws and policies that would protect our small businesses.

4) A legislated wage increase now would be a sound wage policy in times of continuing global economic crisis.

The global economic crisis has brought to fore the structural problems of the dominant global economic system. In fact, the current crisis resulted from the inherent structural weakness of this system, with the perennial decreasing wage share and wage inequality amidst the so called “economic growth” and depressing wage rates amidst ballooning corporate profits, has led to spiral falling of aggregate demand. This was compensated for by increased borrowing, and “growth” was maintained at the cost of increased indebtedness.

The policies of deregulation, liberalization and privatization under globalization has brought the vulnerable sectors of society to lower wages, informalization, joblessness and deeper poverty.  According to ILO, in these times of crisis, it is time for nations to look inward and develop the domestic economy. In its Global Wage Report 2009-2010, ILO has urged policy-makers to prioritize wage policies during crisis since it concerns social justice and the hardships that inequality and low wages bring to the most vulnerable sectors of society. It is a matter of achieving social justice since the costs of the financial crisis and rescue packages were borne by all, while the benefits of earlier “expansionary period” were unevenly shared. ILO presented numerous wage and labor policies with stress on overarching regulation by the state. It explains importance of collective bargaining and minimum wages. It states that “the minimum wage is a policy tool to provide an effective backstop at the lower end of the wage distribution.”[5]

Reverberating ILO’s recommendations, EILER supports the legislated across-the-board wage increase. We believe that the granting of a legislated P125 across-the-board minimum wage increase stated under HB 375 will result to the following positive impact:

–        It will strengthen aggregate demand for goods and services from domestic sources, creating a more viable domestic market.

–        It will help address market imperfections, such as gender pay gaps. According to the report, women are more vulnerable to lower wages, thus, increasing minimum wage would benefit mostly women workers receiving lower pay.  It will benefit the most vulnerable sectors workers, the contractuals, women workers and other low-wage workers, who are earning around 40% less than the current minimum wage. The figure below shows that majority of workers who are salary and wage earners receive wages below the minimum wage rates. An increase in minimum wage would help reduce low wage employment.

–        It will create a ripple wage effect, wherein other workers above the minimum wage rates will benefit also from the increase as the ripple effect can reach even to wage levels that are 25% more than the minimum wage rates. In the United States, a 10% increase in the minimum wage resulted in a 1.4% increase for the highest percentile wage level.

 

The government, instead of showing a doomsday scenario if ever the P125 ATB Wage Bill is passed should study and look at the other side of the picture, where a substantial wage increase will bring more gains for our economy in general and at the same time uplift the lives of our workers who are earning poverty wages. In fact, a substantial increase in the minimum wage is a more effective and strategic long-term social protection policy than the dole-out conditional cash transfer that the current government prioritizes.

In view of the justifications cited above, it is highly justified and necessary for Congress to pass HB 375 at the soonest time possible. Passing the bill should also be complemented by a strong implementation machinery to ensure compliance and maximize the impact of the minimum wage increase. For the longest time, millions of Filipino workers have been deprived of decent living because of the current slave wages. Approving the P125 across-the-board nationwide wage increase is one step towards ending this social injustice. We pray on the Committee on Labor and Employment to urgently forward HB 375 for deliberations in the Plenary and ensure its passage under the 15^th Congress.#