Labor Econ 14: Labor Day and Government-Mandated Minimum Wages

It is International Labor Day today. Many labor unions and allied groups will be marching in Manila and many other cities worldwide to demand higher government-mandated minimum wage, higher bonuses, other issues.  Before further discussion, here are some basic data.

Table 1. Minimum Wages in Metro Manila.

Source: National Wages and Productivity Commission, http://www.nwpc.dole.gov.ph/index.html 

So it is P429/day for SMEs and P466 for large corporations. Next high wages would be in Region 3 or Central Luzon provinces, as well as in Region 4A or the Calabarzon provinces. Wages there as recently approved are complicated. Those in Region 3 are simpler.

Table 2. Minimum Wages in Central Luzon

Now here's the catch. An employer does not give only the (1) daily minimum wage. With other labor regulations, an employer must also give them (2) 13th month pay, (3) employer's share in SSS + PhilHealth + PagIBIG of their workers, (4) private health insurance/HMO, (5) other benefits.

So if these additional mandatory pay and contributions are included, I think the minimum pay for workers is around P550 for those working in SMEs and P600 for those working in large corporations. Can many local entrepreneurs afford this? I doubt it.

Let us now check comparative data in the Asia Pacific.

Table 3. Comparative Minimum Daily and Monthly Wages in Selected Asia-Pacific Economies

Source: http://www.nwpc.dole.gov.ph/pages/statistics/stat_comparative.html

Ok, now to the endless question that is being discussed and debated yearly in many places and countries around the world:

Are government-mandated minimum wage and related laws/regulations, beneficial or harmful to workers and non-workers/jobless?

For the socialists, communists, other advocates of more government intervention, the answer is Beneficial. For them, being hired by the capitalists is the worst but modern form of slavery. Thus, government must come in as often as possible to intervene and protect the workers from further capitalist exploitation.

For some people however, being not hired at all is among the worst forms of inhumanity. One feels "useless" or "less useful" to society and the community. So government policies that further prevent them from being hired are harmful to them.

For me, I take the second view above. Government-mandated or imposed minimum wages and other mandatory contributions benefit those who are currently employed, but non-beneficial to those who have no jobs, or employed only in small, struggling, micro and small enterprises that cannot afford to give such high daily pay.

One solution is that if people cannot be hired by others, then they should hire themselves through self-employment and entrepreneurship, as outsource service provider to more financially stable companies and individuals.

Which implies that certain government regulations that further bureaucratize entrepreneurship should be drastically reduced if not abolished. Job creation -- to others or to oneself -- is not a crime. Hence, it should not be over-bureaucratized and over-taxed by the government. Government should step back instead.

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Meanwhile, I like this thought by a friend, Jemy Gatdula, posted in his fb status today:

of my bohol talk earlier, i got to thinking that one primary difference between leftists and people like myself (which, for lack of energy to think up a better term, let's just call 'right') is to what or whom they place their trust to make the state work.

Competition Policy 3: Jemy Gatdula's Article

The proposal to have a Competition Law in the Philippines has been there since about two decades now. No law yet, and neither is it becoming a law soon.

Somehow I support having a Competition Law, but this is secondary to the bigger, more important proposal, to amend the Philippine Constitution to abolish the limit on foreign equity investments, and the restriction on foreign professionals to practice their profession here.

Meanwhile, a friend, Atty. Jemy Gatdula, recently wrote an article on Competition policy, posted in his column in BusinessWorld last September 05, 2013. Italics below is mine.

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THE COUNTRY has seen loud calls from the general public to institute reforms, from the PDAF to the FOI. Among these fashionable areas of reform is on competition policy. However, through the years, your Trade Tripper has learned that if there’s a thing that the public (particularly foreign businesses) wants immediately accomplished, with zero fuss, then generally it’s best indeed to make a fuss about it. It’s when people are emotionally (even hysterically) demanding to rush matters that time to study it becomes a necessity.

As BusinessWorld reported (Competition Law Urged, 28 August 2013) on the East Asia Forum on competition law last week, the consensus seemed to be that “a competition policy is considered important for a country to grow and consider itself an advanced economy.” Furthermore, “competition law should also be separated from politically motivated industrial policy as the latter allows the government to choose which industries to champion instead of letting natural competition occur in the market.”

However, there’s an obvious need to examine the assumptions on which such assertions are made. One assumption can be seen from President Noynoy Aquino’s speech during the forum: “As a student of economics, I know that monopolies are incredibly inefficient. It kills innovation. There is zero impetus, in a monopoly, to continually improve your product or your service, simply because you have your market cornered.”

This was disputed by the Anti-Pinoy Blog <http://antipinoy.com/; see Anti-Trust Bill to Improve Competition in Philippine Economy -- Or Otherwise>: “When you remove the rhetoric -- it boils down to the government wanting to increase regulation of the market under the guise of ‘promoting competition.’ Such a policy does not present any benefit to consumers and imposes more harm. More regulations and more agencies will not improve competition in the protected Philippine economy. It has not worked for decades -- it’s not about to work now.”

“The myth peddled to the common tao is that unregulated markets lead to the creation of monopolies. Therefore government has to step in to ensure that companies will not have a coercive market monopoly. The reality is that coercive monopolies cannot exist without government protection, special regulations, exemptions, and subsidies.”

Nonoy Oplas, president of Minimal Government Thinkers, Inc., agrees: “When government intervenes hard to force or pretend to attain social equality, such intervention will naturally result in subsidizing the lazy and irresponsible, while penalizing and over-taxing the efficient and industrious.” For him, “fierce competition is fair competition. Government-managed or protected competition is not fair competition.” And I concur with his assessment that, at least for the present, the “best anti-monopolization regulation that government can do is to have rule of law strictly enforced.”