Minimum wage regulations can result in employers laying off low-skilled, minimum-wage workers in favor of highly-skilled, higher-wage workers, resulting in higher unemployment in the country.
Thus, policy-makers should relax wage regulations and allow small and medium enterprises to pay salaries below the minimum wage when they hire unskilled workers.
This is the highlight of observations and analyses from the recently-released Philippine Institute for Development Studies (PIDS) No. 2014-15 (August 2014) on the “Effects of minimum wage of the Philippine economy.”
Similarly, in a book entitled “Weighing in on the Philippine Economy and Social Progress,” Gerardo Sicat, former NEDA director general, said the high wage levels in the country, made possible by the minimum wage law, was a major reason the country has become uncompetitive vis-à-vis other countries in the ASEAN.
Sicat urged the putting up of “labor employment zones” in less developed areas in the Philippines to provide jobs to the unemployed and reduce poverty incidence.
Written by Leonardo A. Lanzona Jr., the PIDS study notes that the Labor Code mandates policies protective of workers but are deleterious to industry, such as prohibiting the termination of employees except for authorized causes, recognizing the right to form a trade union; and allowing strikes as long as they comply with the Code’s conditions. This bias to labor can have adverse effects, such as increasing unemployment and eventually retarding skill formation.
The study cited the policy of decentralizing wage setting, under Republic Act 6727, which was expected to create “multiple equilibria where the efficiency benefits of having regional wages would be potentially large relative to costs.”
“However,” Lorenzana noted, “the number of workers at mid-range level of wages decreased under the new law, but the number of workers above the average increased.”
PIDS is a government think tank tasked to conduct research programs required for the formulation of national development plans and policies, including labor policies and “tools that are not working.”
Editor’s note: Under the Barangay Micro Business Enterprise (BMBE) Law (RA 9178), registered barangay micro business enterprises are exempt from the coverage of the Minimum Wage Law. However, employees of the enterprise shall be entitled to the same benefits given to any regular employees like Social Security and PhilHealth benefits.