Monday, July 17, 2006

The Real Reason Why Wages in this Country are Low

The Regional Tri-Partite Wage Board has approved a P17-P20 increase for West Visayan laborers. I predict that militant labor unions, which petitioned for a P75 increase, will view this as an "insult" and will probably protest the measly increase. But local businessmen and sugar planters have claimed that P10-P12 is the most that they can afford without laying off workers so I guess the P17-P20 figure was their agreed compromise amount. Presently, the daily minimum wage in Western Visayas ranges from P160 (for agricultural workers) to P205 (for non-agricultural /industrial-commercial workers) or around P5,000 a month.

Historically, our highly politicized labor unions have been largely successful in agitating government to raise the minimum wage rate, so much so that the Philippines today has one of the highest minimum wage rates in Asia. But the question is, why is the Filipino worker still among the lowest-paid in the region despite the fact that we have one of the highest minimum wage rates in Asia?

The real reason why workers’ salaries in the Philippines are low is because most business enterprises here are small. According to data from the Department of Trade and Industry, 99.6% of Philippine businesses are classified as Small and Medium Enterprises (SMEs) and they employ the biggest number of Filipinos today. Under DTI’s definition, Small Enterprises are businesses with assets between P3 million to P15 million and Medium is defined as businesses with assets amounting to P15 million up to P100 million. Aside from the SMEs, there are also the Micro Enterprises which are classified as businesses with assets of P3 million or less. Large corporations, which have assets of P100 million and above, comprise only 0.4% of total businesses registered in the country.

In other words, almost all businesses in the Philippines are, quite literally, “mom-and-pop” operations because they are family-owned, family-run and family-staffed ventures usually employing three to thirty persons. SMEs are the ones most affected every time government raises the minimum wage. This is so because the profit margins of these SMEs are small and most can even barely afford to pay their workers industry-level rates. The biggest irony is that it is the Large enterprises which pay and treat their employees well, in contrast to how activist unions and Leftist groups usually depict them. "Ibagsak ang capitalista!" is an oft-repeated catchphrase during their rallies. But the truth is, multinational corporations pay their regular employees above-market rates aside from providing adequate medical care, health insurance and other benefits.

Nowadays, the only way an ordinary Filipino can earn, say P50,000 a month, is by being employed as an executive in a multinational firm or by setting up his own SME or by becoming an OFW (Overseas Filipino Worker). But since they comprise only 0.4% of industry, employment opportunities in the corporate sector is very limited and one has to have excellent academic and professional credentials to get in. The path many Filipinos take nowadays is by migrating abroad to work as domestics or under-employed professionals. While their dollar remittances are good for the Philippine economy in the short term, many sociologists predict that massive migration will be harmful to our society in the long term. Even today, we have begun to see the negative effects of the OFW phenomenon in terms of societal dislocations, failed marriages and family members drifting apart.

The way I see it, the only real solution to the problem of low wages in the country is by making our Small and Medium Enterprises (SMEs) into Large. We cannot totally rely on foreign investors to generate employment because, as we have seen, they cannot really provide jobs to all Filipinos. Nor can we completely rely on our OFWs because, as we are seeing now with the proliferation of shopping malls, their dollar remittances will only turn our country into a “consumerist economy” wherein consumer spending rather than industrial production or manufacturing determine economic growth. Our SMEs must learn to tap the international market in order to grow. Filipino entrepreneurs must be able to harness their creativity, increase their productivity and constantly upgrade their technical know-how in order to compete in the world market. Tapping the foreign dollar market is the only way for our SMEs to increase their profit margins and eventually evolve into big business entities. Only then can ordinary Filipino workers expect to receive salaries which are at par with the rest of the world.

How to make SMEs graduate into large corporations is really up to individual entrepreneurs and our government agencies.


Please read this Philippine Daily Inquirer feature article on small businesses which made it to the big leagues.

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