Administration Demurs on Blanket Pay Hike

According to a brief article late Friday on the Manila Bulletin’s website, President Aquino has rejected the call from leftist groups led by the Kilusang Mayo Uno (KMU) to certify as urgent HB 3745 and HB 3746, which would mandate an across-the-board P125 wage hike as a response to rising fuel and commodity prices. The Palace’s rationale for the decision was that the Tripartite Wage Boards that are ordinarily responsible for setting minimum wages in different regions are in the best position to determine what adjustments need to be made.

Well, okay then. Good call, Mr. President.

A couple of weeks ago, expat business guru Peter Wallace offered the opinion that mandated minimum wages are bad for attracting FDI to the country, which I pointed out in a brief response was a perception that was not necessarily borne out by actual performance. But Wallace was absolutely right about one thing, and that is relative to its regional neighbors, the Philippines’ minimum wage level is very high. I suggested at the time that an across-the-board wage hike might not be a good idea, either, because the implication is that the problem that needs to be solved is runaway prices, not wages. It would seem that the Administration has a similar point of view.

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There are a couple things to consider in forming an opinion of Malacanang’s decision. First, it is encouraging that this is at least one situation in which the President is inclined to let the system established for the purpose do its job, rather than issuing another process-breaking executive fiat. Second, there is a distinct possibility that an arbitrary wage hike would result in even higher consumer prices and have no real net benefit. There is, I would say, a better possibility of that happening than the government finding a workable formula of wage adjustments, price interventions, and tax modifications to ease the burden on Pinoy consumers.

What the government intends to do, and what they can or should do given the dysfunctional nature of the Philippine economic system and the fact that a fair-sized bit of the price problem is actually beyond their control is yet to be revealed. The near future, quite frankly, is looking a little grim – not necessarily because this Administration might really biff it (although they’ve shown they’re quite capable of that), but because it really is a set of circumstances capable of getting the better of whole roomful of brilliant economists.

Of course, one need not be a brilliant economist to find ways to cut consumption and increase savings. If you’ve not thought about doing that, this would probably be a very good time to start.

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