Legislating Minimum Wage

Laws are always unstable unless they are founded on the manners of a nation; and manners are the only durable and resisting power in a people.

Alexis de Tocqueville

The Lower and Upper Chambers of the Philippine Congress are quite busy the past weeks. Their target — to legislate the country’s minimum wage and help the labor force cope up with the rising inflation. The intention is noble, at least at face value, as it tries to address the welfare of the helpless and the needy. In the very first place, the purpose of legislation is to promote public safety, order, and welfare.

Photo by Pixabay on Pexels.com

Currently, there are at least seven House Bills and a couple of Senate Bills that seeks to amend the Labor Code of the Philippines to institutionalize a national minimum wage for private sector workers. As Senate President Juan Miguel Zubiri said in a statement, “If workers are putting in hours and hours of labor, day after day, and yet are still unable to afford their rent, bills and basic necessities, then there is a problem.”

Zubiri is pushing for a PhP150 increase for private sector employers in both agricultural and non-agricultural sectors regardless of capitalization and number of employees. At the Lower House, some legislators are pushing for a PhP750 minimum wage across the board.

Legislating through Congress the minimum wage has a number of advantages. Aside from coping up with inflation at the onset (though this may create a new wave of problems including a decreased purchasing power of the peso), a higher minimum wage can lift people out of poverty and improve their standard of living. It can also boost consumer spending, reduce income inequality, and even improved health and education outcomes.

Unfortunately, the legislation, like coins, has two sides. The disadvantages of legislating through Congress the minimum wage include:

  1. Job loss: Some businesses may not be able to afford to pay higher wages, which could lead to job loss or reduced hours for workers.
  2. Increased costs for businesses: Raising the minimum wage could increase labor costs for businesses, making it more difficult for them to compete with other firms.
  3. Inflation: Some economists argue that raising the minimum wage could lead to inflation, as businesses may raise prices to compensate for higher labor costs.
  4. Reduced hours for workers: Businesses may reduce the number of hours worked by each employee to avoid having to pay them a higher minimum wage.
  5. Negative impact on small businesses: Small businesses may be disproportionately affected by a higher minimum wage, as they may not have the same financial resources as larger businesses to absorb the higher labor costs.

In the long term, the negative effects may not be easily reversed depending of course on the content of the legislative measure. This is because, it is very difficult for the Congress to pass amendments. As revealed in a study I prepared for World Bank a decade ago, “The Philippine Labor Code was enacted in 1974 and for 38 years, it has not experienced any major amendment or revision. If there were legislative changes introduced, these were just minor amendments that are haphazard, intermittent and segmented, highly focused on individual employment rather collective labor relations, and are not responsive to the changes in the domestic and global economy.”

We have Regional Wage Boards. Considering that the costs of living per area differ, it would be better to empower these wage boards providing them with ample support to work better, carrots to work harder, and sticks to hit them if they are lazy enough. If the members of the Congress is really intent to help the low wage earners, they must create proper conditions to make the economy better to not just create jobs but high paying jobs. That would be the best thing the members of the Congress can do.


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