Tuesday, July 17, 2007

Addressing the Principle of Minimum Wage Fixing: An Initial Approach to an Efficient Labor Costing

ANTO COMETA


Several theories and models on wages have been developed in order to address the dilemma in the structure of labor costing. Fixing wages covers a wide range of factors affecting both the supply and demand of the labor market as well as economic and political conditions and policies of a country.

One of the components that need to be attended to is the principle of minimum wage fixing. Minimum wage is a good and reliable reference of the standard of living of the workers particularly in developing or third world countries such as the Philippines. In this particular case, the dependent variable which is the minimum wage determines the outcome or the output of the independent variable which is the living standard of the workers. This could assist in the initial approach on how to properly put forward an efficient labor costing policy and structure across economic sectors and industries.

According to the Labor Code of the Philippines, the determinant of the minimum wage in the country constitutes a near satisfactory level that could sustain the living conditions in terms of the basic necessities of the worker. “The regional minimum wages … shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well-being of the employees within the framework of the national economic and social development program.”[1]

As avowed in the labor code, the minimum cost of labor ensures sufficient remuneration for the worker in order to suffice the cost of living or the standard living necessities of the individual (and their families). However, in this regard, the minimum wage does not entail improvement in the economic situation of the individual. This is just a mere “pay the rent” principle whereby an individual works in order to live by the day.

Minimum labor costing should intend to address poverty and guarantee the sustainability of the necessities of the workers and their families. A study conducted by Catherine Saget of the International Labour Organization (ILO) with reference to the minimum wage and its impact on the nation’s poverty suggests there is evidence to support that minimum labor costing can take an essential part in the reduction of poverty of a country. [2] In relation to the evidence, at least three premises should be sufficed - (1) most workers should be entitled to get at the least the minimum wage, (2) compliance of employers with the minimum wage regulation and there should be (3) no price increase in commodities following the augmentation in minimum wage. Accordingly, if the three conditions were met, the principle of minimum wage to surmount poverty and meet the requirements of satisfying the necessities of the workers and their families is feasible.

One of the major hindrances aside from the economic condition affecting the country and its labor market is the revenue acquisition of the employers. Employers are quite concerned in the maximization of their profits. Most if not all adheres to the principle of sticky wages. By not promptly responding to the changes in wage levels in the labor market, revenue exceeds the cost of hiring the worker. This is also applicable in hiring additional workforce in their business.

The principle in minimum wage fixing will remain abstract if it would not be applied and stringently implemented. The most viable way of addressing both social and economic issues and eventually arriving to a resolution is through social dialogue in different forms and levels between the tripartite partners.[3] In the paper published by the ILO authored by Tayo Fashoyin, discourse and consultation between the workers (with their organizations or trade unions), employers and the government as well as other relevant stakeholders is a useful measure of developing agreements on policy issues.

Coming to agreements and formulating policies based on the consensus of concerned parties plays a fundamental function in shaping the labor market and relevant institutions as well as the economy of the country. An efficient minimum wage fixing could pave the way not only to an efficient structuring of labor costing but also to the development of the country and its economy.



[1] Art 124 of the Philippine Labor Code, www.dole.gove.ph/laborcode/

[2] Catherine Saget, Minimum Wage – Does it Cut Poverty?, http://www.ilo.org/public/

[3] Tayo Fashoyin, Social Dialogue and Labour Market Performance in the Philippines, http://www.ilo.org/public/

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