AMID the pleas of labor groups for an increase in the minimum wage, Cebu business leaders have recommended addressing the effects of high inflation by using innovation and improving labor productivity instead to help keep the prices of basic commodities from rising further.
To mitigate the rising cost of commodities and raw materials, government agencies should address first the need to increase innovation and productivity, as this will help companies to lower their production and operational costs, Charles Kenneth Co, president of the Cebu Chamber of Commerce and Industry (CCCI), said Tuesday, May 2, 2023.
“As a nation, we need to increase innovation and productivity to reduce our production cost; otherwise, we will be stuck in this vicious cycle of wage and commodity increases,” said Co.
Co noted that the Philippines’ neighbors in Southeast Asia had better national programs to address productivity.
Productivity is a measure of economic performance that compares the amount of goods and services produced (output) with the amount of inputs used to produce those goods and services.
“A wage hike would alleviate the worker’s plight but can also cause further inflationary pressure on basic goods,” Co said.
This is because once the private sector increases workers’ salaries, this will increase companies’ production costs, leading to a hike in the prices of their products and services, he explained.
Seek wage hike
On the eve of Labor Day, several labor groups in Cebu had expressed their demand for the government to increase the daily minimum wage.
Jaime Paglinawan, chairman of the Alyansa sa mga Mamumumuo sa Sugbo (AMA Sugbo), called for a P750 across-the-board hike in the daily wage, while Dennis Derige, spokesman of the Partido Manggagawa (PM), petitioned the Regional Tripartite Wages and Productivity Board for a P100 increase in the minimum wage of earners.
The current daily minimum wage in Central Visayas is P435 for non-agricultural workers and P425 for agricultural workers which, Derige said, is not enough for the workers’ daily expenses.
Left behind
But Co said if the government invests in training and innovation instead, this will significantly improve productivity, which would help businesses control their costs.
For example, to achieve food security amid the threat of the of El Niño weather phenomenon occurring in July, Co said the government must ensure that there will be enough supply of water for farms across the country, while continually assisting the farmers financially.
El Niño is associated with below-normal rainfall, and increased risk of drought, which can result in the devastation of crops; if prolonged, it may cause the rise in food prices and drive up inflation.
“The private and public sector can work together, and we have been left behind by our Asean (Association of Southeast Asian) neighbors because they have better national programs in agri-tech and industry,” Co said.
Pay hike hits prices
There is a two-way relationship between changes in the workers’ salary and changes in the prices of basic commodities, as shown in the 2017 study titled “The Price Effect of Minimum Wage: Evidence from the Philippines” by the Bangko Sentral ng Pilipinas (BSP).
It was observed that past increases in the minimum wage helped “determine” the Consumer Price Index or CPI (an indicator of change in the average retail prices of basic goods and services in a certain community over a certain period of time) of both food and non-food items.
Changes in the CPI of food and non-food items were also found to “affect changes in regional minimum wages,” implying a two-way relationship between minimum wage increases and price increases.
However, the BSP said increases in prices as a result of wage increases of regions were relatively small, so it concluded that this may not lead to inflationary pressures. It also noted that wage adjustments were undertaken only once a year – unless there were supervening events – “and thus may not result in wage push inflation.”
In its Global Wage Report 2022-2023, the International Labor Organization (ILO) recommended an adjustment in the minimum wage to maintain purchasing power and living standards of workers and their families.
However, Co said that even now, “retail and consumer spending has been crimped because of high inflation and interest (rates).”
The Philippine Statistics Authority reported Friday that the country’s average inflation rate from January to April 2023 stood at 7.9 percent.
Last March 24, the BSP raised the key interest rate by 25 basis points to 6.25 percent, the highest in 15 years, in a bid to control stubborn inflation that has hovered at 14-year highs.
Both Co and Kelie Ko of the Mandaue Chamber of Commerce and Industry expressed reservations about a wage hike, saying not all businesses had returned to their level of activity before the Covid-19 pandemic yet.
Ko stressed that economic recovery and development should be sustained first as this will benefit the labor sector.
Last March 3, Ko said the business community is currently spending much on its operations but is still earning less than before, as he commented on the P100 wage hike petition filed by a labor group that month. (with CTL)