The approval of a P22 increase in the daily cost of living allowance (Cola) by the National Capital Region (NCR) Tripartite Regional Wage Board may not have any effect on inflation in the coming months but will certainly impact on employment, including the government’s job-creation efforts.
Former Budget secretary Benjamin Diokno said inflation in the next few months will likely be driven by higher commodity prices. However, with a higher minimum wage, there could be some impact on jobs and job quality.
“The best case is no layoffs but firm owners will use current staff more intensively. Worst case is higher joblessness as more workers are encouraged to look for jobs while employers slow down hiring,” Diokno said.
The wage board in the NCR announced late on Monday the approval of a P22 cost of living allowance for minimum-wage workers in Metro Manila to help them cushion the impact of the skyrocketing increases in oil prices and prime commodities.
The additional Cola translates to a minimum wage of P426 a day in the Cola added to employer’s payment for workers’ night differentials, 13th-month pay, retirement and separation benefits.
The approved Cola is higher than the P13 wage increase proposed by the Employers Confederation of the Philippines (Ecop) and lower than the Bangko Sentral ng Pilipinas (BSP) expectation of a P25 increase in minimum wage.
The decision is based on the wage petition of the Trade Union Congress of the Philippines (TUCP) for a P75 across- the-board increase.
Ciriaco Lagunsad, executive director of the regional wage board in the NCR, said the decision is a “product of a compromise” from the tripartite body composed of employers, labor unions and government representatives.
He said the amount weighed in the demand for increase in wages of workers in Metro Manila and the employers’ concern that any increase may lead to the retrenchment of workers and consequently the closure of companies.
Rafael Mapalo, director of TUCP, immediately condemned the decision, saying the adjustment is not enough to help workers live decently amid skyrocketing increases in prime commodities and transportation.
“The regional wage board has missed the opportunity to raise the workers standard of living,” Mapalo said.
Employers and exporters, on the other hand, said the new round of wage hike is ill-advised, reiterating their earlier warning that this will force companies either to go underground or even shutdown.
“This is still higher than the erosion rate of P13 per day and will push inflation rate upward. A number of [small businesses] will seek exemption and others will consider the possibility of retrenchment, job rotation, migration to informal sector, or worse, closure of operation,” Ecop president Edgardo Lacson said.
Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, said the group will tell its members to comply with the order, although he quickly added that it is a reality that there are some who will not be able to comply.
He said exporters would be hit the hardest because in contrast to the domestic-oriented companies, they cannot just adjust their prices upwards to recoup the additional labor cost.
“We have contracts to follow and we are competing in the international market so we cannot just raise our prices,” Ortiz-Luis said.
While seeking exemption is an option, he said this is a tedious, costly and lengthy process that businesses normally no longer apply for it.
For Jose Vistan, research head of AB Capital Securities Inc., the increase in Cola is “not a big jump” and would have “very little” impact in terms of labor costs.
“The cost of electricity and other expense will be more for companies,” Vistan said.
“And if you look at revenues, most companies will also be increasing prices in line with inflation. They can easily pass this increase to consumers,” he added.
National Economic and Development Authority (Neda) Director General Cayetano W. Paderanga Jr. believes the wage board’s approval of the increase in allowance may be the middle-ground found by the employers, employees, and the government on the issue.
Paderanga said it is too early to estimate whether this will impact on inflation or job creation. However, he said Neda will be analyzing the impact of the Cola once it is implemented.
The P22 Cola will only become effective 15 days after the publication of the resolution. The resolution will be released on Tuesday.
“We will have to analyze this further. I suppose it’s a product of the discussions between businessmen and employees groups. This may be what is acceptable to all parties. It may also be something that the economy can handle at this time,” Paderanga said.
Echoing the position taken by the Bangko Sentral ng Pilipinas, Finance Secretary Cesar Purisima said on Monday that the country “can enter a slippery slope” had the minimum wage in the NCR been hiked by more than P25.
Purisima made the statement in an interview with reporters at the 250th Presidential Airlift Wing at the Villamor Airbase, shortly after he arrived with the presidential delegation to the 18th Association of Southeast Asian Nations in Jakarta.
“We can have second round effects. That’s why we have to really work together to make sure that we manage this card,” Purisima said.
BSP Governor Amando Tetangco Jr. said early last week that a minimum wage hike higher than P25 “will have additional inflationary implications.”
Analysts also agree. “A wage increase is a strong signal of second-round inflation,” said Yvette Marquez-Carlos, who helps manage the equivalent of $11 billion at BPI Asset Management. “As inflation remains a concern, so is the threat of further rate increases.”
The BSP, which raised its overnight borrowing rate by a quarter of a percentage point to 4.50 percent last week, has included a P25 rise in wages in its inflation outlook, Governor Tetangco has said.
Consumer prices rose 4.5 percent in April from a year earlier, from 4.3 percent in March and the most in 12 months.
Earlier, an economist from the University of Asia and the Pacific, Victor Abola, said that whenever a wage increase is set, there is a definite increase in inflation as well as an increase in unemployment.
Abola explained that for every 10-percent increase in minimum wage, inflation will increase by 0.3 percent.
“The unemployment effect is also large. The higher the minimum wage, the higher the unemployment rate on a regional area basis,” Abola added.
In a statement issued on Monday, Labor secretary Rosalinda Dimapilis-Baldoz said the NCR wage board “ascertained that the new COLA will only have a minimum impact on inflation to guarantee that the objective of helping workers cope with high prices while sustaining the capacity of employers to pay the new minimum wage won’t be defeated.” --E. Torres, C. Ordinario, M. de Leon, M. Gonzalez, M. Camus, Bloomberg News
