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More flexible law on PH minimum wage urged

Rigid policies crimp competitiveness, economists say
/ 07:09 PM September 29, 2013

Four of the most eminent economists in the country have criticized the minimum wage law for perpetuating the twin problems of unemployment and poverty amid rapid economic growth.

The economists—Gerardo Sicat, Gilbert Llanto, Calixto Chikiamco and Raul Fabella—have called for policies that will lower the cost of labor in the Philippines and make it more competitive to boost investments and job creation.

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Sicat, the country’s first economic planning chief, said the high wage levels in the Philippines, made possible by the minimum wage law, was a key reasons why the country loses out in the competition for investments against its neighbors.

In a his book titled “Weighing in on the Philippine Economy and Social Progress,” Sicat suggested the creation of “labor employment zones” in less affluent areas of the country to provide jobs to the unemployed and cut poverty incidence levels.

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He said a major incentive for locators in these zones would be exemption from minimum wage levels and from forced rules on regularization of employment. The objective is to create jobs, mainly in manufacturing and other businesses in the industrial sector.

“Labor employment zones will reinvigorate the country’s economy with the expansion of labor-using industries and the growth of consumer demand that is driven by new wage earners whose incomes surpass their old incomes,” Sicat said in his book launched Friday.

The three other economists supported Sicat’s view, saying the minimum wage law ironically has only proven to put the poor at a disadvantage because of the consequence of lack of job opportunities.

“The protection of the labor sector in the form of the minimum wage is working against the poor,” Gilbert Llanto, president of the Philippine Institute for Development Studies (PIDS), said in a panel discussion during the book launch.

Llanto said the country needs flexibile policies, including those on labor, to corner investments from multinational firms’ creation of regional production networks. Currently, he said, the Philippines is missing out on investment opportunities partly because of a restrictive labor environment.

Chikiamco, president of the Foundation for Economic Freedom, said in the same event that the Philippines suffers from the “unholy trinity” of organized labor, domestic monopolies and political conspiracy. He said these factors keep the status quo of “unrealistic wage ranges.”

“With the constraints, sustaining levels of high [economic] growth together with massive reduction in poverty are not possible,” Chikiamco said.

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Fabella, a national scientist and former dean of the UP School of Economics, added that measures to help keep the peso relatively cheap should be implemented.

A weak peso helps reduce the cost of labor in dollar terms, thus attracting more foreign direct investments.

Fabella suggested that the Bangko Sentral ng Pilipinas help ensure the peso stays within the 43-to-a-dollar territory over the next decade so that the currency, and eventually the Philippine economy, will be competitive against its neighbors.

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