Labor costs in the Philippines remained among the most competitive in the Asean, but this comparative advantage could also be a “double-edged sword,” according to global advisory firm Willis Towers Watson.
Based on the Willis Towers Watson’s 2015-2016 Global 50 Remuneration Planning Report, the low cost of labor in the Philippines and other Asean countries makes them a more attractive alternative investment location, compared to mainland China.
But this can also make Filipino workers, particularly professionals, easy targets for recruitment for jobs overseas.
“The Philippine labor cost is very competitive compared to its neighbors, which works to our advantage since more investors will start considering setting up operations or expanding in the Philippines to leverage on this,” said Vangie Daquilanea, Willis Towers Watson’s global data services practice head for Philippines.
“This competitive advantage is quite evident at the professional level, where a big number of the Philippine workforce are, at about 40 percent of the entire workforce. While our strength is at the professional level, this can also be our weakest link. It is at this level where we lose them to overseas jobs—i.e., engineers, software developers, nurses—since other Asean companies can easily attract them with higher salaries,” Daquilanea said.
For professionals and those in middle management levels, the average base salaries in Vietnam and the Philippines are the lowest in Asean, lagging behind the rate in China.
Willis Towers Watson said the average base salaries for professionals in China were 1.9 to 2.2 times the rates in Philippines and Vietnam. The largest differential is at the middle management level, with China paying 44 percent more than Indonesia, a gap that narrows to 28 percent and 5 percent at the senior management and top management level, respectively.
“There’s evidence that it (lower salary in the Philippines and other Asean coutnries) is leading companies to reconsider where they locate operations once based in China, where an aging population and shrinking workforce suggest salaries will remain higher,” said Sambhav Rakyan, data services practice leader, Asia Pacific at Willis Towers Watson.
The Willis Towers Watson’s report presented a cross-country pay competitiveness comparisons across the region, by providing base salary information using a consistent framework for job levels. The report also sheds light on the impact of currency movements on base salaries in US dollar terms.
According to the advisory firm, China’s base salaries across all job grades are between 5 percent and 44 percent higher than the rates in Indonesia, the most expensive labor market among the emerging Asean economies including the Philippines, Vietnam, Malaysia, Thailand and Indonesia. The report also covered Singapore, but this market was regarded as a developed economy.
The report also revealed that entry-level white-collar professionals in China were receiving annual average base salary of about $21,000, some 30 percent more than their peers in Indonesia, who were getting about $16,000.
“The pay levels illustrate that low-cost labor is no longer a major selling point for China as it seeks to attract foreign investment. If the most expensive country in emerging Asean is still cheaper than China, emerging Asean becomes a more compelling human resources proposition from a labor cost perspective,” Rakyan said.