Proposed wage hike to hit small enterprises

The Employers Confederation of the Philippines (Ecop) warned the government about the possible repercussions of granting a P125 across-the-board increase in the daily wage of workers, stressing that small enterprises would bear the brunt of such move.

In a paper, Ecop said the proposed increase would only result in huge additional cost to employers; hike in  inflation rate by 7.7 percentage points; decline in real gross domestic product by 1 percentage point; increase in full-year unemployment rate to 7.3 percent in 2017, and loss of more than half a million jobs.

These were based on the estimates made by the National Economic and Development Authority.

Given the additional expenses caused by the wage increase, the cost of producing goods and services may skyrocket. This may force smaller companies that will not be able to recover the additional costs to retrench, close shop, or go underground, Ecop added.

The employers group said the implementation of the P125 increase in daily wage would cost some P972 million per day, based on data showing that the 946,988 registered firms in the Philippines employ 7.779 million workers. This amount, it pointed out, covered only direct costs and excluded indirect expenses such as bonuses, social security expenditures, cost of training and welfare services, and housing.

“The brunt of this massive [wage] increase, amounting to over P166 billion yearly or 56 percent of the total, will be borne by micro and small establishments. If the additional labor cost of medium enterprises is included, then the labor cost for MSMEs would be 63 percent of their total cost.  In comparison, the additional labor cost for large enterprises would be lower at more than P109 billion (yearly) or 37 percent of their total cost,” Ecop said.

Ecop said labor was one of the major cost components of production in the country.

“With the proposed across-the-board daily wage increase, which is not productivity-based, the cost of production of goods and services would [surge]. Enterprises could not just pass on the increase in cost to the market  because of competition posed  by low -cost imports and smuggled goods. The rise in the prices of goods and services would lead to a cost-push inflationary spiral,” Ecop said in a paper.

“Micro and small establishments will be the first ones to fall, considering that most them could barely cope with the periodic wage increases granted by the regional wage boards,” it added.

It added: “Inasmuch as the increase would benefit only 16 percent of wage and salary workers in the formal sector, it would aggravate the discrimination and inequity between this sector and the rest of the labor force in the informal economy.”