Bane of wage distortion

In light of the P40 daily wage increase for workers in the National Capital Region that its wage board had ordered recently, the Department of Labor and Employment (Dole) had urged employers to correct possible wage distortions in their establishments.

Effective July 15, 2023, the daily minimum wage in the region would be P610 for the nonagriculture sector and P573 for the agriculture sector, service and retail establishments that employ 15 or less workers, and manufacturing companies that regularly employ less than 10 workers.

(Whether or not that wage adjustment is realistic in the face of today’s rate of inflation is a different story.)

Wage distortion refers to “a serious disturbance of the wage structure of an employer establishment resulting from an increase in the prescribed wage rates.” The increase may be ordered by the government or by agreement of the commercial establishments engaged in the same business.

The distortion is characterized by, among others, a significant increase in the wages of lower level workers without a corresponding increase in the wages of higher level workers, or the elimination of wage distinctions between two work levels.

Unless timely addressed by the employer, the wage disparity could result in low morale among the “overtaken” workers.

What’s more, the traditional lines of authority between supervisors and their staff may be ignored or questioned if there is no appreciable difference in their pay scale or other compensation benefits.

If that happens, the erstwhile smooth working relationship between the parties may be disrupted to the detriment of business operation.

To avoid, if not minimize, the adverse effects of work distortion, the Dole had proposed some formulas that employers, depending on their organization, could adopt.

They are not compulsory and no liabilities would result if employers opt not to use them.

For companies that have collective bargaining agreements (CBA) with their employees, the issue of wage distortion may be resolved through a “grievance machinery” where management and union representatives sit down and discuss it.

If they fail to come to an agreement, the matter, depending on their CBA, may be resolved through voluntary or compulsory arbitration.

For businesses that do not have CBAs, the issue of wage distortion is left to the discretion of management.

If it has the means to maintain wage distinctions between the affected work levels, fine. That would make everybody happy. But the same cannot be said for businesses that are just breaking even or when compliance with the increased wage increase would put them in the red.

In the latter case, the employer may, in its effort to maintain harmonious relations in the workplace, be forced to pass on the cost of avoiding the wage distortion to its customers or clients.

Since that action would invariably result in increasing the cost of its products or services, it risks losing its market that may not be able to afford the price hike.

If passing on the additional costs to the public would not make good business sense, drastic cost-cutting measures may have to be adopted to reduce operating costs, which may include laying off employees, so savings could be applied to wage adjustments.

For companies engaged in the manufacture of retail or common household products, the slashing of those costs may be subtly effected through “shrinkflation” or the practice of reducing the quantity or quality of a product or its ingredients while its price remains the same or is slightly increased.

Some employers may, for one reason or another, be averse to taking any of the actions earlier mentioned and instead ask the higher level workers not to let the wage distortion adversely affect their work.

If they have good working relations with their staff and enjoy a reputation for truthfulness, that approach may work. INQ

For comments, please send your email to “[email protected].”