Undersecretary Abigail Valte, deputy presidential spokesperson, told a press briefing last Tuesday that President Benigno Aquino III has rejected the proposed P125 legislated wage hike for minimum earners. Valte told her audience that upon consulting Aquino about the proposal Tuesday morning, he presented to them a computation showing that employers will be shelling out P42,250 for the salary increase of each employee. Showing a slide with the calculations, the Palace people got this figure by multiplying P125 by 26 days and multiplied the result further by 13 months. They added that this P42,250 multiplied by 38 million workers in the country would result in expenditures for employees of P1.6 trillion (mistakenly written as 1,605,500,000 trillion [or 1.6 billion trillion] in their slide).
Aquino then compared this P1.6 trillion to the size of the economy (which they quoted as P8.5 to P9 trillion) and pointed out that the P1.6 trillion increase would comprise a large percentage of the economy. This large amount, the President said, thru Valte, cannot be absorbed by businesses and would be counterproductive since companies might lay off employees instead of giving the wage increase.
The nice thing about these calculations is that they are verifiable.
First, the slide which Valte showed reflects how little study or verification was done by the President and his team. The mistake (assuming it was one) of writing 1,605,500,000 trillion instead of 1,605,500,000 or 1.6 trillion is one that might escape many but when it is used to justify a policy statement then we expect extra care from the Palace.
A more substantial problem with their calculation is when they used “38 million workers” to calculate the total effect of the increase in our economy. According to the National Statistics Office’s latest data, Aquino must have been referring to the total employed labor force which is 37.394 million according to the January 2012 Labor Force Survey. This total covers all workers from the private sector, the government, those self-employed or with “own accounts” and unpaid workers.
Only 54.8 percent of the total employed are wage and salary workers. Broken down, 41.6 percent (15.56 million) of the total labor force are from private establishments, 8.2 percent are in government, 4.6 percent in private households.
Had Aquino and Valte read the text of House Bill 375, which pushes for a legislated across-the-board P125 wage hike, it is clear that the wage increase is limited to those workers in private enterprises and does not cover government workers and others. In overestimating the impact of the P125 wage increase, Aquino misrepresents the measure and uses exaggerated claims to discount the need for the wage hike. Correcting for these numbers and using only those employed in private firms, the figure that Valte should have presented would be 15.56 million times P42,250 which gives around P0.657 trillion. Compared to the latest 2011 GDP (found in the NSCB website) of P9.7 trillion, the number seems to be not as fearsome as Aquino and Valte have thought.
Yet this number is already an over-estimate according to the economic think-tank Ibon Foundation.
They pointed out the economy has more than enough profits to support a substantial wage hike.
They pointed out that employers can afford a substantial wage hike with only a small cut in their already considerable profits. They pointed out that in 2009 the combined profits of all the establishments in the country amounted to P1,629.5 billion with 3.94 million employees, according to the 2009 Annual Survey of Philippine Business and Industry (ASPBI) of the National Statistics Office (NSO). Using these numbers, an across the board wage hike of P125 would cost only P194.9 billion. When subtracted from total profits, this will still leave establishments with P1,434.6 billion in profits, a 12 percent cut in their profits according to IBON.
It is best that Aquino also calculate the effects of the wage hikes to the conditions of workers.
According to IBON, the average daily basic pay that wage and salary workers in the country actually received – as opposed to merely mandated minimum wages that are not necessarily actually paid – increased from P222 in 2001 to P321 in 2011 (July estimate). The additional Php99 amounts to a 45 percent increase in wages but was not even enough to make up for the continuous increase in prices which increased by over 62 percent over the same period. The wage increase was more than offset by inflation and workers wages dropped by nearly 11 percent over the same period.
Cherry-picking their data and using wrong aggregates to bolster their policy statements either reflects the lack of preparation and study on the side of the President and his advisers or, worse, an attempt to mislead the press and the people into seeing the demand for wage increase in a bad light. In the first case, we see this as another case of “Noynoying” albeit in economics and, in the second, a tiring repeat of the arguments that employers and the government have used over and over again in order to prevent wage increases in recent years. As such, the President’s calculations give us an insight as to how Mr. Aquino personally looks at the issue of wages and also an insight to how haphazardly he decides on issues that are critical to many.