High Unemployment Makes Wage Raise Meaningless

Categories: Business Updates

Date Posted: 28 Jul 2014

A government think tank-Philippine Institute for Development Studies- said raising wages will not necessarily help in poverty reduction.

It added that wages in the Philippines will continue to be low because so many are unemployed and many are willing to work for less.

The Economic Policy monitor published by the PIDS said that “a rising wage rate is going to be an unlikely engine of poverty reduction for workers without substantial human capital, until enough of the labor surplus has disappeared, signaled by the sustained increases in the wages of unskilled labor.

For higher wages to be effective, wages of unskilled labor must first go up it said.

But first wages will have to remain low so that small scale enterprises may be able to hire the unemployed, the paper said.

The report said that hefty increases in minimum wages result in large potential income losses for households, contrary to views that regard the welfare effects of minimum wage to be modest.

“They create more poor people, undermining the assumption and rhetoric about the effectiveness of the current tripartite system. It fails to represent the interest of the poor and the workers effectively,” it said.

Higher wages lead to job losses, the paper said, since workers will have to be let go to be able the pay the workers that must be retained.

“The affected households will fewer members with jobs — either they have difficulty landing a job or they have been laid off,” it added.

The paper also said that recent findings showed that the minimum wages significantly reduce the probability of employment of teenagers, the young, the women, and the less educated.

Workers also had to shift from formal to informal employment, which generates lower income.

The paper said that the results of recent studies show that there is a need to moderately increase minimum wages.

“The findings about the size of the effects of minimum wages illustrate the need to evaluate the impact of other aspects of labor regulations, policies, and practices such as the six-month regularization requirement, severance payments, subcontracting, and the hiring and firing rules,’ the document said.

The document also showed that while the household income will be lower with a more rapid increase in legal minimum wage, the employment of the household heads is not affected.

“The employment probability of household heads is not significantly affected. The reason is simply that they have little choice but to eke out a living for the family,” the paper said.
Written by: Angela Celis

Source: http://www.malaya.com.ph/business-news/business/high-unemployment-makes-wage-raise-meaningless

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