Capitalists are inflationary, not wage hikes for workers

April 5, 2024

by Sonny Africa

Why are workers demanding decent wages accused of causing prices to go up? When capitalists price what they sell it’s always to get as much profit as they can squeeze from consumers. When workers ask for higher wages they’re only after more of what’s due them for all their productivity and the work they did that made those profits possible.

Bills are being taken up in Congress to legislate across-the-board increases in the daily minimum wage of private sector workers nationwide. In February, the Senate passed Senate Bill (SB) 2534 giving workers a Php100 increase. Not to be outdone, the House of Representatives (HOR) a week after started deliberating various House bills increasing daily wages by Php150 to Php750.

Business groups, government economists and some academics joined in a chorus of frantic voices predicting doomsday. Businesses will lay off workers or close. Foreign investors will stop coming or leave. To raise as much public alarm as possible, they say prices will rise and consumers will be worse off because of the exorbitant demands of workers. These are all self-serving claims.

In Congress, business groups submitted position papers that were more opinion than evidence with more pages of logos and signatures than facts and arguments. They clearly assumed that all they needed to do was express their disagreement and intimidate lawmakers. Government economists at least presented studies. However, these were grounded on dubious premises and speculative models with questionable validity.

In the real world, the basic facts are straightforward and don’t need to be clothed in pseudoscientific sophistry to be convincing or authoritative. Large across-the-board nationwide wage hikes are urgent, just and doable – and won’t be inflationary if only capitalists shared more of their profits with workers rather than raise prices and burden consumers.

Large wage hikes are urgent. The real value of the minimum wage in virtually all regions is smaller today than 34 years ago in 1989. There have been some 370 wage orders in the country’s 17 regions since 1989 when wage-setting was regionalized but these haven’t even been enough to keep up with inflation – not surprising because these nominal wage increases were just by a tiny 1.2% on average. Compared to 1989, the real minimum wage averaged across all regions was worth 26% less in March 2024, with the largest decline in BARMM (52%) and a measly increase that is virtually stagnant in NCR (0.3%).

Across all regions, the average minimum wage is only Php440 or just a little over one-third (36%) of the average family living wage (FLW) for a family of five (5) of Php1,207, as of March 2024. Of all regions, the NCR has the largest minimum wage of Php610, but this is barely half (51%) of the Php1,197 FLW. It’s worst in BARMM where the Php361 minimum wage is not even one-fifth (18%) of the Php2,053 FLW.

Large wage hikes are just. Wage hikes didn’t just lag behind inflation – they also lagged behind worker productivity. Worker productivity almost doubled and grew by 88% between 1989 and 2023 but the average minimum wage fell by over 22% over that same period, both measured annually and at constant prices for comparability. Capitalists pocketed worker productivity as profits over all these decades instead of giving workers their due.

Recent profit data confirm these trends. The net income of the country’s Top 1000 corporations more than doubled (104% increase) from Php889 billion in 2020 to Php1.8 trillion in 2022, while the net income of all establishments of all sizes in turn grew by 28% from Php1.9 trillion in 2020 to Php2.5 trillion in 2021. The net worth of the 50 richest Filipinos meanwhile increased even more by 31% from 2020 to reach Php3.95 trillion in 2022.

Yet over that period, the average nominal daily minimum wage nationwide lagged and rose by just 11% from Php364 in 2020 to Php404 in 2022.

Large wage hikes are doable without being inflationary, because of all those profits. Worker compensation accounts for less than 11% of total establishment expenses, measured on average across firms of all sizes, in all industries, in the whole country.

A Php100 across-the-board wage hike is equivalent to just a 7.1% cut in profits across all establishment sizes – breaking down into a 7.9% cut in micro, 7.6% in small, and 6.7% in medium and large firms. A Php750 across-the-board wage hike will take more out of capitalist profits and compel government support for smaller firms but is still doable, especially considering the profits that employers have already accumulated over decades. This will mean a 53% cut in profits across all establishment sizes or a roughly equal sharing of profits between capitalists and workers. The cost of the wage is 59% of micro profits, 57% in small, and 50% in medium and large firms.

These are estimated using Philippine Statistics Authority (PSA) data for average daily basic pay and profit computed from the PSA’s latest 2022 Annual Survey of Philippine Business and Industry (ASPBI), the biggest survey of firms in the country with a sample size of 38,000 firms.

Employers can afford big wage hikes. Instead of protecting profits, the government should be doing everything it can to raise wages which will be good for workers, their families and the economy.

Workers and their families will be able to buy more with a wage increase, creating a strong economic multiplier effect. Their wages will be spent locally and on MSMEs including informal enterprises in the community. In turn, this will drive local activity, small businesses, and job creation.

Capitalists and so-called economists often speak about workers and their wages as if they are a burden to the economy. But it’s people who most of all create value in the economy and for whom the economy is for, so to speak of “the economy” as something different from their conditions and welfare is insensitive and unfair.

The Philippines has a long history of legislating wage hikes since the 1950s spanning various minimum wage laws, wage orders, executive orders, presidential decrees, and even Republic Acts. The last legislated wage hike was in 1989 when there was a Php25 or 39.1% increase which would be equivalent to about a Php160 wage hike today. The problem is not legal impossibility but dogmatic thinking that labor is just a commodity priced according to what employers choose to pay in the one-sided labor market. But in this same market, workers don’t really have a choice but to accept wages offered or not have any work at all.

A responsible and pro-people government would be the last to think that workers and their wages are burdens on firms and the economy, and the first to think that higher wages are a key measure for upholding workers’ welfare. Substantial wage increases are among the most important structural mechanisms for ensuring that workers get a just share of the fruits of their labor, as well as for improving equity and democracy.