Here is the image:
Perhaps many of us has already took notice of this problem and someone was just fast enough to post it before any of us does. And yes, I really do agree with this concept.
Of course, there will be plenty of opposition to this idea. Let's have a debate or simple argumentative study about this. To have a more "cleaner" study about this, please refrain from posting about politics and corruption. We will discuss that in another post. We have to focus on economics and general population first.
Here is a table I got from the National Wages and Productivity Commission website to give you an idea of the minimum wage rate per area around the country:
SUMMARY OF CURRENT REGIONAL DAILY MINIMUM WAGE RATES
Non-Agriculture, Agriculture As of June 2012 (In pesos)
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Factors affecting the wage rate
Before we tackle on why wage rates across different locations in the country vary, let us first understand the logic behind minimum wage.
Minimum wage protects the enterprise from employees abusing their rights for pay raise. In a real world scenario, not only employers can abuse their employees. It could be the other way around.
So why are employers and businesses protected? It is the same reason as why you work for a living. The company needs to earn for a living. It has to be fed and supplied, it has to be powered, it has to grow and survive in a competitive environment. If there is no minimum wage to protect companies, you can say goodbye to your work because more likely than not, the businesses will soon die and many people will be unemployed. And when there are lots of unemployed people, following the law of supply and demand, the employee payment will be lower to match up with the immense demand for work.
That said, one of the factors that do affect the wage rate is population. The minimum wage in Shanghai, China is 202 USD per month (source: http://en.wikipedia.org/wiki/List_of_minimum_wages_in_People's_Republic_of_China) . That is the equivalent of only 8,484 Php if the PhPeso - USDollar rate is at flat 42 Php per dollar. And please do take note, that is only in Shanghai. Many other regions in China have a minimum wage of only around 120 USD and that the population of China is a whopping 1,339,724,852 people according to the 2010 census. The Philippines is only 92,337,852 people on a 2010 census. The Philippines is only around 6.89% of the Chinese population.
Wages are still subject to the law of supply and demand. More people and less jobs means less pay. Employers will not bother replacing a talented employee if they can get another one in a minute. But if they have nobody else to choose from, and that you prove worthy enough, they might be the ones to give you a raise without you asking for it.
Standard of Living and Cost of Living also partly affects the rate of minimum wage. Why? It is because how much you would spend as a person is just as how much the company spends as a person.
If you live in a commercial district and that your power and water rates are at commercial rate and that the company you are working for stands next to your home, they are also paying the same commercial rate. You eat food, the company eats supplies. It just works the same.
Theoretically, we can expect an enterprise to earn more in a region where expenses are lower. But in the real world scenario, it is not always the case. The profitability of having the business in the area still plays the ball.
So how does the profitability affect wages. It is the same reason you would want to ask many businessmen why they would place much of their business offices around Makati and Metro Manila despite higher costs.
Prices only determine how much will be spent in a certain rate. Therefore, prices do not always determine how much will be spent in one area compared to another. The calculations between the rate and the price determines how much will be spent.
If you will buy a regular cheap AA battery at 5 Php each and you'll use two batteries for your camera, it will be a good idea if you will only be using it for a little while like, say, 50 shots. But if you're going to take about 100 shots, you'll need to get another set of batteries.
Now, if you could shoot 100 shots with AA batteries worth 8 Php, you would be saving 4 Php. That's how the rate of expense changes the game. Because if it doesn't, there would be large businesses all over the country.
That savings is profit. And that is what attracts the businesses to a location just as much as how compensation attract applicants to a certain company. That is the reason why China became the manufacturing capital of the world. Later, I will discuss profitability.
Profit and Wages
Minimum wage acts as a balance between enterprise profitability and employee equity. Too much or too little on either side of the spectrum could spell trouble for both.
Put it in simple explanation, if wages are too high for the enterprise to support, the business could either cut down employees or rely on methods which would reduce the costs associated to having employees such as automation or even outsourcing.
Another thing employees wouldn't like when there are job cuts (aside from the threat of losing the job) is that later on, employees will have more responsibilities to deal with because the people who might have used to specialise in some areas in the business are now gone. Employees and employers would render overtime just to have the work done, and it puts stress on both employees and the employers themselves.
On the other hand, if enterprise profitability becomes disproportional to employee equity, employees could simply walk away and look for another employer that offers more compensation. This is the common reason why many Filipinos prefer working overseas.
So, if higher pay is what employees want, the company must be more profitable and stable in order to maintain the balance between wages and profitability. It is nonsense to increase wages just because there is six months of very profitable operation because increasing the pay is a commitment that has to be held.
What happens if the following six months didn't turn out the way the company would like it to be? If it would continue to pay the same increased rate, they would have little money left for the costs of basic operation. Electricity isn't free. Water isn't free. Office supplies aren't free. Oil and gas aren't free. The snowball of problems will grow to the point that the company will just file bankruptcy unless the problems are addressed with sufficient resources and critical decision making.
The biggest factor to consider employee pay: profitability. But then again, there are a lot of factors that contribute to profitability.
Factors affecting profitability
Profit, in simple terms, is what remains after all the costs of running the business is subtracted from income of the business.
The costs of running a business include utilities (such as water, electricity, and communication lines), employee compensation, supplies, licenses, purchase of assets whether tangible or non-tangible, and taxes.
Mix a high dose of each of these in a certain location and you will see higher pricetags for the products and services being offered by the few businesses in that area. Turn it otherwise and you will not see much difference except for the lower prices, more businesses and intense competition.
This holds true for both employees and employers. There is really no difference between earning 12,000 monthly and spending 11,500, and earning 6,800 and spending 6,300. You will still have only 500 left.
If a business has to become profitable, it has to earn more compared to its expenses. That could either mean spending less, or earn more, or both. The ideal business scenario is that there are many customers and there are few things to pay for.
Having very few things to pay for without you having customers is just as bankrupt as earning a million a day but spending 1.2 million at the same rate.
In order for an area to become business-friendly, the risks of operating a business must be reduced through:
- Security for the business and its employees (to avoid losses of assets, properties, and lives)
- Lower costs of operation (though that could also mean lower wage rates)
- Substantial demand for the products and services of an enterprise (from where income will be derived from)
- Friendly competition
The reason why businesses aren't as concentrated in areas outside NCR than it is within that region is mainly because of a combination of these. We cannot deny that the demand for basic commodities within Metro Manila is always on the high to the point that some people refer to it as "continuous shortage".
We also cannot deny that the denser presence of police and law enforcement in Metro Manila compared to rural areas around the country. And we cannot deny that the well-developed infrastructure in Metro Manila is also a big factor.
In my experience in the countryside, it would take an hour to travel 18 kilometers. That includes waiting for a passenger jeep to ride on. Meanwhile, here in Metro Manila, it only takes me 15 minutes via rail transport system.
Pay versus Benefits
The biggest reason that drives employees towards a certain company is compensation. compensation are in the form of the basic pay (wages and salaries) and benefits, and there are different flavours to choose from between employers.
Some employers offer bigger benefits such as bigger insurance coverages, health bonuses, extra leaves, etc. These are generally preferred by those who are already satisfied with their basic pay and just want to live a simple life while maintaining their level of health or lifestyle.
Other companies offer larger basic pays, which is the most sought-after by many applicants. Most of them don't mind smaller benefits because, as what many of them say, "how often do you get sick or get into an accident?". It holds true for many but not for all. And be warned though, not every employer who offers large pays does not come with a pricetag. Whatever the drawback is, it depends on the company.
So why do we have these different variations if all of these companies sit on the same soil? Simple: it's the performance and profitability factor. Everybody wants to save money and resources, and employers not an exemption. It does not mean that because you're a boss and you own a large company, you will ride in a limo and have lots of blings around your neck, and sign every employee's request for a pay raise. That's a fallacious misconception of a businessman. Resources like money are finite and they understand that money does not grow on trees. They may be doing little hand work but they are doing a lot of critical decision-making for the company and its employees, which is more stressful than simply repairing machines, building electronics and sweeping the floor, because it is the company's future at stake.
Now What?
Since Minimum Wage is made to protect enterprises, we cannot just request for an immediate abolishment. If such a thing ever takes place, that is economic suicide. We have to consider the enterprise itself and the local economy where it operates. If there should be an increase in wages, the environment must become more viable for business.
How will a place become more suitable for business?
- Make utilities more affordable. That said, resources for those utilities should also be affordable and easy to acquire, because just like any business, a utility enterprise should also be profitable. When resources are cheap but consumption is low in an area, business that "export" goods to an area with high demands are usually born. That is how China grew. It is cheaper to manufacture in China than it is in the United States so goods are manufactured in China and shipped back to the US. What happened then is that despite low wages, employment became available to more people in China. It is not as good as getting a wage increase but it is obviously much better than only one member of the family working earning.
- Make transportation faster and more efficient. Transportation is a massive expense to anyone. It is also an important factor to business because it is through transport mediums where resources and customers go through. Time is important. Faster travel time means faster deliveries and less risk of losing product quality or loss of the product itself due to natural decomposition or some other reasons. It also reduces costs because mass transport works like a discount for fuel.
- Improve security. One of the reasons blamed for crime is poverty. If employment is widely available, it will reduce the number of crimes associated with poverty. But it doesn't make up as a complete solution. Some really make a career out of "passion" for crime. So what should be done? Police should be positioned in strategic positions near business centres and should be widely visible. The installation of security cameras is good but not enough if nobody is there to stop the criminal activity.
- Improve tourist-friendliness of the area. Tourism is a very important factor for a developing economy because if the local people cannot afford to spend much in order to stimulate demand for local businesses to grow, we have to attract people from other places who can afford to do so.
- Once the snowball has gone big enough for a wage hike, a wage hike should be passed in order for the local population to stimulate demand. But then, if prices will skyrocket because of demand, people will not feel the wage hike. Local production of basic commodities should be a priority in order to maintain a relatively lower price and to encourage savings, and later on, encourage investment.
