Labor market insurance policies and profitable growth

May 1st, or Labor Day, brings us to thought about the welfare of the working class in our country. It is a fair question how our working class has benefited from seven decades of political independence.

The workforce and their wellbeing. We are now a country of 109 million people and an active labor force of around 64 million workers. On average, employment has ranged from six to 10 percent of the labor force for years, but underemployment covers around 20 percent of the workforce.

An indicator of well-being, although imperfect, is GDP per capita. With the same purchase value in US dollars, the Philippine GDP per capita in 2019 (long before the pandemic) was 9,302 US dollars.

Compare this statistic to that of our neighbors in East and Southeast Asia: South Korea, $ 44,011; Taiwan, near Korea; Thailand, $ 19,276; Malaysia, $ 29,619; Indonesia, $ 12,334; and Vietnam $ 8,357.

It should be remembered that, shortly after our independence, development experts among these countries saw the Philippines as the country most likely to be successful in development, alongside Japan, which was then a country rising from the ashes of defeat of World War II .

This opinion was not given lightly. Before the war broke out, the Philippines were one of the most advanced economies under colonial status. At the time, it was strongly tied to the US economy.

The Filipino advantage was access to the vast American economic market through trade. The economic recovery from the war was rapid given the economic rehabilitation aid that included war damage payments. There were great opportunities in foreign trade due to a unique bilateral preferential trade with the US.

In addition, our human capital was far more advanced than most of the other colonial countries that secured their independence around the same time. We had a broad base of highly educated populations compared to many of these other countries because of the primary public education and public health investments we had in America before independence.

How the minimum wage became “prohibitively high”. During the first two decades of independence, the government passed important labor laws.

Many of them were important for the protection of work. The social security system was one of them. Much later, another law passed during Martial Law – the Pag-IBIG Fund – was designed to provide savings for housing construction. These were important laws in the form of withholding taxes to save for old age pensions and housing investments.

Employee compensation and other occupational health and safety standards were already in the statutes before independence.

A well-intentioned and welcome labor law was the 1951 minimum wage. However, he suffered from a structural defect due to poor advice. The Bell Economic Mission recommended a minimum wage that it believed to be a fair wage. However, at this point, the peso was pegged to two pesos for one dollar, so in Filipino terms it was at a high level in relation to current economic conditions.

Given the high population growth and low economic development at the time, the minimum wage was inconsistent with economic realities. It protected the average worker rather than offering a decent starting wage for the first time to less skilled workers.

Having started at a “high” level as the domestic economy began to suffer from currency depreciation over the decades, it became a practice that adjustments to the minimum wage level tended to be high as well. These were the legacies of the initial minimum wage level.

This was so different from the typical East Asian minimum wage rates. When they set their minimum wage rates, they applied a minimum wage to make it easier for unskilled workers to find employment and gain work experience. To date, the minimum wage rates adopted in Thailand, Indonesia, and Vietnam are so much lower than the minimum wage rates established in the Philippines. One result of this practice was that the minimum wage policy barely deterred employment.

However, the original minimum wage rate, enacted in the 1950s, could not have been a barrier to job creation in those days if the Philippines had only continued to operate an open economy.

After the initial balance of payments crisis in 1949-1950, however, the fear of foreign trade dominance and the demand for industrial protectionism in domestic business persisted. The restrictive economic provisions of the Philippine Constitution have further promoted this development, at least in relation to the development of the domestic industrial sector.

Make labor market policy employment-friendly. In the late 1970s, while consolidating the Labor Code, then-Labor Minister Blas Ople indulged in calls for work to strengthen labor protection in their employment contracts, and incorporated those provisions into labor laws.

A previous reform was to organize the government to allow labor migration of Filipinos for employment abroad.

One consequence of this labor policy has been to tip job creation for Filipino workers for foreign jobs. This led to an increase in the number of OFW employees looking for foreign vacancies.

Another consequence has been the increase in the cost of prospective employment, an impact of the high minimum wage, and the rigidity of the home employment process. Firms could not lay off or realign workers within the firm. This was more true of companies operating in the large domestic economy. Those who were active in the export markets had the opportunity to withdraw from the country. As a result, we have lost our attractiveness to many labor-intensive industries that have driven economic development in other countries.

Ultimately, these measures contributed to undermining the domestic industrial sector. The labor-intensive industries of foreign investors moved to countries with lower labor costs and more flexible labor markets.

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