What is enough and a reasonable wage?

What is enough and a reasonable wage?We just learned that the Central Visayas Regional Tripartite Wages and Productivity Board (RTWPB) approved giving a token amount to workers, an amount which according to the workers is not even enough to pay for a round trip minimum jeepney fare. As in the 18 pesos increase in the minimum wage given in 2010, now I also ask: Is it enough? Is it reasonable?

These are not easy questions to answer, I said in my 2010 column. Surely, given what they asked for originally, this is not enough and not reasonable to the workers. But the business sector, claiming that high cost of labor will only make them less competitive and hire less workers, say otherwise.

What do economists say? Mainstream economists who believe in the efficiency of the free market to solve the basic economic questions of what, how and for whom to produce have nothing much to say about what is enough or a reasonable minimum wage. All they say, if asked, is that wages should be allowed to seek its own level through the interaction of supply and demand. Of that I also agree. But more than an economist of sorts, I am also human. Therefore, I say that what the RTWPB gives to labor must be tempered with concern for the wellbeing of the workers and their families.

In his 1766 book, Reflections on the Formation and the Distribution of Wealth that I mentioned in my 2010 column, Anne-Robert-Jacques Turgot developed the theory of labor wage which held that competition among workers lowers the wage to the minimum subsistence level. The same idea became the iron law of wages as developed further by David Ricardo.

To Ricardo, labor has its natural price and market price. The first, the natural price of labor, is that which, given the habits and customs of the people, enables workers to subsist and perpetuate themselves. The natural price of labor, therefore, is determined by the prices of the necessities required by the workers and their families to live. The second, the market price of labor, is that price which is determined by the interaction of supply and demand for labor. When supply is greater than demand, the market price of labor will go down and vice versa, below or above the subsistence wage or natural price of labor.

The iron law of wages says that when the market wage is lower than subsistence wage, the population will suffer and diminish their number. This makes supply of labor scarce and for the market wage to rise eventually. But when the market wage is above the subsistence wage, they tend to increase fast in number. In turn, this increases the supply of labor thus pushing down the market wage again to the subsistence level. This long-run tendency for labor to receive only what is enough for their subsistence came to be known as the iron law of wages.

Ricardo’s iron law of wages was based primarily on what he observed in his time which was also similar to what Thomas Malthus also saw. Malthus was known for the population law which says what while food production can grow arithmetically, as in 1, 2, 3, 4 and so on, population tends to grow geometrically as in 1, 2, 4, 8 and so on, hence poverty is inevitable for the majority.

Now, we know that in many countries that succeeded in revolutionizing their agriculture and industry, food did not become scarce and population did not explode but their income per capita, including that of ordinary workers, had gone up to the point where they could not only pay for their basic needs in order to subsist but also enjoy certain luxuries.

But while some countries indeed succeeded in overcoming Ricardo’s iron law of wages and Malthus’ law on population, in those countries that fail to revolutionize their agriculture and industry, we cannot also fail to see some of the truths of what they are saying.

Unlike in the past, however, workers now are very much varied in their skills and occupations. For those whose skills and knowledge are much in demand than their supply, they are highly paid and live a good life but many people who are unskilled or poorly educated are paid less than what is needed to maintain a respectable way of living. They do not necessarily die of hunger but their homes, clothing, health and the upbringing of the children still leave much to be desired. This is true not only to those formally employed in business who are paid the minimum wage but also to those who worked on their own in various types of informal activities like street vending, garbage collection or even begging.

I admit there is nothing much that can be done at the present time to address the problems of those who are not formally employed short of actually giving them cash as we do to poor families that qualify within the limit of the budget under the government’s Conditional Cash Transfer Program (the 4Ps). But for the lowest rank of workers who are formally employed in business, I think that they merit receiving at least what is enough to break-even the poverty threshold income as determined by the government every three years.

In 2009, the annual poverty threshold income was fixed nationally at P16,841 per capita and at P19,802 and P17,848, respectively, at the National Capital Region (Metro Manila) and Central Visayas. For an average family of six, this means that nationally, a worker must receive at least P101,046 in annual income after deductions for SSS, Philhealth, Pagibig and taxes. The equivalent figure for the NCR is P118,812 and P107,088 for Central Visayas. Are our workers going to get this amount this year plus some more to take account of inflation from 2009 up to now? That I leave to the RTWPB to answer.

Now it also happens that the average is just that. It does not apply to everyone. In the Philippines, most poor workers have large families of up to 8 or 10, not the average 6, or even more if we include the worker’s living parent(s) and relative(s) that characterizes Filipino households. In this case, the workers need more to sustain their families.

But what if we just let things play out according to the wishes of the business sector and the interplay of supply and demand in the market? This is what I would like to discuss next week.