In essence, wage is a monetary compensation paid by an employer to employee in exchange for the services rendered to the former. The basic principle of paying wages follows the notion that any resources, be it like a commodity (e.g. rice, clothes, etc.), or a resource like land and labor, has its own price or value. Hence, wage is the economic value of the time spent, or output produced (piece-rate), by a worker for taking part in the course of business operation.
Just like commodities offered in the market, the amount and structures of wages are influenced by the laws of supply (workers) and demand (firms), economic forces that usually exist in the labor market. Theoretically, increase in wages could cause workers’ spending power to increase, which eventually make firms to hire more workers to keep pace with demand for goods/services. Firms hiring more workers led to the decrease in unemployment.
On the other hand, in the Philippines, minimum wage rates are set by the Regional Boards, pursuant to Republic Act (RA) 6727, or the Wage Rationalization Act approved in 1989. They are guided by the concept of providing workers with “safety net” protection against unduly low wages. Also, Regional Boards, aside from setting minimum wages, together with the National Wages and Productivity Commission (NWPC) provide technical assistance and implement improvement programs and gain-sharing intended to boost productivity of workers at the enterprise level. With these supports and programs, the goal of achieving inclusive growth and providing decent work for all are realized.
From time to time, minimum wages are being adjusted, in the sense that it will increase (wage hikes), for the workers to maintain the minimum standards of living necessary for their health, efficiency, and general well-being1. These wage increases shall apply to all workers regardless of their position, designation or status, or irrespective of the method by which their wages are paid2.
The policy issue this paper intends to address is how employment, unemployment and underemployment in the labor market, in terms of quantity, responds whenever there are wage adjustments. It should be put into mind that wages are considered cost for employers, while for workers these are funds to make their ends meet. Any adjustments made in the minimum wage, certainly, may influence employer’s hiring and firing decision, which eventually could affect labor demand and supply.
With the ongoing discussions on matters pertaining to minimum wage, the intention of this study is to examine how the labor market act in response to wage adjustments, using employment and unemployment rates, and other pertinent data on labor and employment as measurement variables. This study could serve as a reference for policy discourse among decision-makers and members of the regional boards to aid them in their future legislations pertaining to wage and wage adjustments.
Title: Responsiveness of Labor Market to Minimum Wage Adjustments: An Analysis Using Elasticity to Labor Supply and Demand
Researcher: Ivan Cassidy F. Villena