Home Economy MSMEs at risk of closure even with P35 wage hike

MSMEs at risk of closure even with P35 wage hike

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MICRO, small and medium enterprises (MSMEs) are at the greatest risk of closing down after the latest wage increase, an economist said.

“I don’t think P645 (the level wages are at in Metro Manila after the wage order) is enough given that inflation has been going on for several years now. But even this wage increase is not recommended because it will lead to the closure of many micro-, small- and medium-scale enterprises,” Leonardo A. Lanzona, Jr., an Ateneo de Manila economics professor, told BusinessWorld via Messenger chat.

“The overall objective of the government is to nurture MSMEs to grow into large corporations, achieving scale economies and larger profits. The minimum wages contradict this objective,” he added.

According to the Department of Trade and Industry, 99.59% of businesses in the Philippines were MSMEs in 2022.

The Regional Tripartite Wages and Productivity Board-National Capital Region (RTWPB-NCR) on July 1 approved a P35 wage increase for NCR workers, bringing the daily minimum wage for non-agricultural workers to P645. The new wage scale takes effect on July 17.

Labor groups continue to back a legislated across-the-board wage increase. In both chambers of Congress, bills calling for wage hikes of up to P750 are being considered.

The government’s chief economic planner, Secretary Arsenio M. Balisacan, has said the wage hike in the capital region is unlikely to hurt the economy because it will only affect “one-tenth of 1%” of workers.

About 40,000 to 140,000 workers will be affected if small businesses end up shutting down or reducing their employees, Mr. Balisacan added, describing the number as “negligible.”

“The point is that the burden of inflation should not be placed on the shoulders of the private sector. It is the responsibility of [the] government, not the private firms, to give decent wages,” Mr. Lanzona added.

He said that the government must improve productivity and strengthen social protections.

“Improve skills through training programs and create expanded cash transfer programs such as unemployment insurance,” he said.

“Public goods are intended to serve society as a whole. The private sector is not expected to provide since this is beyond their self-interest. Besides, the politicians and society are the ones who benefit most by providing public goods that offer workers decent wages. Hence, by economic principles, they and society should be (the) ones creating these goods,” he added.

Mr. Lanzona added that the new daily minimum wage in the NCR remains inadequate for dealing with inflation.

“It is not enough to cover the elevated prices after several years of inflation. But at the same time, households on average do not rely much on minimum wages since more than 45% of the workers are self-employed. Only a small portion of the households are dependent on minimum wages,” he said.

Inflation in June eased to 3.7% due to an easing in electricity and transport costs.

Federation of Free Workers Vice-President Julius C. Cainglet said it is the government’s responsibility to ensure correct wages are paid.

“If the government makes it affordable and easier to do business, and hold down electricity and other public utility costs, employers will be more able to pay a living wage,” he told BusinessWorld via Viber.

He added that it is also the government’s role to make it easier for workers to unionize.

“If the workers are unionized and they have collective bargaining power there would be no need for government to set minimum wages since workers would be able to bargain for wages and other benefits on their own,” he said. — Chloe Mari A. Hufana

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