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President Benigno Aquino III displayed rare political will last Labor Day when he rejected outright the demand of labor federations led by the Trade Union Congress of the Philippines (TUCP) for a P125 a day hike in minimum wages.

 

Business leaders invited to Malacañang in a face-off with labor unions sighed with relief at the Presidential statement. Only a day before, most of the business leaders attended an emergency meeting in Makati to resist what they described as incredible labor demands.

 

The President’s handlers most likely knew the Chief Executive was putting on the line his public acceptability rating which, in recent months, has been going down. But a message must be delivered loud and clear: granting such pay increase in a region where the Philippines already has one of the highest rates would be economic suicide.

 

Doing the right thing, rather than making a populist decision, prevailed.

 

Foreign investors have been taking a second hard look at investing in the Philippines last year after an earthquake and tsunami in Japan and floods in Thailand.

 

Yielding to labor’s pressure for substantial minimum wage increases at this point runs the risk of driving away investors as policy flip-flopping did in the eighties until the first decade of this century.

 

It is commonly known that sustainable high growth experienced by neighboring economies has been fuelled by direct investments, both by domestic entrepreneurs and foreigners. The Philippines already has the highest power rates in Asia and one of the highest in the world. If labor cost also becomes the highest in the region, the combination would be a surefire formula for discouraging investments.

 

The Regional Tripartite Wages and Productivity Board has been holding public hearings to get the views of both labor and management on the wage issue.

 

In the case of Metro Manila, the wage board has secured the positions of contending parties. The Employers Confederation of the Philippines, for one, has made known its members are willing to give an P8 peso per day wage hike, if only to return to workers the value of their wages eroded by inflation in the past 12 months.

 

In one of the hearings, labor groups led by TUCP asked for less than what they sought on Labor Day — P90 per day in across-the-board wage hike. A wage board member, however, explained that only Congress has the power to grant across-the-board pay increases. The mandate of the Board is limited to setting floor wages.

 

During the emergency meeting on the issue, businessmen realized that a wage hike will be ordered sooner or later, probably by July. The wage board, one businessman intimated, is already mulling a P20 a day cost-of-living allowance.

 

The bigger industry players may be able to live with that. But the electronics industry group, which brings in the biggest export sales in the country, pointed out they are still recovering from a deep decline last year and will not be able to equal 2010 exports this year.

 

Our reading of the situation is there will be a wage hike in the private sector, one that labor and enterprise may hesitantly accept. The order will only tide over those who are already benefiting from the economy and not the growing army of the unemployed and the underemployed. But that is another story.

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