How Minimum Wage Works

I wrote this last Labor Day, and as usual, employees are clamoring to increase the Minimum Wage.

As of today, minimum wage in the Philippines stands between Php 380 to Php 537 depending on locality. For NCR, that equates to Php 13,962.00 per month on a 6-day work week, or around Php 11,800 per month for a 4-day work week. If you can see in ThinkPesos.com’s table, the minimum wage has increased by a whopping Php 133.00 or 33% over the last 10 years.

Source: ThinkPesos.com

I am NOT going to debate whether the minimum wage is high or low. Everyone has an opinion about that, and that’s a useless argument to get into.

However, what I do know that this is the wrong time to ask for a minimum wage increase. Especially at a time when the Philippines is entering recession, and when companies are starting to freeze hire and lay off people in preparation for the decreased consumer demand post-ECQ. Who doesn’t want more money per day, right?

Let’s say the NCR minimum wage is where it stands at a current Php 537.00. Let’s say we increase the pay by Php 25.00 per day (or 4.65%), so it becomes Php 562.00 per day.  This would equate to an increase wage of Php 650.00 per person for a 6-day work week, or Php 550.00 for a 5-day workweek.

Everyone happy?

WRONG!

Let’s Start with Computing the True Cost of a Hypothetical Php 25.00 Increase to the Minimum Wage

If a company with a 6-day work week has 40 people for example, assuming all are at minimum wage, total payroll will marginal increase of Php 26,000 per month. This doesn’t include the increase in 13th month pay payroll by an additional Php 26,000.00, and a small increase in employer’s share of SSS, Philhealth and Pag-IBIG contributions.

Source: Social Security System

The problem with this is it will cost a 40-pax company Php 338,000 per year (Computation: 26,000 per month x 13 months) if you increase the minimum wage by Php 25.00 per day from Php 537.00 per day to Php 562.00 per day.

If the staff of 40 pax can increase their sales to more than Php 338,000 per year, then yes, wages should be higher. However, if the economy drops and gets into recession due to COVID-19, the company will experience money troubles, and will definitely have to lay off people. Actually, if the company is smarter, they should start laying off people earlier so as to save the entire ship.

Let’s simplify the equation — At an increased payroll of Php 26,000 per month, the company should hypothetically lay off 2 people (Computation: Php 26,000 with the Php 13,962 salary of a minimum wager for 1.88) to keep their payroll the same. Hence, the moment that the minimum wage jumps, if the company wants to keep payroll constant, they need to lay off 2 people immediately, or if somebody resigns, NOT fill in that position and let the other people share in the load.

It does make sense — if you’re going to increase the salary of an employee, that employee would also need to work and contribute more to a company. here should be no slacking off, just work work work up to the stated 8 hours of time. If a probationary employee for example cannot keep up, they should fail the standard and replaced with a better performing employee. With higher pay, productivity per staff should also increase.

Mind you, I don’t like giving people overtime (and if you do, they should be compensated), but if you pay people more, they should also generate more sales for the company and be worth their salaries. Makes logical sense?

When this happens, the employee complains of the amount of workload and overworking. There is increased pressure to perform and give more back. The supervisors are also unhappy because the increased payroll also increases the quota. There is an adjustment period, made worse that it’s now COVID-19 season. HR is stressed out. They need to go in between the frustrated employee and the money strapped employer. Bad news all around.

At the end of the day, employees will get fired. They will be fired because they can’t reach the quotas (performance-based), or they will resign due to added pressure.

Nobody wins.

To solve the Minimum Wage Problem, we first have to look at the Family Size Problem

Instead of increasing the Minimum Wage per day, everyone should work together to decrease unemployment. The average size of a Filipino family in 2008 is 4.8 people. Women in the Philippines birth around 3.3 babies each.  If you come from the poorer strata, you will most going to have 4 to 5 children in a lifetime.

Source: 2008 Philippines National Demographic and Health Survey (NDHS)

Let’s assume that a minimum wage worker comes from the lower strata of around 3-6 kids in their family.

That consists of a father, a mother and then 3 to 6 kids for a total of 5 to 7 people in the family. Most of these kids are NOT YET on working age (Below 15 years old), and need food and sustenance to survive. Usually, there is only ONE breadwinner earning minimum wages, while the spouse stays home to take care of the kids.

This is a photo of a middle-class Filipino family — one set of parents with 2-3 children.

One breadwinner and four mouths to feed. At Php 537.00 per day minimum, a breadwinner can feed his entire family. Not with a luxurious lifestyle, but it is workable.

However, the problem is that there is more than the two adult parents and their kids that are part in a Filipino household. Usually, the grandparents stay with their adult children, helping out with daycare and doting on their kids. So Family # 2 is now, husband and wife + 3 kids + 1 lolo + 1 lola = 7 PEOPLE.

When this happens, both able-bodied parents should work. So instead of one breadwinner, there should be two at Php 28,000 total family income (Breakdown: Php 14,000 x 2 = Php 28,000). This amount can comfortably feed 7 people in total, with a few comfortable items to spare.

The biggest Filipino problem is when the family is like this — Let me introduce to you, the JOINT FAMILY. This family is composed of the grandparents + 2 adult children + their spouses so 2 pax + 3 kids per family. This equates to 12 PEOPLE in a single family!

Photo Source: Jeraldine Cabayaran

If there’s only one breadwinner for a joint family, you’re basically SCREWED. Php 14,000 is not enough for 12 people. Heck, it’s not financially possible because there’s just too many mouths to feed!

My solution to the Minimum Wage problem at the age of COVID-19 is simple — Decrease Unemployment

The problem is, in many Filipino families, only one person is working for many.

For one minimum wage employee, they are most likely supporting their housewife, their 3 kids (all young and can’t work yet), their parents, and Lord help you, a brother/sister and their family. So with one breadwinner is at least 5 to 12 mouths to feed.

This is the big problem — only one person is working for all.

In this type of joint family, you have two pairs of adults or 4 people that is capably bodied and can work — the man, his wife, his brother and his wife. That’s four extra people. If everyone is working at minimum wage, that’s not just Php 14,000 to raise a family of 12, but actually Php 56,000 supporting 12 people.

The more people in a family that works, the bigger the family’s total take home is:

The more people in a family who works, the bigger the family total salary.

So in one family of a minimum wager, let’s say he earns ₱14,000. If there’s two that’s working, ₱28,000 na ang family income. If three ang nag work, that’s ₱42,000 na po. Ang problema kasi, isa ang nagtrabaho, and si asawa, si kuya and asawa ni kuya, lahat wala. Pwede naman si lolo or lola ang magalaga sa bata, pero ayaw. Gusto umasa lang kay Kuya Breadwinner.

The problem in the Philippines is, for every one person that works, the wife, the brother, and the wife of the brother, all of them do NOT work. They blame the childcare for their reasons of not working but we know that’s just bullshit. The grandparents could very well take care of the kids if they’re able. Or at least one capable adult can do the childcare along with the grandparents.

But the reason why they don’t work is that it’s easier to bum around at home and wait for one person to bring home the bacon. There’s Facebook and the Internet. You can play basketball with your barkadas in the afternoon. At the very least, you don’t have to work.

 Patay tuloy si Kuya Breadwinner!

And this is not a local problem. If there is an Overseas Filipino Worker (OFW) in a family, everyone freeloads off that OFW! Hindi na nagtatrabaho sina kuya, ate, asawa ni kuya, asawa ni ate, at lahat ng magkakapatid! Everything  will be depended on the poor OFW.

That’s why I tell people to just work locally. At least they won’t act like a local ATM machine to their entire extended family.

SOLUTION TO POVERTY: Everyone in the family who is capable to work SHOULD WORK.

I don’t understand why only one person in a joint family is working. Why does he allow his brother or his sister to tambay (stay unemployed)? I know a lot of companies that are hiring. On any given day, I can see a lot of Help Wanted posts on Facebook, in the street, on Jobstreet.com. On any given month, we are looking for new staff.

So why can’t people seem to go and look for a job? Being unemployed for a month is acceptable, but when it goes beyond a month or two, tambay na po ang tawag diyan. There’s a lot of jobs for those who want one.

As they say:

Kung gusto, may paraan.
Kung ayaw, maraming dahilan.

In English, it means, if there’s a will, there’s a way.

Huwag kasing maging pumili.  Don’t be picky. Everyone who is capable of work can find a job. If the job offer is below minimum, still take it. Money is still money. Anything that can help with the family financial burden is still a big thank you. Anyway, if the employer is good, if you work hard, you should definitely earn more than minimum.

There is no ME in family. In the family, there is WE.

The family must work as a unit to lift itself out of poverty. Yes, minimum wage is not enough but the biggest problem is, ang daming mouths to feed in every family. There are more mouths than people working so the money distributed in the family isn’t enough.

Let more people in the family work. Tiyak mababawasan ang nagugutom sa Pinas. Pag kayang magtrabaho, huwag tumambay. Everyone should work.

If more people worked in a family, the family will live a more comfortable life. And this is a better solution to the minimum wage problem without increasing unemployment. Everybody wins.