Goodbye minimum wage, hello floor wage?

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Tuesday, 31 July 2012 - Last Updated on July 31, 2012

construction_workersMinimum wage may not be the minimum rate for long as the country adopts a new pay scheme that would lower basic wage standards across the nation. That is terrible news for the 40-million strong labor force which President [[Benigno Aquino III]] skipped in his third State of the Nation Address (SONA) last Monday.

Touted as a “key policy reform” by the labor department, the two-tier wage system (2TWS) consists of a flexible wage, which is only voluntary, on top of a mandatory fixed “floor wage” or entry level wage. The floor wage is the first tier while the flexible wage represents the second tier.

The “floor wage” will be lower than the current mandated minimum wage levels per region, and will be based on the estimated poverty threshold per given region. Meanwhile, the flexible wage component will be gauged based on workers’ performance or productivity.

Prior to the implementation of 2TWS, a number of companies, particularly in the drug and electronics industry, have already been using productivity incentives and bonuses as flexible add-on to workers’ income.

In transition to 2TWS

Last month, [[Department of Labor and Employment]] (DOLE) Sec. Rosalinda Baldoz said the implementation of the 2TWS is on track as more and more regions adopt the pay scheme for private sector workers. The pay scheme’s implementation was coused through wage orders issued by the regional wage boards.

“We are on track on the implementation of this reform in pursuit of the President’s 22-point labor and employment agenda. This will lead to improved competitiveness of the Philippines in labor market efficiency,” Sec. Baldoz said, adding that the measure will ensure flexibility of wage determination.

Companies in Region IV-A (CALABARZON) were the first ones to implement the new pay system last April, followed by firms in the National Capital Region (NCR) and in other regions. So far, seven regions are implementing the 2TWS.

The labor department claimed that through the new wage system, companies will have more flexibility in fixing wages supposedly to boost productivity.

“The two-tiered wage, as a policy reform measure, is aimed at minimizing the unintended outcomes of mandated minimum wage, improving the coverage of the vulnerable sectors, and promoting productivity improvement and gain-sharing,” DOLE said in a statement.

But militant labor center [[Kilusang Mayo Uno]] (KMU) said there is nothing to celebrate about the 2TWS as it will worsen the already sorry state of wages in the country.

“We want this new wage system junked as soon as possible. It will further fragment the country’s minimum wage, making the regionalization of minimum wages even worse,” he added.

Currently, minimum wage rates are determined annually through the regional tripartite wage and productivity boards (RTWPBs), which are composed of representatives from labor, businesses and the government. The regionalized wage determination has been in effect since 1989 when the Wage Rationalization Act was signed into law.

P255/ day till 2016

But under the 2TWS, regional wage boards may be approving wage increases less often with the introduction of the floor wage, which could take effect for up to five years in the case of CALABARZON.

Based on Wage Order 15, the regional floor wage for CALABARZON workers will be pegged at P255/ day up to 2016, which is much lower than the current P337 minimum wage in the region. Workers earning below P255 will receive incremental increases until their pay reaches P255.

“The adjustments will be done in tranches from 2012 to 2016 so as not to burden enterprises with the abrupt and huge wage increases, such as those requiring a P90 per day adjustment. Within a five-year period, the lowest minimum wage in each sector will be adjusted to the floor wage of P255,” Baldoz explained in a report.2tws_graph_final

Meanwhile, workers already earning above P255/ day may receive a conditional temporary productivity allowance. No wage increase was granted for minimum wage earners in CALABARZON under the latest order.

According to KMU, the floor wage scheme in CALABARZON is both a wage cut and a wage freeze that is only meant to boost corporate profits.

“Instead of giving workers a much-deserved and long-delayed significant wage hike, President Aquino is cutting and freezing workers’ wages. The 2TWS is an anti-worker scheme that will cut workers’ minimum wages and freeze wage levels,” KMU secretary-general Roger Soluta said.

Tinkering poverty threshold

Quite notably, the Aquino administration has also simplified parameters for wage determination to just one – poverty threshold. Under the previous wage system, cost of living, family living wage, productivity, among other factors are weighed in during deliberations of wage hike petitions.

The computation of the poverty threshold, or the minimum amount needed by a family to stay out of the poverty zone, is based on the government’s 2009 Family Income and Expenditure Survey (FIES).

It can be rememebered that the poverty threshold was lowered by the Aquino administration in 2011 after some adjustments to the food threshold component. Under the adjustments, the minimum food requirements for Filipino families were trimmed.

Promise of productivity pay

While the floor wage is set way below the mandated minimum wage rates, labor officials stress that workers can always raise their pay via the productivity-based or performance-based component. But is it really the case?

It should be noted that the productivity-based component under 2TWS is voluntary, based on the agreement of the company and the workers. According to the National Wages and Productivity Commission (NWPC), an agency attached to DOLE, the implementation of the second tier will be only based on non-binding guidelines.

The labor department also does not specify whether the productivity-based pay will be integrated into the basic pay or will be received separately as incentives or bonuses.

In 2010, the Philippines ranked no. 4 among Southeast Asian nations in terms of productivity, lagging behind Singapore, Thailand, and Malaysia.

Productivity levels in the country however vary per factory, depending on the degree of inputs (labor, raw materials, etc.) and the level of technology being used. This means that the productivity-based pay
component of wage will actually vary on a company basis, further fragmenting the already varied wage levels in the country.

The 2TWS would still take a more defined shape in the coming months especially with the labor department’s release of guidelines. At the onset though, it has revealed its effect of further discreting the clamor for a significant, nationwide and legislated wage increase for private sector workers.


Photo from POC files. Some rights reserved.

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  1. Pingback: #TanduayWorkersOnStrike amidst attacks by Lucio Tan’s guards and hired goons | Hello.Lenin!

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