DISCUSSION PAPER I. TUCP Petition: P90.00 ATB Daily Wage Increase, NCR II. Two-Tiered Wage System Presented by: Atty. Vicente Leogardo, Jr. Director General, ECOP March 22, 2012

TUCP PETITION FOR WAGE INCREASE IN NCR (March 2012)

Date Filed16 MARCH 2012 Amount Coverage P 90/day Across the Board, Region-Wide Basis  To cope with increasing prices of commodities and cost of living,  To meet basic need of workers’ families  To give meaning and substance to the country’s policy of equitable distribution of income and wealth

The P90.00 wage petition was computed as follows: P _______ P89.62 or P90.00 Erosion of minimum wage from June 2011 to February 2012 Expected 9% further increase of consumer prices (P426 x 0.09) Equity Supplement for the past 23 years (P2.00 x 23 years) Proposed Wage Increase

 Erosion from May 2011 to February 2012: P7.76  Expected 2012 Inflation ranges from 3.0 to 5%. P426 x = P12.78 P426 x 0.05 = > Equity supplement - not in RA 6727 and NWPC Guidelines

Comments 1.In the NCR Wage board meeting on March 20, ECOP moved to dismiss the TUCP petition on the ff. grounds: a) It cannot be entertained pursuant to Sec. 3, Rule IV of the NWPC Guidelines No. 01, series of 2007 b) The RTWPBs have no power to grant ATB wage increases c) It is contrary to the two-tiered wage system adopted by the NWPC for implementation by the wage boards d) The increase demanded is excessive and destructive 2. Both the DTI and NEDA also agreed that no supervening conditions exist citing relevant data and statistics on the CPI as well as official forecast of 2012 inflation rate

3. The majority of the wage board resolved to declare the non-existence of any supervening condition

ECONOMIC CONTEXT OF WAGE INCREASES

NCR Labor Force: 4,941,000 (2010 )

Philippines Labor Force: 38,894,000 (2010 )

Table 1 - TOTAL LABOR COST OF P ATB DAILY WAGE INCREASE 1 PHILIPPINES No. of Employees DLC 2 = 74.4%ILC 3 = 25.6%TLC 4 (Daily)TLC 4 (Monthly)TLC 4 (Yearly) Micro (1-9) 1,729, ,137, ,369, ,507, ,553,192, ,638,306, Small (10–99) 1,417, ,209, ,975, ,184, ,192,787, ,313,451, Medium ( ) 386, ,270, ,609, ,879, ,686,867, ,242,415, Large (200 & over 2,136, ,045, ,886, ,931, ,332,226, ,986,717, TOTAL 5,669, ,662, ,840, ,502, ,765,074, ,180,891, Adopted from BLES methodology in computing labor cost 2 Direct labor cost = P125 x number of employees 3I ndirect labor cost: Remuneration for time not worked (0.82%); bonuses & gratuities (9.62%); payments in kind (0.26%); housing (0.53%); social security expenditures (8.45%); cost of training (0.68%); cost of welfare services (0.43); other labor costs (1.13%) ILC = (DLC / 74.4%) * 25.6% 4 Total labor cost = DLC + ILC Total employment of 777,687 establishments in the formal sector Source of data: NSO: ASPBI, 2010; BLES: Labor Force Survey

Table 2 - TOTAL LABOR COST OF P ATB DAILY WAGE INCREASE 1 NCR No. of Employees DLC 2 = 74.4%ILC 3 = 25.6%TLC 4 (Daily)TLC 4 (Monthly)TLC 4 (Yearly) Micro (1-9) 497, ,173, ,393, ,566, ,172,729, ,072,758, Small (10–99) 656, ,023, ,223, ,246, ,866,399, ,396,794, Medium ( ) 171, ,409, ,366, ,775, ,172, ,978,072, Large (200 & over 1,095, ,990, ,136, ,126, ,787,284, ,447,419, TOTAL 2,420, ,595, ,119, ,714, ,574,587, ,895,044, Adopted from BLES methodology in computing labor cost 2 Direct labor cost = P125 x number of employees 3I ndirect labor cost: Remuneration for time not worked (0.82%); bonuses & gratuities (9.62%); payments in kind (0.26%); housing (0.53%); social security expenditures (8.45%); cost of training (0.68%); cost of welfare services (0.43); other labor costs (1.13%) ILC = (DLC / 74.4%) * 25.6% 4 Total labor cost = DLC + ILC Total employment of 210,574 establishments in the formal sector in NCR Source of data: NSO: ASPBI, 2010; BLES: Labor Force Survey

Weights for the CPI (2000 = 100) Commodity group PhilippinesMetro ManilaAreas Outside MM All items Food, beverages & tobacco Clothing Housing & Repairs Fuel, light & water Services Miscellaneous Source: NSO

2/21/12 ECOP/VRL 14 THE TWO-TIERED WAGE SYSTEM

2/21/12 ECOP/VRL In 2003, the NSCB unveiled a simple methodology correlating the minimum wage rates vis-à-vis the poverty threshold level in each region by deriving per capita poverty threshold on a daily, monthly and annual basis, and multiplying the derived amounts with the census- based size of the household. 2. What is PT?(Glossary of Terms, BLES): The minimum income/expenditure required for a family/ individual to meet the basic food and non-food requirements. a) Basic food requirements are currently based on 100% adequacy for the Recommended Energy and Nutrient Intake for protein and energy equivalent to an average of 2000 kilocalories per capita, and 80% adequacy for other nutrients.

2/21/12 ECOP/VRL 16 b) Basic non-food requirements which are indirectly estimated by obtaining the ratio of food to total basic expenditures from a reference group of families, cover expenditure on : 1) clothing and footwear; 2) housing; 3) fuel, light, water; 4) maintenance and minor repairs; 5) rental of occupied dwelling units; 6) medical care; 7) education; 8) transportation and communication; 9) non-durable furnishings; 10) household operations; and 11) personal care and effects.

2/21/12 ECOP/VRL The PT is derived from the FIES and computed by the NSO/NSCB on a provincial, regional and national level and is updated periodically 4. The FIES is a nationwide survey of households under- taken every 3 years by the NSO to: a) Gather data on family income and family living expenditures and related information affecting income and expenditure levels and patterns in the Philippines. b) Determine the sources of income and income distribution, levels of living and spending patterns, and the degree of inequality among families; c) Provide benchmark information to update weights in the estimation of the consumer price index (CPI); d) Provide inputs in the estimation of the country’s PT

2/21/12ECOP/VRL18 IV. Regional Poverty Thresholds vis-à-vis Minimum Wage Poverty ThresholdAve. Family Size (B) C = A * B (in pesos) Minimum Wage AnnualPer Day (A) PHILS.11, NCR15, Say in NCR, the minimum wage of a laborer/employee was pegged at P per day in Normally, a minimum wage earner would work for an average of 26 days monthly giving him P 6,500 in monthly earnings. In the same year, poverty threshold in the region was placed at P per day or P1, monthly for a person to be considered non-poor. Thus a minimum wage earner can have a family of 4.98 (spouse and at most 3 children) for their family not to be poor or for the family to able to meet its minimum basic needs. 23NATIONAL STATISTICAL COORDINATION BOARD

2/21/12 ECOP/VRL As the poverty threshold appears to be the most reliable indicator to correlate adequacy of family income with economic feasibility, ECOP advocated that the NWPC adopt this methodology and eventually, the NWPC did so in the two-tiered wage system 6. Since then ECOP has continuously advocated for the adoption of this methodology not only because it is empirically and economically sound, but also it would rationalize the politics of wage fixing 7. In 2011 the NWPC introduced the Two-Tiered Wage System wherein it incorporated the NSCB methodology

2/21/12 ECOP/VRL Basically, the two-tiered wage system consists of a mandatory regional floor wage as the first tier, and a productivity based pay for adjusting wages above the floor wage as the second tier. 9. The regional floor wage shall be estimated using the regional poverty threshold estimates as a major reference data, together with the criteria for minimum wage determination. The floor wage shall be: a) The lowest wage level in the region; b) Not be lower than the regional poverty threshold estimated by the NSCB;

2/21/12 ECOP/VRL 21 c) Intended to protect the incomes of the most vulnerable workers such as the unskilled and news entrants who cannot bargain for themselves beyond the floor wage. New entrants shall be defined as first-time entrants to the labor market; d) Not to be equated to the living wage; not given ATB nor shall it adopt a salary ceiling approach. 10. ECOP had long pointed out that the estimates of the FLW which periodically posted in its website until 2008 was conceptually and methodologically flawed. As of last posting on August 2008 the FML was P a day or P27, a month for NCR; P1, a day or P39, a month for ARMM

2/21/12 ECOP/VRL The floor wage rationale is not new as its conceptual and operational framework is embodied in R. A. No and existing NWPC policy. The floor wage rationale can be clearly inferred from the standard prescribed by Art. 124 of the Labor Code, as amended by R. A. No “The regional minimum wage...shall be nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well- being of the employees within the framework of the national economic and social development program” 12. Prior to the introduction of the two-tiered wage system, wage fixing had to address two problems: one was operational in nature and the other, the interplay of populist politics.

2/21/12 ECOP/VRL As far as the operational aspect was concerned, none of the standards/criteria has been integrated into a methodology that would operationalize the prescribed concept and policy of minimum wage fixing. 14. Of the ten standards, the major criterion used by the wage boards is the CPI, the derived inflation rate and its effect on the cost of living 15. As a result, wage increases granted by the wage boards are usually tied to erosion caused by inflation plus an additional amount for political acceptability. 16. Thus, contrary to the intent and policy of the law, wage fixing has deteriorated into a non-productivity based de facto wage indexation.

17. To redress and minimize the interplay of populist politics in wage fixing and its unintended and undesirable consequences, ECOP has for the past decade been advocating: a) The decoupling of wage fixing from the flawed NWPC concept and methodology of determining the living wage prescribed under the Constitution; and b) The correlation of the safety net concept with the poverty threshold level based on NSCB methodology 2/21/1224 ECOP/VRL

Minimum Wage and Poverty Threshold for a Family (February 2011) 2/21/12 ECOP/VRL 25 REGION NOMINAL MINIMUM WAGE POVERTY THRESHOLD FOR A FAMILY DIFFERENCE VII (4.76) 241(-21) - 44 VIII (4.85) 216(-17.50) - 22 IX ( (-3) - 22 X (4.89) XI (4.63) XII (4.76) XIII (5.02) 241(-28) - 2 ARMM (5.77) 267(-45) *Using December IR_

2/21/12 ECOP/VRL 26 Regional Disparities 1.As of February 2011, there are 10 regions where the lowest minimum wage rates are below the regional PT levels: 1) Region I (Ilocos Region) 2) Region III (Central Luzon) 3) Region II (Cagayan Valley) 4) Region IV-A (CLABARZON) 5) Region IV-B (MIMAROPA) 6) Region V (Bicol Region) 7) Region VII (Central Visayas) 8) Region VIII (Eastern Visayas) 9) Region XIII (CARAGA) 10) ARMM a) e) Region VIII (Eastern Visayas) b) f) Region XIII (CARAGA) and c) g) Autonomous Region of Muslim Mindanao (ARMM)

4/11/ ECOP/VRL

Minimum Wage and Poverty Threshold for a Family (February 2011) 2/21/12 ECOP/VRL 28 REGION NOMINAL MINIMUM WAGE POVERTY THRESHOLD FOR A FAMILY DIFFERENCE NCR (4.42) CAR (4.67) I (4.73) 233(-33) -15 II (4.61) III (4.75) 251(-21) - 65 IV-A (4.65) 234(-21) IV-B (4.66) 208(-18) - 56 V (4.98) 241(-46) - 6 VI (4.76) *Using December IR_