By: Cristine Ann B. Parungao
The number of workers settling on the minimum wage is increasing every year. Most of these individuals are believe to be younger and less educated. They are the individuals who may need cash in a short term basis and prefer to work without sufficient benefits.
But is there an effect on how the minimum wage affects the country’s economy? According to a study of Leonardo A. Lanzona, Jr. on the “Effects of minimum wage on the Philippines economy”, “Minimum wages, more than other forms of regulation, are more directly associated with unemployment.”
It is clear that workers who are in the minimum wage don’t have proper benefits unlike the workers under a full contract. They are also treated differently from the other workers who have higher skills.
“Workers carry part of the burden of higher minimum wages in the form of lower benefits (though somewhat mitigated by mandatory benefit restrictions) and reduced worker security. Both of these effects may result in greater incidence of unemployment or lower participation in the formal sector”, said Lazona.
The study shows that if a worker who attended higher schooling, they will not be affected while workers with lower skills are affected harshly.
“Because of this, the effect of minimum wages is not known theoretically; instead, this is an empirical issue. Furthermore, to isolate the effect of minimum wages on employment, one needs to control the effects of other extenuating factors, including firm and worker characteristics. Because of this, the approaches used must be able to fix such other factors.”
The study found out that minimum wages caused small firms to have difficulties to mature into larger-scale firms. In result, the production and the demand for production workers decline.