Minimum wages —Reason why firms reduce their production workers

  • BY: Jhade Quiamco

“Firms (In the Philippines) are reluctant to hire younger, less educated and female production workers.” according to professor and ACERD Director Leonardo A. Lanzona Jr., on his Journal titled: Effects of minimum wage on the Philippine economy, at Philippine Institute for Development Studies (PIDS).

Lanzona is a professor at Ateneo De Manila on the School of Social Sciences. He finished his doctorate degree at the University of the Philippines, Diliman.

For years, people have been questioning the Philippines’ economic growth while there is still big percentage of jobless Filipinos in the country.

Lanzona, on his article, conducted a study through analyzing the survey determining their minimum wages and employment status with at least 10 employees of Labor- intensive manufacturing industries for the years 1980-2008 following the 1990 regional configuration, and a panel data set of workers extracted from the annual LFS.

On his empirical results he explained the following: “…Large industries are defined as those having a greater capital base. Also as expected, the number of workers was higher for larger industries than the smaller industries. Production workers are those that are involved directly on the production of output, as opposed to nonproduction workers engaged in other operations of the establishment, such as those in the supervisory levels.” And with the small industries he explained that small industries apparently pay higher daily wages than large industries for production workers who are often hired on a short-term contractual basis. However, total compensation per worker was seen to be higher for large firms. This high compensation, however, cannot be attributed only to the monetary benefits that are viewed in the table as only slightly higher for large industries. (Lanzona, 2014)

On Lanzano’s journal, it explains that there is a relationship between minimum wages and employment that minimum wages caused firms to reduce production workers and that minimum wage can adversely affect employment because of scale effects.

Big and small industries happens to expand and reproduce from time to time but they are wise enough to choose how they are going to earn more, and expend less the reason why they do not hire employees who need an assistance or training in able to perform well adopt the nature of their job.

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