Unemployment due to minimum wage

By: Jessamine Elise Sagcal

 

A study, entitled “the effects of minimum wage on the Philippine economy,” was recently published by a PIDS (Philippine institute of development studies) researcher on the PIDS website. The study gives reason to the country’s economic state and minimum wage’s effect on the employees.

Leonardo A Lanzona Jr., the researcher of the study and Atenean professor, took account the Philippine Labor Code with regards to minimum wage or the Wage Rationalization Act (Republic Act 6727) formed during the Marcos era. According to him, the code showed bias and was in favor of labor and against management which became the reason for numerous effects, such as the increase in unemployment.

 

“The number of workers at mid-range level of wages decreased under the new law, but the number of workers above the average increased. This implies that employers tend to lay off lower-skilled workers in favor of the higher-skilled and higher-paid workers.” Lanzona writes.

Untitled

A map by PIDS researcher and author of the study: Leonardo A Lanzona Jr.

 

The author also cites the study of Maloney and Mendez, 2004, which discusses the reduced production of workers in a firm due to minimum wage, and thus, according to Lanzona, becomes a factor in the increases of incidence of unemployment.

 

But the situation differs, depending on the firms and its workers. The author notes that if a firm is highly capitalized, they are more capable of absorbing the reductions of employment and production, while small firms would be the most likely to suffer. The same goes for the employees when comparing their educational background.

Lanzona Jr., concludes that “to isolate the effects of minimum wages on employment, one needs to control the effects of other extenuating factors, including firm and worker characteristics.”

 

Lanzona Jr., wrote that his research was conducted through gathering surveys dated from the 1990’s to 2008 and was collected from labor-intensive manufacturing industries that have at least 10 employees along with numerical data gathering.

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