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.



Minimum wage causes unemployment

By: Carissa Marie Palpal-latoc

The direct relation of minimum wage and employment were the subject of the study released by the Philippine Institute for Development Studies last August 2014.

Leonardo A. Lanzona Jr., the author of the paper mentioned the use of various methods to prove that the minimum wage law causes unemployment.

“By means of various econometric methods, the study was able to establish a causal relationship between minimum wages and employment. In particular, the analyses based on both national and regional pooled data and panel data showed that minimum wage policy reduces employment.”

The study showed how labor policies such as the minimum wage affect the economy.

“In this case, labor market policies, such as the minimum wage, results in labor market failure or distortions and lower social welfare, in the form of deadweight losses” Lanzona said in his study.

Because of the minimum wage law, small-scale businesses are also affected which results to lower benefits for the workers.

“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” Lanzona explained, citing Maloney and Mendez as his reference.

Lanzona also talked about how the reduce in the employment in the small-scale businesses which resulted in the production of more workers for the large-scale businesses but inevitably reduced the minimum wage usually received by these workers.



Minimum wage, unemployment go hand-in-hand, a study says

By Danielle Ann Gabriel


Minimum wage is confirmed to have a major role in the issue of unemployment in the country, according to a study done by the Philippine Institute for Development Studies (PIDS) last August.

The 8-page research written by Leonardo Lanzona Jr. titled “Effects of Minimum Wage on the Philippine Economy” discussed how the increase in minimum wage amount could translate to lower company benefits and security that would, in turn, result to blown-up proportions of unemployment cases.

“Workers carry part of the burden of higher minimum wages in the form of benefits and reduced worker security. Both of these effects may result in greater incidence of unemployment or lower participation in the formal sector,” Lanzona said.

The study also indicated that small-scale firms struggle more when it comes to hiring and keeping their employees. These small companies usually resort to offering job hunters higher pay as opposed to large-scale enterprises technique of promising promotions, Lanzona said.

He added that workers will be more inclined to work for smaller firms for easy money but will then shift to larger firms once minimum wages rise up, causing small firms to close.

“Poorer and less experienced workers who are in need of immediate cash will probably accept the offer of smaller firms, instead of taking a chance with larger firms,” Lanzona said. “However, once the minimum wages increase, more workers would move to the larger firms because smaller firms cannot further raise their offered wages.”

Citing some loop holes in the country’s labor laws, the PIDS study concluded the Labor Code should be reworked to have areas like production efficiency and social protection accessible to the employer and employee.