EGALITARIAN| Macroeconomic fundamentals: the angle of wage hike

ANOTHER measurement of the health of the country is the inflation rate. As commonly understood, it is the movement of the general price levels; an indicator of the cost of living in a defined geographic space. Inflation can be of two types: demand-pull and cost-push. The former is a result of more people having more income while the latter is an increase in the price of raw materials or input goods.

In the demand-pull, there is an overheating of the economy. The demand is increasing more than the rate of the ability to supply the goods. Suppose, workers demand for additional wage, lo and behold, the demand is granted. The result will simply be just inflationary if there are no structural interventions done on the supply side. Prices will shoot up as sellers will grant the product to the buyer who could pay the highest; the ability of the money has eroded. Wage-hike will be inflationary.

The cost-push on the other hand is a wrong type of inflation as others may describe. It is wrong because it describes a decline in the standard of living. Let me go back to the example of the wage hike. The cost-push effect of a wage hike is on the part of the firms. The producing firms now experiences higher cost of production in the form of wage payments. The firm will pass it on to the consumers in the form of higher prices. Market commodities will increase, regular fares will increase, and other consumable goods will increase. In the end, ordinary workers will have the bitter part of the wage increase.

For the most part, our wage earners cry out for wage increase. The reason is to make a decent living out from their labor’s worth for the day. True and I am with them as I am also earning daily as most of those in the service industry are daily wage earners. However, a single perspective of the whole spectacle might mislead us.

To increase the daily wage rate without improving the total factor productivity will only cause a nominal increase in the wage while the wage’s true worth is declining. In effect, you may receive with both hands a huge number of bills, yet its ability did not make a budge on the household budget. Common consumption item remains unmet.

Since the 80’s total factor productivity was on the negative, and this was also the experience of other countries like Singapore, Thailand, Malaysia, and Indonesia. Twenty years after, other countries improved their productivity, ours remained negative. Reason? The workers in other country understand that they cannot demand more than they are worth. If you want increase in wage, you have to improve your productivity. Improving own productivity means becoming loyal to the organization (disruption of work due to labor unrest isn’t a good picture), honest at work, being technologically-advanced, and well-educated for the benefit of the corporation/business.

The country’s poverty and hunger condition is not an issue of supply of consumption goods. It is an issue of income— the income that is nominally huge but cannot make it to the market.

The better way is for the wage earners to improve their other consumption items without increasing the volume of money in the hands of the consumers which will inadvertently increase prices. The better demand for workers is demand for benefits such as medical program, educational support, monthly rice support, and other non-monetary benefits. Also, the worker benefits impact the supply side which will push the long-run aggregate supply to improve. This is the better way to improve ways.

Posted in Opinion