SPECIAL LABOR REPORT: Two-tier wage systems detrimental to labor—Eiler

ANTIPOLO CITY, PHILIPPINES — It would be riskier for workers’ tenure and economic security if the Philippine government will impose the two-tiered system of wage determination.

This was the statement of Anna Leah Escresa-Colina, executive director of labor think-tank Ecumenical Institute for Labor Education and Research (Eiler), Inc. after the Labor Department’s National Wages and Productivity Commission had announced that it proposes to adopt two-tiered wage system, instead of the current minimum wage system.

However, Escresa-Colina said in an email to this reporter, that under the new system, the workers themselves are stripped off of their role in the wage-setting, since productivity—which is the second-tier in the system—is based on external factors such as technology, machinery and capital investment.

“DOLE’s idea to shift to a two-tiered wage system essentially makes the goal of achieving decent wages more impossible, as it places premium on productivity over decency of livelihood and workers’ survival under the declining living standards in the country. The proposed system also makes wage-setting solely exclusive to businesses and the government,” says Escresa-Colina in her email.

In a statement published in the DOLE’s official website, NWPC executive director Ciriaco Lagunzad III stated that the proposal to replace the current system of minimum wage setting with a two-tiered wage system is aimed at eliminating negative unintended outcomes resulting from the existing system.

“The outcomes… includes risks to inflation and unemployment; increasing informality; distortion of pay structures; weakening of the incentive for collective bargaining; and discouraging pay-for-performance schemes,” Lagunzad said.

Minimum wage vs. the two-tier: an overlook

On the current system, it is the Regional Tripartite Wages and Productivity Boards (RTWPBs) who adjust the minimum wages on the basis of either a wage petition filed or on its own (Motu Propio).

These RTWPBs are tripartite in composition, with majority of the employers’ and workers’ representatives coming from the Employers’ Confederation of the Philippines (ECOP) and the Trade Union Congress of the Philippines, respectively, the two being the largest and dominant sectoral organizations.

The NWPC explained that before decisions are made, the RTWPBs conduct a series of multi-sector consultations and public hearing to determine the effect of a wage adjustment on all sectors.

The NWPC also explained that trends or patterns in key socio-economic indicators, needs of workers, and capacity of employers to grant wage increases are likewise among the factors being considered by the RTWPBs in deciding on wage increases.

However, in the new system things would be different.

In the two-tiered system, the State will impose be a mandatory national wage, or a floor wage that will ‘protect the incomes of the most vulnerable sectors from undue low wages,” says the NWPC.

The second tier is a productivity-based approach to determining wages above the national floor which shall encourage improvement in performance, which is aimed to “remove the disincentive for collective bargaining and promote bipartite modes in determining wages and other terms and conditions of work.”

More wage distortions, more CBA violations

“But this proposal, or the determination of wages based on productivity will also further skew the highly varied wage levels across the nation, since productivity levels vary per region, per industry and even per company,” says Escresa-Colina.

“For instance, an NCR worker in a small enterprise with low productivity will receive a smaller wage hike compared to a fellow NCR worker employed in a big company, if the two-tiered system is approved. Under the current system, they stand to receive the same amount of wage increase as approved by the regional wage board,” Escresa-Colina further explained.

She also said that if the proposed wage-setting system pushes through, collective bargaining agreements of various unions will be undermined.

“The system will erase workers’ gains in collective bargaining agreements especially on wage increases, and discredit workers’ right to collective bargaining, as productivity becomes the sole measure of any wage increase that will be implemented above anything else,” Escresa-Colina said.

Two-tier systems deemed failure abroad

On the other hand, a research unearthed by CBCPNews published in the United States, says that the two-tiered system is deemed a failure on that part of the world.

The Business Journal-Milwaukee (BizJournal), a division of American City Business Journals, revealed in 1999 that the two-tiered systems hurt workplace morale since it creates “two classes” of workers in just one workplace.

The concept, according to Thomas Krukowski, a labor lawyer for the Chenega Advanced Solutions and Engineering (CASE), LLC, was born in the airline industry during the 1970s.

Espoused by the American Airlines, it was used by the airline management to cut costs. Since then, the system of determining workers’ wages had spread in many industries and enterprises throughout the United States.

In the 1980s, says the BizJournal-Milwaukee, the two-tiered systems have been used, almost, by all factories in the United States.

However, it had become unpopular due to the opposition of the labor unions and tight labor markets.

The labor lawyer admitted, the system outweighs the cost benefits as paying lower wages to younger or workers with minimal skills had created a disincentive work.

The BizJournal-Milwaukee revealed that in 1986, Harnischfeger Industries Inc. subsidiary, P&H Mining Equipment, had adopted this kind of wage system.

Later on, the P&H had agreed to phase out the system because of the problems it had caused with the workforce.

Another Milwaukee-based company, Outboard Marine Corp., had adopted the two-tiered systems, same year but only to shelf it later on.

It is said that the two-tiered pay systems increased the cost-of-living of the old time workers, but not the new ones. After 12 years, the Outboard had decided to phase out the system, but it was also the time the company is scheduled for closure.

Moreover, the said pay system can also create friction between the management and the workers, as it allegedly violates the workers’ work to equal work and equal pay.

In Canada, the two-tier pay systems had been vigorously fought against, due to its detrimental effects on workers.

Canada-based No More Tiers coalition had enlisted 10 reasons why two-tier wage system should be abolished in Canada:

  1. It’s exploitative and treats the temporary workforce as a mere source of cheap labor.
  2. It’s divisive and attempts to separate the workers into different classes.
  3. Is based on the cheap, morally bankrupt concept that if there are no laws against it then it’s ok to abuse the workers.
  4. Workers should have a basic right to equal pay for work performed.
  5. All deserve to be fairly and equally rewarded for their years of service.
  6. Each workers time, effort and sacrifice is as valuable as the next.
  7. Corporate greed not only denies: it deprives workers of justly earned personal gains, freedoms and an opportunity to thrive and get ahead.
  8. It’s an insult to the individual’s personal dignity and self-worth.
  9. It streamlines the hard earned benefits and justly deserved wages of the employee directly into the pockets of shareholders and profiteers.
  10. An ethical company would show leadership, by setting a good example in fair policy, because it’s the “right thing to do.”

Same thing might happen to RP—Eiler

Eiler expects same scenario to the Philippines, if the proposal would push through.

Escresa-Colina said that the proposed system will further divide workers not just at the regional level but also at the company level, creating friction between workers as living conditions essentially remain backward anywhere in the country.

“Our country, generally, has low productivity levels as reflected by poor economic development, ranking third among Asian countries with the lowest productivity levels. Essentially, the productivity-based wage system bodes more depressed wages for Filipino workers,” the labor expert said. (Written for CBCPNews.com)