Readers of this blog may be aware that I am a fan of Manny Pacquiano , but they may not be aware of the fact that Pacman (as he is affectionately called) is a Congressman in the Philippines. Today I wish to examine Pacquiano’s support of an increase in the minimum wage and what that means about inflation.
First, some context. There has not been a national increase in the minimum wage in the Philippines since 1989. For the last decade, there has been a demand on the part of the poor to increase the minimum wage so that poor workers in the Philippines can afford to live. Pacquiano, now fabulously wealthy thanks to his boxing skills, was himself born into the working class and himself remembers what it is like to be hungry and to work as an unskilled laborer. He has not forgotten where he came from, and the hope of the supporters of the minimum wage increase is that Pacquaino’s support will translate into congressional passage of the bill to provide something approaching a living wage for the workers of the Philippines .
Workers and the call for increases in the minimum wage are often treated like the plague, as if inflation was caused by the demand for workers to earn enough by their labor to survive. Whenever a call to increase the minimum wage is made, no matter where, the response of businessmen and their political cronies is to moan and complain as if paying their workers enough to live is going to put them out of business. Like Pacquiano, I believe that these calls are mere pretext (alibis, or palusot, Pacquiano called them in Tagalog).
Why are workers falsely accused of causing inflation? Largely because of self-interest and a lack of understanding of cause and effect. The call for an increase of the minimum wage is not a cause of inflation, but the effect of inflation’s eroding effects on the purchasing power of the poorest people (minimum wage workers or those on pensions and fixed incomes) to buy necessities like food, clothing, and shelter. The call for increased minimum wages is an effect of inflation that is already going on through increased prices for electricity, food staples like bread or rice (or meat), gasoline, and other basic items. Given that the component of prices of goods and services that is devoted to unskilled labor (i.e. minimum wage labor) is very low, often close to nonexistent, the modest increase of minimum wages does not greatly increase the price of goods and services, and therefore does not greatly increase the price of those goods and services to consumers.
On the other hand, an increase in prices makes it difficult to impossible for workers to afford to purchase their daily bread. This is not necessarily the fault of employers themselves–though they certainly do often seek to keep wages low and ensure competition among workers for limited positions to maximize their own profits–but often results from the decreased worth of incomes as a result of fiat money policies by governments. When governments print money (either literally or digitally) or clip and debase the metal content in their coins (as was done in the Roman Empire during its disastrous third century collapse), the people suffer as a result of the decreased purchasing power of their income, whether in dollars or denarii. It is the suffering of the common people as a result of a lower standing of living that results in the demand for higher minimum wages.
Therefore, let us not treat these demands of people to be able to live by the fruit of their labor as something blameworthy, but rather let us see it for what it is–a canary in a coal mine of eroding purchasing power for everyone, hitting the most vulnerable people first. Let us therefore support, as best as we are able, the efforts of people to live and work in dignity, able to support themselves through their work (no matter how skilled or unskilled), and let us place the blame where it belongs. For Pacquiano has a sounder grasp of economics than many of his critics, knowing that poor people do not look for increased wages because of greed, but because survival is at stake. And like him, I too have not forgotten where I come from.