Home > On The Ground In The Philippines > How Much To Pay A Filipino? [part 1: Minimum Wage]

How Much to Pay a Filipino? [Part 1: Minimum Wage]

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Today, we are going to look at the Minimum Wage.

  • First, we will take a close-up personal look at life on the minimum wage for a real family.
  • Second, we will jump on a rocket ship and take a high-level statistical look at it from up on high. 
  • Finally, we have a discussion on the validity of using the minimum wage as your benchmark.


A Minimum Wage Family

Mike and Aira Jarin both earn the minimum wage.

Mike and Aira live in a working class community in Makati about ten minutes by car from Ayala Avenue, the heart of the financial district.

Mike holds a clerical role at the Cembo Barangay (equivalent to Council). Aira is a high school teacher. They have one son, seven-year old Xymon, who is in third grade.  Mike’s monthly take-home pay is around P10,000 (US$215), but his salary on paper is higher where the difference goes to paying social security contributions, public health insurance, and tax. Aira also brings home the same per month after all the various deductions.

(They also get an annual bonus, paid just before Christmas, equal to a month’s pay each with a more favorable taxation treatment – meaning it is actually more in their hand than a normal month’s pay.)

(The Philippines has one of the highest personal income tax rates in South East Asia, there those earning over just US$11,000 a year pay a full 32%. The tax-free threshold is only US$2500 a year. )

MONTHLY BUDGET for Jarin Family (Dual Income, Minimum Wage)

Income

20,000 pesos (US$428)

   

Expenses

 

Rent

4000 pesos (US$86)

Electricity

2500 pesos (US$54)

Cable TV

240 pesos (US$5)

Water

210 pesos (US$4)

LPG

400 pesos a month (US$9) (US$18 every two months)

Family Day Out

400 pesos (US$9) (every second month,

400 or US$9  for lunch, 100 or US$2 for games, transport and a drink)

Xymon SchoolTransport

1320 pesos (US$28) (30 pesos or US$0.64 each way x 22 days a month)

Xymon School snack

300 pesos (US$6)  (Yakult and Pastry x 22 days a month)

Aria Work Transport

750 pesos (US$16) (34 pesos or US$0.74 per day x 22 days a month)

Food

9000 pesos (US$193) (300 pesos or US$6 per day x 30 days a month)

Total Expenses

19,120 pesos or US$409

SURPLUS

980 pesos (US$21) out of which comes everything else including clothing, school fees, repairs, purchase of appliances, medicines etc…

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The Jarin family rents a tiny two-room house where the living room is also where the family eats and sleeps.

The lone small bedroom slightly bigger than the mattress on the floor and is where Mike’s mother Melinda sleeps. The bathroom is only slightly bigger than a cubicle, but at least it’s tiled and has running water. Every month they pay rent of P4,000 (US$86).

Their electricity bill is usually pegged at P2,300 (US$49) per month - this is despite the fact that the house has no air-conditioning and the only appliances are the LED television, three electric fans, a refrigerator, a single tub washing machine and a DVD player on which the family watches bootleg DVDs.  They also have cable TV for P240 (US$5) a month and a monthly water bill of P210 (US$4).

The toilet has no flusher or seat. There is a bucket of water and a scoop and you scoop water into the bowl by hand to flush it. There is no shower; there is a cold water tap next to the toilet that you squat down to and splash water over yourself to wash. That tap is also what you use to fill the bucket that is used to flush the toilet.

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Xymon goes to public school five days a week and usually spends P30 (US$0.64) for his tricycle fare to and from school. Aira works in a public school in Makati.  She pays a total of P34 (US$0.73) for two-way jeepney fare. Mike, in the meantime, walks to work as the Barangay Hall is only a two-minute walk from their house.

Every day the Jarins spends around P300 (US$6.42) for three meals. For breakfast they usually eat pan de sal (a type of soft, lightly toasted bread) with instant coffee for the adults and plain water for Xymon. Xymon is not given money to buy food for recess in school, but usually brings with him a bottle of health drink Yakult (P9 or US$0.19) and a piece of pastry (P5-P6 or US$0.11 to US$0.13).  He comes home for lunch which his father cooks, and the two of them with his grandmother eat rice with one ulam, either meat or vegetable. “Vegetables, of course, are cheaper,” Mike says.

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Every two months they need to get an LPG tank replacement. It costs P800 or (US$17). “This is something that’s a little hard to prepare for because we never know when the gas is going to run out” says Mike. “We can’t just keep P800 tucked away just in case because there’s always something or another that we need the money for.

Come dinner time all four members of the family eat together. It’s usually just rice and one ulam. “If there are leftovers from lunch we eat that so we can save money. If I cook something for dinner and some are left, we have that for lunch the following day”.

The Jarins go out once every two months. Usually they go to the nearest shopping mall known as Market! Market! where they walk around in the air-conditioning and look at the shops. They have lunch at a fast-food restaurant (spending P400 or US$9 for three people), and then Xymon goes to play at the arcade with an allowance of P100 or US$2 which gives him two or three games. They usually don’t watch films in the theater as tickets are expensive at P200 or US$4. Mike usually just downloads movies from his office computer during his break periods, or buys bootleg DVDs for P25 each (US$0.53).

Going to the movies is too expensive because it’s not just the movie we have to spend for. We also have to shell out money for snacks during the movie, and then afterwards we also tend to be hungry. To cut expenses, we stay home to watch movies on TV.

During the summer break the Jarin family joins the families of friends and together they all go to the beach in Batangas for a two-day holiday. They usually allot P2,000 (US$43)  for this as their contribution to the transport costs, food, and rent for the cottage and resort entrance.

As you can tell from this story, and see from our photos, Mike and Aira’s life is hard. There is stuff about their life that is not explicitly stated in the story.

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For example, their diet is about 80% low-value carbs, mainly white rice which they eat at least twice a day. White rice is a very low-value carb that turns to sugar the minute it hits your gut. Consequently many Filipinos have diabetes. The International Diabetes Federation puts the Philippines in the Global Top 15 for the disease and rising. While 4 million have the disease, such is the health system that the true number could be a multiple of that number.

World Life Expectancy puts the Philippines in 114th place, sitting at around 66 years for men and 72 years for women.

 Also the Jarins are lucky. They both have jobs and they only have one child (fertility rate is 3.1 births per woman).

 Income Inequality – A High Level Perspective

The purpose of a minimum wage is to set a baseline below which employers can’t go so as to ensure that the poor get at least some share of the wealth generated by an economy.

The global measurement for income equality is called the GINI Coefficient.  It is a complex statistical formula that you can research HERE. Basically, a score of zero means perfect income equality and a score of 1 means perfect inequality.

Advanced social democracies score between .25 and .35, while Brazil (one of the worst) scores at around .61. The Philippines is sitting in the high 40s, it is now above Mexico (i.e. worse than) and is considered the 3rd highest in Asia, better than Nepal or Bhutan, but worse than Iran, Uzbekistan or even Russia.

As an interesting aside, according to this measure, the Philippines is actually less well off now than it was during the Marcos years.

As the Philippine economy has grown, the GINI Coefficient has remained stubbornly high.

You don’t need to be a rocket scientist to put two and two together.

Look at the quality of life endured by a DUAL INCOME family with just one child and match it up against the global statistics, and the obvious will hit you hard between the eyes.  The Philippines is a place where the rich are getting richer and richer and the poor, including the working poor, are staying exactly where they are.

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Why Nations Fail: The Origins of Power, Prosperity and Poverty is a great book that talks about this economic pattern written by a couple of MIT professors Daron Acemoglu and James Robinson. If you are going to do business in the Developing World you must read it as its perspective is invaluable.

The Philippines is a classic extractive economic model. It is custom built from the ground up so as to enable the elite to extract the wealth of the nation and put it into their own pocket, which of course they do. It is useful to think of the Philippines as an Oligarchy.

 

Horns of a Dilemma

All of this places a Western executive in a difficult ethical position.

We talked last week about blatant exploitation and raged against the injustice of it, placing particular emphasis on the illegality of it.

The problem with this discussion is that the minimum wage is perfectly legal while at the same time it is clearly inherently exploitative.

 Sure, it depends on your perspective.

On one hand, a salary is a salary and it is legal so who cares?

On the other hand, the people accepting this salary are enduring a lifestyle that is totally at odds with Western sensibilities. You have whole families living in single rooms eating terrible food without access to a toilet that flushes. And those are the lucky ones, the dual income households with only a few dependents.

The dilemma that I personally face is framed as such:

The premise is that the outsourcing industry is heavily enabled by the situation the Philippines and its people now finds itself in…. i.e. a huge pool of English-speaking labor trapped within an economy and society that has been brought to its knees by five centuries and counting of intensive wealth extraction by an elite-controlled institutional framework.

So while I may choose to be offended by the system and the way it extracts wealth from the poor, I myself, as a business owner employing staff here, am actually benefiting from the status quo.

In a way, the foreigners such as myself who have been welcomed here to the Philippines as guests and given the freedom to develop our own businesses, are part of the club. Not the real super rich club, but a sub-layer where we do get to enjoy some of the spoils off the back of having access to a huge pool of working poor.

 So the question here is simple: Should you pay your staff the minimum wage?

The minimum wage is legal and it is accepted practice in the Philippines. In other words, Filipino business pay it, why shouldn’t we?

The BBQ Test

In Australian politics we have this expression around the BBQ Test or the Front Bar Test.

 The idea is that if you were at a BBQ on the weekend with your friends and peers, and you explained to them what you were doing, would they judge that OK or would they have a crack at you and tell you that you were out of line?

 The BBQ test is a deeply imperfect concept, not least because it outsources responsibility for setting the ethical bar to an ethical relativism. The Roman Street says it is ok to murder Christians in the Colosseum, therefore such behavior is ethical.

However, any philosopher will tell you that any perspective, no matter how dour, is inescapably tainted by a whole raft of inherent values embedded within the viewer from which it is impossible to escape or in many instances even to identify.

 So a stance on the ethics of the Filipino minimum wage boils down to personal perspective and in my view the minimum wage is not a sustainable wage from an ethical perspective.  It is too low.

It is not reasonable for me or anyone else to run a business where we live an affluent first world lifestyle while those who work for us live in squalor with insufficient income to enjoy a flushing toilet or to feed their kids a healthy diet that consists of three meals a day.

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Our example, the Jarin family, do feed their boy three times a day; but remember, they are a dual income household and they only have one child. Look again at the scenario of daily life for this family and think about how their life would look if one of the adults lost their job or was reduced to part time or they had the national average of three children.

Even so, on two incomes, I personally would rate their lifestyle as being what I would regard as living in poverty. Sure they have a TV and running water and live better than the starving masses in Africa or even many provincial Filipinos. But seriously, I don’t know any Australian who would consider their life as being even close to acceptable – especially in a household where both adults are employed in professional jobs.

 I don’t think the Filipino minimum wage passes the BBQ test.

 I think that if your peers at the BBQ actually understood what such a wage meant in terms of the lifestyle afforded to the worker they would be horrified. 

 The Market

In any case, even if you disagree with my position here, you will be saved by the market.

The issue with the Jarin family is that neither Mike nor Aira speak business-grade English, meaning they are locked out of the opportunity to work for foreign firms.

The truth is that reasonable English skills are worth real money in the Philippines. As an employer, to get such skills, you have to pay a premium.

Next week we will look at the actual market rates where you will see that basic graduate with 12 years of schooling and reasonable English will cost you 25% more than the minimum, and with 5 years’ experience will cost more than double. There are plenty of professional Filipinos, accountants, lawyers, software developers, who earn 10x the minimum or even more.

 The week after that we will look at a sustainable living wage.

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