Understanding the Supply/Demand in the Job Market, Not #SahodItaasPresyoIbaba Economics

It's really annoying when people keep up with their #SahodItaasPresyoIbaba economics. It's easy to ridicule me because I'm not using a domain, unlike sites like the IBON Foundation. However, they may be very beholden to the WordPress blog of Teodoro "Teddy" A. Casiño, which is a free domain just like BlogSpot. Now, I'm going to write another post on the job market. Since I'm being belittled because of my lack of degrees like the Monsod couple (I'm neither a lawyer nor an economist) or the people at IBON, I'm going to quote other sources.

Graph taken from CFI

I came across the Corporate Finance Institute (where I got the graph above) where I found a useful article on the job market. This would be to help me understand why salaries just shouldn't be increased (or decreased) at a whim. This would also help understand how allowing more MNCs to invest in the Philippines, may actually push the salaries up. Here's an excerpt that one needs to read:

Supply and Demand in the Job Market
Similar to the markets of goods and services, job markets also follow the supply-demand mechanism. When the quantity of workers demanded is equal to the labor force available (the quantity of supply), the job market reaches its equilibrium point, and wages can be determined.
The wage level rises when the demand is greater than the supply and lowers when the supply exceeds the demand for workers. However,wages cannot always move freely. There is often a floor determined by the government, which is known as the minimum wage.
When the equilibrium wage is above the minimum wage level, introducing a minimum wage will not lead to a major impact on the job market. When a minimum wage is established at a level higher than the equilibrium wage, the quantity of demand will fall as businesses will instead try to control their labor costs by reducing the number of employees.
The quantity of supply increases as there are more active job seekers motivated by the higher wage level. It forms a gap between supply and demand and thus, leads to unemployment. Despite this drawback, the minimum wage policy can provide both economic and social benefits. By increasing the wages of low-income workers, the government can reduce its spending on social programs to support these individuals and relieve the economic inequality at the same time.

Basically, a wage increase is a good thing if there's a reason to increase the wages. Now, if we're going to take a look at supply and demand, it's also applicable to people seeking jobs vs. the number of job providers. The Philippines has more supply of labor vs. a supply of labor providers. The basic middle school and high school lessons in economics are supply and demand both determine the prices. Since there's a higher supply of labor and a lower demand for labor (that is, demand provided by the supply of labor providers)--we can expect that raising salaries can cause inflation.

The Economics Help explains this principle of why a sudden wage increase isn't advisable:

Wage Push Inflation. If labour is able to push for higher wages, despite lower growth, then we could get a combination of rising inflation, but slow growth. This is especially a problem if a country is part of the single currency. If wages rise, they become uncompetitive leading to lower demand. Therefore there is an unwelcome combination of rising prices, but lower growth. If countries were not in a single currency, the uncompetitiveness would lead to a depreciation in the exchange rate to restore competitiveness and increase demand.

Why are salaries in first-world countries higher than that of the Philippines? It should be ironic to oppose accepting FDIs while sending OFWs to countries that are more FDI-friendly. Reading the late Lee Kuan Yew's book From Third World to First--I wasn't surprised LKY mentioned about the problems of the Philippines, in the post-Marcos Years. Singapore has a higher salary because it's an FDI-friendly country. By accepting FDIs, the first-world countries where OFWs are sent, are forced by circumstances to raise their salaries. It's because having more available job opportunities--will naturally lower the supply of job opportunities. Both local investors and foreign investors will compete to increase their rates. People would naturally want bigger salaries. Sure, it would increase the price of the goods and services. However, if people have higher salaries--spending more for quality isn't much of an issue. It's like how I'm willing to spend an additional few pesos for a larger serving of coffee or tea from a coffee shop. Just think that the Vietnamese Dong is the lowest in ASEAN but that Communist country is doing better economically, than the democratic Philippines!

Meanwhile, salaries in the Philippines are lower for this reason. There's an abundant supply of labor but not enough demand for labor. How can there be enough demand for labor if there aren't enough jobs. Sure, some FDIs are in the Philippines such as food industries. It's even ironic to see these idiots protest against 100% FDI then they go to Starbucks for coffee later. However, wanting to nationalize (that is, trasnfer control to the state instead of private individuals) would lead to a supply crisis. Please, for the nth time, printing more money than needed will devalue the money. Nationalizing "critical" sectors like utilities will only cause an increase in prices while reducing the quality. If they don't believe me--they need to take a vacation in North Korea. If thye want to blame South Korea for North Korea's misery--they better present empirical evidence for that!

Those who engage in #SahodItaasPresyoIbaba may come from difficult to enter-to schools like University of the Philippines and Ateneo De Manila. I confess I wasn't even allowed to take the ADMU exam anyway--my grades in high school weren't good and I barely pass. However, with the education system caring more about grades over learning--do honor students truly deserve their honors (read here)? Rep. Raoul Manuel of Kabataan Partylist even asserted his cum laude status. However, what's the use of having a cum laude, masteral, doctorate, etc. if one believes in #SahodItaasPresyoIbaba economics.

That's why I've been daring them to open their #SahodItaasPresyoIbaba stores (read here). They better open their stores that sell PHP 20.00 per kilo rice and pay their employees PHP 750.00 per day. Can they really keep up with their business? If they can make their business model succeed--I would really applaud them and accept their findings. However, with all their selling at a loss and paying their employees too high--there's really no profit at all. Long-term profits are needed to keep a business running. That's why I consider anybody who believes in #SahodItaasPresyoIbaba economics to lose credibility, prestigious degree holder or not.

Comments

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