DOLE: Two-tier wage system on track, key to improving PHL competitiveness on wage flexibility and pay, and productivity

A June 10, 2012 press release from the Department of Labor and Employment

Department of Labor and Employment (DOLE) Secretary Rosalinda Dimapilis-Baldoz yesterday said the implementation of the two-tier wage system, a key policy reform, is on track and will surely improve the country’s position in global competitiveness, particularly on the issue of flexibility of wage determination.

Expressing confidence on the viability of the two-tier wage policy, Baldoz said:

“We are on track on the implementation of this reform in pursuit of the President’s 22-point labor and employment agenda. This will lead to improved competitiveness of the Philippines in labor market efficiency.”

She reiterated that since last year, the DOLE has been pursuing a package of policy and program reforms to improve its institutional capacity to effectively and efficiently address issues and concerns in the labor market, specifically issues relating to flexibility of wage determination and pay, and productivity, one of the nine components of the labor market efficiency pillar.

The two-tiered wage, as a policy reform measure, is aimed at minimizing the unintended outcomes of mandated minimum wage, improving the coverage of the vulnerable sectors, and promoting productivity improvement and gain-sharing.

The two-tier wage system consists of a fixed “floor wage,” or entry level for new entrants and low-skilled workers, and a flexible wage above the floor based on worker productivity and performance of the industry and enterprises, which may be negotiated between the employer and the workers.

“In this sense, this policy reform allows enterprises to determine wages according to their circumstances while at the same time satisfying both the social and economic functions of minimum wage,” Baldoz explained.

To support the wage reform, the DOLE is working to transform the orientation of its mandate from regulatory to becoming more developmental to enable it to provide institutional support for productivity growth and competitiveness enhancement.

It is also building up the capacity of its frontline personnel, particularly its labor law compliance officers, livelihood focal persons, and conciliators-mediators, equipping them with productivity tools so they become productivity specialists that will provide technical assistance to enterprises, especially the small and medium enterprises.

“We aim for our labor inspection [to] not be primarily used as a regulatory and coercive instrument to enforce compliance with labor standards, but as [a] facilitative and enabling mechanism [geared] toward greater and better labor law compliance that supports productivity and competitiveness improvement efforts at the workplace,” Baldoz said.

To kick off the reform, Baldoz has signed Department Order 118-12 prescribing the rules and regulations governing the employment and working conditions of drivers and conductors in the public utility bus transport industry.

The order ensures the development and adoption of a “part-fixed, part-performance-based compensation scheme” for bus drivers and conductors, where the fixed part is the minimum wage and the performance-based part is to be mutually agreed upon by bus owners and operators, and their drivers and conductors.

“We hope that through this approach, we can gradually evolve compensation and incentives schemes in different industries that provide income protection for our workers while at the same time enabling employers to realize their financial and economic objectives,” Baldoz said.

She explained that the two-tier policy reform was dictated by the fact that the current wage system gives rise to disincentives for both skilled and unskilled workers, and disrupts the economy and the country’s employment program. Evidence also shows that minimum wages discourage collective bargaining.

“This wage reform addresses these issues by providing more effective protection to low-paid workers through a genuine wage floor while at the same encouraging workers and employees to engage in productivity-based bargaining, at both enterprise and industry levels,” she said.