Browsing by Author "Yasay, Donald"

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    The effects of minimum wages on poverty in the Philippines
    (2004-10) Licup, Armando III; Yasay, Donald; Tan, Edita
    The existence of minimum wage legislation in the Philippines is justified by the following reasons: to meet the minimum standards of living for the workers and to develop a more equitable distribution of income and wealth. These reasons led the authors to conduct this study to find out whether minimum wages really fight poverty and help promote a better standard living for the workers. To check whether minimum wages are correlated to the poverty threshold, an OLS regression was done on minimum wages versus unemployment rate and daily poverty threshold of family of six. Another OLS regression analyses on the covered and uncovered sectors versus variables that determine employment were conducted in order to see the employment dispersion effects of minimum wage legislation. An OLS regression of poverty incidence versus minimum wages, the size of uncovered sector and other variables affecting poverty was also done to find out whether minimum wages and the percentage size of the uncovered sector affects poverty incidence across regions. This study found out that the government take in consideration the poverty threshold in setting minimum wage rates. This finding is shared by two different analyses used in this study. First, it is shown by the poverty threshold and nominal minimum wage rates moving together in the trends analysis. However, the nominal minimum wage rates do not meet the poverty threshold. The other analysis that gives the same observation is the OLS regression used on minimum wages versus poverty threshold and unemployment. The regression showed a very significant positive relationship of the daily poverty threshold and minimum wages. But the positive relationship is not enough to explain that minimum wage hikes increases the purchasing power of the poor. Trends analysis will show that minimum wages was just about 70% of the daily poverty threshold of a family of six, implying that it is not enough to meet the basic needs of the poor, in short it does not increase the purchasing power of the poor. The study also found out that the size of the uncovered sector or informal sector is negatively correlated to changes in minimum wages. This is a counter to the traditional view that increases in the minimum wages rates enlarge the uncovered sector. The authors also found out that the size of the uncovered sector is a good indicator of the level of poverty. This finding is from the regression of the poverty incidence versus minimum wages, size of uncovered sector and other variables that determine poverty. The regression also gave out results showing that minimum wage is an insignificant determinant of poverty. However, a connection between the size of the uncovered sector and minimum wages might complete the story. Because of the negative relationship of minimum wages and the size of the uncovered sector and the positive relationship of poverty and the size of the uncovered sector it can be said that indeed there are some indications that minimum wages fight poverty, but in almost insignificant magnitude, in the Philippines.