‘Higher wages raising costs’
Credit to Author: ANNA LEAH E. GONZALES| Date: Mon, 06 May 2019 16:21:52 +0000
HIGHER wages in the Philippines and other East and Southeast Asian countries would not only lead to increasing production costs, but also to growing private consumption, according to Fitch Solutions.
In a report on Monday, the Fitch Group unit said minimum wages in this region were currently on the rise, increasing the costs of production.
“Governments in countries such as Cambodia, Vietnam and the Philippines are succumbing to union pressure as they seek to prevent outbreaks of social unrest that could cause political instability,” Fitch Solutions said.
“On the other hand, higher real wages across the region will lead to an uptick in private consumption over the medium-to-long term, as countries such as Malaysia, the Philippines and Vietnam increasingly turn to consumption-driven growth as seen in China,” it added.
Fitch, however, warned that the increase in minimum wage would undermine the competitiveness of several countries in East and South Asia.
“The availability of large pools of low-cost labor has positioned East and South Asia as the premier hub for labor-intensive business operations, particularly in manufacturing,” it said.
“This model has supported rapid economic growth in countries such as China, Malaysia and Thailand over the past five decades,” Fitch Solutions added.
According to the report,the average minimum wage in East and Southeast Asia in 2015 was only around 63 percent of the global average.
This figure, Fitch said, has risen to nearly 82 percent this year, and is “projected to catch up with the global average or, even worse, overtake it by the end of the next 10-year period.”
The report also said the region’s average ‘Cost of Employment’ score in Fitch Solutions’ Labor Market Risk Index already decreased to 56.8 out of 100, down from 59.3 out of 100 in 2018 — where 100 = lowest risk and 0 = highest risk — indicating the gradually increasing labor cost risks for businesses here.
South Korea, Hong Kong and Taiwan currently have the highest minimum wages at $1,101.6, $886.3 and $722.7, respectively.
Laos, China and Vietnam, on the other hand, have the largest year-on-year average growth rates of 14.6 percent, 9.8 percent and 8.8 percent, respectively, between 2015 and 2019.
Other countries, such as Malaysia and Vietnam, also reported increases in their minimum wage, according to the report.
“We expect the average nominal minimum wage to continue rising across East and Southeast Asia over the short-to-medium term,
underpinned by the region’s transition into high-value manufacturing and service-based economies associated with higher labor costs, while moving away from agriculture and low-cost labor-intensive sectors, which generally have lower wages,” Ficth Solutions said.
“This, together with robust economic growth and the rising costs of living, risks exacerbating regional wealth inequality, thereby emboldening workers’ demands for higher minimum wages,” it added.
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