Manufacturing sector threatened by increasing minimum wages

Philippines - The Philippines is poised to be the third manufacturing and outsourcing hub in Asia after China and India. But the government's desire to increase minimum wages in the face of increasing oil and food prices could prove to be its downfall and be a detriment to the country's economy, said consulting services provider Mercer.

According to Department of Trade and Industry, the minimum wage for the Philippines is the third lowest in Asia, making it an ideal place for manufacturing and outsourcing outside China and India.

With a ready pool of labour to tap on and increased proficiency in English, it holds tremendous potential for the development of the manufacturing sector. The increase in literacy rates also results in the pouring in of foreign investment.

However, with labour costs set to rise, the Philippines would be a less attractive place for conducting business.

This comes as grim news for the Philippine economy since it was left out of the World Bank's list of High Powered Asian Economies (HPAEs) in 1993 due to its sluggish growth in productivity.

The rising labor costs coupled with internal structural problems serve to threaten its economy. According to Mercer, the higher labour cost in comparison to her regional neighbors, poor infrastructure and political instability would aggravate the problems of the outsourcing and manufacturing sector and decrease its competitiveness.