Wednesday, March 01, 2006

Part 16 - Hyperwage Theory

Hyperwage Theory Part 16

Hyperwage Theory Part 16

Hyperwage Theory Part 16

The elegance of Hyperwage Theory is exemplified in its self-consistency and the way it perfectly resonates with the rudimentary principles of economics.

Thus far, in our gradual unraveling of the Hyperwage Theory, have we violated any economic principle?

No, I don’t think so. Or has the theory ever made an illogical conclusion?

Yet, the Hyperwage Theory has been at odds with current economic theory as we have analyzed in the previous chapters. How do we reconcile this apparent paradox of simultaneous perfect resonance and perfect antithesis?

The reconciliation lies in the fact that Hyperwage Theory follows the rudimentary principles of economics and treats as illogical the conclusions set forth by current economic theory. Modern theory is an interpretation of the rudimentary principles made by modern economists.

Hyperwage Theory, therefore, is not a repudiation but a reinterpretation of the rudimentary principles of economics. Hyperwage Theory perfectly resonates with Modern Theory with respect to rudimentary principles but perfectly disagrees with the latter on the interpretation of the same.

The conflict between Hyperwage Theory and Modern Theory can be reduced into a matter of interpretation, application, and appreciation of which economic variables take precedence over the others.

Conflict of interpretation
I have always maintained that the First World countries are currently implementing Hyperwage Theory but the irony is that they don’t even know it.

The economists do not appreciate that it is exactly Hyperwage that brought these countries to First World status. In other words, they don’t know the secret of their success; they don’t know what they are doing right. The economist is like Columbus. He didn’t know where he was going. And upon arrival he didn’t know where he was. And it was all funded by the government.

To put Hyperwage in a proper perspective, this is a special theory that should be applied only to countries that undervalue the economic factor of labor. Once the proper valuation is done, we can then shift focus from purchasing power-centric to inflation-centric economics. How do we determine labor’s true value? We can make a reasonable estimate. Why do our teachers leave their young children behind to work as toilet cleaners in Italy? That brain drain alone gives you the true value of labor.

Therefore, there is no conflict at all with Hyperwage Theory and Modern Theory. The conflict is in the choice of economic weapons and the interpretation of the principles. It is a conflict of intellectual thought.

Viewed in the light of reinterpretation of principles, Hyperwage could be considered a hypermodern theory of economics. It could also branded as hyperfolly.

Market-driven productivity
Productivity is the effect; hyperwage is the cause. This is a more logical interpretation compared to the view that the labor sector is only entitled to a wage increase if it can first improve productivity.

But productivity that is market-driven is more sustainable than productivity that is lollipop-induced.

Under Hyperwage, if the worker does not produce more than the cost of hiring him, the management will be forced to replace him. This is logical, right? The worker must be productive, after all, he is receiving hyperwages. This is market-driven productitivity. Automation will become the norm, and every waste will be scrutinized and any unnecessary labor or process will be eliminated.
High quality products will be the norm because it is costly to repair one TV than to assemble it right in the first place.

As I have repeated in my many talks before, one grain of rice in your table is extremely more expensive than one grain of rice in the ricefield where it came from because of the labor, logistics, transportation, and documentation of that grain of rice.

Thus, whenever, you waste a single grain of rice in the city, you don’t only waste that grain of rice but all the added costs to that grain in processing it from the ricefield and bringing it to your table a few months later. That’s the value-added chain of rice distribution, and the corresponding value-added tax, of course.
Going back to productivity, a necessary implication is that a company will hire only a worker who can contribute a margin greater than his wages. And if you haven’t noticed, this addresses the problem of affordability.

Did you notice it? Can companies afford hyperwages? Of course, because the critical criterion of retaining an employee is that he must add value, not destroy, to the firm. In short, affordability is automatically addressed under a regime of hyperwage.

If the enterprise cannot afford the payroll, it must increase prices. If it cannot increase prices, it must increase volume sales. If it cannot do either, then it must close down its business. Don’t worry, an American company will come over and establish their operations here. After, all they are flourishing in a hyperwage country like the US. There’s no reason they cannot flourish in a country with a minimum wage of only P20,000 per month.

But then that’s jumping the gun. Let me get back to productivity and unemployment.

Wrong example
There was this amusing incident long time ago. During a televised forum, the host threw the Hyperwage
Theory at the president of a local business club.

The businessman argued that this will not work out and in fact, he has closed down a business because it was cheaper to import from China than to manufacture in this country.

And he also complained that the local laborers are not productive. He cited the case of a Taiwanese manufacturer who became frustrated because in Taiwan, one Taiwanese can operate two machines simultaneously while here, two local workers operated one machine. The Taiwanese eventually pulled out of the country.

This is a wrong example to prove that this Third World country is not entitle to a wage increase. In fact, this particular case study is an example of Hyperwage.

In Taiwan, the Taiwanese worker is paid at hyperwage levels, and therefore he must be productive enough to operate two machines, otherwise, management will replace him. This is market-driven productivity.

It takes four workers in a Third World country to do the work of one worker in a First World country. The Taiwanese could demand four times the wages of our laborers with the same productivity.

This is a case of market-driven hyperproductivity due to hyperwage.

Time and motion
Time and motion studies, computerization, automation, research and development, and even adaption of the so-called “best practices” will be a normal way of corporate life because of the Hyperwage regime.

Are you aware there are small export companies who have three people doing nothing but the weekly payroll because they are not computerized? Do you know there are employees in the Supreme Court who do nothing but count the number of hours in the time cards of all its employees? Do you know that our companies have clerks who spend 30% of their time typing vouchers with typewriters?

And do you know we have government casual employees who are ghost employees or 15/30 employees.?

Well, if they get P20,000 as monthly wages do you think our auditors will still turn a blind one on this anomaly? On a personal basis, if your child asks for a 15 daily allowance, you wouldn’t mind. If he asks for a P1,000 daily allowance, you will be forced to study his request.

And if the postal worker gets P50,000 a month, will you still expect the same lousy service? We can hardly justify inefficiency at that wage level.

Why do we have the so-called Filipino time? Because our time doesn’t have value. We are not conscious enough of the value of time and labor, after all, we are getting US$0.65 per hour compared to US$5.15 per hour in the US. But only the working students get $5.15, our nurses get from $16 to $20 per hour.
Hyperwage will raise consciousness regarding productivity, efficiency, value for money, respect for other people’s time, redundancy, streamlining of operations and savings measures.
Remember that raising consciousness is a non-economic benefit brought about by Hyperwage.

Creation of jobs
The opponents of Hyperwage only emphasize the unemployment effects of the regime. Did it ever occur to them that Hyperwage may actually create more jobs?

Take the case of aircons. Almost each household can afford to buy aircons because the price of aircons will still be P10,000 while their wages will be already P70,000 (or P140,000 a month for working spouses.)

Can you imagine that? When your salary as office worker was P10,000 the price of aircon was P10,000.

Under Hyperwage, your salary will now be P70,000, the price of aircon will still be P10,000 because that’s the price of aircons in Singapore and Hong Kong, we can’t be higher, otherwise we will import directly.
Suppose there will be 5 million households with aircons compared to the old one of, for example, only one million. How many engineers, technicians, salesmen, managers will be employed by the aircon industry?
Two times the old level? Three times?

How many more banking transactions, T-shirts sales, TV sales etc will there be because of the additional purchasing power in the hands of the people of the aircon industry? This is an example of the Keynesian multiplier effect.

Direct and logical consequences
These are direct and logical consequences of the Hyperwage Theory. Remember we touch only one, repeat, only one variable and the rest is automatic. Why do the government bureaucrats and economists refuse to see this solution? Different mindset, different interpretation.

Yet, I have shown that instead on unemployment, there is a possibility that there will be net employment
under a Hyperwage regime. After all, which has lower unemployment rates, First World or Third World countries. Res ipsa loquitur. The thing speaks for itself.

In the next installment, I will share with you a very exciting study which I didn’t know existed at the time I was tinkering with Hyperwage, and I will tell you how I interpret that study to validate my theory.

(Thads Bentulan, Aug 18, 2005)
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Anonymous said...

This is a chicken-or-egg scenario...

You're asking that the government _mandate_, for example, a P30K/month salary for, say, a factory worker. So the boss needs to get more than P30K/month worth of revenue from that worker.

But what is going to ensure that the boss will be able to find a worker that works that hard? Is the boss going to have to bullwhip that worker?

Just because I, as boss, am *forced* to pay you P30K/month by no means *guarantees* that I am going to get [at least] P30K worth of value from you.

It might be too risky and I might just choose to close my business.

Anonymous said...

you still don't get it. perhaps you're one of those businessmen in this country milking our people with your cheap labor while you wine and dine with your income.

As discussed- if there is a need for you to automate, streamline, etc your processes, then you have to do that to reduce headcount or you can raise your prices to meet your expenses of manufacturing. if you can no longer increase prices because other countries are producing your products at a cheaper price, then by all means, import and sell it here.