The other day, I got an e-mail from my friend, Dave Starr. Dave was letting me know about an article that he thought I may find interesting. Over the years, both Dave and I have followed the blog of a fellow in Australia named Yaro Starak. Yaro is an Online Entrepreneur, just like I am. He makes his living exclusively through the Internet and has a number of websites and online projects that keep money coming in. Yaro has been very successful over the past 5 years or so. I can remember when I first started reading his site, Yaro was not too successful, but he really has done very well in recent years.
Yaro’s blog, Entrepreneur’s Journey used to be a favorite read of mine, I checked it every day. A few years ago, I stopped reading it, though, for a few reasons. Primarily because his site turned into more of an advertisement for his products and for other products that he was affiliated with. I have no problem with advertising your products, heck, I advertise my products here on LiP and my other sites. However, I felt that Yaro’s site got to the point that every single article was a new product or service, and that there was little of value that I was getting from the site, so I stopped reading. I still check in from time to time to see what Yaro is up to, but I am no longer a regular reader.
When Dave e-mailed me the other day, he was letting me know about a new article that Yaro had recently posted on the topic of Outsourcing, and in particular Outsourcing work to the Philippines. Yaro has discussed this topic before too, and I have found myself both in agreement with him, but also in strong disagreement with some of his previous points. In his new article, he discusses the question, “Is outsourcing exploitation?” Having lived in the Philippines for the past decade, I found this topic to be of interest, and read the article. I would suggest that you give it a look too, as Yaro makes some interesting points in the article.
Of course, my viewpoint, and the viewpoint of those interested in reading this site will be different than many other people. Most people despise outsourcing because it takes jobs away from Americans (or whatever country you are from) and it also sends money out of the US economy and to foreign countries. However, for readers of this site, we all have some connection to the Philippines. Many of us have Filipino wives, and thus have family ties to the Philippines. Others of us have a desire to live in the Philippines, and thus could benefit in some way from the growth of the business sector here. In short, our opinions would be a little different from the guy who loses his job at the factory in Cleveland because they are going to outsource his job to Mexico. I have no problem with differing opinions, it is what keeps the world interesting.
In my personal case, I have a debate going on in my mind. Do I outsource work? You see, I make my living on the Internet. I sell products and services on the Net, and I also publish information (like this site) on the Net, which is supported by advertising and by the sales of my products and information. I have almost all of my work done by Filipino workers, and the cost of labor is cheap. But, am I outsourcing? Technically, I am not, because I live in the Philippines, and thus I am keeping the work in the economy of the country where I live. However, in practice, I feel that I am outsourcing, because I am earning my living from the first world (US, Europe, Australia, etc), yet I am getting the work done in the third world where labor is cheap. So, I am, in practice, actually somewhere in a gray area.
Now, let’s get down to the meat of the subject and look at the question… Is outsourcing exploitation? Yaro focuses in on the point that it is possible to hire workers in the Philippines to do the work that he needs done for a very low rate of only $2 per hour.
Wait.. hold on… something is not right with that.
In the Philippines, I have never heard of a job that pays an hourly rate. Most wages in the Philippines are paid on a day rate, not an hourly rate. I guess that the average worker here in Davao City probably earns about P200 per day, which is about $4.50 per day, and that is for 8 to 10 hours work in a day. So, in that case the hourly rate is only about 50 cents per hour! Is that exploitation of the worker? Let’s keep talking, and we’ll decide about that later.
The minimum wage in the Philippines varies from City to City, it is set by a Government wage board in each individual city or region. In Davao, I believe that the minimum wage locally is somewhere around P320 to P350 per day.
Wait! Bob, what are you saying? The minimum wage is up to P350 per day? You just said the average worker is getting about P200 per day. Was that a typo?
No, that was not a typo. Yes, the government mandated minimum wage is P350 per day, or somewhere in that vicinity, but most people don’t get the minimum wage. There ware ways around that which are beyond the scope of what we are discussing here. Basically, the minimum wage is mandated for “regular” employees, and most employees are not “regular”. That’s a topic for a different time.
So, anyway, back to the focus of the article… if the average worker is making only $4 to $5 per DAY, and you, as an online worker, start paying a Filipino worker $2 per hour to do work on your website, and let’s say that laborer works for 10 hours per day, well, he is earning $20 per day, about P900 per day! Wow, he is suddenly earning more than 4 times what he would earn if he were working in a mall somewhere, or doing construction on a building in the hot sun. Is that exploitation? Let’s decide at the end of this article.
OK, let’s look at this from a different angle. Juan is a Filipino fellow works at a lechon manok stand (a place that sells roasted chickens). You can buy a whole lechon manok for P150 or so (when I first moved here you could get one for P60 or so), that is about $3.50 or so. Suddenly, a lot of Filipinos are making P900 per day instead of P200 per day because they are working on outsourced jobs over the Internet. Juan thinks to himself, hey, people are starting to make a lot more money! Instead of charging P150 for my lechon manok, I think I’ll raise up the price to P300 or P350… people can afford that anyway, and why should I live in poverty while everybody else is pulling themselves up to the middle class? Next thing, Nene the mango vendor who is charging P45 per kilo for her sweet mangoes notices that she has to pay P350 for a lechon manok to feed her family. She can’t afford to pay that price, though, so she has to raise the price on her mangoes, and suddenly they are P120 per kilo. The chain keeps going, and suddenly it costs a lot more to live in the Philippines.
So, is that worker who is working for Yaro suddenly getting rich on his P900 per day? He was doing pretty well at first, but now, inflation is eating him alive! His P900 per day is not buying him that much more than he used to get when he was making P300 per day!
You see, it’s a vicious circle. When people start realizing that they are exploiting workers, and pay them 2 or 3 times as much, it starts a chain reaction, and eventually prices spiral out of control. In the end, people may be marginally better off, but not as much as you would think.
So, for me, personally, I do not feel that paying somebody here $2 per hour to work is exploitation. The average worker here is getting only 50 cents or so per hour (if you want to break it down by the hour), so in fact you are rewarding the worker greatly by paying him $2 per hour. I don’t have a problem with $2 per hour, but if you said “I am going to pay him $10 per hour so I won’t be exploiting him” – Well, that is going a bit overboard. As times move ahead and the Philippines creates a more resilient economy, and the labor market here matures, then people here will earn amounts more in line with their western counterparts. But, for now that $2 per hour is a fine wage for a worker here.
After reading Yaro’s article, I have some thoughts about how you, as just a “regular guy” can take advantage of the outsourcing possibilities in the Philippines, and I will be sharing those ideas on this site soon.
So, in answer to Yaro’s question… is outsourcing exploitation? I believe that the answer is a resounding NO. Yaro also asked if paying that wage could be considered slave labor? I simply see no way that it can be.