Wage Hike in the Philippines

The Tightrope Walk: Can We Raise Wages Without Triggering Inflation?

In 2024, the Philippines faces a critical economic challenge: balancing the need for higher wages with the risk of inflation.

As the country grapples with the aftermath of the pandemic and strives for economic recovery, policymakers, economists, and labor advocates are engaged in a heated debate over wage adjustments. The question remains: Can we raise wages without exacerbating inflationary pressures?

How much is the family living wage in the Philippines?

The family living wage is an important benchmark that reflects the income needed for a family to meet their basic needs such as food, shelter, education, and healthcare.

In the Philippines, the daily family living wage for a family of five is estimated to be around PHP 1,193. However, the current national minimum wage falls significantly short of this amount, leading to financial difficulties for many Filipino workers and their families who are mostly comprised of minimum wage earners.

Wage Trends in 2024

According to a compensation survey conducted by WTW, a global advisory and solutions company, employees in the Philippines have witnessed upward trends in pay raises.

Industries such as BioPharma and Life Sciences, Financial Services, Shared Services and Outsourcing have offered more competitive annual base salaries compared to sectors like Real Estate and Construction and Engineering. This trend reflects the ongoing efforts by employers to attract and retain talent in a competitive labor market.

The Role of Legislated Wage Hikes and Regional Wage Boards

Legislated wage hikes and regional wage boards play a crucial role in determining wage hike for private-sector workers in the Philippines. The country has a comprehensive framework in place to ensure that workers receive fair compensation for their labor.

The Regional Tripartite Wages and Productivity Boards, established under the Wage Rationalization Act, are responsible for setting minimum wages at the regional level. These boards consider various factors such as the cost of living, inflation, and the overall economic growth of the region when determining the minimum wage.

The last legislated wage hike is welcomed by labor groups as a step towards providing a living wage for workers. However, economists expressed concerns about the potential inflationary impact of such a wage increase.

They argued that higher wages would adversely impact businesses and lead to increased production costs for businesses, which could then be passed on to consumers in the form of higher prices for goods and services. This could potentially trigger inflation and erode the purchasing power of workers, and would eventually impede economic growth.

Proposed wage hike in the Philippines in 2024

In 2024, a senate bill seeking a minimum legislated national wage hike of P150 to P350 for private sector workers nationwide is being considered by the Philippine government, an amount considerably higher that previously approved P100 wage hike. The proposed wage hike aims to address the growing disparity between wages and the family living wage.

While the specific amount of the wage hike is yet to be determined, it is expected to be substantial to make a significant impact on the labor force and generally, the lives of Filipino workers. The proposed measure of wage hike would also be accompanied by other wage-related benefits, such as better working conditions, welfare benefits, and increased social protection for workers.

The Argument for Wage Hikes

Advocates for wage increases argue that higher pay is essential for workers’ well-being. Groups such as those from the movie and television industry, The Movie Workers Welfare Foundation (MWWF), have been actively pushing for a wage increase for their members, citing the rising cost of living, challenging working conditions in the industry, and even job losses.

Movie and television workers are among those badly hit by the pandemic. They emphasize that a decent wage allows employees to meet their basic needs, support their families, and contribute to economic growth.

In 2023, several industries in the Philippines witnessed competitive salary increments, reflecting a positive trend. Increasing wages can boost consumer spending, which, in turn, drives economic activity.

When workers have more disposable income, they tend to spend on goods and services, supporting local businesses. However, the challenge lies in striking a balance between wage growth and inflation control.

The Risk of Inflation

The Balancing Act

Socioeconomic Planning Secretary Arsenio Balisacan emphasizes that raising wages solely based on legislative fiat is risky.

Balisacan argues that wage increases should be tied to the demand for labor. If wages rise without a corresponding increase in labor demand, it could harm competitiveness and long-term economic growth.

Inflationary Pressures

The Philippines experienced higher inflation at the start of 2023, despite projections of accelerated economic growth. A sudden wage hike could exacerbate inflation, affecting the cost of living for all citizens. Balisacan warns that an induced inflation rate of 0.2% to 0.8% could result from such wage increases. 

Economists caution that wage hikes can be inflationary. When companies raise wages, they often pass the cost to consumers through higher prices. This phenomenon, known as cost-push inflation, can erode purchasing power and exacerbate inflationary pressures.

House of Representatives economists emphasize the need to prioritize growth and productivity over legislated minimum wage increases. They argue that productivity enhancements should precede wage adjustments.

Unemployment Concerns

Balisacan also cautions that a wage hike could lead to job displacement if not accompanied by increased investments.

Without productivity gains, businesses may struggle to compete internationally, potentially leading to unemployment. Estimates suggest that unemployment rates could rise by 0.2% to 0.7%, affecting thousands of Filipinos.

Regional Disparities

The Philippines’ diverse economic landscape complicates the wage debate. While Metro Manila and the national capital region enjoy higher wages, workers in other regions face lower pay. Regional wage boards review and approve wage proposals, but labor groups contend that the increases have been insufficient.

As workers migrate to urban centers seeking better pay, smaller enterprises in the provinces struggle to bear the cost of mandated wage hikes.

Potential Solutions to Raising Wages Without Triggering Inflation in the Philippines

While the concerns about triggering inflation are valid, there are potential solutions to raising wages without causing a significant rise in prices. One approach is to implement targeted wage increases for specific industries or sectors.

By focusing on industries with higher profit margins, businesses within these sectors may be better positioned to absorb the additional labor costs without passing them on to consumers.

Another solution is to establish productivity boards that work in conjunction with wage boards.

These boards would assess the productivity of businesses and incentivize higher productivity through performance-based wage adjustments. By linking wage increases to productivity gains, the potential for triggering inflation can be mitigated.

Furthermore, investing in education and skills training can help increase the earning potential of workers.

By equipping workers with the skills needed for higher-paying jobs, the demand for higher wages can be met without causing inflation. This approach would not only benefit individual workers but also contribute to the overall economic development of the Philippines.

Conclusion

Balancing wage growth and inflation control is a delicate task. As policymakers deliberate on wage policies, they must consider regional disparities, productivity enhancements, and the overall economic context.

While workers deserve fair compensation, sustainable wage adjustments require a holistic approach that considers both short-term relief and long-term stability.

The path to raising wages without triggering inflation lies in fostering investments, enhancing labor productivity, and maintaining a vigilant eye on economic indicators.

Only through a comprehensive strategy can the Philippines achieve sustainable wage growth while safeguarding macroeconomic stability.