19 October 2016
MANILA — The National Economic and Development Authority, together with the Department of Finance, Department of Budget and Management, and the Department of Trade and Industry, stood against the Php125.00 across-the-board (ATB) wage increase for workers in the private sector, saying it could worsen inequality across regions.

The Php125.00 ATB daily wage hike is anticipated to be filed in the 17th Congress.

“While the Economic Managers want to raise the living standards of workers and their families, we do not support the Php125.00 daily wage increase as it is likely to have adverse impacts on economic growth, employment, and inflation,” said Socioeconomic Planning Secretary Ernesto M. Pernia in his letter to the President.

“Similarly, we do not support uniform wage increases across regions as this may erode the attractiveness of other regions for labor-intensive industries and enterprises, consequently worsening inequality across the regions,” Secretary Pernia added.

According to a position paper signed by Secretary Pernia, Finance Secretary Carlos Dominguez, Budget Secretary Benjamin Diokno and Trade Secretary Ramon Lopez, an increase in wage will have implications on the cost of doing business, and hence, on the decisions of firms and enterprises to produce, employ, and the prices at which they sell their products.

“The cost of living and cost of doing business vary in every region. This is why we have regional wage boards that set minimum wages based on several factors affecting prices in their respective regions. If we have uniform wage hikes, then employers, especially startups and small and medium enterprises, in areas where other costs like utilities and logistics are high, could be discouraged from hiring more workers. And the unemployed or underemployed workers in these regions could lose the opportunity to be fully and gainfully employed. In some cases, enterprises may also have to increase the prices of goods and services they sell because of the higher labor cost, thus pushing prices upwards,” explained NEDA Officer-in-Charge and Deputy Director-General Rosemarie Edillon.

According to a simulation study conducted by the NEDA that analyzes the impact of a P125 ATB wage increase in all regions, the proposed wage increase could result in upward pressures on prices from 2017 to 2018, the strongest of which could be felt in 2017, when inflation could rise to 9.7 percent from a baseline of 2.1 percent.

The study also shows that the wage increase could displace around 500,000 workers in 2017, which can raise full-year unemployment rate to 7.3 percent.

Furthermore, increasing wage ATB is expected to significantly reduce real GDP growth to 5.5 percent from a baseline of 6.5 percent in 2017.

“This will have a more pronounced effect on the poor, who are expected to suffer the most from any significant increase in inflation rate and reduction in economic growth and employment,” reads the position paper.

“Such a policy will likely have the unintended consequence of worsening inequality, and will be detrimental to regions as it will erode their attractiveness as investment destinations, particularly for labor-intensive industries,” it adds.

The Economic Managers recommended, instead, to maintain and strengthen the current tripartite mechanism for regional minimum wage setting that takes into account the unique economic situation of the region.

At the same time, infrastructure in the regions should be increased, especially those relating to connectivity, in order to improve the investment climate in the regions.