Amid rising prices of basic goods, worker wages have virtually remained stagnant, reflecting a perennial mismatch between basic pay and the real cost of living. The government’s connivance with capitalists resulting in the refusal to enact reforms has pushed labor groups to rally behind a nine-point pro-worker agenda, including a P1,200 daily minimum wage.

But this push for dignified living conditions clashes with claims that wage hikes are harbingers of economic destruction. This fearmongering continues to steer growth toward corporate profit instead of a wage-led model that recognizes workers as the real engines of the economy.

Why a P1,200 Minimum Wage?

Two bills separately filed in both chambers seeking to raise the minimum wage to P100 and P200 remain pending in Congress since early this year. Even if approved, however, the hikes still fall short of the family living wage, or the income needed to sustain a household, now estimated at P1,225. 

Current minimum wages range between P361 and P645, depending on the region, meaning workers struggle to provide basic needs for their families. This shortfall is worsened by unstable and high food prices. The Department of Agriculture has declared food security emergencies due to the extreme rise in local prices of goods such as rice.

As a result, 15.5 million Filipino families in April have classified themselves as poor—the highest self-rated poverty recorded this year, according to a Social Weather Stations survey.

Yet, the current regional wage board system under the Wage Rationalization Act has not been responsive to this cost-of-living crisis. Despite more than 350 wage orders—issuances designed to adjust pay based on local needs—the average minimum wage today is worth 23% less than it was 35 years ago when accounting for inflation, according to economic think tank IBON Foundation. No nationwide hike has been legislated by Congress since the system’s implementation, with all adjustments coming from wage boards.

These dire problems call for drastic reforms that protect workers from poverty. However, this push has been met with resistance.

Why are the “Dangers” of Wage Hikes Overblown?

Employers and the government’s economic managers have opposed a hike in minimum wage, claiming that it will lead to job losses and further inflation. In reality, businesses can afford the increase as it merely redistributes long-overdue wealth from their pockets to employees.

Labor productivity has doubled since 1989, with each worker contributing an average P1,165 per day to the economy. While worker pay regresses, employers profit from their productivity, with the net income of top 1,000 corporations in the Philippines rising to an aggregate P4.3 billion per day in 2022.

This is reflected in the small 10.59% average share of employee compensation in the total expenses of all establishments based on the 2022 Annual Survey of Philippine Business and Industry. Raising the daily basic pay closer to the living wage will divide 49% of profits to workers, ensuring a fairer allocation of wealth, according to IBON. 

Hikes thus only become inflationary when capitalists choose to raise prices instead of sharing these profits with workers. There is no sufficient empirical evidence demonstrating a necessary causation of higher wages leading to inflationary effects, a 2011 study by Bangko Sentral ng Pilipinas found.

But business groups like the Philippine Chamber of Commerce and Industry still insist that smaller enterprises will be forced “to pass on the cost to consumers.” The government, however, can shift this burden upward through policies that tax wealthier entities more. A wealth tax from the country’s top billionaires, for one, provides P502 billion of annual revenue that can be used to subsidize small firms.

Moreover, in formal establishments, micro enterprises account for only 13% of workers, while large firms handle 50%, or 3.2 million workers, according to the 2022 survey. Most other workers are employed in the informal sector, where labor activities are mostly unregulated. 

Ultimately, big businesses can afford to accommodate a living wage but refuse to do so to protect profits. Stronger government regulation must thus be pushed to reorient the economy in favor of workers through the adoption of wage-led growth.

What Is Wage-Led Growth?

This framework challenges trickle-down economics, which assumes higher corporate profit margins will eventually distribute the gains to those at the bottom, when in truth, wealth becomes concentrated only at the top. Instead, wage-led growth rests on the idea that wide income disparities hinder growth, and more of the national income pie should go to workers. 

Such a model betters worker welfare, beginning with a minimum wage tied to the cost of living through a national basic income forwarded by labor groups such as Kilusang Mayo Uno. This is opposed to the current region-based wage rationalization system.

Aside from shielding families from inflation, a living wage also allows them to spend more locally, creating a multiplier effect that benefits small businesses, according to IBON. Household spending already accounts for three-fourths of economic activity in the Philippines, meaning that insufficient income inhibits growth. This increased support for small industries, in addition to government support, can stimulate job creation that can give employment opportunities to workers in the informal sector.

Higher wages in countries fuel domestic demand and pay cuts have negative effects on local spending, as affirmed by a study by the International Labour Organization. It also found that the global economy is wage-led and decreases in workers’ pay share entail economic contraction. 

Better compensation also translates to increased economic productivity since it pushes firms to invest in their workers to protect profitability, according to the organization. In the long run, businesses recoup the higher labor costs through greater output. 

However, wage-led growth cannot thrive under a system that entrenches other pro-capital policies—the very framework corporations push to portray wage hikes as economic threats. It was designed to work under strong labor policies like those found in the nine-point pro-worker agenda. In this way, pillars of strengthened union rights and real collective bargaining can sustainably push for other true labor reforms beyond a living wage. ●