IBON: Wage hike needed as Filipino families’ incomes erode January-July due to inflation

August 31, 2018

by IBON Foundation

A substantial increase in the minimum wage is necessary and doable as the country’s poorest households are losing income due to escalating inflation, said research group IBON, contrary to the recent claims of an employers’ group. IBON estimates that income losses of the poorest 60 million Filipinos ranged from Php1,276 to as much as Php3,489 since January 2018.

Without a substantial wage hike, accelerating inflation will continue to erode the incomes of the poorest Filipino families and may drive them into further hunger and poverty, said the group. Inflation spiked from 2.9% in December 2017 to 5.7% in July 2018. This is over four times more than the 1.3% June inflation on the outset of the Duterte administration.

IBON estimates that from January to July this year, households in the poorest first decile with Php7,724 monthly income have cumulatively lost Php1,276 due to inflation; those in the second decile (Php10,711 monthly income) have lost Php1,769; and those in the third decile (Php12,835 monthly income) have lost Php2,120. Households in the fourth decile (Php15,132 monthly income) have lost Php2,500; those in the fifth decile (Php17,309 monthly income) lost Php2,859; and those in the sixth decile (Php21,119) lost Php3,489.

The erosion of monthly household incomes was calculated using Department of Finance (DOF) computations of the monthly household incomes of the first to sixth income deciles in the country, assuming these were constant during the first semester, and deflating them monthly by the prevailing inflation rate.

Giving workers a substantial wage hike is also possible since the economy and corporations make more than enough profits, IBON said. Increasing the Php378.71 average daily basic pay (ADBP) of workers to, say, Php750 nationwide, transfers just 28.6% of establishment profits to workers and their families. Latest data from the 2015 Annual Survey of Philippine Business and Industry (ASPBI) show that 216,995 establishments of all employment sizes have Php15.1 trillion in total profits and 5.8 million employees. Applying this to only bigger establishments (with 200 workers and over) that account for Php1.2 trillion in profits and 2 million employees results to just an 18% cut in profits, said the group.

IBON stressed that the wage hikes will not raise prices and be inflationary if firms accept the slight cut in their profits to support their workers’ incomes and do not pass these on to consumers. A national minimum wage of Php750 will not just compensate workers’ households for the recent rapid erosion in their purchasing power but also palpably improve their long-standing low standards of living, said the group.

IBON said that large corporations can readily afford to give a significant wage increase than micro, small and medium enterprises (MSMEs). Government however can assist MSMEs by providing tax breaks and incentives, cheap credit, technology support, worker training, subsidized utilities, and marketing support, among others.

A substantial wage hike is needed to help ease the impact of rising inflation on Filipino families’ incomes, and is possible if corporations are willing to accept the small cut to their profits, said IBON. The Duterte administration can mandate the wage increase. It is also within the government’s control to repeal the Tax Reform of Acceleration and Inclusion (TRAIN) Law that is among the most significant factors behind the high prices driving up inflation burdening millions of poor Filipinos, the group said. ###