A low wage increase stifles the potential of the labor market to spur economic activity

The recent wage increase in Metro Manila is meaningless as the new minimum wage is only two-fifths (44%) of the estimated amount needed for a family to live decently, according to research group IBON.

The Tripartite Wages and Productivity Board of the National Capital Region (NCR) issued a Php15-wage hike this week, increasing the daily minimum wage to Php481. IBON said that the increase is so small it fails to even come close to the estimated family living wage, which is pegged at Php1,088 for a family of six. This is aggravated by how the increase is insignificant to keep up with the rising cost of living.

The research group added that a low wage increase stifles the potential of the labor market to spur economic activity. More than half of the total labor force are wage and salary workers, and this is a potentially very large market whose demand for and consumption of various goods and services could spur economic activity. However, this considerable potential is stifled by how only 71% of these workers receive the minimum wage, or even less than the minimum wage.

According to IBON, higher wages have dynamic multiplier effects on the economy because a wage-led growth is an internal and more sustainable source of economic growth than external markets. Moreover low-income households, which are lacking in basic necessities, have a high tendency to consume than high-income households that are inclined to save. A substantial wage increase will also benefit micro, small and medium enterprises (MSMEs) that produce goods for the local market that will consumed by those who receive a wage hike. It will also benefit the informal economy in worker communities when additional wages will be used to pay vendors, sari-sari stores, small eateries, jeepney and tricycle drivers and others.

The research group added that the workers’ demand for a Php16,000 monthly minimum wage affordable and will only cost firms an average of 17.1% cut in profits. Accepting this slight reduction still leaves them with considerable profit, and will not be inflationary by not passing the costs to consumers. Granting workers a substantial wage increase will improve the welfare of workers and will provide their families much-needed respite from the increasing cost of living. (end)