Philippine Minimum Wage Hike Sparks 'Distortion' Concerns Among Employers

The recent decision of the Department of Labor and Employment (DOLE) to unilaterally raise the current daily minimum wage by P85, to be implemented in two tranches of P60 initially this year and then another P25 next year through Wage Order NCR-27, has politicized the wage-setting process and is distorting the tripartite wage process, according to Jose Roland Moya, director general of the Employers Confederation of the Philippines (ECOP). Moya explained during a gathering of the Monday Circle Group that ECOP is a business organization distinct from the Philippine Chamber of Commerce and Industry (PCCI) and serves as the counterpart organization of the Trade Union Congress of the Philippines (TUCP), representing employers on labor and social policy issues. He clarified that "the issue before us is not whether Filipino workers deserve higher wages. Yes, they do. The more difficult question is how we raise wages in a manner that is sustainable, preserves employment, protects wage structures and strengthens rather than weakens the competitiveness of our enterprises." DOLE’s Wage Order NCR-27, issued on June 23 and effective July 25, increased the minimum wage for the non-agricultural sector from P695 to P755, with a further increase to P780 starting Jan. 20, 2027. For the agriculture sector in the National Capital Region, the wage rose from P658 to P718, then to P743. Moya pointed out that the approval of Wage Order NCR-27 was not unanimous, with five votes in favor and two against. "I and my other employer colleagues dissented from the majority decision. The vote was five to two in favor of the new wage order. The three representatives of government - DOLE, DepDev and DTI, and two other labor representatives banded together." He revealed that his dissenting opinion was not against improving workers' incomes but believed a more realistic adjustment of P60 to P65, ideally in two tranches, would have been more consistent with economic conditions and indicators presented during consultations. Moya argued his case based on five points: First, the economic environment. Inflation was showing signs of normalizing, and he was concerned that a substantial wage increase could create additional cost pressures reflected in prices. Second, the capacity of small and medium enterprises (SMEs). Over 98 percent of local enterprises are SMEs with limited financial capacity to absorb abrupt increases in labor costs, especially those facing high fuel and operating costs and subdued demand. Third, the potential impact on employment. Businesses facing significantly higher labor costs might reduce work hours, slow hiring, restructure operations, or undertake retrenchment. Fourth, the impact on the informal sector. Workers in the informal economy do not directly benefit but can be affected by price increases, and excessive labor costs might encourage formal businesses to move into the informal economy. Fifth, wage distortion. A substantial increase in the minimum wage compresses wage differentials between minimum wage workers and those earning more due to skills, experience, responsibilities, and length of service. For example, a P60 increase could reduce a P110 wage differential to P50, a contraction of over 54 percent, forcing enterprises to increase the gap to correct it. Moya also warned that the "real cost of a wage increase is not the increase in wage alone. It is the increase in total employment cost." When the basic wage increases, payroll impact extends to statutory contributions like SSS and PhilHealth, depending on contribution basis and ceilings. Thus, an P85 per day increase can have a cascading effect on statutory contributions, making it more than P85 per day from the employer's perspective. Information Source: Philstar Business