When monitoring economic well-being in a realistic manner, it becomes evident that adjusting for inflation is essential. What truly matters is the real value, not just the nominal or monetary value. For instance, when setting target growth rates for gross domestic product (GDP), it is done in real terms, such as aiming for a 4 percent increase per year. However, if there is an expected inflation rate of 6 percent, then the target growth rate becomes 10 percent in monetary terms.
The administration has expressed its desire for the percentage of people living in poverty to be in single digits by 2028. They also aspire for the Philippines to become a “middle-income” country. Both of these objectives require an increase in the real earnings of those who are currently poor.
Recently, the legal minimum daily wage in the National Capital Region (NCR) was raised from P570 to P610 pesos through Wage Order No. NCR-24 on June 30, 2023. This increase of 40 pesos may seem like a mere adjustment, amounting to only a 7 percent increase. It’s worth noting that the wage order only applies to employers with 10 or more workers, leaving many workers in small and micro enterprises receiving less than the legal minimum wage without any penalty for their employers. It remains unclear whether the legal minimum wage is determined by formal principles or if it is based solely on negotiations among the members of a wage board. However, it is apparent that a one-worker family employed by a company covered by the law would struggle to sustain themselves decently.
As expected, labor unions immediately appealed the wage increase, arguing that it was inadequate considering the needs of a family. They disagreed with using the official poverty threshold as a guide for setting the minimum wage and instead referenced the Ibon Foundation’s Family Living Wage (FLW) estimation. According to the Ibon Foundation, a family of five needs a FLW of P1,117 per day to live decently in the NCR. In August 2022, this would amount to P33,510 per month, and the amount should increase by June 2023.
Unfortunately, the appeal was rejected, and the Php40 minimum wage hike in NCR took effect despite the objections. However, the Self-Rated Poverty (SRP) Threshold is a relevant factor when properly interpreted. In March 2023, the median SRP Threshold for NCR was P15,000 per month for a family’s home expenses. This amount does not include the costs of commuting to work, cell phone loads, internet expenses, work gear, and other expenses incurred during work. The Social Weather Stations (SWS) will collect data on these additional expenses for future public reports. It’s important to recognize that workers need to cover the costs of earning a living as well. The median indicates that half of the Self-Rated Poor NCR families, which accounted for 40 percent in March 2023, needed at least P15,000 to avoid being classified as impoverished. The other half required a higher amount.
The trend in actual wages is a mysterious phenomenon. In 2018, I reported on a talk by then Finance Undersecretary Karl Kendrick Chua, where he presented a chart illustrating the real output per worker and the real average wage per worker over time. It showed that from 2001 to 2016, labor productivity increased by at least 50 percent, yet real wages remained stagnant. Despite Chua later becoming the National Economic and Development Authority director general, he did not revisit the issue of wage stagnation. To maintain a so-called “wage-price spiral,” it is necessary to have a consistent increase in real wages. Those arguing that wage growth exacerbates inflation must prove that wages grow at least as fast as prices. However, it seems that wages are merely playing catch-up to rising prices.
The Philippine Statistics Authority conducts regular Labor Force Surveys (LFS) based on a national sample of households. The government could potentially collect data through this survey that would enable the construction of a monthly real wage series. However, it appears that there is hesitancy to do so. Given these circumstances, I recommend that organized labor groups and other organizations generate and publish their own regular series of data on actual wages. This would help shed light on the current wage situation.
One major obstacle holding back wage growth is the lack of education. The March 2023 Social Weather Survey revealed that roughly 15 percent of household heads in the NCR had dropped out of elementary school, and 30 percent had dropped out of junior high school. This means that two out of every five household heads have limited prospects for decent-paying jobs. To address this issue, programs like the Pantawid Pamilyang Pilipino Program, which aims to keep young individuals in school, should be implemented to benefit future generations. Decent jobs are primarily accessible to the 45 percent who have entered senior high school and the 10 percent who have graduated from college. Researchers should gather data on wage progress broken down by educational attainment.
It is disheartening to hear that many businessmen view higher wages as a hindrance to development. From my perspective, higher wages are indicative of economic success that we should all strive to achieve.
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