EMPLOYERS and exporters on Wednesday expressed reservations regarding the proposed national wage hike, saying it could widen existing inequalities across various sectors of the Philippine economy, while making it harder for business to recover prepandemic growth levels.
In his position presented during the hearing of the House Committee on Labor and Employment, Employers Confederation of the Philippines (ECOP) Director-General Jose Roland Moya underscored the potential risks the proposed wage hike poses to the vast majority of workers in the informal economy, which constitutes approximately 80 percent of the Philippine workforce.
For its part, the Philippine Exporters Confederation Inc. (Philexport) warned the government against imposing an increase in the minimum wage. While Philippine exports rebounded in January and are poised to grow this year on the back of electronics, mining and service exports, the wage hike could dampen the growth of the country’s earnings from outbound shipments, the group said.
Despite the country’s earnings from outbound shipments posting a 9.1 percent growth in the first month of the year, Philexport President Sergio R. Ortiz-Luis Jr. told this paper that hiking the minimum wage can affect exports as it would hit the manufacturing sector and the supply chain.
To sustain the trend of the country’s exports, the Philexport chief warned against such hike saying, “Huwag lang sila magkakamali tataasan ’yung minimum wage, magkakaloko-loko na naman ’yun. ’Yung inflation natin. Kasi ’yung mga manufacturing tatamaan eh. Tsaka ’yung supply chain.”
In contrast, the country’s service exports could be a bright spot amid economic headwinds.
“Service exports, notably IT-BPM, are typically more resilient during economic slumps, less impacted by supply chain issues and manufacturing slowdowns,” Ibpap told the BusinessMirror in a Viber message.
Pending in the lower chamber, House Bill 514 and HB 7871 proposed a P150 daily increase, while HB 7568 pushed for a P750 across-the-board increase.
The Senate recently approved on third and final reading a bill for a P100 hike.
Moya underscored the potential risks the proposed wage hike poses to majority of workers in the informal economy, including street vendors, home-based workers, domestic workers, construction laborers, informal transport workers, and agricultural workers. “These are just a few examples, and the informal sector in the Philippines is diverse and encompasses a wide range of occupations and activities. Common challenges across these sectors include job insecurity, low wages, long working hours, limited social protection, inadequate safety standards, and lack of access to benefits,” he said.
Moya emphasized that while the formal sector might benefit from the proposed increase, it could widen existing inequalities.
“If enacted, the wage hike could further widen existing inequalities, leaving informal sector workers at a severe disadvantage. While formal sector employees may see an improvement in their standard of living, many of our Filipino workers are likely to experience job losses and reduced working hours. This disparity would widen the income gap between the two sectors, further marginalizing informal workers and deepening socio-economic inequalities,” he said.
Strain on MSMEs
MOYA noted the significant role played by micro, small, and medium enterprises (MSMEs) in the Philippine economy, where they account for 99.5 percent of all registered businesses.
He worries that a substantial wage hike could strain the financial resources of MSMEs, particularly those with tight profit margins.
Increased labor costs might lead to downsizing, operational challenges, and reduced competitiveness for these enterprises. Attracting and retaining skilled workers may become a challenge for MSMEs, limiting their ability to innovate, expand, or improve productivity, he added. Moya warned that these challenges could impact the sustainability and contribution of MSMEs to the overall economy.
Deter investment
HE highlighted the potential deterrent on foreign investments. Increased labor costs for businesses, including foreign investors, could diminish profit margins and competitiveness, particularly in industries with tight profit margins or intense competition, he said.
Moya also cautioned that higher wages might reduce profitability for businesses, making investments in the country less appealing to foreign investors and potentially decreasing foreign direct investment (FDI) inflows.
There are as well unintended consequences of higher wages. Increased labor costs might lead businesses to cut costs elsewhere, resulting in job cuts or reduced hiring. Small or low-margin businesses, in particular, may struggle to absorb these increased costs, leading to closures if they cannot remain profitable.
Moya, meanwhile, commended the Regional Tripartite Wages and Productivity Boards for their balanced representations from workers’ and employers’ sectors.
Lastly, Moya addressed the potential dangers of wage distortion, emphasizing its ability to disrupt the established wage structure and create inequities within the labor market.
Meanwhile, the exporters’ group also weighed in on the issue. Despite the country’s export earnings posting a 9.1-percent growth in the first month of the year, Philexport President Sergio R. Ortiz-Luis Jr. told this paper that hiking the minimum wage can affect exports as it would hit the manufacturing sector and the supply chain.
“They should not make the mistake of raising minimum wage again, as that could spell trouble. There’s inflation, because manufacturing will surely be hit. And then there’s the supply chain,” he said, speaking mostly in Filipino.
This was only among the factors that could potentially reverse the growth of exports this year. Other threats to growth that the Philexport chief cited were geopolitical factors which often lead to higher shipping costs and inflation.
In contrast, the country’s service exports could be a bright spot amid economic headwinds. “Service exports, notably [IT and Business Process Management] IT-BPM, are typically more resilient during economic slumps, less impacted by supply chain issues and manufacturing slowdowns,” the IT and Business Process Association of the Philippines (IBPAP) told the BusinessMirror in a Viber message.
“With companies continuing to rely on IT-BPM services for operational support, process efficiency, and digital transformation, demand for these services remains strong, even in tougher times,” the industry group noted.
Despite potential impacts from global recessions, Ibpap said, as a sector which accounts for 79 percent of the Philippines’s service exports in 2022, the industry is expected to show “remarkable resilience” compared to goods exports. The country’s merchandise export earnings grew 9.1 percent in January, a rebound from the contraction of 0.5 percent in December 2023 and 10.6 percent in January 2023.
Ortiz-Luis said electronics and mining-related exports could have pushed up exports in the said period.
“We know the huge share in exports of electronics. So that might account for it. Plus I understand some mining companies had made shipments,” the Philexport chief said.
Data from the Philippine Statistics Authority (PSA) showed that electronics exports amounted to $3.45 billion, up 16.3 percent in January 2024 from the $2.97 billion in January 2023. This translates to 58.2 percent share of the country’s goods exports pie.