The Employers Confederation of the Philippines (ECOP) and key representatives from the informal sector are deeply concerned about the proposed 100 Peso national wage hike for the workers in the private sector. This is a dangerous precedent considering that the Senate of the Philippines has recently approved on 3rd and final reading Senate Bill No. 2534 or “An Act Providing for 100 Pesos Daily Minimum Wage Increase for Employees and Workers in The Private Sector”.
The Senate bill aims at adjusting the minimum wage for private sector employees – in the formal sector. Aside from the private sector employees, there are also public sector (government) employees, and workers in the informal sector. These sectors will not benefit from the proposed adjustment, but they will suffer its ill effects.
The Informal Sector (IS) of the Philippine economy is composed of roughly 80% of the total workforce in the Philippines. The IS sector workers are individuals who engage in economic activities that are not regulated or officially recognized by the government. They do not have the same access to social protection, benefits, and labor rights as workers in the private and public sectors. Majority of them are self-employed, or work in small family businesses or micro enterprises. Typically, their activities include street vending such as sari-sari store, farmers, fisher folks, home-based work, domestic labor, small-scale agriculture, and other forms of informal work. Informal sector workers face several challenges, including low wages, job insecurity, lack of access to healthcare and education, and vulnerability to exploitation.
If the proposed legislated wage hike is enacted into law, more than eight out of 10 workers in the government and the informal sector will not receive any adjustment. In fact, only the roughly 4 million workers receiving minimum wages will receive the P100/day wage increase, while the other employees in the formal sector will likely receive token wage distortion adjustments. This means that while a relatively small number of minimum wage earners in the private sector will stand to benefit from the wage hike, a supermajority of our workers will not receive any adjustment in their current wages. Definitely, the informal sector workers will, instead of getting wage adjustments, possibly experience job losses, reduced work hours, and a widening income gap between the two sectors.
As economists warned, a wage increase, especially at this magnitude, will certainly result in a higher inflation. Manufacturers and producers will naturally input this additional fixed cost in their pricing of goods and products that will be bought by the supermajority that will not receive the wage adjustment that our legislators thought would help the sector they want to help. Unfortunately, the reverse will happen – they will receive an increase in the burden of putting food on the table, especially since food products have a higher inflation rate than the national average.
In addition, micro and small businesses, and informal sector enterprises, which operate on thin profit margins, will struggle to afford the higher wages. As a result, they may be forced to reduce their workforce, lay off employees, shut down operations, or pass on these increased expenses to consumers in the form of higher prices for goods and services. This will evidently contribute not only to social injustice, but also to unemployment and inflationary pressures.
Instead of hiring employees formally, some businesses will be left with no choice but to resort to informal employment arrangements, to avoid complying with the higher minimum wage requirements. This growing “informalization” of labor can lead to lack of job security, inadequate benefits, and exploitation of workers.
We, the undersigned, wish our legislators and policymakers to please carefully consider the potential negative impact (of passing a law increasing minimum wages by P100/day) on the informal sector. We strongly suggest that there must be an all-of-government and an all-of-society approach to a) reduce the cost of putting food on the table; b) implement complementary measures to support informal businesses, such as providing access to financial services, skills training, and social protection programs. Failure to address these concerns could undermine the effectiveness of minimum wage policies and worsen inequalities within the economy.