MINIMUM wage earners in 16 of 17 regions have seen their purchasing power erode since the late 1980s as wage growth failed to keep pace with inflation, according to a new study conducted by the University of the Philippines School of Economics (UPSE).
According to UPSE, only the National Capital Region (NCR) managed to broadly preserve the real value of its minimum wage since the start of the regional wage-setting system in 1989.
‘Except for NCR…minimum wages across all sixteen other regions have eroded in value relative to the 1989 baseline. This erosion is visually deepest in [Bangsamoro Autonomous Region in Muslim Mindanao] and in Central Visayas,’ the report noted.
‘This figure contradicts any assertion that regional wage-setting has historically raised the real wage floor,’ it added.
Across most regions, prices have risen faster than nominal minimum wages since July 1989, suggesting that regional wage boards have generally ‘defended’ the purchasing power of the wage floor rather than improved it over time.
At the same time, the study found that the Philippine minimum wage has a relatively high ‘bite,’ or is already close to the typical wage earned by workers.
The study’s Kaitz index, which measures the minimum wage against the median wage, ranged from 0.88 to 1.20 across regions. In 10 of the 17 regions, the real minimum wage was at or above the median wage of workers covered by the study.
However, the researchers said this does not necessarily mean the minimum wage is set too high. The high ratio also reflects legal exemptions for some businesses, noncompliance with minimum-wage rules, and the relatively compressed distribution of wages in the formal sector.
On concerns that wage hikes could lead to job losses, the researchers found that historical increases were associated with a reallocation of workers around the new wage floor rather than evidence of large-scale immediate displacement.
UPSE noted that employment in wage bands below the new minimum declined by 0.28 percentage point of the working-age population while employment within P100 above the new floor increased by 0.43 percentage point.
The resulting 0.15 percentage point net change was statistically insignificant, it said.
‘We note, however, that these findings should not be read as evidence that historical wage orders had no net employment effect. Indeed, one may also argue that these net reallocation estimates may simply be due to an upward-trending employment rate over time that is independent of population growth,’ it said.
The researchers said better data are needed to determine the effects of minimum-wage adjustments more reliably.
The researchers said the country also needs to revisit how minimum wages are set. They described the current tripartite wage-board system as ‘discretionary and opaque,’ with wage decisions influenced by bargaining and information gaps that go beyond measurable economic conditions.
As a possible reform, they pointed to formula-based safeguards similar to Indonesia’s system, which could anchor wage adjustments to observable measures such as inflation and productivity while retaining a role for regional wage boards.
The researchers said this could make wage-setting more transparent and responsive while preserving regional flexibility.