Government must first lift productivity

The mechanics of a mandated wage floor are straightforward but destructive when disconnected from economic output. For micro, small, and medium-sized enterprises (MSMEs)—which operate on thin margins and employ the vast majority of the Filipino workforce—labor is one of the largest variable costs. When the government artificially inflates that cost, businesses cannot simply absorb the hit.

Instead, they adapt to protect their viability. They freeze expansion plans, put off capital expenditures, and cut back on new hiring. In worse cases, they downsize operations or accelerate automation simply to keep headcounts low. This dynamic turns a well-intentioned policy into a direct threat to the country’s 50-million-strong labor market.

More critically, unearned wage increases feed the inflation they are meant to cure. When a business faces higher labor costs without producing more goods or services, its unit cost of production increases. To preserve margins, the company raises consumer prices. The resulting spiral means the extra pesos in a worker’s paycheck are quickly wiped out by higher costs for food, transport, and utilities. The employee is left no better off, while the broader economy suffers from higher inflation.

The only durable path to higher living standards is productivity-driven wage growth.

When a workforce becomes more productive—whether through better training, improved technology, or more efficient supply chains—the value of what they produce rises. This efficiency expands profit margins naturally, allowing businesses to compete for talent by offering higher wages. Because these raises are funded by increased output rather than government mandates, they do not trigger inflationary pressures. Wealth is created, not just redistributed.

Right now, the government is treating the symptoms of economic strain rather than the structural causes. Instead of forcing nominal wage increases that are quickly eroded by inflation, the government should focus on reducing the structural costs of living and doing business in the country.

True economic relief will not come from a larger paycheck that buys less. It will come from lowering the cost of basic commodities, stabilizing electricity and fuel rates, and modernizing public transportation. Simultaneously, the government must cut the red tape and corruption that act as a hidden tax on local enterprises.

If the government lowers the cost of doing business, companies will have the capital to invest in technology and training that make their workers more productive. And when it costs less to live, a worker’s income goes further.

The Philippines cannot mandate its way to prosperity. Labor groups, business leaders, and government officials need to move past political talking points and focus on structural reforms.

If the country keeps raising the wage floor without raising the ceiling of productivity, it risks pricing itself out of regional competitiveness and forcing local businesses to close. To protect the workforce, the government must first protect the economic engine that employs them.