[In This Economy] Economic impacts of the ‘historic’ P85 wage hike

On July 25, the first tranche of Metro Manila’s new minimum wage takes effect. Wage Order NCR-27, approved by the regional tripartite wage board on June 30, adds P60 to the daily minimum now, and another P25 in January 2027. That brings the non-agriculture rate from P695 to P755, and eventually to P780. Labor Secretary Francis Tolentino calls the P85 total “makasaysayan” (historic), the largest single daily increase Metro Manila’s wage board has granted since it was created in 1989, covering some 1.1 million workers. Predictably, nobody is fully happy. That is usually the sign of a tripartite compromise. But beyond the noise, the wage order raises harder questions about inflation, enforcement, and whether our wage-setting system still works. Too much and too little at once For labor groups, P85 is effectively a token. Kilusang Mayo Uno was quick to point out that even P780 falls far short of the roughly P1,200 a day they estimate a family of five needs to live decently in the capital. Meanwhile, for employers, the same P85 is too steep. The Foundation for Economic Freedom (FEF) went as far as asking the government to suspend the wage order, warning that the 12% increase “vastly outpaces both productivity growth and inflation” and could push small businesses with thin margins toward layoffs or closure. DOLE flatly refused. “There is no delay, nor is there any postponement… The P85 daily wage increase for minimum wage workers in the NCR is definitely pushing through, effective this Saturday, July 25.” Notably, the Employers Confederation of the Philippines (ECOP), which actually sat at the wage board’s table, accepted the outcome. The Federation of Free Workers pointedly asked why FEF objects when ECOP itself does not, and reminded everyone that distressed micro and small firms can apply for exemption until September 22. The BSP got caught flat-footed The more consequential reaction came from the Bangko Sentral ng Pilipinas (BSP), which is already fighting an inflation problem this year. Headline inflation eased in June, but core inflation (which excludes food and energy items) hit a 31-month high, and the BSP has raised its policy rate twice this year to 4.75%. BSP Governor Eli Remolona Jr. admitted the wage board surprised them. “We thought it would be six percent, but it turned out to be 12 percent,” he said. The BSP has since nudged up its inflation forecasts to 6.4% for 2026 and 4.5% for 2027. The worry is what economists call “second-round effects” of inflation, meaning firms will likely pass on higher labor costs to prices, which in turn feed demands for further wage increases. To his credit, Remolona has not panicked. He ruled out a jumbo 50-basis-point hike and said the BSP will study the data before its August meeting. The available estimates suggest the direct effect is manageable. Chinabank Research reckons the National Capital Region (NCR) hike alone could add about 0.19 percentage point to headline inflation, rising to around 0.44 point if other regions follow with similar increases. The thing is, NCR wage orders tend to set the template, and 16 other regional boards are watching. If they all match a 12% adjustment in an economy where core inflation is still climbing, the BSP could be forced to keep rates higher for longer, and everyone pays for that through costlier loans. What would actually help workers Three things seem more important than relitigating the P85 wage hike. First, enforcement issues. DOLE’s own inspections routinely find establishments paying below the minimum, and the workers most likely to be underpaid are precisely those in the small firms now pleading hardship. Beefing up labor inspection is cheaper than any wage order and entirely within DOLE’s current mandate. Second, the exemption process must work quickly. If genuinely distressed micro enterprises face months of paperwork before the September 22 deadline resolves anything, some may simply shift workers off the books. A fast, transparent exemption lane could be the practical answer to FEF’s concerns—and it already exists in the rules. Third, the government should aim to cushion prices rather than chase wages. The surest way to prevent a so-called “wage-price spiral” is to abate the food and energy costs that triggered wage petitions in the first place, through imports where needed and support for farm productivity. That addresses the cause rather than the symptom. As well, smaller, more regular adjustments tied to inflation and productivity (as some economists have long proposed) could deliver steadier gains for workers and more predictability for firms. That reform requires amending the Wage Rationalization Act. That won’t happen soon, but the P85 hike seems as good an occasion as any to start that conversation. Finally, I think all this points to the urgent need for economists to analyze once and for all the disemployment effects of minimum wage hikes. Although businesses may grumble about the difficulties they face, there’s still no solid evidence that minimum wage hikes necessarily cause higher unemployment (contrary to what you would expect from Econ 101). Until then, worries about inflation (especially where employment is concerned) may be largely misplaced, based more on vibes rather than hard data. – Rappler.com Jan Carlo “JC” Punongbayan, PhD is an associate professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast. His first book, False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them, was published by Ateneo de Manila University Press in February 2023. His second book, Twin Plagues: How Duterte and Covid-19 Wrecked the Philippine Economy, will be published by Penguin Random House SEA in June 2026. Follow him on Instagram (@jcpunongbayan). Below are some recommended Rappler articles on minimum wages. Click here for In This Economy articles by JC Punongbayan.