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Raising the Minimum Wage: How Good Intentions Can Lead to Poor Outcomes

Proposals to enact a law providing for an across-the-board increase in the minimum wage of employees in the private sector and across all regions are currently being deliberated in both houses of Congress. Proponents contend that these measures will improve the living conditions of ordinary Filipinos and ensure the fair distribution of profits. This policy brief presents a review of relevant literature concerning the expected impacts of minimum wage legislation on employment, inflation, and income. It argues that an arbitrary government-mandated across-the-board wage hike will likely lead to higher unemployment, impair skills development among low-skilled workers, and potentially exacerbate inflationary pressures. All these, in turn, are expected to dampen macroeconomic growth prospects in both the short- and long-term. Official labor data estimates reveal that a P150-peso wage hike will place 11.9 million minimum wage earners at risk of unemployment. Additionally, the initial cost of adjusting wages upwards for all minimum wage earners is estimated to increase prices by around 4%. Policymakers are thus advised to consider the likely adverse effects of distortionary policies such as arbitrary wage hikes, particularly to those who are among the most socioeconomically disadvantaged. Careful consideration of these consequences is crucial in formulating effective and equitable economic policies.


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