Wage Hikes and the Survival of Small Businesses: A Call for Balance

By: Guillermo Sumbiling

The recent legislative move to legalize a ₱200 daily wage increase across the country comes at a delicate time for the Philippine economy. While the intent to uplift the Filipino worker is valid, we must examine whether this policy—if done without nuance—may do more harm than good, especially for micro, small, and medium enterprises (MSMEs), which comprise over 90% of businesses in the Philippines.

A Climate of Vulnerability

Contrary to public perception, inflation is no longer the primary economic threat. What looms now is the risk of deflation—falling prices brought about by weak consumer demand, oversupply, and economic stagnation. In such a scenario, businesses lose pricing power, margins shrink, and confidence in the economy erodes. Any additional mandatory cost, such as a steep wage increase, may only tighten the noose around already struggling enterprises.

On top of this, the global trade war has created ripple effects. China, faced with shrinking Western markets, has turned to dumping cheap consumer goods into Southeast Asia, including the Philippines. This influx of low-priced imports undercuts local producers and manufacturers, driving many Filipino-owned small industries—particularly in retail, garments, appliances, and light manufacturing—toward unsustainability. They are forced to reduce prices to compete, and with thinner margins, absorbing a ₱200 wage hike could be the final blow.

Western Visayas: A Vulnerable Region

Take the example of Western Visayas, a region where services account for over 60% of employment and where the formal manufacturing base is nearly absent. Most businesses are small-scale, family-run, or service-oriented—cafés, retail shops, bakeshops, and micro-enterprises. If burdened further by wage increases, many may have no choice but to shrink their workforce, close down, or shift to the informal economy—operating outside the scope of wage and labor regulations altogether.

This will worsen labor informality, leaving workers even more vulnerable than before. What was intended as a wage protection measure may inadvertently lead to a rise in job insecurity, benefit-less employment, and poverty.

How Small Businesses Respond

Faced with rising costs, small businesses tend to:
• Pass costs to consumers, causing a rise in prices of basic goods.
• Shift to piece-rate or commission-based pay, weakening income stability.
• Cut non-mandatory benefits, like allowances, bonuses, or leave entitlements.
• Automate roles—replacing cashiers with machines, eliminating packers, and installing self-help kiosks.
• Extend working hours or hire more contractual and job order workers, who are not covered by regular labor protections.

Ironically, even local government units (LGUs)—who are behind this push for higher wages—continue to employ job order personnel paid below minimum wage, citing budgetary limitations.

Toward Smart Wage Policy

There is no denying the moral imperative to raise wages. The Filipino worker deserves compensation that can provide dignity, not just survival. But blanket wage mandates are not the answer. We need a calibrated approach—one that considers the economic reality of each region, the size of businesses, and sectoral differences.

Policymakers must consider support mechanisms:
• Wage subsidies for small businesses.
• Tax relief and compliance support for MSMEs.
• Access to affordable credit and productivity training.
• A phased, region-based approach to wage adjustments.

Above all, there must be coordination between wage boards, economic planners, business groups, and labor advocates to craft policies that do not pit workers against employers, but rather build a future where both can thrive.

Final Thoughts

Wage growth should be tied to productivity, business growth, and competitiveness, not simply political convenience. Otherwise, we risk job losses, a bloated informal economy, and a further weakening of our small business backbone.

Let us strive for economic justice that uplifts all, not just on paper, but in practice. A stronger economy is one where businesses can afford to pay more because they are growing—not because they are forced to do so under threat of closure.