Playing to the gallery?

No matter how I look at it, the recent decision by the Department of Labor and Employment (DOLE) to approve an P85 daily wage hike feels like Labor Secretary Francis Tolentino is out to earn “pogi” points from the voting public when he eventually leaves his current government job, and once again throws his hat into the political arena.

At 71, Tolentino looks quite hale and hearty, and is not likely to retire any time soon from politics. Perhaps he may take a short break, but given his wealth of experience in governance and as a legislator, and the glaring lack of competent legislators (or political candidates), as evidenced by the current circus in Congress, he can definitely make another successful bid to enter the political ring – either national or local.

His past accomplishments in government and as a legislator attests to his ability to manage and govern. Preparing his future political platform this early is key to positioning for an elective post.

However, while being the current labor secretary means that he is looking out for the interest of the ordinary working man/woman, it seems odd that given what is happening geopolitically and the economic turmoil brought about the current leader of the United States, Tolentino has not carefully considered the need not to further burden our local economy on top of the US tariff adjustments, falling foreign investment inflows, and high oil prices that are fueling inflation.

Of course, it also seems unusual that the decision to mandate an P85 wage hike at this time was not done in consultation with the rest of the economic team who seem to have been caught unaware and are belatedly voicing their own concerns over the effect of the announced “historic” wage increase.

“A man for the workers!” or “Para sa mangagawa!” Definitely a catchy political advertising slogan that has often been used by a lot of political candidates seeking the precious votes of ordinary workers or job seekers.

Even if the President and his economic team manage to convince Tolentino to walk back on the wage hike
(which comes in two tranches – the first of which, P60, will take effect at the end of this week and the additional P25 will take effect on Jan. 20, 2027), Tolentino has already set in motion his future political platform.

In the meantime, the country, as pointed out by the Bangko Sentral ng Pilipinas and the Foundation for Economic Freedom, would likely fuel an inflationary wage-price spiral.

The FEF explained that the P85 increase “vastly outpaces both productivity growth and inflation, creating sharp distortions between wages and actual economic output. Such a dramatic increase risks triggering a compounding wage-price spiral. As companies pass these sudden labor costs on to consumers, the prices of basic commodities rise, adding further upward pressure to already elevated inflation.”

The FEF stressed that “inflation acts as a regressive tax. The resulting rise in the cost of living will swiftly erode the purchasing power of the poor, effectively canceling out any nominal wage gains for employed workers. More critically, it penalizes the millions of unemployed and underemployed Filipinos. As businesses pull back on hiring or reduce operating hours to absorb the additional costs, those trying to enter the job market will face significantly higher barriers to entry, locking them out of economic mobility.”

The group also cited that “micro, small, and medium enterprises or MSMEs, which constitute the vast majority of businesses in the country, stand to suffer the greatest harm from this mandate.”

The “forced” wage hike, the FEF said, “hits MSMEs at the worst possible time. Smaller businesses are already reeling from the twin pressures of falling consumer demand and surging global oil prices which have significantly increased operating and logistics costs. Unlike large conglomerates, MSMEs operate on paper-thin margins and lack the capital cushions to absorb a sudden spike in overhead costs. Forcing these businesses to shoulder higher labor costs under these volatile conditions will push many to the brink of insolvency, resulting in widespread layoffs, reduced working hours, or even complete business closures.”

“Sudden, politically driven wage hikes,” the FEF added, “discourage vital investment in manufacturing, agribusiness, and other labor-intensive sectors capable of absorbing semi-skilled and low-skilled workers. Such unpredictability in the regulatory environment undermines the country’s long-term industrial development and regional competitiveness.”

Furthermore, the FEF warned, “the possibility of a wage-price spiral threatens macroeconomic stability. Employers will either pass on the 12 percent wage increase to consumers, or the monetary authorities – already responding to rising inflation – will have to impose even tighter monetary policy at a time when economic growth is already weak. Faced with higher wages, rising costs driven by uncertainty surrounding the Middle East oil crisis, and higher interest rates, businesses will likely incur losses or raise prices, fueling another round of the wage-price spiral.”

“Unlike oil prices, which fluctuate and can reverse, wages are downwardly sticky. Once increased, they rarely decrease. This permanence makes wage hikes more concerning from an inflationary standpoint, as oil price shocks can be treated as temporary, whereas wage increases become embedded in cost structures and contribute to persistent inflation.”

“While intended to support workers, an abrupt daily wage increase of this magnitude will trigger severe unintended consequences that disproportionately harm the country’s most vulnerable populations,” the group said.

The FEF suggests an immediate return to “evidence-based, tripartite wage-setting that aligns wage growth with productivity gains and macroeconomic realities. Wage policy must be crafted through balanced dialogue to protect the welfare of workers without undermining the MSMEs that employ them, fueling inflation, or jeopardizing long-term economic stability.”

FEF is, thus, calling for the suspension of the implementation of the wage order.