P1,200 minimum wage: An economic miscalculation

The push for a P1,200 daily minimum wage for all private sector workers in Cebu has been docketed before the Regional Tripartite Wages and Productivity Board 7. That means jumping from P500 in Class B areas and P540 in Cebu City, Mandaue and Lapu-Lapu to P1,200 in one order, an increase of 122% to 140%.

Honestly, we are getting the diagnosis half-right and the prescription completely wrong. Yes, the current wage no longer reflects reality. Labor groups correctly argue that P500 to P540 falls far short of the estimated family living wage and that workers can no longer cope. That part is true. But raising the minimum wage to P1,200 overnight will not solve that reality. It will make it worse.

Actually, our problem is not that we pay too little because we want to. We pay too little because our productivity and cost structure cannot yet sustain more without breaking. Remember, when we mandate a wage, we do not just sign an order. We reprice everything. The small restaurant that employs five staff at P540 suddenly needs an additional P3,300 per day just to open its doors. That is P99,000 a month it does not have. It does not absorb that. It passes it on.

Honestly, we wrongly think we can fight inflation by raising wages.  The truth is, if we pay unproductivity, we shall be only fueling the very inflation we claim to fight.

More importantly though, the key here is not just the daily rate but what that rate can buy and who gets to earn it at all. For the worker who keeps his job, P1,200 would be transformative. Standard of living would rise immediately. Quality of life would improve, not just because of money, but because of dignity. That is the positive case, and it is real. But it is only real for those who remain employed.

For everyone else, the math reverses. When we double wages, we do not double jobs. We destroy them. Remember, 96% of businesses in Central Visayas are micro, small and medium enterprises operating on single-digit margins. They cannot automate like a multinational, but they can do something simpler: they stop hiring. They tell the existing staff to do more. They hire family instead of outsiders. Kill formal hiring, we kill entry.

That brings us to new graduates and the unemployed, the two groups we claim to protect. Cebu produces roughly 30,000 graduates every year from our schools. Their first job is almost always at or near minimum wage while they build experience. If that entry ticket becomes P1,200, companies will not gamble on a fresh grad. They will wait for an experienced worker to retire or leave the post vacant. Our BPO advantage, which is built on being 20% cheaper than Manila disappears.  For the already unemployed, a P1,200 floor does not lift them. It puts the ladder out of reach. They fall into informal work with no SSS, no PhilHealth, no protection.

Undeniably too, when formal jobs shrink, crime does not stay flat. It rises. This is not theory. This is what we see in every barangay when construction stops and hiring freezes. A young man who cannot find work as a service crew does not stay home. He becomes a “habal-habal” driver without a license, an online scammer, etc. We raise wages to reduce poverty, but if we raise them too fast, we increase desperation.

Therefore, with strong conviction, we must do, at least, two things. First, do not establish P1,200 as a minimum today. Grant a significant but absorbable increase with a built-in, automatic productivity and inflation index every six months. That restores credibility without shock. Second, shift from wage-centric to cost-centric relief. Government must cut what makes P540 feel like P300 by absorbing part of the pain through, among others, lower power costs and affordable basic goods (by reducing logistical costs via appropriate infrastructure) so workers keep more of what they earn without employers going bankrupt.

We are at a fragile point. The World Bank and IMF are already downgrading us for weak investment. If we push P1,200 now, we tell investors Cebu is unpredictable, we tell MSMEs to close, and we tell new graduates to wait.

Frankly, P1,200 is the right destination. However, it is not the right next step. We must earn our way to it by building productivity, not by mandating it and hoping productivity follows.