A RECORD Metro Manila minimum wage increase set to take effect next week will not lead to a substantial improvement in workers’ purchasing power, Metrobank said.
“The latest wage hike will not be a gamechanger for low-income workers,” the bank said in a note to clients last week.
“Improving the welfare of the most vulnerable segments of society will require broader structural reforms and stronger social support measures,” it added.
The Labor Department last month announced that minimum wage earners in the National Capital Region would receive a daily wage increase of P85 — the largest ever for the metropolis — to P780.
The pay hike will be delivered in two tranches: P60 beginning July 25, 2026, and P25 on Jan. 20, 2027.
Labor Secretary Francis Tolentino said that around 1.1 million minimum wage earners would directly benefit, with another 1.9 million also likely to see their pay increase through wage distortion adjustments, collective bargaining agreements, and company-level wage negotiations triggered by the increase.
Tolentino called the increase historic, but Metrobank said that in real terms it was far less substantial after accounting for inflation. It is also below the P100 to P200 nationwide wage hike being proposed in Congress, the bank noted.
Despite the record nominal hike, Metrobank said inflation had significantly reduced the amount of goods and services that workers can actually purchase with their wages.
“Wages went up but rising prices reduced what those wages could buy,” it said.
Metrobank estimated that before the first tranche of the latest increase takes effect, the average minimum wage’s real purchasing power was only equivalent to only P530 in 2018 prices.
While the nominal minimum wage will have risen by 52 percent from 2018 once the latest adjustment is fully implemented, its real value will have increased by only about 10 percent.
Based on the bank’s estimates, the new P780 daily minimum wage will be equivalent to only around P563 in 2018 prices after adjusting for inflation.
The 1.1 million minimum wage earners cited by the Labor Department, it also said, are likely concentrated in the bottom 30 percent of income households. This makes the hike particularly important for lower-income families struggling with higher living costs.
Beyond the effect on worker incomes, Metrobank said the wage hike would also have an impact, albeit limited, on the broader economy.
Higher minimum wages typically increase labor costs for businesses, particularly labor-intensive firms in the services sector. Companies may respond by raising prices to protect profit margins, potentially contributing to higher inflation.
But the extent to which businesses can pass on the cost could be limited by the current environment of weak consumer demand, the bank said.
Firms might also resort to cutting working hours or reducing hiring, which “could have an impact on the unemployment rate, albeit marginal, since minimum wage earners comprise roughly only 2.0 percent of the country’s 50 million employed individuals.”
The wage increase could also slightly slow economic growth, although Metrobank expects the overall effect to be manageable.
It cited government estimates showing that a P100 nationwide minimum wage increase could reduce gross domestic product growth by around 0.4 percentage points. The Metro Manila adjustment, however, will only involve a small portion of the national workforce.
Metrobank said that it continued to hold a positive long-term outlook for the Philippine economy, as higher household incomes could eventually support consumer spending and create opportunities for consumption-related businesses.
“Inflation may rise, employment numbers may take a hit, and growth may slow down,” the bank said.
“However, the overall impact on the broader economy is expected to remain manageable, particularly if accompanied by complementary government policies,” it added.
“The broader investment outlook is still rosy for investors looking at long-term fundamentals.”
