Workers in the informal sector have raised serious concern on their employment prospect and income once the proposed legislated wage hike pushes through.

The informal sector represented by the Alliance of Workers in the Informal Economy/Sector (ALLWIES) led by Susanita "Babes" G. Tesiorna joined forces with big business groups – Employment Confederation of the Philippines (ECOP), Philippine Chamber of Commerce and Industry (PCCI), and Philippine Exporters Confederation Inc. (PhilExport) – in opposing moves by legislators to adjust the daily minimum wage rate. The Financial Executives Institute (FINEX) of the Philippines also issued a separate statement echoing the same sentiment.

This developed as the Senate is pushing for a P100 increase in minimum daily wage while the House of Representatives would like P350 hike in daily salary rate.

“This is a dangerous precedent,” the joint statement said in its opening salvo. They cited the approval on 3rd and final reading Senate Bill No. 2534 or An Act Providing for P100 Daily Minimum Wage Increase for Employees and Workers in The Private Sector.

The Senate bill aims at adjusting the minimum wage for private sector employees – in the formal sector. Aside from the private sector employees, there are also public sector or government employees, and workers in the informal sector. “These sectors will not benefit from the proposed adjustment, but they will suffer its ill effects,” the groups said.

According to the groups, the informal sector accounts for roughly 80 percent of the total workforce in the Philippines. They are workers or individuals, who engage in economic activities that are not regulated or officially recognized by the government.

They do not have the same access to social protection, benefits, and labor rights as workers in the private and public sectors. Majority of them are self-employed, or work in small family businesses or micro enterprises.

Typically, their activities include street vending such as sari-sari store, farmers, fisher folks, home-based work, domestic labor, small-scale agriculture, and other forms of informal work. Informal sector workers face several challenges, including low wages, job insecurity, lack of access to healthcare and education, and vulnerability to exploitation.

The groups warned that if the proposed legislated wage hike is enacted into law, more than eight out of 10 workers in the government and the informal sector will not receive any adjustment. In fact, only the roughly four million workers receiving minimum wages will receive the P100 per day wage increase, while the other employees in the formal sector will likely receive token wage distortion adjustments.

“This means that while a relatively small number of minimum wage earners in the private sector will stand to benefit from the wage hike, a supermajority of our workers will not receive any adjustment in their current wages,” the statement said.

Instead of getting wage adjustments, the statement said informal sector workers will possibly experience job losses, reduced work hours, and a widening income gap between the two sectors.

The wage hike is also expected to result in higher inflation as manufacturers and producers will naturally input this additional fixed cost in their pricing of goods and products that will be bought by the supermajority that will not receive the wage adjustment that legislators thought would help the sector they want to help.

“The reverse will happen – they will receive an increase in the burden of putting food on the table, especially since food products have a higher inflation rate than the national average,” the statement added.

In addition, micro and small businesses, and informal sector enterprises, which operate on thin profit margins, will struggle to afford the higher wages. As a result, they may be forced to reduce their workforce, lay off employees, shut down operations, or pass on these increased expenses to consumers in the form of higher prices for goods and services. This will evidently contribute not only to social injustice, but also to unemployment and inflationary pressures.

Consequently, the statement said that the said measure is in direct contravention to the “Trabaho Para sa Bayan Act”, which aims to address unemployment, underemployment, and other challenges in the labor market, such as improving the employability and competitiveness of Filipino workers through upskilling and reskilling initiatives; and supporting MSMEs and industry stakeholders.

The groups also noted that minimum wage earners in the private sector benefit from tax exemptions and are not required to pay local government unit permits, while informal sector workers must cover these taxes as well as multiple permit fees to local government units.

As a result, instead of hiring employees formally, some businesses will be left with no choice but to resort to informal employment arrangements, to avoid complying with the higher minimum wage requirements. This growing “informalization” of labor can lead to lack of job security, inadequate benefits, and exploitation of workers.

The groups urged the legislators and policymakers to consider their position. They also suggested a an all-of-government and all-of-society approach to reduce the cost of putting food on the table and implement complementary measures to support informal businesses, such as providing access to financial services, skills training, and social protection programs.

“Failure to address these concerns could undermine the effectiveness of minimum wage policies and worsen inequalities within the economy,” the groups said.

The groups further reminded that Congress passed R.A. 6727, or the Wage Rationalization Act, which created the National Wages and Productivity Council (NWPC) and the Regional Tripartite Wages and Productivity Boards (RTWPBs). That same law delegated the responsibility to these two bodies to “study, fix, and raise wages on a regional level based on poverty threshold, employment rate, and cost of living ... “ The well-represented RTWPBs are tasked to review minimum wages every year.

In a separate statement, FINEX said that such an increase would be inflationary, as it would force companies to increase prices in order to cover their costs, which would trigger further demands for wage increases.

The wage hike is intended to benefit the less than 10 percent of the working population who are minimum wage earners, but the resulting inflation will affect everyone, disproportionately impacting those who are self-employed or work in the informal sector. This will also hurt SMEs, many of which are still struggling to recover from the effects of the pandemic and can barely afford to pay current wages, said FINEX.

“We believe that the existing regional wage boards are a more appropriate mechanism for wage-setting as they take multiple factors into account, balancing the interests of both employers and workers,” FINEX added.

FINEX urged legislators to study other mechanisms for increasing the purchasing power of workers, such as reducing the tariffs on and increasing or removing the quotas on food imports.