ANALYSIS

Low Purchasing Power Negates Recent Wage Hikes

The good news is that all regional wage boards in the country have granted wage increases. This obviously means that private sector workers nationwide are now entitled to higher wages. The bad news, however, is that the increase in wages is not enough to offset the decline in purchasing power.

BY DANILO ARAÑA ARAO
Bulatlat

That all Regional Tripartite Wages and Productivity Boards (RTWPBs) in the country approved wage increases in July and August does not mean that they had the workers’ interests in mind. On the contrary, workers have every reason to question the wage increases not only as being “too little, too late” but as being “too callous, too obnoxious.”

Effective July 11, private sector workers in the National Capital Region (NCR) are entitled to a daily minimum wage rate ranging from P313 ($6.11) for agricultural workers to P350 ($6.83) for non-agricultural workers. In late July and early August, other RTWPBs followed suit in granting wage increases, the last ones being Regions I (Ilocos) and II (Cagayan Valley).

The regional wage board in Region I granted a P3 ($0.06) to P13 ($0.25) wage hike and integrated into the basic wage the P12 ($0.23) cost of living allowance (COLA). The regional wage board in Region II, on the other hand, granted a P10 ($0.20) wage increase. The two decisions took effect last August 9.

At present, the daily minimum wage rate for non-agricultural workers ranges from P200 or $3.90 (Autonomous Region in Muslim Mindanao or ARMM) to P350 or $6.83 (NCR). While one may argue that a wage increase, the amount notwithstanding, is better than nothing, it is still necessary to assess how the recent wage increases now affect a person’s buying capacity.

Based on the July 2006 consumer price index (CPI) released by the National Statistics Office (NSO), it appears that the Philippine peso has lost 28% of its value if one were to analyze the prices of goods and services six years ago. The CPI is used to monitor fluctuations in the prices of selected commodities and is necessary to compute the purchasing power of the peso (PPP). The latter, after all, is derived from the equation (1/CPI) x 100.

Purchasing power measures a person’s buying capacity by comparing how prices fluctuated through the years. In the case of the current CPI data sets, 2000 is used as the base year.

In July 2006, the real value of P1.00 ($0.02) was only P0.70 ($0.01) in the NCR. This means that compared to prices six years ago, a person needed only, say, P70 ($1.36) in 2000 to buy the same goods and services that are now worth P100 ($1.95).

Data on the PPP in other regions show that the value of one’s money has been eroded by as much as 32 percent in the case of ARMM. (See Table)

In the context of the recent wage hikes, it appears that the real value of the P350 ($6.83) daily minimum wage rate in the NCR is only P246.12 ($4.80). In other words, the P103.88 ($2.03) of an NCR-based worker has been eroded due to increased prices of goods and services in just a period of six years.

The situation is the same in other regions as the difference between the nominal and real value of daily minimum wage rates ranged from P53.85 or $1.05 (Cagayan Valley) to P78.26 or $1.53 (Calabarzon).

The recent wage increases are therefore too small to have a significant impact on one’s purchasing power due to increased prices of goods and services through the years. The data therefore serve to both quantify and qualify the organized workers’ call for a legislated increase in the daily minimum wage rate for private sector workers nationwide amounting to P125 ($2.44).

The organized workers’ demand has been made since August 1999 when the daily minimum wage rates ranged from P140 or $2.73 (ARMM) to P223.50 or $4.36 (NCR). Analyzing the wage increases granted by the RTWPBs from 1999 to August 2006, the NCR-based workers were provided the highest cumulative wage increase of P126.50 ($2.47), but P50 ($0.98) of this was in the emergency cost of living allowance (ECOLA) and not in the basic pay. In the case of workers in other regions, the cumulative wage increase ranged from P30 or $0.59 (Mimaropa) to P102.50 or $2.00 (Central Luzon).

Clearly, it is absolutely necessary for the government to heed the call for a P125 ($2.44) legislated wage hike if only to make the workers and their families cope with the increased prices of goods and services. Bulatlat

Peso-dollar exchange rate computations are based on P51.25 per US dollar.

© 2006 Bulatlat ■  Alipato Media Center

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