Faster AI adoption in PH seen with proposed wage hike

MANILA, Philippines — The nationwide hike in minimum wage being proposed by lawmakers may “incentivize” firms to lay off workers and speed up their automation, the government’s chief socioeconomic planner said as he warned of a faster takeover of jobs by artificial intelligence.

Speaking to reporters, Socioeconomic Planning Secretary Arsenio Balisacan warned about “artificially inducing automation” by increasing minimum wage at a level that might overburden micro, small and medium enterprises, which historically account for more than 99 percent of businesses in the country.

“The problem is you will just accelerate automation. The sharp increase in wages would incentivize firms to automate,” Balisacan said.

“If wages are rising not because demand for labor is rising faster than supply, then you have a problem,” he added. “It’s okay if wages are rising because the number of workers demanded by the market is so much higher than what is being supplied.”

Last month, the House of Representatives said it is considering a bill seeking a P350 hike in daily minimum wage for all private sector workers, higher than the P100 increase proposed by the Senate.

READ: House eyes bigger wage hike of up to P350 a day

Leaders of the Lower House argued that the wage adjustment proposed by senators—which had been approved on third reading already—“might not sufficiently meet the needs of the workers” at a time of high prices.

Wage hike, unemployment rate

Balisacan was one of the strong voices that opposed the measure, saying the magnitude of the pay hike being sought by lawmakers could erase some of the country’s gains in cutting unemployment and controlling inflation.

Based on the estimate of Neda, the Senate’s version of the wage hike legislation could potentially increase the jobless rate by 0.2 percentage points, translating to additional 100,000 unemployed Filipinos. This is under a baseline scenario wherein a mandated pay hike of that level would be limited to minimum wage earners only.

But assuming the proposed wage hike would create salary distortions and force companies to increase the compensation for employees across all pay grades, Neda said an estimated 340,000 Filipinos would lose their jobs, which could push up the unemployment rate by 0.7 percentage points.

Neda added that the proposed salary increase by senators may push up inflation by 0.2 to 0.8 percentage points. The faster price growth, in turn, could hurt the economy and potentially slash gross domestic product growth by 0.1 to 0.5 percentage points.

Regional wage boards

For Neda, any proposals to bump up wages must be negotiated at the regional level to account for the different labor market conditions in different parts of the archipelago.

Miguel Chanco, economist at Pantheon Macroeconomics, said the a P100 wage increase “could rock the job market” outside the National Capital Region.

“The main downside risk to jobs stems from policy, with both houses of the legislative branch looking at yet another hike in the minimum wage,” Chanco said.

”The NCR is the economic heart of the country, but anything that destabilizes the job markets elsewhere will likely still have macro implications,” he added.