From Inequality to Opportunity: Redesigning the Philippine Wage System

Written by:
Dr. Severo C. Madrona Jr.
Department of Commercial Law
Ramon V. Del Rosario College of Business
DLSU-Manila

Introduction

The Philippine wage system has played a pivotal role in shaping income distribution, alleviating poverty, and regulating labor market dynamics. However, its systemic shortcomings—persistent regional disparities, stagnant productivity, and weak enforcement mechanisms—have limited its capacity to promote inclusive growth and equitable economic development. Established under the Wage Rationalization Act of 1989 (Republic Act No. 6727), the system introduced a decentralized framework for setting minimum wages through Regional Tripartite Wages and Productivity Boards (RTWPBs). This structure aimed to tailor wages to regional cost-of-living differences, employment patterns, and economic conditions, promoting flexibility and equity within the labor market (Reyes & Sanchez, 1990).
Despite these objectives, the wage system has struggled to fulfill its intended goals. Regional disparities in wage levels remain stark, reflecting broader structural inequalities in the Philippine economy. Wealthier regions, such as the National Capital Region (NCR), consistently set significantly higher minimum wages than underdeveloped regions (Andriesse, 2017). Such disparities perpetuate cycles of poverty and underdevelopment in less-industrialized areas, limiting opportunities for businesses and workers alike.
Moreover, the system’s reliance on cost-of-living adjustments rather than productivity-based wage progression has created additional challenges. While cost-of-living adjustments ensure that wages reflect inflation and basic needs, they fail to incentivize businesses to invest in training or workers to improve their skills. This disconnect between wages and productivity has contributed to stagnant productivity levels in key industries, leaving the Philippine labor force ill-equipped to compete in an increasingly globalized, technology-driven economy (Paqueo, Orbeta, & Lanzona, 2016).

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