Over the same period, labor productivity grew 286 percent, while wages rose 147 percent. The gap between what workers produce and what they take home has become a chasm.
I regularly attend the Foundation for Economic Freedom’s annual meetings and have been their champion on liberalization, ease of doing business, foreign investment. But here I must diverge from orthodox thinking on wages.
The view that wages should be left entirely to market forces assumes a balance of bargaining power that does not exist. When workers capture a shrinking share of what they produce year after year, the market is not clearing efficiently. It is transferring value from labor to capital.
In 2001, average daily basic pay was P250. By 2024, it had risen to P616. That is a 147-percent increase. But GDP per employed person rose from P137,000 to P527,000, an increase of 286 percent.
Workers became dramatically more productive. They did not become proportionally richer.
Where did the difference go? To capital. To profits. To shareholders. Everywhere except into the pockets of the workers who created the value. Economists call this “decoupling.”
The Brookings Institution puts it plainly: the transmission mechanism between economic growth and wage growth is breaking down.
South Korea in the 1960s was poorer than the Philippines. Per capita income was about $100. By the 1980s, Korea had become middle-income. By 2006, it crossed $20,000 per capita. The difference was not just export-led industrialization or investment in heavy industry. The difference was that wages rose with productivity.
An NBER (National Bureau of Economic Research) study of Korean industrialization documents that while the government initially suppressed wages in the early 1970s, wage growth after 1975 exceeded government targets by huge margins. By the late 1980s, 70 to 80 percent of Koreans considered themselves middle class, up from 40 percent in the 1960s. Taiwan followed a similar pattern.
Rising wages were not a drag on development. They were the engine of it.
Wages are how people build wealth
The wealthy accumulate through capital gains, investments, business ownership. The middle class accumulates through one mechanism: saving from wages. If wages do not rise, savings cannot rise. If savings cannot rise, wealth cannot accumulate.
Housing accounts for over 60 percent of middle-class wealth in most countries. But to buy a home, families must borrow.
The mortgage market depends entirely on borrowers who earn enough to qualify for loans and repay them. Without wage growth, there are no creditworthy borrowers. Without creditworthy borrowers, there is no mortgage market. Without a mortgage market, there is no mechanism for middle-class wealth accumulation.
In the Philippines, Pag-IBIG accounts for nearly 40 percent of home mortgages, but a study by PIDS (Philippine Institute for Development Studies) found that poor and low-income households cannot afford housing priced at 30 percent of their income. Stagnant wages mean families cannot qualify for mortgages, cannot buy homes, cannot build wealth.
The provincial wage differential must go
I am not calling for constant minimum wage adjustments. That approach creates uncertainty for business and requires endless tinkering. But it is time we reconsider the provincial wage differential itself.
Young congressmen in the Labor Bloc like Raymond Adrian Salceda and Elijah San Fernando have powerfully demonstrated this case. They are the champions of this reform, and they are right.
The theory behind regional wage boards was that provinces had different costs of living. A worker in Manila needed more than a worker in Sorsogon. The differential was supposed to reflect local conditions.
That theory no longer holds. Look at the numbers. In 2000, the NCR minimum wage was P250. Bicol’s was around P185. The gap was P65, or 26 percent. Today, the NCR minimum wage is P695. Bicol’s is P435. The gap has grown to P260, or 37 percent. The differential has widened, not narrowed.
Meanwhile, prices have converged. A kilo of rice costs roughly the same in Bicol as in Metro Manila. Electricity, fuel, basic goods: these are national prices now. The provincial wage differential is no longer justified by differences in the cost of living. What it actually does is institutionalize poverty in the regions and subsidize businesses that locate outside NCR at the expense of workers.
Bicol, which Rep. Adrian Salceda represents, is especially hard-hit. A Bicolano worker earns 37 percent less than a worker in Metro Manila doing the same job. But that Bicolano worker pays roughly the same price for rice, electricity, and fuel.
The regional wage board was supposed to account for lower costs of living in the provinces. Those lower costs no longer exist. The lower wages remain.
If economics indeed account for the differences in actual wages and labor conditions between the provinces and Metro Manila, then the same economics can do a much better job than any regional wage board can in considering such differences.
What must be done
The Philippines aspires to become a predominantly middle-class society by 2040. To expand and strengthen the middle class, we must address the root cause: the decoupling of wages from productivity.
This means strengthening workers’ bargaining power. Research shows that median union households have more than twice the wealth of non-union households. In the Philippines, trade union density is below 5 percent and collective bargaining coverage below 1 percent. I know this very well as a labor organizer in the 1980s.
This means reconsidering our regional wage structure and asking whether the economics that justified it 40 years ago still apply today. They do not. This means investing in financial infrastructure that allows families to convert wage income into wealth: expanding access to affordable housing finance, ensuring that residential prices do not outpace incomes.
Korea and Taiwan did not become rich by keeping wages low. They became rich by allowing wages to rise with productivity. In doing so, they created domestic consumption, creditworthy borrowers, an educated workforce, and a stable middle class that sustains prosperity across generations.
There is no middle class without wage growth. There is no national wealth without a middle class.
Joey Sarte Salceda is a former member of the House of Representatives, where he served as chair of the Committee on Ways and Means. He is currently the chair of Salceda Research, a policy and research organization focused on economic, fiscal, and strategic issues.
