I was asked by a reporter the other day for advice to online sellers who are considering giving up their businesses. It seems that not a few online sellers are considering quitting because they can no longer turn a profit, citing the rising deductions imposed by their platforms. I can only imagine how many other micro and small entrepreneurs are in the same boat. It would be a shame if more online sellers are considering giving up; many Filipinos were able to realize their entrepreneurial dreams through online platforms, especially during the pandemic.

The reality is, these are only some of the difficulties our MSMEs have to contend with regularly. And now, with the issue of legislated wage hikes, another wrench has been thrown into the machine. While there is a reprieve, now that the hike is left to be filed again once the 20th Congress convenes, all parties involved must use the time to carefully consider the pros and cons of a P200 wage hike.

Our economic stewards have already presented a stark forecast: a P200 wage increase could inflate prices and hurt MSMEs and workers. The numbers they project (an increase in inflation by anywhere between two percentage points to 0.7 percentage points) require careful consideration.

The concern is that these substantial minimum wage adjustments will inevitably lead to increased production costs and higher prices. While wage increases are intended to alleviate financial strain, the resulting higher prices could disproportionately burden low-income households, the very people we aim to assist.

This would be too bad because inflation is trending downward to a promising 1.3 percent in May, which is the lowest for the Philippines in years. The planned wage hikes could jeopardize this progress, potentially reigniting higher inflation rates.

Furthermore, the proposed wage hikes are projected to dampen economic growth and pull downward the country’s GDP, forcing it to fall short of its GDP growth target. This comes at a crucial time when the Philippines is gaining a reputation for being one of the few countries that could weather the ongoing economic and political storms around the world. GDP growth is the main indicator of how well the Philippines is staying on track.

Naturally, everyone expected business to be against the legislated wage hike. Labor pointed out that a P200 increase is a pittance compared to how much it costs to feed, house and clothe a family nowadays. Medium and large enterprises will comply – there is no question about it once the order is given. But, like it or not, businesses are expected to maintain their level of profits. That is their commitment to shareholders: to protect the share prices. That is just how it is.

I do not believe business is against wage increases, but these increases should be manageable by all enterprises, big or small. I say this because the fate of big business is also tied to small businesses. They are our suppliers, they are our tenants, they are part of the larger chain that keeps businesses running. Need proof? Just look at how the business closures during the pandemic affected the bottom lines of big business.

The difference in this situation is that while medium and large businesses have enough resources to comply with the wage increase, the same cannot be said about micro and small enterprises. They live from day to day, reinvesting what they earn into the business so they can grow. A small bump in costs for medium and large enterprises is a big deal to these survival entrepreneurs.

MSMEs, the backbone of our economy, face a particularly challenging situation. Many may struggle to absorb the mandated wage increases. Imagine a small enterprise employing 10 people, adding to their costs, per employee, some P4,000 per month for a five-day work week or P4,800 for a six-day work week. These small businesses might be forced to increase prices, reduce their workforce or, in the worst-case scenario, cease operations altogether.

Wage increases must be accompanied by mechanisms that support the smallest entrepreneur; that means better access to capital and to markets. As in the case of the despondent online sellers I mentioned at the beginning of this column, we could help them by stacking the situation to help small negosyantes like them. We could make it easier for them to have capital through accessible loans, to access their markets by building more infrastructure (physical and virtual) and we could ramp up their mentoring so that they have enough skills and real-world knowhow in handling the situation.

As for labor, we need to continue to reskill and upskill them to put market forces in their favor and drive the level of wages to a point that it will be fair and competitive, even to international standards. Same with other workers whose skills will be in demand. This will give workers a choice and the agency to raise the demand for their skills and, consequently, their wages.

It’s crucial to acknowledge that inflation’s impact extends beyond those earning minimum wage. The poorest segments of our society, many of whom operate in the informal sector, will feel the pinch as the cost of essential goods and services rises. MSMEs closing down and letting go of their few workers would affect not only their employees but also have a ripple effect on the broader economy.

I recognize the urgent need for wage adjustments. Workers are struggling to meet their basic needs under the current wage structure. However, we must proceed with caution, carefully weighing the potential consequences for MSMEs and the most vulnerable members of our society. A balanced approach is essential to ensure that wage hikes do not inadvertently exacerbate the financial hardships they are intended to alleviate.

Originally Published in Philippine Star