By Mark Joseph M. Sanchez

Filipino entrepreneur Wilson Lee Flores has kept Kamuning Bakery Café's pandesal affordable through inflation spikes, supply disruptions, and surging electricity bills. With Metro Manila's higher minimum wage taking effect on July 25, the owner of the 87-year-old bakery says maintaining the balance between fair compensation for workers and affordable prices for customers has grown increasingly difficult.

"We support the goal of giving workers better wages because every employee deserves fair compensation and a better quality of life," Mr. Flores told BusinessWorld via Viber. "However, this latest wage increase also comes at a time when many small businesses nationwide are already struggling with rising costs of food ingredients, electricity, rent and transportation."

His predicament reflects that of many micro, small, and medium enterprises (MSMEs) preparing for the National Capital Region's (NCR) latest wage adjustment. Rather than resorting to layoffs, numerous business owners said they intend to improve productivity, reduce waste, and absorb part of the higher labor costs, while urging the government to expand support programs for small businesses.

Under Wage Order No. 27, issued by the NCR Regional Tripartite Wages and Productivity Board, the daily minimum wage for non-agricultural workers in Metro Manila will rise by P60 to P755 from P695 on July 25, and increase further by P25 to P780 on January 20 next year. Agricultural workers, employees of retail and service establishments with 15 or fewer workers, and manufacturing firms with fewer than 10 regular employees will see corresponding increases, with their daily minimum wage rising to P718 and later to P743 from P658. The Philippines sets minimum wages by region rather than nationally, with each regional board adjusting rates based on local economic conditions.

The wage hike arrives as MSMEs — which represent more than 99% of registered businesses in the Philippines and employ roughly 63% of the country's labor force — continue to grapple with elevated costs for raw materials, electricity, rent, and logistics.

Mr. Flores noted that Kamuning Bakery has limited room to raise prices because its products are staples for students, senior citizens, and low-income households. "As much as possible, we will try to absorb the higher costs instead of passing them on to consumers. Our business is known for affordable and good quality breads and pastries, so we cannot increase prices," he said.

Instead, the bakery intends to enhance efficiency by cross-training employees, investing in energy-saving equipment, and cutting production waste through improved planning. Mr. Flores called for broader government support to help businesses adapt without sacrificing jobs or raising prices. He proposed temporary wage subsidies during the transition period, easier access to financing for equipment upgrades and digital systems, stronger tax incentives, lower electricity costs, improved transport infrastructure, skills training programs, and simplified regulatory requirements.

Maria Avelaine S. Avellana, founder of CYO Charcoal Grilled Hotdog & Burgers, acknowledged that small businesses recognize the need to improve workers' incomes but are simultaneously operating on increasingly thin margins.

"As a micro business owner, I understand that the wage increase is intended to help workers cope with the rising cost of living, and I support the goal of providing fair compensation," she told BusinessWorld through LinkedIn chat. "But from the perspective of MSMEs, this is really a major challenge."

She pointed out that many people mistakenly equate high sales with strong profitability. "From our daily sales, we still have to deduct the cost of ingredients, rent, utilities, government contributions, taxes, maintenance and labor costs. As a result, what is left for management to sustain the business in the long term is very small," she said in mixed English and Filipino.

Ms. Avellana said her company operates under the Barangay Micro Business Enterprise (BMBE) Act, Republic Act No. 9178, which exempts qualified enterprises from statutory minimum wage requirements. She said the measure has enabled the business to manage labor costs while preserving employment. "We do not want to immediately pass all of the additional costs on to our customers through price increases," she said.

She added that the long-term solution lies in enhancing productivity rather than relying solely on wage adjustments. She urged the government to strengthen productivity and digitalization programs, expand financing and tax incentives, improve market access, and promote broader awareness of the BMBE law, noting that many entrepreneurs remain unfamiliar with its benefits.

Businesses outside Metro Manila echoed similar concerns despite not being covered by the NCR wage order. Gemma A. Berania, chief executive officer at Libro Espresso Ventures, Inc., said the company would prioritize operational efficiency before considering price adjustments. Evianne T. Añonuevo, operations manager at Maru's Food Lounge and Beachfront Rooms in Occidental Mindoro, said the business is evaluating cost-saving measures, product development, and possible price increases.

The Foundation for Economic Freedom (FEF) earlier sought the suspension of Wage Order No. 27, contending that the increase could worsen inflation, discourage investment, and compel MSMEs to reduce hiring, shorten working hours, or shut down due to higher labor costs.

'Still Insufficient'

Labor groups and economists dismissed those arguments, noting that similar predictions have repeatedly failed to materialize after previous wage increases.

"We recognize that some MSMEs face genuine financial pressures," Federation of Free Workers National President Jose Sonny G. Matula told BusinessWorld via Viber. "However, the law already provides relief through exemptions for qualified Barangay Micro Business Enterprises and other establishments that meet the criteria under wage rules. It is therefore inaccurate to portray all MSMEs as equally burdened."

Mr. Matula argued that higher wages stimulate consumer spending, ultimately benefiting small businesses because workers themselves are customers. He urged the government to assist MSMEs through easier access to credit, tax incentives, lower electricity costs, regulatory reforms, digitalization programs, productivity training, and stronger enforcement against smuggling and cartels — rather than restraining wage growth.

"The wage hike is welcome but still insufficient," he said. "It provides immediate relief, but it does not fully offset the steep increases in the prices of food, transportation, rent, electricity and other essentials."

IBON Foundation Executive Director Jose Enrique A. Africa similarly disputed claims that higher wages inevitably result in layoffs. "Labor costs are on average just 11% of total business costs across all enterprises of all sizes in all sectors nationwide," he told BusinessWorld, citing government data. He estimated that the entire P85 wage increase in Metro Manila would amount to only about 5.3% of average MSME profits.

Mr. Africa said businesses typically absorb wage increases through a combination of slightly lower profits, reduced discretionary spending, or limited price adjustments — rather than cutting workers. He noted that replacing experienced employees is often costlier than retaining them, particularly for small firms already operating with lean staffing. He added that stronger household incomes ultimately underpin local demand, enabling MSMEs to sell more goods and services.

For entrepreneurs like Mr. Flores, the challenge now lies in finding sufficient efficiency gains to preserve both jobs and affordable prices while paying higher wages — a balance many small businesses say will depend not only on their own adjustments but also on how swiftly government support reaches them.