The Philippines faces significant hurdles in determining how minimum wage increases affect employment because of gaps in labor data and the difficulty of isolating the effects of wage orders, according to a new study by the University of the Philippines (UP) School of Economics.

The researchers said credible estimates of employment effects remain difficult to produce because regional wage orders are implemented at different times and under varying conditions, while available survey data cannot adequately track workers and firms over time. That makes the issue important not only for academic debate, but also for policy discussions that rely on evidence about how wage rules interact with labor market conditions across regions.

Scope of the study

The study analyzed 158 historical wage-order events using pooled Labor Force Survey (LFS) data from the Philippine Statistics Authority, covering the first quarter of 2004 to the second quarter of 2025. The researchers examined changes in employment across wage groups before and after wage orders, but found that the data do not provide enough reliable comparison groups to establish the effects of wage increases.

"The lack of reliable comparison groups or reliable event groups in the data underpowers the causal inference design from the onset, and additional assumptions may further weaken the identification strategy," the researchers said in the Aug. 16 study, titled "Minimum Wages in the Philippines: Stylized Facts, Identification and Estimation Challenges, and a Path Forward."

Regional wage increases themselves complicate comparisons, the researchers noted, because areas that could serve as controls may be affected by wage orders within the same period. They added that wage increases may also be anticipated before they take effect, potentially shaping employment outcomes ahead of a wage order's actual implementation.

Limits of the Labor Force Survey

The study further identified limitations in the LFS data. Because wages are self-reported, workers may round their earnings when answering surveys, making it difficult to distinguish actual compliance with minimum wage rules from survey reporting patterns.

"Consequently, it becomes impossible to separate true policy compliance from survey rounding, leading to biased estimates of the minimum wage's true impact on employment," the researchers said.

The LFS also does not allow the same workers to be tracked over time, the researchers noted, limiting the ability to observe individual wage and employment outcomes before and after a wage increase.

Exemptions complicate coverage

Legal exemptions from minimum wage rules — particularly those granted to small businesses under the Barangay Micro Business Enterprises (BMBE) Act of 2002 — further complicate the analysis. The LFS does not identify which firms hold such exemptions, making it difficult to determine precisely which workers are covered by a wage order.

Under the BMBE Act of 2002, registered businesses with total assets of not more than P3 million, excluding land, may qualify as BMBEs. The law exempts registered BMBEs from coverage of the Minimum Wage Law, although their employees remain entitled to benefits such as social security and healthcare.

What the data show

Despite these limitations, the study found that historical wage increases were followed by a shift in employment toward wage groups just above the new minimum, rather than clear evidence of large-scale immediate job losses. The researchers said this pattern is best read as a descriptive result from the available data, not as a definitive measure of the policy's full labor-market effect.

The researchers cautioned that this should not be interpreted as proof that wage increases have no effect on employment, noting that their analysis is descriptive rather than a causal estimate.

A path forward

The study called for better labor-market data to allow researchers to more reliably measure the effects of minimum wage changes. It recommended linking establishment-level business data with tax and social-security records, resuming a rotating panel component in the LFS, and adding individual worker identifiers to the Integrated Survey on Labor and Employment.

Such data would allow researchers to follow workers and their wages over time and better determine how minimum-wage increases affect employment. More detailed linked records would also help clarify which workers are covered by wage orders, an issue that matters when exemptions and compliance patterns differ across firms and regions.

"Linking these sources would create a matched employer-employee dataset that would allow for the tracking of wage trajectories and job mobility before and after minimum wage adjustments," the researchers said.

The researchers also cautioned against relying heavily on projections based on assumptions about how firms and workers respond to wage policies before they take effect.

"One lesson from the literature is the need to read ex-ante projections of minimum wage effects with extreme caution," the researchers said, referring to estimates made before a wage policy is implemented. — Mark Joseph M. Sanchez

Source: Bworldonline