Rising Living Expenses Changes Minimum Wage Bracket, What Does It Mean for Premium Brands

By: Crown Asia

It costs money to live. You need money to eat your meals every day, to maintain the roof above your head, to get from one place to another, and so on. It costs even more money to go above and beyond just having access to your basic needs. Treating yourself to overpriced coffee, enjoying a night out in the town with your friends, or indulging in some branded clothes are things not really essential to living, but are luxuries that can definitely improve the state of your mental health and well-being.

It gets progressively more difficult to afford these things though, as the Philippines is seeing its 14-year inflation high in November. According to the Philippine Statistics Authority (PSA), an 8% increase was seen in the country’s inflation rate, making it more difficult for Filipinos living here to provide for themselves and for their families. The Covid-19 pandemic adds an even heavier financial strain on the masses.

With living expenses rising as a result of increasing inflation, calls for raising the minimum wage have been made by multiple labor groups in different working sectors all over the country.

The Call

One of the more prominent calls to raise the minimum wage comes from government workers. An increase to a monthly salary of 33,000 pesos for those in government-run offices was proposed, according to a report from the Philippine Daily Inquirer. Members of some government federation unions, such as the Confederation for Unity, Recognition, and Advancement of Government Employees cite existing laws and policies that they deem to be detrimental to workers, as they don’t make many significant changes in terms of wages. The Salary Standardization Law (SSL) and the Compensation and Position Classification System (CPCS) specifically are being criticized as not enough to compensate for the living expenses in today’s economy.

How Much Does It Cost To Live?

So just how much does it cost to live these days? The preliminary data from the PSA’s Family Income and Expenditure Survey shows that 12,030 pesos are needed per month for a family of five at the very least. This is just to cover the most basic food expenses and other needs, which, when inflation is considered, still does not seem enough for families of different living and working conditions. A Salary Grade 1 post as a newly-hired government worker will get a monthly salary of only 12,517 pesos, which is a few measly pesos higher than how much it costs to skirt the poverty threshold. The call for a salary raise to 33,000 pesos was based on recent data and computations from the Ibon Foundation, which does take into account the inflation increase. They state that it now costs 1,119 pesos per day for a family of five to live decently in Metro Manila. That’s 33,570 pesos for a 30-day month. This doesn’t even factor in the money needed for emergencies and other unplanned matters, as oftentimes sicknesses or accidents are things we cannot predict or prepare for.

Government’s Response

After multiple groups filed petitions to raise daily minimum wages in their own sectors, the Philippine Chamber of Commerce and Industry (PCCI) chimed in to say that these requests were too early to be asked for, particularly for workers based in Metro Manila. They cite the possibility of inflation tapering off in 2023, as well as the tapering of oil prices. The President of the PCCI George T. Barcelon stated that other actions must be taken in the meantime, such as the creation of job-boosting opportunities and the sustaining of workers’ jobs. The Department of Budget and Management also said that the request for a wage increase for government workers won’t be granted, as reported by the Philippine Star. This is because there will be a scheduled wage raise next year as mandated by the Salary Standardization Law. However, their salary will only be increased to 13,000 pesos per month, a far cry from the requested 33,000 pesos.

What Happens During a Minimum Wage Increase?

This potential shift in the minimum wage bracket has obvious effects on Filipino workers, but what about big brands and businesses? It’s a much more nuanced topic that requires a lot of analysis and research. Although privately-owned companies and businesses differ in how much they pay their employees, looking at the movement of the minimum wage bracket for government workers is a good way to compare how much one should be offering for (and paying for) premium services and products. Here are some possible results of changing the minimum wage bracket on premium brands:

1. Consumer spending is stimulated.

When the minimum wage is increased, the public has more money to spend on things other than their basic needs. This prompts them to purchase things they wouldn’t necessarily buy. Once they can afford these goods and services, they’re more likely to be interested in them, especially if these are seen as things they can “treat” themselves to. The demand goes higher, which is very good from a business perspective. This means more clientele and more earnings.

2. Employee performance, productivity, and morale are boosted.

A higher salary for employees positively impacts their performance. They have more incentives to work better or produce better outcomes in their positions. Productivity increases as well as a direct result, and the general morale amongst employees also are elevated. This is good for brands as employees become more loyal to their company and are less likely to seek employment elsewhere, thus reducing turnover. Fostering a good working environment where workers feel that they are being treated fairly and are being rewarded correctly is important to ensure high-grade services.

3. Labor costs will increase.

Since they are getting paid higher, it becomes much more expensive to maintain a large number of employees. Hiring minimum wage-earning workers will start to cost more and some brands might choose to lay people off. Alternatively, other cost-cutting measures might be taken on which could negatively impact the products and services they are selling. This could manifest in the quality of the materials used, their packaging, or their customer service.

What Should Premium Brands Do?

The main concern of businesses when it comes to an increase in the minimum wage is that it will negatively affect their profits, as labor costs will be much higher. They also fear that this might compromise their services and products as a result. Some large companies in the United States, however, have relented to increasing wages. According to CNN, companies like Mcdonald’s, Amazon, and the Bank of America agreed to this back in 2019. It’s important to note though, that most if not all of these brands are very high-profit and are able to financially recover from raising their wages. It’s the small companies that still struggle to revamp their system in order to smartly handle this.

Most analysts suggest reevaluating and then adjusting the brand’s business model so that it can adapt to the minimum wage increase. This is so that it can bring in more customers and revenue. Offering extra benefits to loyal clients or incentivizing repeated purchases can solidify and ensure customer allegiance. When customers can see they what they’re getting is worth it, or they could get more than what they pay for, they’re more inclined to avail of certain services or buy certain products. Brands are also encouraged to use “high-road” practices that enrich their employees beyond monetary payment. Aside from offering fair wages, high-road practices involve making sure that employees can grow and develop within the company through different benefits and compensations.

To combat labor costs, however, companies can also choose to automate some of their processes in order to save money. Working with outside contractors is also deemed to be effective in making sure that businesses can operate during minimum wage increases. The price of their products and services can also be raised to cover the added costs. Additionally, companies can also choose to cut their employees’ hours or reduce them in strategic ways. These practices are the ones usually done by companies but are not really considered to be beneficial to the actual workers themselves.

The Effect on the Economy

Everything affects everything else. Just as a minimum wage increase has its impacts on businesses, these brands in turn also affect the economy. Some argue that raising the minimum wage will cause inflation rates to raise as well, as the demand for products and services becomes higher. As brands adopt moves that will help them save money, it is possible that the price of products and services will rise to cover the labor and operation costs. Job competitiveness also increases, since more employees will choose to stay in their companies. It will become much more difficult for entry-level employees to get into the workforce. Brands will also become more choosy in who they hire and may have a preference for workers with prior experiences and higher sets of skills.

Back to the Consumer

Even if the government is still unlikely to raise the minimum wage to 33,000 pesos, it’s still important to consider what the possibility of this will entail. While 33,000 pesos a month seems livable for daily expenses, we must also consider just how much more it would cost for comfortable living in the first place. Because of this, the public has to be smart in choosing where to put their hard-earned money into. How does one be smart in an economy such as ours? Here are a few tips and tricks to be wise with your money.

1. Make a game plan.

One of the more obvious tips, making a list of all of your current and potential expenses is great for tracking your finances. You can also monitor just how much you’re spending on things that you need, what options you have as a consumer, and how much you have left for splurging or treating yourself. This document can work best on software such as Excel where you can use computer formulas for your computations. You can also stick to a budgeting plan such as the 50/30/20 rule, whichever works best for your personal situation.

2. Have emergency funds.

As previously mentioned, accidents and emergencies are things we cannot predict, so it’s better to set aside money that you can use just in case something out of your control happens. This money should not be touched or spent under any other circumstances. Doing this reduces the need to seek out emergency loans or go into debt.

3. Don’t let the debts pile up.

Speaking of debts, if possible, try to pay off your debts immediately. Once you have the funds, pay them off. When debt piles up, it becomes harder and harder to resolve, and you might find yourself in the sticky situation of owing too much money.

4. Also, set some aside for savings.

Aside from delegating money for emergencies, it’s also beneficial to save. It doesn’t have to be a large amount. Saving money can be useful in the future if you ever wish to purchase something that you currently cannot. The practice also strengthens your patience, determination, and ability to control yourself.

Being able to reside in high-quality residences and condominiums, being able to invest in real estate, and being able to find a home in an area suited to your lifestyle are just some important things needed to live comfortably. As a consumer, it is important to efficiently go through the different houses and lots for sale, and discern which ones can accommodate their needs. Crown Asia can provide residents with a community that is safe, aesthetically appealing, and accessible. There are many different types of housing to choose from, and there’s bound to be one perfect for you. As one of the Philippines’ leading real estate developers, they are devoted to creating comfortable living spaces that are worth every peso, regardless of whether or not the minimum wage bracket changes. Check out your potential new home here.

Read more: How Much is the Cost of Living in the Philippines?

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