Adopting Singapore's progressive wage model

Revisiting the Philippines’ Minimum Wage Law, or Wage Rationalization Act (Republic Act No. 6727), offers a chance to assess its impact on workers, businesses, and the economy. Enacted in 1989, the law sought to address regional economic disparities through localized wage-setting. While it has safeguarded workers from exploitative pay, its implementation has exposed critical weaknesses that limit its effectiveness. To address these issues, the Philippines could explore adopting the Singapore Progressive Wage Model (PWM), which links wage increases to skills development and productivity. This model offers a more equitable and sustainable framework that balances the needs of both labor and business.

A key strength of the Wage Rationalization Act is its recognition of regional diversity. By establishing Regional Tripartite Wages and Productivity Boards (RTWPBs), the law allows wage levels to reflect local costs of living and business conditions, ensuring alignment with regional economic realities. Its tripartite structure—representing labor, employers, and government—fosters dialogue and balanced decision-making. For workers, it provides a safety net, guaranteeing minimum income and protecting against exploitation, particularly in disadvantaged areas.

However, the law has significant limitations. It fails to account for differences between industries and job types, relying on a one-size-fits-all approach. While regional adjustments exist, they overlook the unique economic dynamics of various sectors. This often results in wages that are too low for workers in high-cost industries or unsustainable for small businesses in low-margin sectors. Many small and medium enterprises (SMEs) struggle to comply, leading to job losses, informal labor practices, or closures.

Another major weakness is the disconnect between wages and productivity. The law enforces wage increases without encouraging workers or employers to enhance skills or efficiency, resulting in stagnant productivity and limited wage progression. This weak link undermines long-term economic growth. Additionally, enforcement remains problematic, particularly in rural areas where informal labor is prevalent. Many workers in the informal sector are excluded from the law’s protections, perpetuating income inequality and leaving a significant portion of the workforce vulnerable to exploitation.

To address these shortcomings, the Philippines could adopt the Singapore Progressive Wage Model (PWM). Unlike the minimum wage system, the PWM ties wage progression to skills development and productivity. It establishes sector-specific wage ladders tailored to the unique conditions of different industries, ensuring wages reflect both economic realities and worker contributions. For example, Singapore’s PWM in sectors like cleaning and retail adjusts wages based on workers’ skills and contributions, providing clear paths for career and income growth.

A core strength of the PWM is its focus on skills-based progression. Workers are incentivized to upskill through training and certifications, enabling them to access higher-paying roles while boosting their productivity and employability. Businesses also benefit from a more skilled workforce, driving innovation and operational efficiency. By linking wage increases to measurable productivity improvements, the PWM creates a sustainable system, reducing the financial strain often caused by arbitrary wage hikes.

Adopting the Progressive Wage Model (PWM) in the Philippines could address key issues with the current minimum wage system. For workers, it offers a pathway to upward mobility while promoting social equity and reducing income inequality. For businesses, especially SMEs, it provides a wage system tied to productivity, ensuring sustainable growth. By encouraging employers to invest in training programs, the PWM fosters a culture of continuous improvement and innovation.

However, implementing the PWM would require significant coordination among government agencies, industry groups, and training institutions to create sector-specific wage ladders and accessible skills programs. Shifting toward a culture of lifelong learning and skills development would take time, and funding for training programs—supported by both public and private sectors—would be essential to ensure inclusivity.

Despite these challenges, the benefits of the PWM outweigh the difficulties. It offers a more equitable and sustainable approach to wage determination, empowering workers to advance their careers while ensuring businesses remain competitive. Over time, the PWM could reduce poverty, improve labor conditions, and support inclusive economic growth, helping the Philippines build a more resilient and equitable labor market.

In conclusion, revisiting the Philippines’ Wage Rationalization Act is critical to addressing the evolving needs of both workers and businesses. While the law has provided a foundation for wage protection, its shortcomings—such as a lack of productivity incentives and burdens on SMEs—underscore the need for reform. The Singapore Progressive Wage Model presents a promising alternative, balancing the interests of labor and employers by linking wages to skills and productivity. By adopting this approach, the Philippines could create a more inclusive and sustainable labor system, driving economic growth and social equity for future generations.