Government to keep close watch on evolving wage dynamics

MANILA, Philippines — Monetary authorities have vowed to keep a close watch on evolving wage dynamics and its ability to influence price movements as the country’s jobless rate improves with the ongoing recovery from the recession.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a virtual press briefing the country’s low and stable inflation and calibrated wage adjustments over the past few years are a testament to the careful and steady collaboration between the BSP and the wage boards.

“The BSP serves as a resource institution in the regional wage boards, providing information on inflation, other key macroeconomic trends, and the impact of wage decisions on inflation. Our aim is to help provide guidance in the minimum wage determination,” Diokno said.

He added the central bank would continue to actively participate in discussions on wage policies in line with its mandate of promoting price stability.

Inflation averaged 4.4 percent from January to May this year, exceeding the BSP’s two to four percent target, amid rising global oil prices as well as food prices, particularly meat, due to supply constraints such as weather-related disturbances and the African swine fever (ASF) outbreak.

COVID-19 had a direct impact on the economy, as lockdown restrictions and other measures implemented to curb the spread of the virus left a lot of Filipinos unemployed with a record rate of 17.6 percent in April last year.

While unemployment is on the decline at 8.7 percent in April this year, Diokno said there is still a lot of scope to improve labor market conditions for the sector to fully adjust and recover from the pandemic.

While the recent numbers show that 4.1 million Filipinos remain jobless, the rising labor force participation and improvements in economic conditions enabled millions of Filipinos to regain their jobs and incomes in April this year.

With the recovery of the economy after the lockdown measures were relaxed in mid-2020, 9.5 million jobs have been generated as of April, more than offsetting the 8.7 million jobs that were lost in the period March to May 2020.

“This translated to a net job creation of 800,000 jobs. The decline compared to last month may be attributed to the reimposition of the lockdowns in NCR Plus, which affected a substantial proportion of employment in these areas,” he said.

As many studies have noted, changes in labor market outcomes are likely to influence productivity and wage adjustments, in particular, how wages will vary across sectors and how fast wages will increase going forward.

At the BSP, the monetary policy assessment takes into account conditions in domestic demand and the labor sector. For instance, labor market conditions in terms of employment growth as well as minimum wage adjustments are considered as determinants of possible demand-driven price pressures in the domestic economy.

To alleviate the immediate labor disruptions caused by the pandemic, the BSP supports the swift distribution of the social welfare assistance and the implementation of the prevent, detect, isolate, treat, and recover strategy to reduce COVID-19 cases as well as the speedy implementation of the vaccination program.

The central bank also recognizes the importance of micro, small and medium enterprises (MSMEs) in generating employment and economic activity.

“The BSP is of the view that enabling policies catered on promoting a long-term, sustainable, and inclusive economic growth and productive employment are critical as we exit the pandemic,” Diokno said.

He added the BSP would continue to maintain the accommodative monetary policy measures, as long as necessary, to further allow a faster and sustained recovery of the economy post-COVID-19.