Starting July 1, 2007, government employees will be receiving a ten percent increase in their basic salaries, as per Executive Order No. 611 signed last March 14.  Thus, an employee with a Salary Grade (SG) of 1 (the lowest salary grade in the Salary Standardization Law), who is currently earning P 5,082, will receive an additional P 508.20.  Meanwhile, the President with salary grade 33, the highest among all employees of the government, will get an increase of P 5,775.

On the other hand, House Bill 345 which was approved on Third Reading on the 20th of December last year, provided an across-the-board wage increase for all employees in the private sector, whether agricultural or non-agricultural, the sum of one hundred twenty five pesos (P125.00) a day to be paid on a staggered basis: forty five pesos (P45.00) starting in October 2006, an additional forty pesos (P40.00) beginning October 2007 and another forty pesos (P40.00) hike on the beginning of October 2008.  This means that a person working in the National Capital Region for example, should have P 45 a day added to his basic salary of P313.00 in 2006 , a 14 percent increase in his current basic pay.  In 2007 and in 2008, he will get an additional 11 percent and 10 percent increases, respectively.  All in all, a total of 40 percent will be added to his basic salary by 2008.

With the approval of the 10 percent increase in the government employees’ salary and assuming that the President approves the bill on wage hike for the private sector but only for 2007 and 2008 since 2006 had already passed and the P45.00 increase was not granted, how will this affect prices of goods and services, household expenditures and total production cost?  The National Statistical Coordination Board (NSCB) conducted a Price Cost Analysis using the 2000 Input-Output (IO) model and yielded the following results:

For 2007, total production cost will increase by 5.6 percent (0.6 percent from AFF, 2.7 percent from the Industries and 2.3 percent from the Services sectors) with the additional P 40 in the salaries of private employees and 10 percent increase in government employees’ compensation. Trading, with 19.1 percent share in total employment ¹ , will be the most affected with a 0.5 percent increase, followed by Public Administration and Defense; and Construction with 0.3 percent expansion each.  Prices of goods and services will increase by an average of 5.6 percent while cost of household expenditures will increase by 5.2 percent, above normal inflation.  This means that an average household member, who spends 100 pesos day to day and with a normal inflation of say 4.0 percent, will be spending at least 109 pesos a day in 2007.

Effects of Wage Hikes to Total Production Cost
(in Percent)

Lastly, for 2008, when another P40.00 hike will be given to the private sector, total production cost will increase by 4.3 percent.  Production cost for AFF will increase by 0.5 percent, Industries by 2.2 percent and Services by 1.6 percent. The most affected sectors will be Trading with a 0.5 percent increase in cost and Construction with a 0.2 percent increase.  Prices of goods and services as well as household expenditures will increase, on the average by 4.6 percent and 4.4 percent, respectively.

1 Based on the Results of the January 2007 Labor Force Survey (LFS) conducted by the National Statistics Office (NSO)