A proposed P125 across-the-board wage increase if approved could push inflation up to 9.7 percent, could displace half a million workers, and cut growth to 5.5 percent in 2017, the National Economic and Development Authority (NEDA) said on Wednesday.

In a simulation study conducted by NEDA that analyzes the impact of a P125 ATB wage increase in all regions, the proposed wage hike could result in upward pressures on prices from 2017 to 2018, the strongest of which could be felt in 2017, when inflation could rise to 9.7 percent from a baseline of 2.1 percent.

NEDA said the study also shows the wage increase could displace around 500,000 workers in 2017, which can raise full-year unemployment rate to 7.3 percent.

Increasing wage across the board is expected to significantly reduce real GDP (gross domestic product) growth to 5.5 percent from a baseline of 6.5 percent in 2017, it added.

“This will have a more pronounced effect on the poor, who are expected to suffer the most from any significant increase in inflation rate and reduction in economic growth and employment,” according to a position paper signed by NEDA Director General Ernesto Pernia, Finance Secretary Carlos Dominguez, Budget Secretary Benjamin Diokno and Trade Secretary Ramon Lopez and submitted to President Rodrigo Duterte.

“Such a policy will likely have the unintended consequence of worsening inequality, and will be detrimental to regions as it will erode their attractiveness as investment destinations, particularly for labor-intensive industries,” it said.

The economic managers recommended, instead, to maintain and strengthen the current tripartite mechanism for regional minimum wage setting that takes into account the unique economic situation of the region.

Infrastructure in the regions should also be increased, especially those relating to connectivity, in order to improve the investment climate in the regions, they said. Celerina Monte/DMS