Regional Heterogeneity in the Philippines: A Case of Random Walk and Causality in Wages

The intention behind statutory minimum wage is to alleviate poverty, however, variations across regional economies are ubiquitous. This study examines the regional wage distributional pattern, stochastic properties, and whether local economic factors sustain the cyclicality of wage. The distributional regional wage pattern revealed a hierarchical wage structure and disparities in the minimum-to-average wage ratio. The National Capital Region (NCR) reached a maximum minimum wage of PHP570, in contrast to the BARMM’s maximum wage of PHP341 over a span of 21 years. Fisher’s-combined variance-ratio tests (p-value=0.366>0.05) indicate that wages exhibit a random walk pattern. Granger causality test results showed bidirectional causality between wages and Gross Regional Domestic Product and Employment Rate, while unidirectional causality with Per Capita Gross Regional Domestic Product and Inflation Rate. The results suggest that centralized wage policies will create highly heterogeneous and imbalance effects, as each region has distinct regional economic characteristics. The wage-setting mechanisms sustain the cyclicality of the economy while also being counter-inflationary.