Background
The 1987 Philippine Constitution provides that workers shall be entitled to a living wage.  Further, Republic Act 6727 provides that the demand for living wage shall be one of the eleven criteria for minimum wage fixing.  To operationalize the living wage criterion for minimum wage determination by the Regional Boards, the NWPC formulated a working definition of the concept of living wage in 1991.  It may be recalled, however, that efforts to measure and provide data on cost of living and “decent” wage per family had started as early as 1981.

a.  to provide an acceptable concept or working definition of a living wage;

b.  to develop a methodology for the computation of living wage; and

c.  to present measurements of living wage estimates by region.

The initial report, including the one-day regional menus developed for the specific purpose, was presented during the National Experts’ Conference on Wage in September 1991.  Identified as an important area of research was the determination of more acceptable regional food menus and alternative system for estimating the non-food needs.  

In response to said suggestion, the NWPC commissioned the Food and Nutrition Research Institutes to develop a 7-day menu which meets 100% of the recommended daily allowance for each region.   The revised report using the 7-day menu had undergone several reviews since 1993 and comments solicited from concerned sectors were used as inputs to further revision of the study.  While the food component using the 7-day menu was initially acceptable, there appeared a need to review the methodology for estimating the non-food component.  

Thus, in early part of 1996, the NWPC commissioned the National Statistics Office (NSO) and the Statistical Research and Training Center to review its Study on Living Wage, particularly its proposed methodology for measuring living wage, and to develop an improved methodology, if necessary.  The reports on the  results of the review were presented to the Commission in September 1997.  Appropriate revisions were made on the study based on comments from the Commission and the Secretariat.

Salient Features

1.    On the concept of living wage

The living wage is defined as the amount of family income needed to provide for the family’s food and non-food expenditures with sufficient allowance for savings/investments for social security so as to enable the family to live and maintain a decent standard of human existence beyond mere subsistence level, taking into account all of the family’s physiological, social and other needs.

2.    On the methodology for estimating living wage

a.       Scope

Living wage should be computed on a regional basis, given the difference in conditions across regions.

b.       Reference family

The prototype families, whose spending pattern was used as norm, were identified using the actual data of the 1994 Family Income and Expenditures Survey (FIES).

Chosen as model or prototype families were those in the 6^th decile group of families who were solely dependent on wage and salary and who were classified as non-poor based on National Statistical Coordination Board (NSCB) standards for poverty  threshold.

A non-poor family means that the family’s income is equal to or above the line/poverty threshold.

c.        Family size

The family size used in the estimation of family living wage was six (6) since the study showed that the poor usually have bigger family size.  This ensures that the computed family living wage will not underestimated.  The national average is a family of five.

d.       Living wage components

In operational terms, living wage has three components:  food expenditures, non-food expenditures and “others” component.

•     Food expenditures  

The NSCB food threshold estimates is adopted as the food expenditure (FE) component of living wage since the typical or prototype, families spent, on the average, even less for food than the value of food threshold, except in NCR and two other regions.

The NSCB methodology uses direct estimation of the cost of the food basket (urban model) which contains the recommended dietary allowance.

•     Non-food expenditures

The non-food expenditures (NFE) component is a derived estimate and based on the spending pattern of reference families.  The proportion of expenditures for food to total family expenditures (TFE) is used to derive the NFE component since FE is a direct estimate based on actual food spending pattern of the prototype families.

The proportion of expenditures for food of reference families when used as divisor to the estimated FE component of living wage yields an estimate of the TFE.   NFE is computed by subtracting FE from TFE.

•     “Others” component  

The “others” component is added to the total family expenditures (food and non-food expenditures) to allow for savings/investments that will satisfy the sufficiency requirement of the living wage.

Other disbursements in the FIES proxy for the “others” component.  Other disbursements refer to non-family expenditures which may give an indication of savings on the part of the family.  Based on actual expenditures, this would cover investments, purchase/amortization of real property, payment of cash loans, purchase of durable goods on installment basis, purchase of  stocks/bonds and other forms of investments as well as savings deposits in the bank.

The average proportion of other disbursements to TFE in 1988 and 1994 (per Family Income and Expenditure Surveys) was about ten percent (10%).  On the basis, a fixed percentage of 10% is multiplied to the computed TFE as allowance for “others” component.

3.      On Living Wage Estimates

Using the proposed methodology, 1997 living wage for a family of six per month was estimated at P10,163 for the National Capital Region (NCR) and at a range of P6,000 (Region VII) to P11,608 (ARMM) in areas outside NCR.

The adjusted 1997 regional living wage based on the  preliminary 1997 estimates of poverty threshold using the 1997 FIES show that the abovementioned estimates were not substantially under- or over-estimated.  The adjusted living wage per month for NCR was computed at P10,359 and for regions Outside NCR at P6,042 (Region VII) and P10,220 (ARMM).

The equivalent daily living wage per worker was estimated based on the average number of wage earners per family.  Estimates based on the proposed methodology (using 1994 poverty threshold which was deflated using the CPI) show that living wage per day per workers was P205.73 in NCR and from P144.25 (Region VII) TO p279.04 (ARMM) in areas outside NCR.  These figures are slightly under- or over-estimated compared with the adjusted estimates (using preliminary 1997 poverty threshold estimates) of P209.70 for NCR and P145.23 (Region VII) to P245.67 (ARMM) for areas outside NCR.  

Given the corresponding regional minimum wage rates in 1997, data show that all regions, except Region VII, would require more than one minimum wage earner for a household to earn a living wage.  

4.      On implications to minimum wage determination

The living wage should be used within the context of family income.  Thus, caution should be exercised on its use, particularly as standard or base line data for adjusting minimum wage because of possible economic dislocation, especially to small and medium enterprises, although it can be a potent tool for decreasing the gap between poverty threshold and family living wage.

5.      On how living wage compares with poverty  threshold

There appeared to be some sort of established relationship between poverty threshold and living wage.  Comparing poverty threshold with the adjusted estimates of living wage showed that the latter are higher than the former by 38% (Region VII) TO 82% (ARMM).

Living wage may  therefore be established by pegging it at a certain percentage above the poverty threshold.  The figure for NCR, i.e., 44% may be used as the benchmark since NCR is the most populated region in the country and prices  are expected to be much higher in NCR than the rest of the regions.

6.      On adjustment of living wage estimates

In between FIES years, the CPI may be used as deflator to obtain current estimates of living wage.  The study has shown no substantial underestimation  or overestimation of CPI is used as deflator.

The light of new data from the 1997 FIES and considering that the CPI was revised using the 1991 as base year, there may be a need to recalculate to update the estimates using the recommended methodology.

7.         On whether there is a need to conduct another survey to estimate food and non-food components of the living wage

The study has shown that there is some sort of an established relationship between poverty threshold and family living wage.

Thus, it proposes to make use of existing measures (food threshold) and survey (FIES) to compute the living wage estimates.  Where necessary,  special studies can be done on the first 6-month expenditure pattern of the families surveyed for the 1997 FIES to establish a basket for each major item of expenditure by province.   As done with the food basket to obtain the food threshold, these baskets may then be priced as direct estimates.