Regional Heterogeneity in the Philippines: A Case of Random Walk and Causality in Wages
DOI:
https://doi.org/10.56532/mjbem.v4i2.207Keywords:
Minimum wage, Minimum-to-average wage, Variance ratio, Random walk, Regional heterogeneityAbstract
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.
References
Allegretto, S. A., Dube, A., & Reich, M. (2011). Do minimum wages really reduce teen employment? Accounting for Heterogeneity and Selectivity in State panel data. Industrial Relations, 50(2), 205–240. doi: https://doi.org/10.1111/j.1468-232x.2011.00634.x
Bersales, L. G., & Lucagbo, M. D. (2014). Determinants of regional minimum wages in the Philippines. The Philippine Statistician, Vol. 63(2), 71–85. url: https://www.psai.ph/docs/publications/tps/tps_2014_63_2_6.pdf
Bhattacharya, M., & Narayan, P. (2015). Output and labor productivity in organized manufacturing: A panel cointegration analysis for India. International Journal of Production Economics, 170, 171–177. doi: https://doi.org/10.1016/j.ijpe.2015.09.020
Bocean, C.G. (2015. Relationships Between Wages And Employment Indicators. Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(24), pages 41-50
Card, D.; Krueger, A.B. (1994). Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. American Economic Review. 84, 772–793. url: https://davidcard.berkeley.edu/papers/njmin-aer.pdf
Cavalheiro, E. A., Vieira, K. M., & Ceretta, P. S. (2012). Efficiency in emerging markets: Applying the automatic variance ratio test. Corporate Ownership and Control, 9(2), 300–309. doi: https://doi.org/10.22495/cocv9i2c2art5
Choi, I. (2001), Unit Root Tests for Panel Data, Journal of International Money and Finance, 20, 249-272
Dervishi, B. (2023). The effect of minimum wage increases on inflation. International Journal of Research in Business and Social Science, 12(3), 258–262. doi: https://doi.org/10.20525/ijrbs.v12i3.2512
Dube, A., Lester, T. W., & Reich, M. (2010). Minimum wage effects across state borders: Estimates using contiguous counties. The Review of Economics and Statistics, 92(4), 945–964. doi: https://doi.org/10.1162/rest_a_00039
El-Shagi, M., & Tochkov, K. (2024). Regional heterogeneity and the provincial Phillips curve in China. Economic Analysis and Policy, 81, 1036–1044. doi: https://doi.org/10.1016/j.eap.2024.01.016
Fisher, R. A. (1948). Combining Independent Test of Significance. American Statistician, vol. 2, issue 5, p. 30.
Fougere, D., Gautier,E. , & Bihan, H.L. (2010). Restaurant Prices and the Minimum Wage on JSTOR. Journal of Money, Credit and Banking, 1199. doi: https://doi.org/40925686
Garcia-Louzao, J., & Tarasonis, L. (2023). Wage and Employment Impact of Minimum Wage: Evidence from Lithuania. Journal of Comparative Economics, 51(2), 592–609. doi: https://doi.org/10.1016/j.jce.2022.12.002
Gonçalves, S., & Kilian, L. (2007). Asymptotic and Bootstrap Inference for AR(∞) Processes with Conditional Heteroskedasticity. Econometric Reviews, 26(6), 609–641. doi: https://doi.org/10.1080/07474930701624462
Goschin, Z. (2014). Regional determinants of average wage in Romania. Procedia Economics and Finance, 8, 362–369. doi: https://doi.org/10.1016/s2212-5671(14)00102-6
Herr, H., & Ruoff, B. (2014). Wage Dispersion as Key Factor for Changing Personal Income Distribution. Journal of Self-Governance and Management Economics, 2(3), 28–71. url: https://www.addletonacademicpublishers.com/contents-jsme/249-volume-2-3-2014/2262-wage-dispersion-as-key-factor-for-changing-personal-income-distribution
Hoque, H. A., Kim, J. H., & Pyun, C. S. (2006). A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets. International Review of Economics & Finance, 16(4), 488–502. doi: https://doi.org/10.1016/j.iref.2006.01.001
Hou, B., Pang, W., & Li, W. (2025). Minimum wage, labor productivity, and employment promotion. Finance Research Letters, 84, 107764. doi: https://doi.org/10.1016/j.frl.2025.107764
Keynes, J. M. (1936). The general theory of employment, interest and money. Macmillan
Kim, J. H. (2006). Wild bootstrapping variance ratio tests. Economics Letters, 92(1), 38–43. doi: https://doi.org/10.1016/j.econlet.2006.01.007
Lanzona, L. J. (2014). Effects of minimum wage on the Philippine economy. Philippine Institute for Development Studies, No. 2014-15, ISSN 1656-5266. url: https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidspn1415.pdf
Lemos, S. (2007a). Minimum wage effects on wages, employment and prices in Brazil. In Research in labor economics (pp. 397–413). doi: https://doi.org/10.1016/s0147-9121(06)26011-4
Lo, A., & MacKinlay, C. (1987). Stock market prices do not follow random walks: evidence from a simple specification test. The Review of Financial Studies, 1(1), 41–66. url: https://www.jstor.org/stable/2962126
Lorenzoni, G. and Werning, I. (2023) “Wage-Price spirals”, Brookings Papers on Economic Activity, 2023(2), pp. 317–393. doi: https://doi.org/10.1353/eca.2023.a935427
MacDonald, D. & Nilsson, E. (2016). The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of Policy Design and Context. Upjohn Institute Working Paper 16-260. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. doi: https://doi.org/10.17848/wp16-260
Majchrowska, A., & Strawiński, P. (2021). Minimum wage and local employment: A spatial panel approach. Regional Science Policy & Practice, 13(5), 1581–1602. doi: https://doi.org/10.1111/rsp3.12471
Mohammadi, O. (2014). Does minimum wage cause inflation in Iran? International J. Soc. Sci. & Education, 4(Special Issue) https://ijsse.com/sites/default/files/issues/2014/v4-i4-2014/Paper-9.pdf
Morin, A. (2019). Wage dispersion over the business cycle. Economics Letters, 181, 17–21. doi: https://doi.org/10.1016/j.econlet.2019.04.013
Omnibus Rules on Minimum Wage Determination, 1989); (NWMPC Guidelines No. 03
Renkin, T., Montialoux, C., & Siegenthaler, M. (2022). The Pass-Through of Minimum Wages into U.S. Retail Prices: Evidence from Supermarket Scanner Data. The Review of Economics and Statistics, 104(5), 890–908. doi: https://doi.org/10.1162/rest_a_00981
Rodiya, R., Murti, W., & Astuty, P. (2024). Determinants of micro and small industries on gross Regional Domestic product (GRDP) of processing industry sector in provinces of Java Island. EAI Endorsed Transactions on Scalable Information Systems. doi: https://doi.org/10.4108/eai.25-5-2024.2349483
Sabia, J. (2015). Do minimum wages stimulate productivity and growth? IZA. doi: https://doi.org/10.15185/izawol.221
Saltiel, F., & Urzúa, S. (2021). Does an Increasing Minimum Wage Reduce Formal Sector Employment? Evidence from Brazil. Economic Development and Cultural Change, 70(4), 1403–1437. doi: https://doi.org/10.1086/714114
Sugiyarto, G., & Endriga, B. (2024). Do minimum wages reduce employment and training? SSRN Electronic Journal. doi: https://doi.org/10.2139/ssrn.4923789
Sumner, S., & Silver, S. (1989). Real wages, employment, and the Phillips Curve. Journal of Political Economy, 97(3), 706–720. https://www.jstor.org/stable/1830462
Wang, J., & Gunderson, M. (2015). Adjustments to minimum wages in China: Cost-Neutral offsets. Relations Industrielles, 70(3), 510–531. doi: https://doi.org/10.7202/1033408ar
Xing, C., & Xu, J. (2016). Regional variation of the minimum wages in China. IZA Journal of Labor & Development, 5(1). doi: https://doi.org/10.1186/s40175-016-0054-x
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Teresita Silma Balgos, Ronaldo R. Cabauatan
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
