The following article was first published in the Straits Times.
By Hui Weng Tat, For The Straits Times
IN A surprising departure from its usual free market orientation, Hong Kong lawmakers recently voted in favour of a minimum wage law for vulnerable low-wage workers. It may be time for Singapore to consider a minimum wage law; such a policy may be preferable to raising the levy on foreign workers to reduce the country’s dependence on these workers.
A growing influx of low-skilled, low-cost foreign labour has effectively increased Singapore’s overall labour supply. There is an ongoing debate as to whether this has depressed domestic wages at the bottom. I believe the available evidence for this link between the influx of foreign labour and depressed wages at the bottom is compelling.
Between 1998 and 2008, the number of foreign workers employed, most of them lower-skilled, rose by about 438,000 or 48 per cent of total new employment over the period. Over the same period, real wages of employed residents in the lowest 20 per cent of the wage distribution were virtually stagnant while those in the upper half experienced real growth of at least 20 per cent.
If one takes an international perspective, mobility of labour leads to greater efficiency and higher productivity. The national perspective can be different: For example, in response to low wages in certain jobs, some local workers may withdraw from the labour market. Others might prefer to work part-time instead of full-time. In short, the full-time employment rate of local workers may be lower as the result of the influx of foreign labour. This would represent an underutilisation of scarce labour resources, a situation that Singapore can ill afford.
The introduction of the Workfare Income Supplement scheme in 2007 to encourage older workers to stay employed in the face of wage stagnation; the lower employment rate among women in Singapore compared to other developed countries; and the steady rise in part-time employment rate in Singapore – all these suggest that low wages at the bottom may have restricted the size of the labour force.
How might a minimum wage improve the situation?
For a start, it will raise the incentive to work among the lower-skilled. For example, a 50-year-old worker may not want to work for $5 an hour, calculating that an eight-hour work day, five days a week, will net him $800 gross a month or about $622 in cash after factoring in CPF contributions ($118) and a transport cost of $3 a day ($60 a month). On the other hand, a minimum wage of $7 per hour would give him a gross salary of $1,120, CPF contribution of $187 and a take-home pay of $873. That difference could nudge him into taking a job.
Without a minimum wage, the current system of low wages for some local workers has created a need for remedial measures such as Workfare. The scheme is expected to cost $400 million this year and benefit 400,000 recipients. The subsidy will increase in future if local wages at the bottom continue to be depressed. A minimum wage law can stave off the need for higher government subsidies of low-wage jobs.
A minimum wage law would also have the salutary effect of making employers more efficient in using their workers. It would encourage them to hire better-quality workers with the requisite skills or those who can be trained to acquire such skills, so as to justify the higher wages. Employers will thereby be compelled to boost productivity, move up the value chain, thus increasing the demand for higher-paid jobs.
Detractors of a minimum wage would argue that it will reduce employment by raising the wage bills of firms. In Singapore, however, demand for low-wage workers exceeds supply, which is why there is a large inflow of foreign labour. Companies naturally favour a continued influx of cheap foreign labour. But it should be remembered that a large foreign worker population generates significant negative externalities. A minimum wage policy would help moderate the excessive inflow of foreign workers.
As for the argument that mandating a minimum wage goes against the ethos of a free market, the truth is that intervention in the labour market is not new. The foreign worker levy system, which has been in place since 1980, is calculated to increase employer costs and reduce dependence on foreign labour. Minimum salary levels have also been set for certain types of employment passes, such as the S-pass and employment pass.
But levies do not raise productivity if the higher wage cost is passed on by employers to workers in the form of lower wages. Foreign work permits often tie workers to a specific employer, leaving them powerless to protest against low wages. Such a regime would not only de-motivate existing workers but also end up attracting even less productive workers to our shores.
In contrast, a mandatory minimum wage would boost wages and morale. Workers who benefit from a mandated minimum wage will feel better and more fairly treated. This would help build goodwill towards the nation among transient foreign workers who will eventually return to their home countries.
When all these factors are considered, it becomes clear that a minimum wage would raise productivity and improve workers’ welfare. Hong Kong took a decade to debate the issue. Perhaps it is time for Singapore to start.
The writer is an associate professor at the Lee Kuan Yew School of Public Policy, NUS.
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Is minimum wage a blunt instrument addressing poverty issues?
$7 an hour does not mean the older worker might want to work, as its still low, but then the employer might want a younger guy, been faster and that younger guy may be imported too at the expense of the older guy should he decide to work at $7 perhour.
Unless the gov stops importing foreigners, minimum wage is useless.
Will inflation been factored in yearly, otherwise, its all bunkum.
masterservant,
not necessarily. min wage + levy could mean FW (your younger guy) is more expensive than a local who MIGHT be willing to do the work at the min wage level.
A minimum wage policy, without reform of the foreign worker’s programme and specially the foreign worker’s levy could end up being counter-productive.
For a start, it is not clear from the article as to whether the minimum wage is to apply only to Singaporean workers or to all workers.
If the regulation is intended just for Singaporean workers, then it could have the effect of making them dearer compared with “imported” workers.
If it is intended to apply to all workers, it would have the effect of driving up business costs across the board, without any particular benefit for Singaporean workers (so long as the suppy of FW s remains unabated).
In the Singapore context, where there are more jobs than workers, at least at the lower end of the economy, simply restricting the number of foreign workers (or raising their cost by increasing the levy) will have the effect of reducing supply, thereby pushing up wages. This will serve the social objective.
The Hong Kong example does not have an exact parallel with Singapore because, I believe, HK does not have the large numbers of FW s that Singapore does. HK has near full employment and the purpose of the minimum wage law is to raise wages at the bottom (the next logical step for governments to take when there is full employment and the economy is doing well).
Also, it is not clear how the writer can argue that “A minimum wage policy would help moderate the excessive inflow of foreign workers”. If he is reading this, could he please enlighten us?
If minimum wage is implemented, levy has to go, comprendo !!!
The two does not work side by side as administrative cost is too high, tracking foreigner with minimum or not and collecting levy at same time.
There will be employers trying to slip through some loophole and the cost thereafter for the courts to tackle at public expense is too great, defeats the purpose.
So the need to tackle inflow should be in place first.Transparency is “FIRST” and “REQUIRED”.
There is some truth that while collecting levy, the labor cost of locals are push up in a way, but allowing uncontrolled inflow negates all.
masterservant
I don’t see how it is a given that if min wage is implement, that levy has to go.
If they are ALREADY tracking foreigner with min wage, why is it so hard to tag on a levy? There is not much extra work that I can see.
If min wage + levy, then Singaporean workers would be more attractive. It would solve the problem of giving jobs to Singaporeans FIRST, coz market forces would ensure that it happens.
-
Rajiv Chaudhry
Not sure if I have also answer your question in the end. Of course, I had assumed that min wage is to apply to all workers. I would think the author assumed the same, and that is how he concluded what he did.
Only the asdf can make sense of this. I give up
PAP only know how to depress peoples wages, they don’t know how to raise wages. But they know how to raise their own wages for themselves and impose more tax and levy on people for your own good.
Minimum wage they will never give to you. Singapore is Foxconn. They are incompetent management. They will work you till you die. So many migrant workers come to Singapore Foxconn, and some people commit suicide.
What is the minimum wage but sentimental largesse? I personally would prefer to take up 14-hour jobs for peanuts than to not work at all. But then again, I’m one of those radical thinkers who actually believes that Singaporeans have no divine right to jobs.
minimum wage is a populist but illusionary way of solving the problem. if wages go up, prices (and inflation) will follow because no business will take the cost without increasing prices.
let say a hawker employs a helper- and now has to pay minimum wage. He will now need to raise the price of his food to cover the extra cost. So when the worker goes and eat, the worker’s expense will increase. what is the point of the whole exercise?
a better solution is to find a better paying job for the helper- so that the wages will increase, without costs following suit.
who is the one who said that paying civil servants well is to prevent corruption har?
by paying the rest in private sector so little does it imply they all very corrupt? then i must be very corrupt lah…
salary under $2000/mth confirm corrupt,
salary $2001-$4000/mth quite corrupt,
salary $4001-$8000/mth likely to be corrupt,
salary above $8001/mth confirm not corrupt?
Wall Street bankers are saints?!
maybe the other end of the spectrum in business cost needs a serious look? rentals? be it office, retail or F&B, they need space to do business…
there is much talk about green buildings, how they reduce energy costs in various ways (energy efficient lighting?, using materials that regulate heat?).
in retail, i see a clothes chain operate in a neighbourhood type of shop, & i see the same operating in a spanking new glitzy mall. both sell the same items at the same prices, despite the difference in rental. are rentals costs eating into wage costs?
RW, 9 September 2010
you refering to ERP charges, public transport fares increases, the general increase in price of generally most of the daily expenses right?
yeah, our govt only know how to increase $$ to “solve” problems.
The twin alarms of wage depression and the alarming increase of working hours are directly related to labor supply, the non-existent enforcement of labor regulations and the weakening of the negotiating power of the employee.
At the lower end of the spectrum, the unions are suppose to protect the interests of less well-paid employees – i.e. your assembly line worker, etc. But in Singapore, there has been no strikes since the SIA pilot union’s strike and we all know what happened to that after LKY sent the union chief home. The incident and various anecdotes of the past (especially the one from our former President Ong Teng Cheong when he was NTUC Secretary General) clearly shows that the tripartite relationship is clearly tilted in favor to the employers.
In addition, the many cases highlighted by the mainstream media of the various abuses suffered by foreigners in their work here are merely tip of the iceberg. The employee has no protections from unfair dismissal, nothing to stop him from being sacked by a boss who merely wants to increase his profit margin or lower costs without expending effort at growing his business or increasing productivity. The situation is so severely tilted in favor of the employer that it is lopsided.
It is my view that a minimum wage will fail to improve the situation in Singapore, unless new labor regulations enforcing overtime regulations and the enforcement of labor regulations are greatly strengthened. In addition, the tripartite relationship has to be dissolved, allowing unions to return working for the equal benefit of employees and companies instead of only the wealthy elite (government + company owners)
Minimum wage + levy = who do you think will benefit and who will pay, you.?
Does it apply to foreign maids? That is a big chink that many citizens will not support!
I have got news for you. Do you know that service and maintenance companies employs foreign workers across the Causeway? It is a daily affair to see buses and vans picking workers up after the pass through immigration. Air conditioning companies makes phone calls to their contacts in Malaysia who will ride their bikes into Singapore and perform repair/servicing and installation. I doubt these people have any work permits. What is the government doing about this?
Any PR or citizen can set up delivery business and employ these kind of workers on a daily basis. There are other opportunities as well to get cheap labour without having to pay minimum wages, CPF, insuranceand etc.
I know someone who had his whole house renovated using a contractor from Malaysia. This contractor brings his whole team into Singapore not requiring any worker from Singapore. Check those private renovation sites and one can see many motorbikes with Johor number plates parked. In fact check shipyards, construction sites, worksites and elsewhere and I bet there are many illegal workers there.
How can any business thrive without these cheap labour in Singapore? If there is a minimum wage imposed, more business will find ways to avoid paying up and get their cheap source of labour from across the Causeway.
looks like minimum wage laws need the extra arm of the law at nabbing all sorts of loopholes employers find to evade it. as if our different govt agencies have that good a co-ordination… -.-”
i think maids are a very different class as they live with the employers, daily expenses like food is covered & they do not incurr travelling expenses. its very different from those foreigners who have to pay their own lodging, meals & cost of commute.
walamak,
just look at 80s
use that model
and think the society will be well again la
though there’s a lot of recent talk like ‘innovate’ ‘productive’ etc..
walamak
Minimum Wage Law? I can’t say I truly agree with that.
If we have a minimum-wage law, there is no doubt that the wages of the people will increase.
However, what about the prices of other goods in Singapore?
With the minimum-wage law in place, this causes businesses to increase their prices for their goods and services for two reasons:
1) To reduce loss-of-profit from paying their workers a higher wage
2) Because people have more money to spend, hence they would increase their prices to maximise the profit margin
Which may be counter-productive in the long run, thus making the increase in income a mere monetary gain, but will not increase the Real Purchasing Power of the people
Tjin, 10 September 2010
eh… prices will increase even if wages remain stagnant, public transport is 1 example. with prices increasing regardless of wage increase, people with stagnant salaries are seeing monetary lose.
wages are but 1 of the cost of doing business in any particular country. as a country moves up the economic ladder wages should keep abreast of inflation or else deflation may result. when real wage decline for the majority of the population, it will lead to weak domestic consumption.
isn’t this counter-productive when retail, hospitality, F&B and service sector is being hailed as the sunshine industries? over-reliance on tourism can be disastrous if it’s not able to sustain these industries. it may lead to large scale lay-offs similiar to that experienced by PMETs…
The miniumum starting wage should be at least $8.50 per hr. Otherwise, singaporeans can be very jialat…Because living standard cost of singapore is too high liao…
I think what the author is trying to propose is that minimum wage REPLACE the current FW levy. This means that the amount of money an employer decides to pay a new worker is contingent on whether he could afford paying that worker at least the minimum wage. Unlike many of the posters her who feel that minimum wage will make everything more expensive across the board, I feel, if a reasonable minimum wage is employed, we should not feel too large a pinch.
Let’s take the hiring of domestic helpers as an example. Say you pay an agency $800 for a maid and half of that, $400, goes to the levy and thus the government. An agency would prefer to make money and thus maybe pays the maid a mere $200-300. He has a choice to be greedy or not. While we can debate the need for the FW levy to begin with I shall not.
Let’s say there’s a minimum wage of $600 per month for a maid and NO foreign worker levy. The agency has to pay the maid $600 and maybe charge an agency fee of $50-100 to make some cash. Basically the customer, the maid and the agency wins. Though the latter not as much because he can’t decide to pay his maids an inhumane salary just so he can make a lot of money despite the levy. The market also has the chance to decide and thus affect agency pricing a bit.
While this may not make Singaporeans immediately more employable (don’t know many locals who would be interested in a career in domestic help), it would at least make it fairer to the foreign workers and protect them from greedy employers. Not a bad situation for us consumers if you ask me. It might be a little different in another industry such as construction. If employing an unskilled FW for a low price of under $400 is not possible and say the minimum wage for construction is set at $1000, employers might hire someone with an ITE certification for a bit more since that ITE graduate has got some measurable skills. if working in the hot sun isn’t likely to entice Singaporeans then at least employers might look out for more qualified (and sun tolerant) workers from the many countries around Singapore and feel good about paying more for someone who has more to offer in terms of skills anyway.
It is really a matter of whether the minimum wage policy will give small but tangible benefits to a wider range of people such as workers, consumers and employers or just ONE group of people (employers) that’s the larger debate really.
Minimum wage + REGULAR levies on foreigner workers + restriction on influx of foreigners.
It’s not just the government that needs to be attacked, local employers here (for that matter any employer based here) must be given ‘disadvantages’ for employing foreigners. A minimum wage will level the field considerably, albeit not completely, and coupled with constant levies will make employers think twice about employing foreigners. On one hand we gripe constantly about the laws but we’ve forgotten then while half of us as employees are in misery competing with foreign works, our fellow singaporeans who’re employers are encouraging this by not putting our fellow citizens first.
Singapore is 3rd world again, using cheap labor imports and suppressing wages. No protection for workers jobs. PAP is dampening wages and increasing job losses of Singaporeans with such uncontrolled immigration of cheap labor. PAP is creating a nation of poor Singaporeans. PAP has to halt cheap immigrants, reduce GST and reduce unemployment.
Make no difference whether with minimum wage or not.
It will only make our dollar less worthy.That is ,a plate of char kway teow will cost me double supposing the minimum wage is doubled.
Work hard also ten dollars an hour.Sleeping on the job also ten dollars an hour.What is the result?
It should be base on merit.Employers will definitely be happy to pay us more if we are productive and may not benefit them if they try to save by paying us peanuts .
So,work hard,if your towkay haven’t increase your salary,try to understand,maybe he is in bad shape temporily.Give him some time,when he prosper who know he may even pass you the whole company .Impossible meh?Remember the docter who pass the condominium to her maid as a gratitute for serving her?
Work harder,be loyal.That is more realistic.
I have written to the ASDF and I have also forwarded this write up to them for further analysis.
Where can I make a follow up post if they reply to me?
This is a really mind boggling subject and its best to leave it to the experts.
agongkia, agree with you completely.
Minimum wage will just distort the market.
Much better to a) cut down the inflow of foreign workers and b) sharply increase the FW levy.
On the law of supply and demand, Singaporean worker’s wages will go up (but your char kway teow will still cost more:) )
agongkia, 12 September 2010
quote:
“It will only make our dollar less worthy.That is ,a plate of char kway teow will cost me double supposing the minimum wage is doubled.”
do wage alone account for 100% of price increase for your char kway teow?
……………………………………
Peter Sellers, 12 September 2010
currently the law of supply is tilted heavily towards that of employers. this itself already distorts the market.
eh, can explain how wages of S’poreans will go up? i very curious…
The woes of Singapore workers vis a vis the foreign workers is due to the formation of the tripartite between government, employer and union. This is the main culprit that suppress the wages of local workers. It is great for GDP but not so great in term of local workers and their salaries.
The NTUC is diluting the interest of the workers. Union should not be involved and being used by politician to serve their end of the business.
Local workers are being marginalized because they have not received the protection of the union. We must reform our unions and allow them to protect our local workers and their interest.
Let the employer bargain with the union on how many foreign workers they can employ for their specific industries. The union can police the employer to ensure that they do not cheat by employing foreign workers on the cheap. In areas where local shun the jobs or we could not contribute to the pool of talents, the employers should be allowed to engage foreigners. In this way everyone is happy.
The workers’ union will ensure that employers will not exploit workers and pay them dirt cheap salaries. It will also benefit all classes of workers and not just the low wages workers. It is the better solution than minimum wages.