Gordon Lee/
In Part 2, we study costs of production, inflation, productivity and competitiveness.
Costs of production
A minimum wage policy will lead to increased costs for firms – but the degree to which costs increase is diluted by non-wage costs and higher wage earners.
Take a hypothetical firm, where 60% of total costs are labour costs. Even though 50% of its employees are low paid employees whose wages ($5/hr) will be increased with a minimum wage policy by 20% (to $6/hr), because they are lowly paid compared to managers and executives, they only constitute a third of the firm’s labour costs.
Even in this hypothetical firm with high labour costs as a proportion of total costs, a 20% increase in low wages increases the firm’s total costs by just 6% (60% x 50% x 20%).
Inflation
Even if we assume that every single firm in the economy is like our earlier example, with high labour costs and a high proportion of low paid employees, such that total costs of production in the entire economy increases by 6%, what will be the impact on inflation? The answer is that a 6% rise in total costs will lead to inflation (price rises) of less than 6%.
This is because firms respond to a rise in costs in a few ways; for example, by increasing productivity, saving costs by reducing working hours*, accepting lower profits, etc. – passing costs on to consumers is only one such way. No firm has the ability to pass on 100% of cost increases to consumers as price increases.
*According to the International Labour Organisation, Singapore has the longest working hours in the world.
Graphically, a rise in the costs of production by firms (upward shift of the aggregate supply curve from AS1 to AS2 by the distance between ‘a’ and ‘b’) leads to a rise in price from P1 to P2, instead of P1 to P3. This is because of the slope of the aggregate demand curve (AD).
It is also interesting to note that in the long run, the aggregate supply curve (ASLR) is vertical, so an increase in costs will not itself lead to any price rises (i.e. no inflation).
But even if there is inflation, is inflation bad?
1. A stable and modest inflation rate is generally healthy – but inflation that is too high or too low is not. For example, the Bank of England is tasked to target inflation at 2% (±1%).
2. It is said that inflation erodes savings, but it is because of this effect that consumer spending is encouraged (which has a stimulating effect on economic growth).
3. It is said that inflation reduces competitiveness by making domestic products more expensive to export, but changes in exchange rates reflect changes in prices – with the end result being that inflation has little, if any, effect on the real price of exports (which is what customers overseas are concerned with).
4. It is said that inflation penalises the poor more than the rich. Whilst that is generally true, in this case, we are talking about a wage increase for low wage earners because of a minimum wage. In other words, building on our examples, even though prices of goods may increase (through inflation) by, say. 2% for everyone, a minimum wage would increase hourly wages by 20% for low wage earners.
The effect of inflation in this case is like a redistributive tax which taxes everyone by 2% (small compared to our other taxes), but which helps the lowest paid in the country. Redistributive taxes are not new (high-income earners pay more in income tax than low-income earners). The difference is that a minimum wage really helps the lowest paid in society, and can even have a stimulating effect on economic growth as the poor spend more as a percentage of their income than the rich. In other words, give a rich person $10 and he invests most of it and only spends $1 in the economy, but give a poor person $10 and he would save $1 but spend $9 in the economy. So redistributive taxes, besides having a social aspect of helping the poor and increasing social cohesion, also generate wider economic benefits for everyone.
Productivity
According to the above UBS Prices and Earnings survey [1], Singapore’s hourly wages (productivity) is 30% that of New York’s. This is because Singapore’s growth has thus far relied mainly on foreign workers – the influx of which suppresses wages and productivity. [2] Firms have little incentive to increase productivity if they are able to rely on cheap labour. A national minimum wage policy allows low paid Singaporeans to compete with foreign labour not on price, but on skills – and also provide the incentive for firms to invest in increasing productivity.
In other words, the number of Singaporean workers employed in the economy as a whole should increase against that of foreign workers. The economic case is to reduce the negative effects associated with a large foreign workforce – as evidenced from Singaporeans’ concerns over effects such as rises in house prices and congestion on public transport. Notes Associate Professor Hui Wen Tat at the LKY School of Public Policy, “a large foreign worker population generates significant negative externalities”.[2]
He also says, “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.” [2]
The government already intervenes in the market by setting foreign worker levies, imposing foreign worker quotas and specifying minimum salaries for S-Pass and Employment Pass holders. But that does not directly affect the wages of low-wage Singaporeans. It might be simpler, more efficient and effective for the government to set a minimum wage (to replace its current policies) for local and foreign workers – and allow the market to work freely from there.
Competitiveness
1. As mentioned, price rises (which affect competitiveness) are less than the rise in costs. Consumers only care about the prices of goods that they pay for, not about the costs to firms.
2. Please see point (3) above under the section ‘Inflation’ for mitigatory effects of exchange rates on competitiveness.
3. Any productivity increases will also help to cushion the rise in prices.
4. What is probably more important for sustainable long term economic growth is that a minimum wage will help to shift the competitiveness of Singapore firms from price competition to competition based on innovation, ideas and quality products. So rather than understanding the issue as a reduction in the level of competitiveness, we should understand it as a shift in the nature of competition.
Conclusion
In practice, it is necessary to start off with a modest minimum wage. When the UK first introduced a minimum wage, it was at an initial level of £3.60, which increased wage bills across the economy by about 0.5% (although different sectors were affected differently), and costs of production by less than 0.5%. [3]
I hope I have shown that there are many extenuating factors that reduce the ills of a minimum wage. These ills must also be weighed against the benefits of a minimum wage – for e.g. productivity growth, economic stimulus, balancing of local-foreign worker composition in the workforce. We will look at more benefits in the next instalment, which will also examine Workfare.
[1] http://www.ubs.com/2/e/medlib/wmr/pdf/Preise_Loehne_2010_e.pdf
[2] http://newasiarepublic.com/?p=20567 (This is a highly recommended article.)
[3] http://www.dti.gov.uk/files/file37987.pdf (pg. 6)
To read Part 1 of this debate, click here.
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@ Tan Ah Beng
You can cite all the selective anti-MW proponents you want but the evidence is that the US has disagreed with the likes of Milton Friedman and Peter Schiff and have reviewed the MW upwards steadily since 1940 in accordance with the ‘The Fair Labor Standard Act of 1939 as follows :
1949 ($0.75) 1955 ($1.00) 1966(US$1.60), 1974 ($2.30) 1977 to 1989 ($3.35), 1989 ($4.25), 1996 (US$5.15), 2007 to 2009 (US$7.25).
The FLSA established a national MW and prohibited “child labor,”. It “applies to employees engaged in interstate commerce or employed by an enterprise engaged in commerce or in the production of goods for commerce, unless the employer can claim an exemption from coverage.” The states have their own minimum wage systems.
You may have been moving low-value added jobs to Batam, JB but is it like the case of American Samoa where two US companies exploited local tuna resources and made huge profits using local cheap labor?
As I said the Samoans should have said ‘good riddance’ to the two US companies sooner and take control of the tuna industry themselves to improve their lives.
Jobs paying sub-living standard wages are not worth having. It is far better for the locals to organize themselves, with UN aids to develop their own talents and be self-sufficient.
China was a basket case in 1978 and it is now the No 2 economy in the world with US$3 trillion in foreign reserves, by far the highest in the world. I think many nations should take a leaf out of China’s experience and learn as China also has a MW system.
Sure there are homeless folks in Japan, especially around Ueno parks in Tokyo and I have seen them It is a disgrace.
In the US there are about an estimated 70,000 homeless folks or 0.02 % of the population and it is also a disgrace, especially when the US embarks on a worldwide crusade and preaches others on human rights.
BUT do we have to follow then when WE have the HIGHEST per capita RESERVES in the UNIVERSE? That is my point in case the nuance escaped you!
If there are leaky boats in Singapore why don’t we FIX them post-haste if we have the resources, instead of sitting on our hands?
But that is the next million-dollar question for our millionaire ministers to answer.
Tan Ah Beng,
not i want old aunties to go for re-training, it’s our gahmen. you dunno got many retirees work as security guards? our gahmen go heart then would have fought tooth-&-nail with the banks to recover monies of retirees from toxic investments. but hey oni act when people “make noise”. liddat is go heart?
with the rising cost of living, do you think most retirees have the luxury to work at a leisurely pace? foodcourt peak hour is considered leisurely? lol…
just ask them if they got choice to work slowly lah.
“I am stating that MW will affect these low-wage workers negatively instead of help them!!!”
wow, i think its likely that our gahmen wish to see its people struggle to cope with rising cost of living on their own.
if you can prove MW will fail for S’poreans, not other countries, then i seriously doubt S’pore have A-Team leaders. i can buy the most premium ingredients but someone who doesn’t have the flare for cooking will not whip up gourmet meal on the 1st try. but conversely, a passionate cook can turn average ingedients to a delectable meal.
never hear before the expression “its not the camera that makes the photo, its the person behind the camera”?
Correction please :
“BUT do we have to follow them when WE have the HIGHEST per capita RESERVES in the UNIVERSE? That is my point in case the nuance escaped you!”
agongkia, 1 June 2011
eh… are you posing those questions to me?
(O.o)
btw, you made a false assumption that MW is tied to productivity levels.
what i meant is that people who are less than happy with their jobs will be less productive. treating people like economic digits devoid of aspirations, aka, no choice but to accept any job that gahmen generates will do harm in the long run.
policies can mold mindsets that can be counterproductive, just like employers often cite “bad attitude”, choosey, calculative etc.
our PM pledge Just & Fair Society. but many employers practise Just Unfair employment terms, lol…
@Tan Ah Beng
Here is what Tan Kin Lian has to say about MW on Tuesday, May 25, 2010,
quote:
“Minimum wage
The government leaders have been telling the people that a minimum wage will cause the jobs to be lost. This is only partly true; largely, it is false.
A minimum wage is necessary to ensure that the worker earns enough to pay for the cost of living by doing a full day’s work. If the wage is below the minimum, the worker has to work longer hours.
This will cause other people to be unemployed. For a stable society, we need to have most people, who are able and willing to work, to be able to find a job and earn enough enough to raise a family and be a contributing member of society.
A decent wage, as opposed to a sub-minimum wage, does not cause the loss of jobs. Wages are only one component of the total cost of production. The other components are cost of property (i.e. rental), government taxes and shareholder profits.
If wages are too low, more of the cost goes towards rental and profits. The imbalance, between wages and rental, is one factor leading to the high property prices in Singapore.
Many of the jobs in a country are in the service sector. They are part of the domestic economy. They have to be done in the country and cannot be lost.
Examples are education, health, transport and personal services. A minimum wage to these sectors affect all businesses and will be added to the cost of providing the service. It can be kept low, if the other components, such as rental, taxes and profits, are kept at the fair market levels – and are not inflated due to the failure of the market, e.g. if there is a near monopoly.
Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who work in Singapore.
The social cost of these foreign workers have not been properly factored – i.e. the overcrowding and the strain on the public services (i.e education, health and transport). If these are properly accounted, the strategy of low wages, i.e. no minimum wage, in creating jobs in Singapore is not compelling.
I believe that it is time for a minimum wage to be introduced in Singapore and for the market in labour to find its new level. I believe that we are among the few developed economies that do not have a minimum wage.
Tan Kin Lian ” unquote
mice is nice
hehe..
I din make false assumption and pose those question but is just replying to what have you quoted.
What is the point of claiming employers practising unfair employment again and again.
Our employer tied us down ah?We cannot jump ship,die die must slave for them? got gun to point at us ah?
If we feel that we are not paid according to our worth,shortchanged or other company can pay better,just go.
Let those employer come and beg us,if we think they cannot afford to lose us.
There are many employers,especially the kachang puteh one, who are out just to earn an honest living.Dun always treat them as if they are blood suckers.
I actually wanted to say I agree with them when they mention choosy….but I dare not do it here.
Better not.
I am here to talk about MW leh .
@Get Our Priorities Right
“If wages are too low, more of the cost goes towards rental and profits. The imbalance, between wages and rental, is one factor leading to the high property prices in Singapore.”
This is COMPLETE BULLS**T!!!
Low wage = high property price?
so
High wage = low property price??
Can’t imagine you are in agreement in such twisted logic. So the best way to control run away property prices is to give everyone a pay raise!!!! Even my toes are laughing…
@Get Our Priorities Right
“Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who work in Singapore. ”
This is nonsense. These companies could have gone straight to Vietnam, China, India, Indonesia and the Philippines directly to enjoy MUCH LOWER LABOUR COSTS. They can even hire “PhD” workers at a much lower cost than in Singapore.
The reason why companies want to come to Singapore is a complete package of reasons including safety, security, respect of Intellectual Property, rule of law, etc etc. We can never be as cheap as Indonesia or Vietnam.
“I believe that we are among the few developed economies that do not have a minimum wage.”
The list without MW includes Germany, Finland, Norway etc… all these countries are doing well economically… whereas all those that implemented MW such as UK, USA, Japan, are all in deep s**t economically. So who you rather learn from?
Please do not compare Tan Kin Lian with Nobel Economics prize winner Milton Friedman. They are NOT of the same calibre.
http://en.wikipedia.org/wiki/Milton_Friedman
@mice is nice
You want proof?
OK..
a) Germany, Finland, Norway
b) USA, UK, Japan
Q1: Which list is doing well economically?
Q2: Which list contains countries that did NOT implement MW?
Answer: (a) and (a)
So you rather Singapore join (a) or (b)?
@mice is nice
“never hear before the expression “its not the camera that makes the photo, its the person behind the camera”?”
You are correct in saying that. But implementing MW is like throwing a cockroach into the soup…. no matter who is the chef (PAP or WP) it will end up BAD!!!
If it is so good.. please enlighten me which credible opp party member is 100% behind MW?
@Tan Ah Beng, I am not making a substantive point here, but just trying to bring out some of the nuances in the lists your provided.
List A: “The Scandinavian countries of Sweden, Norway, Finland and Denmark don’t don’t have a minimum wage at all because they are so highly unionized.” – I don’t think Singapore has any proper unions to speak of.
(http://www.forbes.com/2009/08/31/europe-minimum-wage-lifestyle-wages.html)
List B: The US has had a minimum wage since 1938, and has been growing very well for decades since. The recent sub-prime crisis has nothing to do with a minimum wage. In the UK, a minimum wage was introduced in 1998, and the UK saw more than a decade of strong, sustained economic growth. I am not familiar with minimum wages in Japan, but what I do know is that Japan is amongst the only countries in the world with a serious aged (not just ageing) population.
And with regards to Milton Friedman, as I mentioned in an earlier comment, you can find Nobel Laureates on both sides of the argument – what is important for a policy is to look at MW in a very specific Singaporean context, and maybe learn from the best practices of the policy around the world (instead of places where it is poorly implemented).
@ Tan Ah Beng
Hey, Ah Beng, I agree we should not compare Milton Friedman to Tan King Lian because it is like comparing chalk and cheese.
While Tan Kin Lian created wealth directly for the shareholders at NTUC Income and indirectly for Singapore, by growing its business from a modest base of $28 million in 1977 to over $17 billion in a 30 year career as the CEO and is qualified to run for election as the next Elected President of Singapore, your hero MF never held public office or held a job as the CEO of a large corporation in the real world in his entire life and he is therefore not qualified to run for election as Singapore’s next Elected President. His was all theory in an unreal academic world.
And further your hero was also a consummate libertarian and anti-statist and guess what? the howler was that he also proposed legalizing drugs in America and was also opposed to public education and the state’s power to license doctors & automobile drivers.
Today if he was alive I doubt he would be welcomed in Singapore for his errant views.
From 1992 to 1997, Tan Kin Lian was the Chairman of the International Co-operative and Mutual Insurance Federation (ICMIF), an international organisation representing 123 insurance groups in 65 countries.
He was conferred the Friend of Labor Award in 1978, the Public Service Medal in 1983, the Rochdale Medal Award in 1992, the Financial Personality of the Year Award in 2000, the 2001 International Management Action Award, the Public Service Star in 2004, Leading CEO Award 2005 and the Friend of IT in 2007.
MF’s claim to fame was the Nobel Prize he won for Economic Sciences in 1976 plus his economic theories..
But how Economics can be classified a ‘Science’ and not an ‘Art’ is a paradox because if you ask 10 economists for their opinions you are likely to end up getting 15 opinions !!
And you never ever see a one-armed economist because most economists will come with a theory and then immediately it is followed by a rejoinder “but on the other hand..”
This was why your hero was criticized by other Nobel Laureates like Paul Samuelson, Joseph Sitgliz and Paul Krugman for taking both sides of the economic aisles.
MF was also wrong to predict that the euro would be abandoned before 1 Jan 2002
He was also wrong for stating that “The free market is the only mechanism that has ever been discovered for achieving participatory democracy,” because that theory was thrown out of the window as the Federal Reserves, cheered on by the Obama Administration, printed or guaranteed loans of over US$13 Trillion to save the US economy from a meltdown in 2008, after the sub-prime mortgage and toxic asset debacle went ballistic.
And If Milton Friedman was so great how come his country, the USA, is today the biggest debtor in the world?
Can he run a huge country like China which came from being a basket case in 1978 to be the second largest economy in the world in 32 years, with over US$3 Trillion in foreign reserves and a MW? I don’t think he will even last a week in China!
So stop giving us the BS about your hero.
Correction please :
“Hey, Ah Beng, I agree we should not compare Milton Friedman to Tan Kin Lian because it is like comparing chalk and cheese”
@Gordon Lee
List A – what this means is that we DO NOT need MW to be able to look after the under-privileged. They are the proof that other METHODS can work better. Not only in Scandinavian countries, but also Germany too. MW is an easy way out but cause long term problems.
List B – there you mentioned exactly my point. The minimum wage in US started in 1938 with EXTREMELY GOOD INTENTIONS (just like the road leading to hell). And now with increases after increases, the UNEMPLOYMENT problem became so BIG there now. This has nothing to do with Sub-prime which is basically housing loans to unqualified people and was in fact mostly resold to foreigners / investment firms/ SOW in terms of toxic CDOs. Starting the same thing here will also be similar.. low initial MW… slowly increasing till unemployment hits the roof. Like drugs, the first puff is always free….
wrt Milton Friedman, I was just quoting experts. just like you also cited other Nobel Laureates.. I was only responding to other posters citing articles from non-economist with “brain-dead” logic of “low pay resulted in high property prices”.
I do enjoy the more substantive discussion with you. Looking forward to your last instalment and then we’ll discuss somemore.
@Get Our Priorities Right
Hey… when you said
“But how Economics can be classified a ‘Science’ and not an ‘Art’ is a paradox because if you ask 10 economists for their opinions you are likely to end up getting 15 opinions !!”
So you are supporting Gordon’s MW theory because of the science behind his charts or because the drawing was very nice? :)
@Tan Ah Beng, not so soon! There are two more articles (making 4 in total)… (:
If you read the link I attached to the earlier comment, the unions in the Scandinavian countries are themselves opposed to a minimum wage. “The unions there felt that a national minimum wage would interfere with collective bargaining, and it might even bring the price of labor down.” In other words, even though there isn’t a de jure MW set by the state, there is a de facto MW which is set by unions – which is level higher than would be set by the state. Yet, as you rightly point out, despite high labour costs there – those economies are growing well. Which goes to show that a national minimum wage does not necessarily lead to an economic apocalypse – the ire of which is constantly being predicted.
As regards the US, before the recession in 2001 (911 attacks), unemployment was falling continuously till it reached a low of 4%. Many economists were worried that unemployment was “too low”. The unemployment peaked again recently because of the sub-prime crisis – which I hope you will agree, has nnothing to do with a minimum wage.
You can see the jump in unemployment in 2008 here: http://bit.ly/iPcWYz
@ Tan Ah Beng
“So you are supporting Gordon’s MW theory because of the science behind his charts or because the drawing was very nice? :)”
Ah Beng, I see that the nuance also escaped you this time as it was meant to be a sarcasm. Get it?
If you want to take me out of context I can also ask you “So are you supporting MF because he “proposed legalizing drugs in America and was also opposed to public education and the state’s power to license doctors & automobile drivers” and MW?
@Gordon Lee
“As regards the US, before the recession in 2001 (911 attacks), unemployment was falling continuously till it reached a low of 4%. Many economists were worried that unemployment was “too low”. The unemployment peaked again recently because of the sub-prime crisis – which I hope you will agree, has nnothing to do with a minimum wage”
Well… not so if you read this article dated March 2011.
“The Minimum Wage and Job Loss from 2006 through 2010″
http://politicalcalculations.blogspot.com/2011/03/minimum-wage-and-job-loss-from-2006.html
Actually in the USA, when someone wants to run for Senate they will be questioned on their views on various issues.. I wonder what are the views of the elected non-PAP MP are? Do you know if they are pro or against MW?
@Get Our Priorities Right
All my quotes of yours came from your postings… whereas you’ll never find me supporting legalizing drugs in USA.
I am not a fan of MF… I just agree with his view on MW. Just like if I agree with the Pope on importance of world peace, it does not mean that I agree with their view on contraceptions.
If you cannot see the distinction, I wouldn’t blame you… at least I know which part of the bell curve you belong to.
@Tan Ah Beng,
Your linked article seems to blame the entire fall in low-income employment from 2006 to 2010 on the minimum wage.
Yes, a poorly implemented MW might have played a part, but let’s not forget that right in the middle of the period 2006-2010 (which I must say is too brief a period for any serious economic study) was the biggest recession since the great depression.
I do not know what the views of the WP MPs are on a MW, because in the recent elections, they chose not to campaign on this issue. My personal view is that their silence on the matter is due to political considerations – and such political calculations also being the reason behind the PAP’s stifling of any proper debate on a MW.
agongkia, 2 June 2011
you did assume i imply that MW is tied to productivity, but i actually am implying the implications of paying too low that productivity may suffer as a result of low employee morale, for example. its little wonder why our ruling elites fail, they suffer from tunnel vision.
most S’poreans do not have the level of freedom to choose as you imply. employers will never need to beg employees to stay cos our gahmen will often pander to their needs 1st. if not why the caught offguard remark about the influx of foreigners? someone must have been quietly letting many more of them than initially agreed to our shores without coordinating efforts to mitigate the negative social impact.
if they are blood suckers, then be prepared to be treated like 1.
@Gordon Lee
During a recession, prices are supposed to fall mainly right? Wages too right? How can a MW adust downwards wrt to the prevailing economic condition? Even if it is the right thing to do (i.e. reduce MW), no politician will do it due to the political costs. So if this will end up as a one-way UP only policy without regard to actual economic situation, then it cannot serve its purpose.. it will cause more unemployment in that case.
@Tan Ah Beng,
Hey, Ah Beng which Pope did you refer to? I hope it was not Pope Urban II because he did not believe in peace and in fact incited a war and a crusade against the Muslims in the Holy Land in 1095.
And if you are not a fan of MF you could have fooled everyone in this thread as you seem to bring up his name like there is no tomorrow, like he is a god.
You claim to know which part of the bell curve I allegedly belong to but do you know what time of day it is, whether it is Sunday or Monday, Arthur or MacArthur?
@Gordon Lee
What about the non-elected ones? Such as SDP? I did not attend their rallies, but I read somewhere that they professed to be Libertarians… and Libertarians are supposed to be opposing MW mainly.
@Tan Ah Beng, you are right that in a recession, there should be downward pressure on prices. But nowadays, prices are determined a lot by international activity in food and commodity. Even in Singapore (without a MW), inflation jumped from 2.1% to 6.6% from 2007-2008.
You are right that it is political suicide to cut the level of MW – but politicians have found ways around this in an economic crisis. Holding the MW constant when inflation is at 4% is equivalent to cutting the MW by 4% in real terms. This would mitigate some of the effects of a “too high” MW during a crisis.
Tan Ah Beng, 2 June 2011
read my earlier post again, then answer my question on MW. its unfortunate you have read selectively.
please explain why you use the expression of throwing a cockroach into the soup.
you cannot even defend your earlier views that MW will lead to automation replacing human staff. ATMs’s proliferation are not a result of MW.
@Tan Ah Beng, the SDP is very clear in their support of a MW. This was one of the reasons why Tan Jee Say – a very qualified economist himself – decided to join the SDP.
@Gordon Lee
OK.. thanks for the update regarding SDP’s position.
I’ve also found out WP’s position on their website:
“I would like to state that the Workers’ Party is not advocating the introduction of a minimum wage at this point of time. It would be preferred if our workers can command good wages by being competitive internationally and doing higher value work. However, if our low wage workers are still not uplifted despite the efforts of productivity growth and CET, minimum wages may have to be considered.”
I like their position… more inline with mine…. :)
@mice is nice
I did not read selectively, but only answered selectively… :)
I got more questions from the comments than Gordon… :P With limited bandwidth I try to answer as many as possible.
Now back to your questions:
“please explain why you use the expression of throwing a cockroach into the soup.”
This was in response to your comment:
“i can buy the most premium ingredients but someone who doesn’t have the flare for cooking will not whip up gourmet meal on the 1st try. but conversely, a passionate cook can turn average ingedients to a delectable meal.”
My point was that MW is not a premium ingredient or even an average ingredient, it is like a poison. So once you add MW into the ingredient list, whether you have a lousy cook or a passionate cook, the dish is UNEDIBLE. (fortunately both PAP and WP are quite in sync on this.. and I leave it to individual judgement on which of the two is the good cook and which is the one without flair for cooking).
Now… on to your second question/comment:
“you cannot even defend your earlier views that MW will lead to automation replacing human staff. ATMs’s proliferation are not a result of MW.”
Now, lets go back to first principle. Why do companies automate? First and foremost is to REDUCE COSTS. So it is only NORMAL that you see more and more automation and ATM. They automate those things that give them the biggest savings… you agree with this so far?
Now, if MW is implemented and if one of their cost (salary) is now a BIG part of their total costs, then what would they do?
The first thing that they will look at is how to reduce the salary cost. They will then do things like job enlargement and of course do job redundancy if possible (ever heard of RETRENCHMENT?) Another way is to automate EVEN MORE so as to reduce headcount costs. Why now we have all automated parking system instead of a cashier collecting at the exit? to reduce headcount cost. Why do we have self-service payment counters in some supermarkets? To reduce headcount costs. If MW is set at a level which makes money sense to automate certain jobs, then it will be done! and those jobs will be gone or significantly reduced.
Hope you are still following this, and let me know which part you disagree with.
Another general comment which I like to highlight.
Many times, people like to leave comments like:
“If Singapore has a First World economy and the world’s highest per capita reserves, why are old ladies still pushing pitiful carts to collect trashed cardboard in the streets of Singapore?”
I like to state the with MW, more will be pushing carts than now. Because there will be less low-paying jobs available. And for the poor ladies pushing carts, MW will DO NOTHING for them as they are not an employee to start with. In fact, it may make their lives more miserable as more who are unemployed will compete with them to collect cardboards.
Be careful what you wish for, it may just come true… with effects you did not intended.
Tan ah Beng,
its your personal opinion that MW is like poison. personal opinion is subjective.
you have mentioned earlier that the negative result of implementing MW will result in lose of jobs. of coffee auntie losing jobs only to have coffee machines in her place.
now you take on a different position & say savings for companies is the reason for automation. so what is your position really? lol…
if S’pore has such a high per capita reserves & more people are pushing carts & collecting empty tin cans, then the state is bankrupting the nation in the long run.
spillover competition is already being felt among cab drivers, sales staff & other industies that out of job PMETs are re-employed to. MW has nothing to do with it. its a bogeymen that you cannot get out of your mind.
“Be careful what you wish for, it may just come true… with effects you did not intended.”
if there are negative effects, i can safely say that it the person or team of people who screw up. just as our dear leaders wish for annual record breaking GDP growth while ignoring the negative social consequences? unless they actually intended lah (& cant be bothered as it does not affect them)…
@ Tan Ah Beng
Your claim that “with MW, more will be pushing carts than now. Because there will be less low-paying jobs available” is a non-sequitur, which is a logical fallacy in which the conclusion does not follow from the premises.
This is because in Australia, which, like Singapore, has a First World economy and the same per capita GDP but much less per capita reserves, and has a very high MW at Aust$14.00 an hour (S$18.00/hr), there are no old ladies pushing carts in the streets of Sydney. Why only in Singapore and in other Third World cities in Asia?
“And for the poor ladies pushing carts, MW will DO NOTHING for them as they are not an employee to start with.”
This is a no brainer, as many of the old ladies pushing carts are over 80 years old and no company will employ them even when there is no MW in Singapore.
“In fact, it may make their lives more miserable as more who are unemployed will compete with them to collect cardboards”
Not true. In China and Australia, which have MW, there is full employment. You are laboring under the false assumption that the MW will be set so high in Spore that there will be mass unemployment and low-skilled workers will be out of work.
You have missed Gordon Lee’s point that its best to start off a MODEST MW that will not cause job destruction.
Also the Govt can scale down the number of FWs who compete with low-skilled Singaporeans who can then be paid a sum plus the levy that employers normally pay to the Govt.
Look at the total salary package of a foreign maid. Typically, her ‘take home pay’ is about $400 and a levy of $200 is paid the Govt. The board and lodging and doctor’s bills and medication provided to her would cost the employer at least $1000.
The total pay package in therefore about $1,600 a month. That is now the DE FACTO Minimum Wage for a foreign maid. Tell me why is there still a big demand for foreign maids in Singapore?
“Be careful what you wish for, it may just come true… with effects you did not intended.”
Old ladies pushing carts in the streets have absolutely nothing whatsoever to do with MW and more to do the breach of the Maintenance of Parents Act. This enables any parent domiciled and resident in Singapore, who is of or above 60 years of age and who is unable to maintain himself/herself adequately to apply to the Tribunal for an order that one or more of his children pay him/her a monthly allowance.
They push carts because they either have no children or relations to support them or if they do have children they have been abandoned their children
But this is easily solved if there is a political will. After examining their financial situations and if they really have no other means of support then they can be pensioned off with an ex-gratia payment every month, a sum which is more that what they can managed to eke out in the streets.
Lets do the maths. If there are say 2000 such old ladies in the street and the pension is say $500 a month, the total cost amounts to only $1.million which is small beer for Singapore which has the world’s highest per capita reserves and $1 million is only equivalent to the COE of only 25 cars.
If there is a will, there is always a way.
@mice is nice
“its your personal opinion that MW is like poison. personal opinion is subjective”
Of course it’s my personal opinion, do you mean to say that what you wrote was NOT your personal opinion? Are you trying to say that your opinion is Divine opinion? Your opinion is Gospel truth?
I disagree with MW, that’s my opinion and stand to be counted. I am ready to defend my opinion, just like Gordon was defending his opinion (and his nice charts) ;)
You are not discussing MW but merely criticising the ruling party’s faults. This should logically move to Temasek Review for further enhancement or something.
I shall not answer anymore non-MW specific questions/criticism. You can find better avenue to vent your frustrations with your ELECTED government. BTW even LTK is not pushing for MW in the near future.
Tan Ah Beng,
what i post is my personal opinion, but i post as objectively as i could, unlike you.
you disagree with MW, but have failed to defend your own opinion. you do not have a very strong stand on this issue, judging by the way you shifted on your stand. maybe you will shift & agree that MW, who knows?
what is wrong with criticising the ruling party when they fall short of standards? are they your Gospel Truths? your Divine Rulers?
frustrations? i will leave it to other posters to form their own opinion who is the one venting frustrations.
:p
@Get Our Priorities Right
“This is because in Australia, which, like Singapore, has a First World economy and the same per capita GDP but much less per capita reserves, and has a very high MW at Aust$14.00 an hour (S$18.00/hr), there are no old ladies pushing carts in the streets of Sydney. Why only in Singapore and in other Third World cities in Asia?”
Just because there’s no old ladies pushing cart in Sydney doesn’t mean there is NO poverty there. Poverty shows up in different forms in different countries. Just check out this article in Sydney Morning Herald in Jan 2011.
http://www.smh.com.au/opinion/society-and-culture/no-lies-no-inventions–poverty-in-australia-is-awfully-real-20110127-1a6yy.html
“You have missed Gordon Lee’s point that its best to start off a MODEST MW that will not cause job destruction”
I did not miss his point on MODEST MW. I think you missed my point that MW is like drugs, the first puff is free. A modest MW will be followed by increases after increases. When you realise it is pulling down the country’s economy, you CANNOT UNDO IT!!!!! the political cost will be so high for any political party to try to bring it back down.
Your other points on Maintenance of Parents act and giving pension to the old folks are also not related to MW. These topics should perhaps move to some other threads. Or you can find more receptive audience in TR.
@Tan Ah Beng,
One of the ways to address the problem of political cost is to have an independent commission recommend and review the level of MW. I am recommending this in one of the next articles, and this will be similar to the Low Pay Commission in the UK. I will also be saying about how this function could possibly be undertaken by the NWC in addition to its other roles.
The commission looks at all the evidence, and makes public recommendations as to what the MW should be. The political cost is paid if politicians decide not to heed the advice of this independent and expert commission which was tasked to review the MW.
@ Tan Ah Beng
“You are not discussing MW but merely criticising the ruling party’s faults. This should logically move to Temasek Review for further enhancement or something.”
I like this statement. :)
I dont know why many cite old ladies push cart collecting paperbox as example.
I personally know some old ladies (yes, some, not one) choose to do that not becos they are poor / no one supporting them. They want to continue working and they are even smart enough to wet the box to increase weight (Trade secret).
Why i know? Becos my mum collecting paper box too even i keep telling her not to. “Recycling is good for everyone” she said
@ Tan Ah Beng.
I did not say that there is no poverty in Australia. Poverty is worldwide, tragic phenomena.
I said “there are no old ladies pushing carts in the streets of Sydney. Why only in Singapore and in other Third World cities in Asia?” Can you answer that please?
The article claimed that Harry received a welfare cheque of Aust$292 a week or A$15184 a year (Sing$19891).
Do the maths. The mw wage is A$14 an hr. An 8 hr day per 5 day week job will pay the unskilled Australian work A$560 a week or A$29,120 a yr (Sing$38,147).
If Harry gets a welfare cheque every week, which is more than HALF of the unskilled worker’s pay for doing bugger all, how on earth can he be classified as one of the poor folks in Australia?
If the old ladies in Singapore gets a pension of Sing $115 a week to get off the streets of Singapore that will cost the garmen only A$88 a week each or only 30% of what Harry gets for doing bugger all. Why is this is so difficult to achieve?
When are we going to start to be more caring to the aged when we have, by far, about the highest per capita reserves in the UNIVERSE and when the PM says that he intends to build a Singapore “that excites the young and respect the old”?
The stock answer is oh, our reserves are sacrosanct and are accrued for the rainy day in the future. Hey, someone better tell the MIW that these old ladies fell through the holes in the non-existent safety net and are now caught in the middle of a storm.
If a person is willing to get up at 8am and then go to work for 8 hrs a day in a McDonald’s fast food joint in Sydney or Melbourne he he/she will be paid about a MW wage of about Sing$38,147 a year or about 366% MORE than the Sing$10,400 a worker doing the same work at McDonald’s in Singapore and yet there is almost full employment in OZ.
Why such a huge discrepancy in pay for the same work? Answer that please.
The article also claimed that 11% of the Oz population is living under the poverty line. What it did not disclose was that most of the poor folks in OZ are the Aborigines.
According to the Australian Senate 2004 report on poverty and financial hardship “Although poverty in Australia is evident among all ethnic groups, it is Indigenous Australians who appear most profoundly affected by poverty. Research has shown, over the past thirty years since the Henderson Inquiry into poverty, that Indigenous Australians are significantly worse off than non-Indigenous Australians.”
But according to Prof H Greenway of the NUS in 2007, in Singapore “There are many non-workers, particularly the ageing poor. So between a fifth and a quarter of the population may be classified as suffering from relative poverty.” Why such a high figure?
As for your suggestion that posters who disagree with you should move to TRE I am sure the Editor at TOC will not be so sanguine if you are chasing readers to a competitive website.
Why not let the Moderator do his/her job?
Gentle Reminder
http://theonlinecitizen.com/2011/06/reminder-toc-moderation-policy/
TOC Moderation Policy
The Online Citizen reserves the right to moderate, edit, disallow, remove or delete comments or postings posted on this website which, in TOC’s sole discretion, are deemed to be inappropriate or are of the following nature:
- Comments which have nothing to do with the issue/s or the articles under which the comments are posted.
@Tan Ah Beng
Why don’t you let the Moderator do his/her job and get on with your rebuttals or have you run out of ideas and are now clutching at straws?
The other argument you sprouted was that “MW is like drugs, the first puff is free. A modest MW will be followed by increases after increases.”
Well the de facto foreign maid’s MW is about $1600 and has been for sometime. Why is that there is still a big demand for foreign maids in Singapore?
Also since cars in Singapore are the MOST expensive in the world why is that there is a long queue to buy more and why is that car showrooms have not shut down and car salesmen not gone down the tube?
Our 5-room HDB is more expensive that an apartment in Melbourne. Why is that we have not had a real estate meltdown yet? A GCB in Bt Timah can set one back by $36 million for your info.
Why is that we have most expensive cars and houses and the highest per capita reserves and highest paid ministers in the world and yet we have a Third World salary for the bottom 25% of our work force and old ladies pushing carts?
That is a paradox that seems to have escaped you, I see.
Gordon Lee, 4 June 2011
will there ever be a commission that is independant of the ruling party? i would dread to image a figure that is arrived that will only put people at subsistance level & be told to be greatful (vis-a-vis other countries), et el…
@mice is nice, I am optimistic that it is possible.
If the PAP were to say that a MW will be “politicised”, then it would make sense for them to create a commission which is independent of politics to recommend the right level of MW.
Even if the commission is not truly independent, or ‘tripartite’ as the NWC is, it does not really matter because the PAP cannot complain that the MW is politicised – since the commission is either independent (and hence preventing politicisation in the first place); or not independent (in which case, the PAP will just have to accept the blame for politicising it).
Economist Thomas Sowell has argued that regardless of law and regulation, the real minimum wage is always zero, and zero is what some people would receive if they fail to find jobs when they try to enter the workforce, or they lose the jobs they already have in some countries. Even in the first-world United States when unemployment rate was high some young adults would walk the streets of New York City with signs that said “I will work for 3 meals a day”!! We all know that Americans are entitled to unemployment benefits so the people who advertised themselves for zero wage employment in this instant were temporarily seeking work for food to supplement their unemployment benefits, they did not belong to the minimum wage group of the United States.
Zero wage scenario is an extreme form of labour situation in a low-wage society and it is found mostly in under-developed countries where population is large (hence the limitless labour supply), poverty is widespread (job scarce) and labour law is lacking. It is a scenario in which the unscrupulous employers take advantage of the poor and the weak from the lowest rung of the employment ladder. In fact, some of these extremely low wage jobs cannot be strictly classified as unskilled.
More than 90% of the countries in the world, China and Russia included, have implemented minimum wage law according to their respective standard of living.
Introductory mainstream economics textbooks imply that by mandating a price floor above the equilibrium wage, minimum wage laws should cause unemployment. This is because a greater number of workers are willing to work at the higher wage while a smaller numbers of jobs will be available at the higher wage. Companies can be more selective in those whom they employ thus the least skilled and least experienced will typically be excluded.
These textbooks explain that a higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market. Some workers, most likely those of whom previous wages were closest to the minimum, will enjoy higher wages. Others, particularly those with the lowest pre-legislation wage rates, will be unable to find work because companies will cut back on employment, they will be pushed into the ranks of the unemployed or out of the labor force.
So, why more than 90% of all countries in the world have adopted minimum wage policies?
The reason being that in reality, labour market and economic factors affecting wages are far more complicated than what the basic text books have theorized. The minimum wage issue is still an ongoing debate between the pro and anti camp of economists. However, the pro minimum wage economists are winning the debate based on results of numerous case studies carried out in the past 10 years.
Since the introduction of a national minimum wage in the UK in 1999, its effects on employment were subject to extensive research and observation by the Low Pay Commission. The Low Pay Commission found that, rather than make the low pay employees redundant, employers have overcome the problem by imposing marginal price increases, causing current low pay workers to be more productive (especially service companies). Some businesses even can afford to offset the marginal increase in labour cost against profits for tax reduction.
Take the best example of McDonalds in Singapore and Sydney. Both countries have approximately same value currencies, business rentals in both cities are fairly comparable. A typical meal in Singapore is priced about the same as that in Sydney. McDonald Sydney pays its staff A$18.00 per hour whereas the Singapore outlet “enjoys” a low labour cost of S$5.00 per hour. Will McDonald Singapore have to close shop if a minimum wage is set at S$6 or even S$8.00 per hour? The answer is definitely no, because the higher labour cost is tax deductable. For all the existing works needed to be done at the outlets, McDonald Singapore would not retrench its work force, especially the lowest pay workers just to save the marginal increase in labour cost. In fact, a little hamburger taste innovation and promotion to drive up the sales is more than enough to offset the increase in minimum wage.
We all know that McDonalds Singapore enjoy far higher business volume and revenue than the ones in Sydney, both outlets are profitable and paying tax, BUT the Singapore outlet is far more profitable and naturally pay much higher tax to the IRAS. This is a classic example of how little effect would the minimum wage have on the unskilled labour market in service oriented businesses.
The percentage of low pay unskilled labour cost in the manufacture industries is even more insignificant because nowadays the bulk of manufacturing jobs are skilled, which falls out of the minimum wage range.
Businesses who claim that they would have to shut down because of minimum wage are businesses that are already on the border line of viability. Government who still refuse to implement minimum wage is because they lack a thorough understanding of minimum wage.
Although strongly opposed by both the business community and the Conservative Party when introduced in 1999, the minimum wage introduced in the UK is no longer controversial and the Conservatives reversed their opposition in 2000. A review of its effects found no discernible impact on employment level, in fact it has improved productivity marginally. Trade unions and employer organizations no longer contest the minimum wage law in UK.
Our uncontrolled open door labour policies have irreparably upset the natural balance of the supply and demand in our labour market. It has allowed an endless supply of labour in a job market that is limited in size and opportunities, this problem has already spilled beyond the low pay group into the semi-skilled, skilled, managerial, graduate and the professional categories. This is why our current starting pay for our graduates is still about the same as it was 15 years ago. UNLIMITED SUPPLY OF EMPLOYEES!!
Has our government ever consider the career and income paths of our younger generation? It is very dangerous to allow this labour supply trend to continue because the labour supply curve will be shifting against the demand for labour curve with intersecting point wage level constantly shifting downward and towards a minimum wage situation over a period of time relative to the wage level in other developed countries. Such would be a crisis situation.
To refuse implementation of even a modest minimum wage policy for our low pay and some over 55 years old Singaporeans is a denial of their basic dignity. Adoption of minimum wage is not a step towards a welfare state.
The flippant remark of “cheaper, faster and better” is abominable!! I am bilingual and bicultural and I have been brought up to believe firmly in the Chinese proverb that says: Good things never come cheap and cheap things are rarely good. There is this value of quality work for a good price that we must cultivate as a nation and a people. Being cheap is, just being CHEAP! It is not a word of complement! It certainly cannot be “better”.
And may I humbly ask the Minister can he accomplish a satisfactory task, carry out a policy and complete an important mission in a very short time, ie. being “faster”? A good and balance labour policy had not been accomplished in the past five years!!
Gordon Lee,
if such a commission is formed, we’ll just have to keep our fingers crossed.
i’ll be prodding along till then…
-.-”
@Ethen Jin-Chew, thank you for your very lengthy and detailed comment. I read it with great delight, because you very excellently summed up what I said in my 2 articles (and many comments) so far; the sentiments of an increasing number of Singaporeans; and so much more!
It’s a pleasure, Gordon.
@Ethen Jin-Chew
The simplistic comparison between Australia’s pay vs Singapore’s pay does not reflect the reality.
You cannot simply compare ABSOLUTE pay… did you factor in PPP? the different income tax rate? the difference in GST? the difference in other costs (e.g. rental, WATER, ELECTRICITY, and the BEEF in the burger)?
BEEF is MUCH CHEAPPPPPER in australia…
Would love to post a more lengthy reply to your post… but am busy packing my bags for my flight later to…ahem.. Australia.. :)
Will post when I get the bandwidth.
Hi Gordon, sorry for being late in posting. It is hard to find time nowadays.
Costs of Production: I agree that implementing a MW will have minimal impact on business and the economy as a whole. It is also the most efficient way to help employees of large conglomerates like NTUC and Macs. Only business that are not very profitable and employ low-skilled workers predominantly will be affected. My worry is that in response, such business will just upgarde and NOT employ these workers by upping productivity with technology or better qualified employees. Of course if we are talking about the FWs, well it is not Singapore’s responsibility to keep them employed. But there are many Ah Mah’s and Ah Gongs, or partially handicapped that might get affected. Gov always preach on upgarding but realistically some of them really has nothing more to offer. If MW is implemented, a study needs to be done to see how is the best way to ensure that this group continues to get employment. Again, this group is just a small portion of the economy, namely cleaners etc. Our much maligned high tech labor intensive manufacturing sector will hardly feel anything.
Inflation: I agree that with MW it ensures that the lower paid employees will enjoy higher purchasing power. It is the unemployed that suffers.
Productivity: I am actually not sure what exactly is “productivity”. I think the Gov has done a horrible job in communicating this idea across. Ask any white collered Singaporean and they will say they are certainly paid less than their Ang Moh counterparts but they can get more things done. Isn’t that productivity? That being said, MW will help only the lower income earners not the posters and blogger here.
“There is this value of quality work for a good price that we must cultivate as a nation and a people.” …Ethen Jin-Chew
Well said. If we don’t cultivate this paradigm in Singapore where the salutary pledge is “one people, one nation” then it is no longer a pledge. It is just ‘sanctimonious hypocrisy’.
Here are ‘The Ten Great Contradictions of Singapore’:
1 If our per capita GDP is about $55,000 why are old men washing public toilets and old ladies pushing carts in the streets?
2 We may have the highest per capita reserves in the world but why is that our govt spending was as low as Myanmar and Bangladesh based on percentage of GDP in 2010?
3 If the politicians’ salaries should be pegged to the private sector then why has this led to a grotesque mismatch with the rest of the world leaders’ salaries?
4 If Singapore has a Swiss standard of living why are people so full of resentment and in the 2006 country by country comparison on ‘Satisfaction with life’ why is that Singapore scored below Malaysia, Kuwait and Panama?
5 We are told that ouu system of govt is based on the Westminster model but there are no GRCs in the Westminster model. It is all based on SMCs in the UK.
6 We are constantly reminded that our country’s ethos is based on Meritocracy but the GRC is not based on Meritocracy. It is based on Affirmative Action.
7 If Singaporeans are not reproducing themselves due to a very low birth rate why allow abortions so freely when the mother’s safety is not in jeopardy?
8 If inflation is 4.6% (loss of purchasing power) why are banks paying savers 0,08% and why is the CPF paying members only 2.5% in the Ordinary A/c?
9 There are still traffic jams so why are cars here FOUR times more expensive than in Japan, when we have a laissez faire, free market system but the only peacetime car QUOTA system in the world, called the COE in place?
10 If our education system is so great why is Singapore known as the ‘tuition capital’ of the world and why is that there are not enough qualified people to have a two party system in Singapore?