The Case for Implementing a Minimum Wage in Singapore

The idea of minimum wage in Singapore is a pretty controversial one.

At present, the government does not prescribe a minimum wage in Singapore. Instead, they prefer to leave wages to the free market. Only three sectors have some form of minimum wage under the Progressive Wage Model: Cleaning, Security and Landscaping.

However, there are still around 30,000 workers in Singapore who continue to earn less than $1000 a month in Singapore in other industries such as F&B, retail, hospitality and logistics. The low salaries in these sectors are attributed to the over-reliance on foreign workers for cheap labour.

I personally believe that there needs to be a minimum wage of at least $1000 applied across all industries to ensure that all Singaporeans can earn a decent living wage.

In this entry, I would address some common objections by my Singaporean peers about extending the minimum wage across all sectors.

 

1)  Minimum wage will cause low-wage workers to lose their jobs

The most common objection against minimum wage in Singapore is that workers will lose their jobs, hurting the workers that minimum wage is designed to help. That is what we’ve learnt in Economics at A levels and many Singaporeans youths have continued to regurgitate this textbook answer when being asked about this topic.

Looking at our present situation in Singapore,  higher unemployment rates caused by minimum wage is unlikely. Currently, due to the tightening the quota for Work Permit and S-Pass holders, many firms are already struggling to find Singaporeans to fill these low-wage jobs. By raising wages, we can help fill this gap by attracting more Singaporeans to fill these positions.

As Associate Professor at the NUS Lee Kuan Yew School of Public Policy, Hui Weng Tat explains this in his paper “Economic growth and inequality in Singapore: The case for a minimum wage“:

Minimum Wage in Singapore

The influx of low-wage foreigner workers will depress the equilibrium wage from, say, S$7 to S$5. This will increase overall employment to E2. Due to lower wages, some locals will prefer to exit the market, causing employment of locals to fall from E* to E1. The “shortage” of workers (E1E2) at the lower wage of $5 is made up by the import of foreign workers.

However, if a minimum wage were to be pegged at S$6, some businesses that are overly depended on cheap foreign labour might scale down or close. Total employment would fall from E2 to E4. At the same time, some locals who previously chose not to work at a lower wage would be enticed back to work, increasing local employment back to E3.

 

While some have raised concerns about how the minimum wage in Singapore would eventually become maximum wage, this is not the case. 

Firstly, while this argument could have some traction in a labour surplus economy, it is unlikely to happen in Singapore’s context. Due to our tight labour market, Singapore enjoys almost full employment, would ensure that good workers with desirable skills and abilities were paid over and above the minimum wage.

Hui also adds that “if it is true that employers would not go beyond the minimum wage, were such a system to be introduced, then there is no reason to expect them to behave any differently where there is no minimum wage system. In such circumstances, training and skills upgrading would also be ineffective in raising workers’ incomes”

 

2) Minimum wage will cause Singapore to lose her competitiveness

One of the most common arguments against minimum wage in Singapore goes along the lines of what we learnt in social studies in secondary school (at least for my generation):

“We are not a resource rich state like Scandinavia or Australia. Our country is small, with no natural resources. We survive because of our competitive edge. Minimum Wage will erode that competitiveness! We simply cannot afford to have minimum wage and still survive especially when our Southeast Asian neighbor China and India have so much workers who are willing to work for a cheaper rate.”

The question is: Can a developed nation like Singapore with a much higher cost of living really compete with a developing country in terms of wages? For instance, the average monthly wages in Philippines and Vietnam is US$280 and US$145 respectively, do Singaporeans really want to compete with that given our high cost of living?

Let’s be realistic. Singapore is both an expensive country to live and to do business in. If companies cannot even afford to pay $1000 a month to an employee, how do they expect the employees to survive? With Singapore being such an expensive country to live in, a company that is so stingy and unproductive and cannot afford to pay the minimum wage of $1000 a month should not operate within it.

In my personal view, the ability to provide ‘cheap labour’ should not be a USP for Singapore. Singapore should instead focus on attracting more high value investments. Why support a business which is so unproductive that it cannot even afford to pay the minimum wage without going bust? If foreign investors wish to leave Singapore because they think our labour is too expensive, then let them go.

Quoting a really apt analogy by Toh Han Shih who has reported extensively on business and economics in Asia:

One hundred years ago, Singapore was an important global pineapple caning hub. Today, there are no such factories in Singapore. If Singaporean workers were told to accept low wages for fear that such factories would leave Singapore, we will still be canning pineapples for a pittance today.

 

3) Having a Minimum Wage in Singapore discourages the poor from being productive

Some believe that minimum wage in Singapore would result in low-wage workers having less incentive to improve themselves. This conclusion is partly due to their beliefs that people are poor because they did not work hard.

However, several scientific studies have proved otherwise by demonstrating how poverty forces people to live in a permanent now. Being poor hurts one’s ability to make decisions about school, finances, and life, imposing a mental burden similar to losing 13 IQ points. It can also impair one’s ability to think long term, limiting how much they are willing to invest in the future.

Even without scientific studies to support this, it seems intuitive that if people can’t even have enough money to support their own family, how would they even be able to focus on upskilling and learning new things. Isn’t this basic Maslow hierarchy of needs?

On top of that, having a minimum wage can also improve the problem of low productivity. For years, the over-reliance on cheap and low-skilled foreign labour has led to Singaporean companies investing less in automation and in raising the skills or technology content of their operations.

By raising the salaries of low wage workers, it would not only incentivize local firms to innovate and rely less on grants and subsidies. It would also boost the morale of workers, who would consider themselves to be treated more fairly by their employers. It is therefore “win-win” for workers, employers and the economy.

It would also encourage employers to train their workers. As Professor Hui explained,

“Without a minimum wage, employers may not bother to train their low-wage workers, despite available opportunities. If a minimum wage system were to be introduced, however, it would motivate employers to seek to improve workers’ skills and productivity in line with the higher wages paid, and thus increase the demand for training. A minimum wage could therefore provide the necessary impetus for the start of a positive, ongoing cycle of skills upgrading and wage increases, enabling workers to reach their full potential.”

A minimum wage will not come in at a sum of $2000/month. If so, the argument that it destroys any incentive for self-improvement and upgrades contributing to productivity improvements, would be valid.

What a minimum wage in Singapore does is that it simply ensures that the working class in society has enough every month for basic, simple, dignified living, not having to resort to means where parents have to settle for rice gruel such that their children can have their share of the fish.

Currently, the workers engaged in the least desirable jobs in society are also the lowest paid. Shouldn’t there be some basic economic principle of supply and demand, where we pay a slightly more respectable wage for a job where so few Singaporeans are willing to take up? Or are we, as a modern, civilised, educated population simply going to turn a blind eye to this exploitation hiding behind the guise of a few hundred dollars a month?

 

4) Minimum wage is a decision which should be left to businesses

Many people believe that wages should be left entirely to the free market as they believe in it to be the most efficient system. In their ideal world, they also believe that moral suasion and good will is simply sufficient.

However, this has not proved to be workable in Singapore. Since the Progressive Wage Model was introduced in June 2012, only 20 percent of unionized companies under the labour movement (270 companies) have come onboard, falling short of the end-2015 target to have at least one in two companies adopting some form of progressive wages.

On top of that, only 18 per cent of companies followed National Wage Council recommendations in giving their low-wage workers a pay rise of at least $60 last year.

This is due to the fact that in Singapore there is often an imbalance of bargaining power between workers and employers. Factors which contribute to this include overcrowding at the low-skill end of the labour market (as explained above); lack of access to collective bargaining and lack of unemployment benefits and welfare payments.

With the imbalance of bargaining power, competition at the bottom of the wage distribution can force workers to accept very low wages, unattractive terms and poor conditions of employment.

“However, is it not true that the market is not infallible? Is it not true that, when there is a market failure, the state should intervene in order to make the world a fairer one?” – Professor Tommy Koh

If you’re interested in more information about the wage stagnation in Singapore, you can check out the recent viral presentation by former Chief Economist of GIC Lam Keong Yeoh, he shared about the “new globalized inequality” that he believed would be applicable to any country which globalization touches, including Singapore (watch from 9:17 onwards).

 

5) Having a Minimum wage in Singapore will increase our cost of living

Finally, one of the most common objections I’ve heard is that having a minimum wage for Singaporeans would result in an increase in the cost of living as higher business costs gets passed on to the consumers.

This is definitely valid if the minimum wage in Singapore is set extremely high i.e. $3000 a month. I definitely do agree in such a scenario, retailers might raise the cost of their goods to compensate for the higher wage bill. However, the proposed level for a minimum wage in Singapore is pretty modest at $1000/month and should not have any significant impact on the cost of living.

Furthermore, even without a legislated minimum wage, the cost of living is already increasing such as the recent water price hike and electricity tariff hike. Is it fair then that there are still families who are working hard, putting in the hours but do not have enough to cope with this change?

According to the government’s Household Expenditure Survey, the average monthly household expenditure for the poorest 20% of households is $2,230. This means that even if both parents in a household are working but earning less than $1,000, it is still not enough to cover their expenses.

If people are willing to work full-time to support their families and themselves, then shouldn’t they be paid fairly? The minimum wage exists to ensure these workers do not get exploited by their employers.

 

 

As highlighted in the beginning of this entry, I cannot speak for other countries. However, I do feel that in the context of the Singapore labour market provides a strong case for the introduction of a statutory minimum wage of $1000.

Of course, it would not be a silver bullet for all the problems faced by low wage workers. However, I feel that having a minimum wage in Singapore could be a nice complement to the existing Workfare Income Supplement (WIS) scheme. A worker on the minimum wage should still continue receiving Workfare so that they can have more disposable income to spend on their daily needs. This would ensure that both taxpayers and employers share the responsibility of increasing the incomes of our low wage workers.

The minimum wage would bring about many benefits such as lowering the dependence on low wage foreign labour and also increase productivity, ensuring the long term growth of our economy. Our neighbouring countries will not be developing nations forever and that would also spell the end to our cheap supply of labourers for jobs undesirable.

What should and is already being done, is to pressure corporations to automate and to shift their focus on worker productivity to generate new surplus value to fund the implementation of the minimum wage. Having legislation will ensure that workers will get their fair share of this surplus from productivity instead of having it all go into the pockets of the business owners.

If you agree with my points above, do like and share this link with your peers. Please also do not hesitate to reach out if you have any questions or comments. I would do my best to address them.

 

Can a developed nation like Singapore with a much higher cost of living really compete with a developing country in…

Posted by Jeraldine Phneah on Saturday, 15 April 2017

 

 

 

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I write regularly on current affairs, travel and personal development. To find out more about me, check out my profile and follow me on Facebook, Instagram and Quora:

 

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