Reviving the Minimum Wage Debate (Part 4)

In Part 3 of a series of articles on the minimum wage,  Gordon Lee explores the limitations of the Workfare. In this last part of this series, he look at the ways in which a minimum wage is best implemented.

Level of minimum wage

The level of minimum wage should start off at a relatively low level to avoid any economic shocks, and also to maintain international competitiveness. Internationally, minimum wages are between 30-60% of full-time median earnings.

(click here for link. pg. 234)

Singapore’s median full-time hourly wage is $14.10 [1], which means that the hourly minimum wage should be set at between $4.23 (30%) and $8.46 (60%) – preferably erring on the side of safety as a start.

Those who benefit from a low $4.23 minimum wage will be those working in F&B, temporary staff, students doing part-time work, service staff, cleaners and labourers (≈$3.50-$4).

Minimum wage can be slowly increased over time to cover more workers, and at a pace that allows firms to respond to wage increases.

Sectors and workers

Sectors which are most affected by a minimum wage will be those which have a high proportion of low-paid staff, e.g. F&B and hospitality.

A uniform national minimum wage may also adversely affect the employment of young workers and workers who are older. As it is, employers are only willing to pay older workers less than younger workers (see below).

http://www.mom.gov.sg/Documents/statistics-publications/wages2009/2009Wages_OWS_Findings.pdf (pg. 55)

There is nothing to prevent a lower minimum wage to be set for more vulnerable sectors or groups of workers if needed. However, if a minimum wage is to be set at $4.23, there is probably little need for a different rate at this moment. Nevertheless, this option remains and can be used in the future if and when minimum wage is at a higher level.

This is nothing new, and UK has different minimum wages for different age groups:

– £5.93 for those aged 21 and over
– £4.92 for those aged 18 to 20
– £3.64 for those aged 16 to 17

Likewise, small firms may be slightly more affected by large-firms, so an option also exists to allow GST-exempt firms (smaller firms with <$1m turnover) to pay a lower minimum wage.

Domestic assistants (maids)

This is probably something which many Singaporeans with a maid might be concerned about. I think it is good that a minimum wage will give maids more defined working hours and also encourage employers to give their maids a day or two off – this gives more dignity in employment for maids by allowing them a fairer wage.

To deal with concerns over a rise in costs to families with maids, there are two main ways to go about this. The first is to set a lower minimum wage for maids.

The second option is to keep the minimum wage the same but allow employers to deduct off an amount from the wages of maids – this deduction being for the accommodation that is given to maids. This “accommodation offset” can be used across sectors, i.e. not just for maids but also for the hospitality and construction sector. In the UK, the accommodation offset is £4.61 per day.

Alternatively, a combination of the two options can be used – specifying a lower minimum wage for maids, and allowing employers to deduct an accommodation offset.

Administering the minimum wage

In order to study market conditions to make recommendations on any changes of the minimum wage in the future, there should be an official body to do so. In the UK, this is done through the Low Pay Commission.

In Singapore, either a separate independent body can be set up, or this role can be undertaken by the tripartite National Wages Council (NWC) which as it is, “takes into consideration factors such as productivity growth, employment situation, international competitiveness, and economic growth and prospects” before making recommendations through its wage guidelines. These guidelines issued by the NWC have nothing to do with a minimum wage (which Singapore does not currently have).

Recommendations for a minimum wage by the NWC or a separate body can then either be binding on the government to implement, or non-binding recommendations for the government to make binding decisions on – depending on the power invested in the body.

(My personal preference is for an independent body to make non-binding to the government. This would give the independent body more legitimacy and scope to study the evidence without political interference, and make transparent recommendations that is up to the government to accept or reject. Should the government reject recommendations, then there is some pressure on the government to explain its decision. This independence will also ensure consistency in recommendations, and prevent politically-motivated changes in minimum wage that are not grounded on evidence.)

Conclusion

Thus far, those supporting the implementation of a minimum wage tend to emphasise its social benefits, but neglect the economic argument. With these articles, I have tried to contribute to this debate by showing that there is a strong economic argument for a minimum wage. I hope this series of articles have given a more in depth understanding of the implications of minimum wage and also show that there is more to just simplistic arguments for or against minimum wage.

I admit that I do not have all the data or resources at hand to do a full study into a minimum wage and the many possible combinations when it comes to the details of a minimum wage. Nevertheless, I hope that I have shown that these possibilities exist. Given the wide public interest, I call for a full and public study to be done to determine the social and economic effects of a minimum wage, and how best to implement it to mitigate any negative effects, whilst supporting the positive effects.

My instinct tells me that on balance, a minimum wage policy will allow Singapore to better achieve its social and economic objectives (a fairer society and a healthier economy). Sadly, my instinct also tells me that politically, it is difficult for the government to do a U-turn on a minimum wage. However, I am optimistic that in time, the strength of the social and economic case; and the tide of public opinion will help nudge the government to finally say that “the time is right for a minimum wage”.