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The government’s knee-jerk reaction to wage proposals

~ By Gordon Lee ~

Last week, Professor Lim Chong Yah gave a public lecture in which he proposed a 50% rise in income for workers earning under $1500 a month - 15% in each of the first two years, and 20% in the 3rd year.1

Almost automatically, members of the Government lined up to offer their generous criticisms...
11 Apr - Mr Inderjit Singh MP 2
14 Apr - NTUC chief and Minister (without portfolio?) Mr Swee Say MP 3
14 Apr - Trade minister Mr Teo Ser Luck MP 4
15 Apr - Transport minister Mr Lui Tuck Yew MP 5

By so doing, the Government have thus unwittingly admitted that the economy they crafted is hopelessly addicted to the opium of cheap labour and supported by swathes of workers who are paid less than $1,500 per month.

Over the years, this Government has squeezed low-wage workers as part of a relentless pursuit of their growth-at-all-costs policy which has also led to Singaporeans working the longest hours in the world6, robbed of their heritage (think National Library and Bukit Brown), and denied basic welfare provisions.

And when the Government could suppress wages no longer, they decided to brand Singaporeans as being “too choosy”7 8, and from the late 1990s, the immigration floodgates were thrown open to foreign labour to solve a labour problem the Government created. The UN reported in 2008 that Singapore has the highest migration rate in the world!9 And one does not need a labour economist in order to know what effect a massive growth in labour supply has on wages across the economy.

Runaway Immigration Policy

I am not against immigration, but I am against a runaway immigration policy that now sees 37% of the population being non-Singaporeans.10 And of the foreign labour population (27% of the population who are neither SIngaporeans nor Permanent Residents), 98.3% do not even earn enough to have to pay income tax!11

Prof Lim speaks from a position of great economic experience12, and one cannot help but wonder how credible these knee-jerk criticisms really are. Of course, it has been deeply unhelpful that his proposals are being called a “wage shock” instead of a “wage stimulus” - a terminological (and some might say terminal) godsend for the fear-mongering of this Government.

A 50% pay increase of someone earning $1000 a month will bring that to merely $1500 after three years. If a business cannot afford to pay workers more than $1500 a month, should the Government really be subsidising these businesses through securing for them cheap labour, and co-paying through their WIS bailout fund? And as Prof Lim has clarified in his press statement, his policy is designed to correct the underpayment of Singapore’s labourers, and not (as the Government would have you believe) to overpay them.13

In fact, many of the arguments put forth by Prof Hui Weng Tat of the LKY School of Public Policy two years ago with regards to minimum wage apply here as well. I reproduce some of his arguments:14

Detractors... 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.

it will raise the incentive to work among the lower-skilled

boost wages and morale...

a large foreign worker population generates significant negative externalities

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.

The last quote shows that higher wages can actually boost productivity. Perhaps one of the reasons why productivity growth has slowed in Singapore is because wages remained stagnant, and low productivity growth is cited as a reason to keep those wages down.

Another research paper by the LKY School of Public Policy suggests that despite the major recent transformation of the world’s economy, “the current mechanics of measuring and improving productivity continues to follow” an outdated approach.15 The Government should hence rethink their policy of pegging wage growth to “productivity” growth.

Singapore certainly needs to pay for her way in the world, but it definitely does not need to be a haven for sweatshop businesses that cannot otherwise survive by paying globally-comparable and decent wages.

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